Claims Management in a World of Alternative Distribution Channels

Small-commercial buyers are ready to do business with carriers online, but what are the implications for those in claims management?

By Sam Friedman

The sale of small-business insurance policies directly to consumers over the Internet remains the exception rather than the rule for the vast majority of such transactions. But with a recent survey finding a significant segment of small-commercial buyers ready, willing, and able to do business with carriers online without having an agent or broker to shop for them or advise them, what might the implications be for those in claims management?

For now, beyond professional liability and, perhaps, commercial auto, relatively few small-business consumers are able to shop for coverage, get a quote, and buy a policy over the Web entirely on their own. But more carriers are exploring the potential for selling small-commercial coverages directly, and research by the Deloitte Center for Financial Services indicates a sizable market might indeed exist for such an alternative distribution channel.

A total of 751 small-commercial insurance buyers were surveyed in March on behalf of Deloitte by Exevo. Respondents represented a wide variety of business types and sizes, based on both their number of employees and annual revenue. 

The survey found about one in five eager beavers characterized themselves as “very likely” to buy one or more of their coverages directly from carriers online. Indeed, about the same percentage is already shopping for insurance over the Web, interested in closing the deal online if given the chance. An additional one in three were fence-sitters, saying they would be at least “somewhat likely” to buy directly, depending on the circumstances.

Might one of those circumstances be the way their claims are handled? It’s an intriguing question that should be addressed by insurers contemplating the possibility of selling directly to consumers.

It’s likely that carriers exploring the direct channel option might first focus on the marketing and sales challenges they could face if they eliminate an intermediary from the equation. Such concerns might include how to identify potential prospects and then make them aware of the direct purchase option.

They also are likely to get wrapped up in determining the tech infrastructure required to underwrite and price their policies for online customers in real time. And it would only be logical for them next to consider how deep a price discount they might have to offer, as well as which customer service options they could provide to convince consumers to take the leap and buy a policy on their own. The potential for channel conflict with their existing agency force might be another problem to address.

While these are important issues, the value of claims management should not be overlooked when considering whether and how to put a direct distribution model in place, based on Deloitte’s research into the small-business consumer’s service preferences.

Deloitte’s survey found that claims management—while not their biggest concern—in fact weighs heavily on the minds of a large percentage of potential online buyers and might strongly influence their decision on whether to stick with a particular carrier at renewal.

Indeed, four out of 10 respondents said their claims experience had been very influential when they had last decided to change insurers, topped only by two other factors: a lower price offered by their new carrier (cited by 48 percent), or a price hike imposed by their former carrier (47 percent). Altogether, nearly nine out of 10 said claims experience had been at least “somewhat influential” in prompting them to switch insurance companies.

In addition, many small-business buyers place a high value on claims-related services offered by carriers. Six of 10 respondents said their insurer offered “claims-handling support,” and, of those, four in 10 ranked this as the most valuable service they received. Meanwhile, one in four said they had “litigation support” from their insurer, with one in four of that subset citing this as the most valuable service.

Respondents also were eager for help to avoid filing claims in the first place. Insurers provided risk management advice to four in 10 respondents, ran employee safety training programs for three out of 10, and conducted loss control inspections for one out of four.

Given these survey results, it would appear to be prudent for those considering the direct sale of small-business coverage also to contemplate offering claims management and loss prevention services so they don’t compete on price alone, as well as to keep renewal rates up.

But what about the consequences for claims management in eliminating the middleman? Might consumers hesitate to buy without an agent or broker because of concerns over whom would help them deal with claims?

Two thirds of naysayer respondents—those who said they are not very likely to buy directly—explained that they aren’t comfortable buying without an agent or broker because they “don’t trust an insurance company to deal with me fairly,” including 41 percent who cited this as their top concern. One of the biggest trust issues facing any insurer is whether consumers have faith that they will be compensated in a reasonable timeframe after filing a legitimate claim.

Agents appear to have a leg up here. When buyers were asked how much they trusted the person who sold them their policy to guide them through the claims process, about half said their intermediaries were very trustworthy, while another third found them at least moderately trustworthy. Only a handful found agents and brokers to be untrustworthy. The responses broke down along the same lines when it came to trusting intermediaries to serve as the policyholder’s advocate during a claims dispute with the carrier.

In addition, while a bad claims experience often prompted a respondent to change carriers, only 15 percent of those who had changed intermediaries said they did so because their agent or broker had not adequately served as their advocate during the claims process.

These results are not surprising since intermediaries have skin in the game. Agents realize that, if a claim is denied, policyholders might blame them—not just for placing them with the carrier issuing the rejection but, perhaps, also for failing to notice a coverage gap, thereby leaving them uninsured for a big loss.

Some disgruntled clients might go so far as to sue their agent for an alleged oversight or failure to perform. That’s where errors and omissions coverage comes in handy for an agency or brokerage. Indeed, during a pair of Deloitte focus groups run by Andrews Research Group that preceded the survey, a number of participants said they were concerned that eliminating the agent in a sale would leave them with no one to hold accountable in case a claim goes unpaid.

However, the lack of an agent’s presence in the claims process might not be a deal breaker for those looking to save money by buying directly. When asked to rank the three most-valuable services provided by their agent or broker, only one out of four included “guiding me through the claims management process,” including just three percent ranking claims support as number one.

Claims management wasn’t even cited specifically as a major concern among those naysayers who said that they would not be very likely to buy directly online. Only one third of such respondents said the reason they wouldn’t give up their agent was because that would leave them without an advocate during a claim, while just 28 percent said they feared overlooking a potential exposure.

Still, insurers selling directly would likely be better off making claims management systems as user-friendly as possible. When small-business policyholders suffer a loss, instead of contacting their agent or broker for help, the customer likely will have to file their claim and track its progress online themselves. Therefore, would-be direct writers should clearly explain the claims filing, adjusting, investigation, and dispute resolution process on their websites and mobile applications.

In addition, customer service representatives should be prepared to handle questions and complaints over multiple platforms, by phone, over email, on instant messaging, and perhaps even via video chat.

Also be aware that, if a claims dispute cannot be reconciled, it could get ugly for the direct carrier—just as it might when an intermediary is involved—should the policyholder decide to sue to get what they believe is coming to them. For that reason, those offering coverage advice in a direct writer’s call center should be licensed as agents and covered by E&O insurance.

While opportunities to actually complete a purchase of small-commercial insurance online is rather limited at the moment, that is likely to change in the near future, especially since there appears to be an appetite among many buyers in this segment for a direct option.

Attracting prospects to the direct channel likely will take creative, proactive marketing and an intuitive, straight-through processing system as well as a sophisticated underwriting and pricing engine fueled by advanced analytics and predictive models. However, it also will likely take a responsive, easy-to-navigate claims management and customer service system to keep consumers in this channel satisfied when losses inevitably arise.

Bottom line, even if a customer is happy with the experience of buying small-business insurance directly and congratulates themselves for any price savings they earn in bypassing the agent, how a claim is managed likely will be the day of reckoning. If clients have a hard time making their way through the claims system on their own, or if they feel they are being mistreated along the way, they are more than likely to change carriers, no matter how they bought their policy.  

Sam Friedman is insurance research leader with Deloitte’s Center for Financial Services in New York. He has been a Fellow with CLM since 2011, and can be reached at samfriedman@deloitte.com.

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