Insurers Eye Supply Chain Management

Supply chain management is the automation and integration of business processes among suppliers, vendors and consumers to bring a product or service to market in a more efficient and timely fashion.

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

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

Consider the scenario of a homeowner who files a claim for a damaged roof resulting from a fallen tree. The insured must report the claim to the insurer and select a contractor to estimate the repair and fix the roof; the contractor must select a supplier to provide the raw materials to fix the roof; and the claims adjuster must approve the cost of the repairs.

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

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

To survive in this competitive world, a few insurers have created a new structure that streamlines internal claims processing, improves communications and relationships with suppliers and policyholders, and gives customers new service options.

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

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

A property insurer, for example, could use a type of preferred provider network of home repair contractors who are linked to claims adjusters and a database of location-specific labor and materials costs. This insurer would significantly reduce its claims handling expenses and would see the repair estimates approved in a matter of days instead of weeks.

Perhaps even more important than the cost savings is the potential for better customer relationships. Using existing technology, the homeowner could use a pre-approved contractor from the insurer's network and have guaranteed quality work begin without the hassle and time loss of multiple bids. The contractor and the costs of repair would be pre-approved and tied to real market prices. The contractors profit margin would also be pre-approved, thus eliminating the usual adjuster/contractor conflicts with the homeowner stuck in the middle.

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

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

Consider the potential purchasing power of property insurers with retailers nationwide. A common interface linking an insurer's claims data with a supplier's inventory could allow insurers to replace damaged or stolen contents for a controlled cost. And equally important, the hassle homeowners face in finding replacement goods can be eliminated.

Property insurers are just beginning to harness the potential of supply chain management in handling claims. Insurers that use technology to reduce their claims costs will gain a huge advantage in their ability to manage the bottom line. Furthermore, insurers that provide a better customer experience on claims will ultimately capture 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 the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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