The property contents claim space has seen little-to-no investment as insurers have deployed investment dollars into the auto and property structural areas. This is surprising considering that the claim spend on both commercial and personal property contents rivals the amount spent on auto physical damage ($25B-$30B annually according to recent market research). The amount of attention and investment in these two areas of claims couldn't be more different.

The auto property segment of the industry has approximately 500,000 parts, each with unique and individual prices to track in readily available databases. No carrier would ever consider assigning adjusters to spend time looking up 23 items on the web for a typical auto claim. Why? Because accepted databases exist to handle this task.

The difference between auto and property claims becomes magnified when you consider the multitude of items inside insureds' homes and businesses. These contents represent hundred of millions of possible items. To consolidate all of this data in one place where it is current and accessible from a software application is an impossible and cost-prohibitive task. More importantly, the ability to find a true “like kind and quality” match has proven to be a very difficult problem for the industry to solve. A lack of data, overly aggressive adjuster workloads, and a process that is driven by public adjusters and insureds, also means that staff and independent adjusters don't have the time to check hundreds of prices that are submitted on things from sofas to DVDs to industrial machines.

The bottom-line impact of contents-related inefficiencies and leakage results in millions of dollars lost in the form of additional indemnity spend, increased LAE, and sub-optimal investment income due to over-reserving and reserves just sitting for several extra months.

Finding Your Way

An ever-increasing number of carriers have recognized this conundrum and are moving to improve their contents-handling approach. Service providers and software companies are flocking to the space, too, in an effort to help the industry conquer the contents frontier.

There are several different approaches being taken by carriers, and associated vendors:

• Leave-it-to-the-Insured
• Adjuster Do-It-Yourself (DIY)
• Internal Contents Units (ICU)
• Software Solutions
• Replacement Services
• Total Managed Solution
• Leave It to the Insured

Pass the paper form … or the ruled sheet and a pencil. “Keep a pad and paper on your nightstand in case you think of things while you can't sleep.” We've all heard that one! A paragon of customer service, isn't it? True enough, the policy states that the insured must provide proof of loss. But carriers and adjusters taking the “it's not our problem” approach are inviting problems ranging from extended file close times, inflated values, frustrated insureds, and difficult public adjusters.

Do It Yourself (DIY)

This method usually is driven by management who feels that adjusters should be intimately familiar with each and every piece of a claim, and that adjusters should be experts in every product category — or can at least find the expert in every category. They reason that adjusters have plenty of time to spend on tedious contents research, and that this research is an effective deployment of valuable adjuster resources. “This is what I pay my adjusters or my independent adjusters to do,” they say, “and that's how I did it back in the day, so that's how they'll do it today.” It is certainly true that adjusters are intelligent and talented people, but this is a tall order — especially considering all of the other aspects of multiple claims that they are managing.

The flaw in this approach is that finding the correct value is totally dependent on where the adjuster looks for the price. You may favor Froogle, I may favor Shopping.com, and yet a third adjuster may favor Amazon. In a recent study of core items, we found that for the exact same product, values at those three sources differed by more than 78 percent.

Internal Contents Units (ICU)

Internal contents units are a step in the right direction. When resources are dedicated to contents, there is an allowance for more concentrated knowledge, consistency, and process optimization. However, very few carriers are able to deliver on the promise of this approach due to a lack of appropriate tools, inadequate data, and an inability to retain knowledge when faced with high turnover rates among content specialists.

Internal pricing units are extremely vulnerable to adjuster preferences. Similar to the adjuster DIY approach, if one adjuster prefers Best Buy for electronics while another adjuster prefers J&R, the payout difference on the same item averages more than 30 percent. Multiply that effect over thousands of item categories and you have a recipe for significant overpayment. This kind of less-than-best-practice approach also exposes a carrier to future litigation risk.

In many cases, internal content specialists are only provided with forms, spreadsheets, and a web browser. This is an improvement over the old “catalogs and yellow pages” technique, but not by much. Some carriers have tried software-based solutions either licensed from niche players or built by in-house carrier IT organizations. Most of these are still trying to identify a solution that really works from a practical standpoint.

Software Solutions

Many companies have tried to address the contents challenge with computer software. In recent years, structural software companies have developed content modules. Restoration and pack-out software providers have followed suit. Replacement services companies have augmented their income streams for years by licensing desktop software to adjusters.

Software programs for contents have improved over the last few years, but they still require a great deal of time and effort on the part of the adjuster. Putting finger-to-keyboard for item after item — and sometimes having to resort to “guidance pricing” instead of an actual like-kind-and-quality match — still leaves a lot to be desired. The licensing pricing may look enticing, but it can be a lot to pay if the software ends up only being used lightly or sporadically.

Replacement Services

Back when there were no other reasonable alternatives, replacement services companies stepped into the contents breach to offer at least a partial solution. Replacement services typically specialize in a dozen or so product categories in which they can make sizable margins reselling products to carriers and insureds after garnering discounts from manufacturers, wholesalers, or retailers. Unfortunately for many adjusters, these selected categories cover only 20-30 percent of a typical large loss, so the adjuster is faced with tackling the remaining items on their own.

Some replacement companies will evaluate an entire claim for at no cost if an insured replaces at least one item. Sounds like a great deal for adjusters, but be sure to heed the old adage, “You get what you pay for.” Items outside of their selected categories are not their forte. Also, there's a demonstrated tendency to “match” to a product that is in stock or has deeper margins as opposed to a true, feature-function-based like-kind-and-quality (LKQ) match. This can lead to dissatisfied insureds who are pushed to replace their lost Sony television with a Hitachi.

True LKQ -Total Solution

Clearly, there is a need for a solution that provides accurate, real-time LKQ matches across the broad demographic range of business that carriers serve. Over the past few years, a new content solution segment has emerged, one that focuses solely on the needs of the industry, the carrier, and the adjuster to fulfill their mission to find an accurate LKQ match with a real-time, easily agreed-upon price.

The true LKQ service providers have developed their own specialized technology platform and developed skilled teams of knowledgeable contents professionals to provide a comprehensive contents treatment across all categories with documented, per-claim average match rates of 95 percent.

Identifying goods with a detailed description of the item (e.g. brand and model number) is relatively easy. Finding a LKQ match for ambiguously defined items like “blanket” or “sofa” is more difficult. True LKQ service providers are leading the effort to wrestle this technological challenge to the ground. Adjusters are able to submit inventories and quickly receive a detailed item-by-item report showing the item, its value, depreciation, tax, policy limits, even web links to substantiate the value to the policyholder.

The results are powerful — a 75 percent reduction in cycle time and a 20-30 percent reduction in indemnity payments.

The Frontier — Tamed

Content claims success extends far beyond researching or looking up a handful of items in brochures or product catalogs. To achieve successful ROI, indemnity savings, and customer satisfaction while fulfilling your organization's policyholder requirements involves commerce information, like-kind-and-quality problem resolution, and fair-but-fast claim settlements.

The goal of a good contents claim process is to provide an LKQ match, reduced time-to-file-close-ratios while reducing the leakage and expense — all in an effort to increase customer satisfaction and build customer loyalty.

Content claim management can be implemented in a repeatable, predictable, and easily managed process by utilizing “lean processes” with an intelligent pricing engine, targeting the right features with the right price while providing a high level of customer satisfaction and increasing indemnity savings for the carrier.

The more carriers and their focus on customer satisfaction and claim expenses evolve, the more apparent it is that businesses cannot continue to manage their expenses and their claim payouts as separate functions without the key connection of the ROI on their total process. Ultimately, the success of indemnity savings depends on an effective content management valuation system and service combination. It can help companies achieve sophisticated levels of content claim services that are highly relevant to their constituents, resulting in improved customer retention, higher margins, and increased sales. When true LKQ is combined with effective inventory creation, a total solution emerges that provides a strategic edge for carriers. The next key to profitability enhancement in the Property line is what's inside the building, not the building itself.

Jon McNeill is CEO of Enservio, a contents inventory and valuation company. He may be reached at www.enservio.com.