Re/insurance heads may want to take a closer look at major complex technical (MCT) claims, according to GRS International chief executive officer Adam Humphrey, as he highlighted statistics from multiple market data samples showing that losses in this area of the market are likely to constitute 85 percent of re/insurers’ claims indemnity spend.
By definition, MCT claims can depend on the size of the business, so COVID-19 business interruption losses could be classed as MCTs depending on their impact.
“By some measures some would categorise an MCT loss as in excess of 100,000 pounds or dollars or euros,” Humphrey said during an interview with Intelligentinsurer.com, the website and digital hub for news, interviews, analysis and debate. “Others would have slightly higher numbers associated with that.
“That value is a slightly blunt tool, in that any loss adjuster who’s been around for a while will tell you that sometimes the quantum values associated with a claim don’t necessarily reflect the complexity of the claim and the challenges involved in it.”
For example, one type of MCT loss can involve downstream energy claims, such as in an oil refinery. Humphrey said that you don’t need very much to go wrong in a downstream energy environment to have extensive damage.
“MCTs are a very significant issue. Roughly speaking MCT loss may constitute only 2 percent of the claims that hit the London Market or the international re/insurance market, but they’re likely to constitute somewhere in the region of 85 percent of re/insurers’ claims indemnity spend,” he explained.
“If those figures are anywhere near correct, and I believe they are, if I were the CEO of an insurer I’d be very focused on what’s driving the values associated with my claims indemnity spend in the MCT space and how to address that.”
Humphrey added that the flipside of these statistics is that if 98 percent of the claims that come in represent only around 15 percent of an insurer’s claims indemnity spend, then that represents the volume side of the business.
“Sometimes the quantum values associated with a claim don’t necessarily reflect the complexity of the claim.”
Adam Humphrey, GRS International
“I see so many initiatives driving efficiencies in the volume area of the business and that’s fine, it’s important to do, but ultimately the winners in that space are the parties that can do it the most efficiently. Solutions will be probably artificial intelligence-driven, process-driven and resolving things more quickly over time.”
He acknowledged that as an insurance company it’s easier to focus on this area because it’s more quantitative.
“You can drive key performance indicators around response times and settlement times, so in a way it’s easier to measure,” he said.
The real drivers
By contrast, some aspects of the MCT claims space are much more qualitative, making it “very difficult” to start unpicking what the real drivers are.
“If you don’t know what the drivers are, or you’re not sure, or you don’t have the data, then how can you really be putting in processes and tools to help on that side?
“Ultimately it may come down to the experience and professionalism of the staff that you have working in that space,” he said.
But he urged re/insurance CEOs to focus more on MCT, saying: “These are the types of losses that are keeping risk managers awake at night. It is the point at which insurance hits the tarmac and is there to deliver.”
The upside of delivering well on those types of claims is enormous for insurers, Humphrey added. In his experience of working through those types of challenging claims with insured parties, brokers and insurers, he found that those insured parties are “the most loyal clients going forward because they know that you were there when they needed you to step up”.
From an insurer’s perspective client retention is enormously improved by a positive MCT experience, he added. And as a market, having a greater handle on the 85 percent claims indemnity spend may well improve returns at both ends of an insurer, in terms of client retention and revenue and also at the back end in terms of what’s going out.
“At least part of the answer is to implement real project management disciplines.”
On what was driving costs going out, Humphrey said he thought claims leakage was “a very minor aspect of that”. He pointed to time taken to settlement as a big driver of costs.
“The research I’ve seen indicates very clearly that time to settlement is not necessarily driven by the quantum value of the claims. Once you get into the MCT space, whether it’s a five, ten or 100 million loss isn’t necessarily driving the time scale to settlement.”
So if the value of the claim is not driving the time to settlement, what can be done to address it?
Humphrey pointed to “dead time” as one potential cost driver. This is the time in a claim where none of the stakeholders knows who is doing what.
“It’s a lack of clarity around the project management of the claim,” he said. “Who is best placed to project manage the claim? Who is driving the outcomes?”
There is no simple answer, and even with the insured parties you could end up with multilayers of insureds on any particular project.
For Humphrey the answer boils down to how to incentivise all these different layers of people to work with the loss adjuster on an insurance claim.
“At least part of the answer is to implement real project management disciplines. For example, saying ‘if you as a team can give us A,B and C, you can expect D, E and F from us’. This is the incentive, and why you should be doing this.”
This is important because loss adjusters have to deliver the right, timely information to insurers to support their decision-making to help their clients, he said.
“It’s trying to get parties to buy into that project management process and the communication that entails,” Humphrey concluded.
To view the full interview visit: intelligentinsurer.com
Adam Humphrey is the chief executive officer of GRS International. He can be contacted at: ahumphrey@globalrisksolutions.com
Images, from top: Shutterstock / niroworld
