A draft claim report is immediately reviewed by an internal supervisor and then a payment is processed via EFT, and a deposit confirmation via text message to the insured before the adjuster ever leaves the home. How's that for a delightful customer experience?

Private investment opportunities

On the insurance vendor side, you have seen a tremendous uptick in merger and acquisition activity in the last decade. These vendors are always looking for ways to improve speed and net profit. However, it becomes very difficult to look at your own business objectively when you have been intimately involved in building it for 20+ years. Management consultants use the phrase "being in the fire every day has limited their ability to see a bigger picture." Here is what the private equity world saw when it looked at the insurance vendor space:

• There are a few hundred small firms ($10 million to $100 million in annual revenue).
• Many are "founder run" companies, meaning these firms haven't transitioned to secondary ownership yet or do not have a succession plan in place.
• As is typical with many smaller businesses, they have limited resources and struggle with "core business management functions," including: |
  1. Strategic planning
  2. Operating budgets/financial forecasting
  3. Marketing/business development
•  Significant upside opportunity, meaning the firm could grow, serve more clients, and be more profitable within just a few tweaks.

Those four realities mean it has been a target-rich environment for outside investment. One benefit of private equity investment into this space is that with their investment comes help with this business side, including the items mentioned earlier. The downside is that many private equity firms simply buy a number of firms to put under one umbrella but fail to execute successful integration of those multiple firms into a single, unified organization.

The success of the consolidations over the last decade has yet to be determined. Will some stay the same size and capitalize on the multi-discipline offerings available or will a number of smaller entities break off and choose to grow independently?

Many vendors lose sight of the three key drivers related to insurance claims:  faster, better, cheaper. Insurers have a combined loss ratio that is the primary driver of their net profitability. They simply cannot afford to increase costs without an equal reduction somewhere else. Insurers love to identify opportunities to reduce their combined ratio by 2-5 percentage points because those net savings drop immediately to the bottom line. However, many vendors are unprepared to have this strategic cost offset conversation with their clients and many have not even documented their own results on past projects.

Emerging technology, both internally and externally, as well as the 'larger, well-funded competition' reality, will continue to shape the claims investigation business over the next 10 years. As in every business situation, some will see a large challenge and be frustrated, while others will see opportunity.  What do you see?

Tim Christ is an executive business coach and loves helping companies grow by defining/implementing strategy, creating scalability, and improving profitability. He is the author of "Becoming a World-Class Expert:  The Business of Forensic Engineering." He can be reached at [email protected].

Related:

• J.D. Power: Top 10 insurers for property claims satisfaction
• Driving blind: Investigating crashes caused by sun glare