State of Play

The wildness persists in content claims because, by and large, it's still every man for himself. Most carriers lack a well- thought-out strategy for handling contents claims. Yet personal lines spending for contents totals more than $7 billion annually.

Consumers lack awareness and education as to what insuring the contents of their homes really means, so they rarely think the unthinkable and prepare for a loss by conducting an inventory of their contents prior to a loss. Often, the current procedure when a loss occurs is to have an adjuster provide consumers with a contents inventory form and ask them to fill it out themselves.

What's the result of these current practices? Because of inaccurate content claims and replacement processes, carriers overpay by an estimated 25 percent for contents claims. That is a net loss of $1.75 billion in overpayments every year, not to mention the poor customer satisfaction of consumers, who often have to wait six months or longer to settle claims and fully replace lost contents. Needless to say, every man for himself is not a process and it's not working for anyone.

How can we finally address this pressing issue, one in which carriers lose billions and consumers continue to harbor resentment and negative opinions about the insurance industry as whole? Carriers can address many of these issues by thoughtfully developing a strategy for contents claim handling. This will likely include a combination of dedicating more in-house and outsourced resources, technologies, and services on contents claims.

Bringing Law and Order

The good news is that insurance carriers seem to be taking notice. According to a July 2009 report published by Towers Perrin titled, “Property & Casualty Claim Officer Survey #3: Claim Technology and Applications,” the majority of claim officers surveyed said that their organizations plan to make claim technology investments within the next two years. Survey respondents cited the need to improve the customer experience, accelerate claim cycle times, and better management information systems(MIS)/reporting as the top three objectives for making near-term technology investments. Such improvements are sorely needed, but technology alone cannot solve the problem. Carriers must balance in-house and outsourced technology and service solutions to finally bring law and order to contents claims.

Achieving this balancing act can seem daunting to carriers, but actually developing a strategy is fairly straight-forward in personal lines. Strategies can start with a simple claim segmentation: What do contents claims look like in your organization? If your organization is typical, then 25 percent of claims will be medium and large-sized losses, and 75 percent will be small losses.

Obviously, large field contents claims do not lend themselves well to desk adjusting, and inventory creation is critical. Inventory creation in large claims represents a majority of the time and service effort. Contents claims are intensive when you consider the multitude of items inside homes and businesses — not to mention the task of trying to accurately gauge the value and replace the lost items. The inventory phase alone can bog down the process for claim adjusters while they are also tasked with all of the other aspects of structural valuation and replacement. Inventory creation is crucial to large losses. Data show that 75 percent of the items that arrive from carrier adjusters do not have ages or brands. That makes valuing the inventory almost impossible.

Given the tedious nature of the inventory phase, carriers exercising a best practices approach have separated the inventory gathering function from the frontline structural adjuster. They cannot see the number of claims they need to while spending days on-site with each claimant to gather an inventory list. Historically, the solution for the adjuster was to hand the insured a form and take the inventory process “off-line.” Fortunately, there is a much better way.

Carriers that epitomize best practices have concentrated efforts on this first step in the process. Some of the most effective solutions available on the market today come from vendors focused solely on contents technology and services. Instead of handing the policyholder a pen and a pad of paper, claim adjusters can take advantage of service partners that will arrive on-site to spend multiple days helping the policyholder create an inventory. Some providers enable the consumer to create their inventories over the phone or the web. Whether it's your own staff or the staff of a provider, it's essential that they are well trained in customer service as well as able to gather the key data necessary — age, brand, model, material, condition, and so on — to settle the claim.

Best practices for small-loss handling look very different from large losses. Because small losses represent 75 percent of frequency, getting it right is incredibly important.

Small losses usually have less than 20 items. Best practice carriers begin their strategic thinking around these losses by asking, “How do we handle and settle these claims in as few steps as possible?”

Rather than taking a first notice of loss, assigning an adjuster, and sending the consumer a form, best-practice carriers are handling small-contents losses on the first call. How? By gathering the inventory at the obvious point — when the policyholder makes first notice of loss. It saves multiple steps and delays in cycle time, and it delivers the highest quality contents inventory. To pull it off, carriers need scalable software that supports many simultaneous users and plugs directly into the valuation and settlement process.

Where Small and Large Converge

Provided the inventory phase is conducted accurately, automated software solutions from leading contents technology vendors can do most of the work in providing accurate valuations for lost items. Carriers can also develop their own in-house solutions.

However, nearly all of the best practice carriers centralize the valuation step. In their planning, they typically see how unrealistic it is to expect an adjuster to process thousands of line items when a centralized unit can do it much more effectively and efficiently. In addition, pulling that work off of the adjuster's plate enables them to spend more time with the policyholder on customer service and more complex issues of the claim.

Price accuracy is critical, and to get it you need a wide breadth of prices and fresh data. A 30-day-old price on a computer won't be nearly accurate enough since prices on that category of goods can change daily. The quality of the search process is also crucial. Clicks cost. The matching process is a fundamental evaluation point of the software.

Carriers should make sure the contents platform they use offers detailed reporting features, including productivity data down to the rep level as well as financial data on contents spend. But there are some cases when software alone cannot do the job. For high-value items — such as art work, antiques and collectibles –in-house or outsourced specialists are often needed to provide an accurate valuation of the lost items. Solution providers should be able to supply experts who are available to tackle these difficult items quickly for adjusters.

Are You In or Out?

Some carriers are developing in-house contents experts. This is a positive development and demonstrates recognition by carriers that an accurate contents inventory and valuation requires dedicated resources. But when you consider the full complexity of a contents inventory, valuation, and replacement, carriers would have to develop and staff entire contents departments to fully address current challenges. This is a costly endeavor, so it's understandable why some carriers have been hesitant to make such a bold move, despite the major losses they continue to incur by maintaining the status quo.

Other approaches that are emerging combine in-house and outsourced contents technologies and services or, in some cases, outsourcing the entire contents function. Both approaches have their advantages.

Carrier contents experts and their staff can rely on outsourced technology and services to help them continually improve the efficiency, accuracy, and cost-effectiveness of the contents claim process. Carrier contents experts also can act as internal advocates within the organization to ensure that the carrier stays on track and ahead of the curve as technology and service support solutions evolve.

In the case of fully outsourced contents claim technology and services, carriers can rely on a vendor or vendors with a core competency and sole focus on contents. The key to success is to integrate vendor technology and personnel closely with the organization to ensure the proper deployment and application of technology and service applications.

Each carrier has unique needs, perspectives, best practices, and cultural norms regarding reliance on outsourced technology and services, so there is no “one-size-fits-all” best-practices approach. The most important change required is the recognition that contents claims are an important discipline that requires dedicated knowledge experts, technology, and service professionals to execute properly and cost effectively.

As an increasing number of carriers adopt emerging technology and service solutions that can scale across the organization and each phase of the process, it becomes clearer that the days of the wild, wild West of contents claims are numbered. It's just a matter of which carriers get there first to realize the dramatic cost savings and improved customer satisfaction that comes with fast and accurate settlements that help consumers get back into their homes and on with their lives.