Insurers Eye Supply Chain Management

Supply chain management is the automation and integration ofbusiness processes among suppliers, vendors and consumers to bringa product or service to market in a more efficient and timelyfashion.

This is a concept most commonly applied to manufacturing andretailing, but property insurers have much to gain by applying thesame principles to the delivery of their core promise topolicyholders–claims service.

Property insurers are part of a potentially huge supply chain,even though they carry no physical inventory and the only tangibleitem they deliver is an insurance policy, and a claim check in theevent of a covered loss. With every claim, insurers initiate achain of business transactions among consumers, vendors andsuppliers who are eventually linked together to accomplish a commonpurpose.

Consider the scenario of a homeowner who files a claim for adamaged roof resulting from a fallen tree. The insured must reportthe claim to the insurer and select a contractor to estimate therepair and fix the roof; the contractor must select a supplier toprovide the raw materials to fix the roof; and the claims adjustermust approve the cost of the repairs.

This seemingly simple process is made complex because each partyhas its own agenda. The homeowner wants the best quality work andmaterials in the shortest time possible; the contractor wants thehighest price for the work and the lowest price for the materials;the adjuster wants the lowest pay out possible under the terms ofthe policy.

The traditional claims process is inherently adversarial foreveryone involved. It creates an environment in which the supplier(contractor), distributor (insurer) and customer (homeowner) haveconflicting interests, which often result in multiple priceestimates for the repair.

To survive in this competitive world, a few insurers havecreated a new structure that streamlines internal claimsprocessing, improves communications and relationships withsuppliers and policyholders, and gives customers new serviceoptions.

The Internet makes it possible and practical for insurers tolink together their customers, agents, contractors and claimsadjusters into one platform. A single communications andtransaction platform can streamline the entire claims process,reducing adjusting expenses and indemnity payouts for the insurerswhile providing faster repairs for homeowners.

This technology is not a glimmer in some computer programmerseye. It's here today in a variety of forms.

A property insurer, for example, could use a type of preferredprovider network of home repair contractors who are linked toclaims adjusters and a database of location-specific labor andmaterials costs. This insurer would significantly reduce its claimshandling expenses and would see the repair estimates approved in amatter of days instead of weeks.

Perhaps even more important than the cost savings is thepotential for better customer relationships. Using existingtechnology, the homeowner could use a pre-approved contractor fromthe insurer's network and have guaranteed quality work beginwithout the hassle and time loss of multiple bids. The contractorand the costs of repair would be pre-approved and tied to realmarket prices. The contractors profit margin would also bepre-approved, thus eliminating the usual adjuster/contractorconflicts with the homeowner stuck in the middle.

Web technology and supply chain management principles can beadvanced even further, putting contents replacement claims on amore rational basis. The top 100-homeowner insurers pay out roughly$16 billion in contents replacement claims annually. The morestaggering number is the typical overpayment. Though market data ishard to find, double-digit overpayment from insurers for contentreplacement is realistic.

Web-based technology linking insurers with suppliers of commonand ordinary consumer goods can dramatically reduce payout and lossadjusting expense, simply because real-time replacement cost datacan be brought to bear in establishing the actual cash value of theloss.

Consider the potential purchasing power of property insurerswith retailers nationwide. A common interface linking an insurer'sclaims data with a supplier's inventory could allow insurers toreplace damaged or stolen contents for a controlled cost. Andequally important, the hassle homeowners face in findingreplacement goods can be eliminated.

Property insurers are just beginning to harness the potential ofsupply chain management in handling claims. Insurers that usetechnology to reduce their claims costs will gain a huge advantagein their ability to manage the bottom line. Furthermore, insurersthat provide a better customer experience on claims will ultimatelycapture greater market share.

Stan Long is Chief Executive Officer of Project Time &Cost, based in Atlanta.

Reproduced from National Underwriter Property &Casualty/Risk & Benefits Management Edition, September 10,2001. Copyright 2001 by The National Underwriter Company in theserial publication. All rights reserved.Copyright in this articleas an independent work may be held by the author.

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