The value of gift cards in fast-tracking retail claims
Fast-track claims in the retail industry offer a way to streamline and accelerate resolution for small- and medium-sized claims.
For retailers, customer claims frequency is high but complexity is low. The most common types of claims – slip, trip or fall; struck by; struck against; and inhalation, ingestion or absorption – all typically settle for less than $1,000. This presents an ideal scenario for retailers to leverage a fast-track adjudication approach. Moreover, customers’ demands continue to evolve, requiring quick resolution from retailers for consumers with little patience for a time-consuming investigation. If it’s possible to settle a claim during the first call, it encourages customers to return to the store, boosts their satisfaction and prevents the claim from developing further.
Using gift cards in fast-track teams effectively prevents the claim from evolving. It is well understood the strategy delivers additional benefits including protection of brand reputation, but what is less understood is the most effective strategy to use when issuing those gift cards in response to a customer’s claim.
Based on Gallagher Bassett’s research, retailers’ approach to offering gift cards for claims settlements generally falls into three categories: optimistic, discretionary and conservative.
- Optimistic: This group aims to make gift card usage a part of their everyday claim-handling best practices. They embrace gift cards as another tool to assist in driving claim closures and controlling costs.
- Discretionary: This group of retailers takes a more constrained deployment, understanding the utility of gift cards for settling and closing claims, but use them only on a case-by-case basis.
- Conservative: For retailers in this category, the gift cards program is prescriptive, with well-defined rules regarding the types of claims eligible for gift cards and the amount available to use.
For claims managers in the retail industry considering a gift card program as a part of their strategic approach to the claims handling and payment process, it’s important to consider where gift cards might fit into their overall strategy.
In a recent study, Gallagher Bassett analyzed five clients from different retail sectors including specialty and big-box grocers, personal care and beauty, and specialty retail. All placed limits on the denominations of gift cards claim handlers could issue without consultation that ranged from $100 to $2,000.
As a result, the following emerged on utilization and claims closures from each of the three categories (See charts above):
- Optimistic: Retailers A and D used gift cards more often than their peers, and gift card (GC) closures represented one-fifth of their total claim closures. The average gift card settlement for both A and D was $75.
- Discretionary: Retailers C and E used gift cards less frequently than their optimistic peers, and their gift card closures accounted for a smaller proportion of their total claim closures at 4% and 5%, respectively. However, their average gift card settlement payment was higher than their peers, with retailer C paying $103 and retailer E paying $176.
- Conservative: Retailer B issued gift card settlements only 1% of the time, so it should be no surprise gift card closures were lower than their optimistic and discretionary peers, which accounted for only 1% of its entire book. When issued, its average gift card payment was $72.
Impact of gift card strategy on claim durations
For all five retailers, gift card claims, on average, settled quicker than traditional settlements for similar claims. However, retailers A, B and C resolved claims in fewer than 40 days when using gift cards.
Discretionary retailers C and E experienced the longest durations for non-gift card closures, making the contrast even starker. Retailer C, in particular, closed gift card claims 78% faster than non-gift card closures.
What drove these results?
Several factors affected overall gift card outcomes, including settlement authority, investigative requirements, release requirements and claim-handler denial authority. These factors, in conjunction with the overall gift card philosophy, dictated overall program results.
Retailers A and D practiced an optimistic approach. Their gift card authority ranged from the low to the middle levels, and investigatory requirements were limited (particularly for Retailer D). Both required a release and an estimate for property damage claims. Retailer A had limited denial authority, but retailer D had no denial authority. Overall, their gift card programs were very similar and yielded similar results.
Retailers C and E practiced a discretionary approach, but their philosophies were quite different. Retailer C had very high settlement authority for gift card claims ($2,000). Claim investigations were claimant-contact only, while individual stores were responsible for some of the investigatory burden. Release requirements were discretionary and claims handlers had full denial authority. Retailer C closed GC claims 78% faster than non-GC closures—the greatest differential in the study.
Gift card settlement authority for Retailer E was low at $250. Investigation was limited to claimant-contact only, with no additional support from stores. There was no explicit guidance on whether an estimate was required for property damage claims, and releases were required for all settlements. Further, Retailer E didn’t provide denial authority for gift card claims. The results of its overall approach (discretionary) and claims-handling practices led to low gift card utilization, high average gift card payments and relatively long gift card claim durations.
Retailer B was the only retailer with a conservative approach. Settlement authority was limited to $100, the lowest in our study. However, due to the low settlement authority, this retailer was able to loosen the reins on the rest of its gift card claims-handling practices. Investigations were limited to claimant-contact only, and no estimate was required for settlements less than $250 — meaning its gift card settlements never required an estimate. Further, no release was required on gift card settlements and claims handlers had full denial authority. Important considerations
When considering a gift card program as a part of a retailer’s strategic approach to claims adjudication, take into account the aforementioned results and how each approach might fit into the overall claims strategy.
A more rules-based or prescriptive approach may make sense if the retailer is focused on a narrow subset of claims, or concerned about potential reputational harms or excess payments from lax gift card oversight.
On the other hand, an optimistic gift card strategy can increase customer brand loyalty while also reducing claims inventory by expediting claim resolution.
Regardless of approach, a thoughtful gift card strategy can help streamline the claims process, increase brand affinity and improve customer retention.
Mary McGurn is retail practice leader and Jack Baker is a senior analytics associate with Gallagher Bassett. Both are based in Rolling Meadows, Illinois. Reprinted with permission from Gallagher Bassett.