 The importance of investment in claims management Peter Barrett – RGA Head of Claims Healthcare Conference Warwick 26 th April 2004

Why do insurance companies exist? n To protect against un-foreseen events n To indemnify losses n To pay claims

Claims management – Why is it important? n A significant display in your shop window n The chance to demonstrate brand qualities n Dealing with vulnerable people, who need to claim on the policies they had the good sense to effect n It is different to doing a fund switch or setting up a DD n The consequences of mistakes are very significant for all parties

Claims management – the traditional view n An admin function n Little need for specialist skills n It’s easy! n No need to invest

Claims management – the traditional view n Claims has not been seen as a professional discipline n Typically report to operation management n Short term view on costs, not potential savings n Lowly status within companies

Claims management – the traditional view

Claims are easy – you don’t need specialists n All you do is match the diagnosis with the definition n The claimant’s doctor gives you the answer n How difficult is that?

Are Critical Illness claims easy? Do you need specialist skills? n Looked at a heart attack claim recently? n What are characteristic ECG changes? n Have you considered the FOS attitude to non-disclosure? n Have you told a claimant they’re claim has been rejected?

Is this a valid MI claim? n £100,000 at risk n Admitted with history of chest pain n ECG – demonstrated ST elevation n Troponin T = 0.55 n Treated as MI (delayed presentation)

1999 ABI – definition of heart attack The death of a portion of heart muscle as a result of inadequate blood supply as evidenced by;  an episode of typical chest pain,  new electrocardiograph changes and  by the elevation of cardiac enzymes The evidence must be consistent with the diagnosis of heart attack.

Is this a valid cancer claim? n £50,000 at risk n Claimant satisfies 3 minor WHO criteria for multiple myeloma n He is asymptomatic, no current treatment n See him in 3 months for review

1999 ABI – definition of Cancer A malignant tumour characterised by the uncontrolled growth and spread of malignant cells and invasion of tissue. The term cancer includes leukaemia and Hodgkin’s disease but the following are excluded: All tumours which are histologically described as pre malignant, as non-invasive or as cancer in situ. All forms of lymphoma in the presence of Human Immunodeficiency Virus. n Kaposi’s sarcoma in the presence of any Human Immunodeficiency Virus. Any skin cancer other than malignant melanoma.

Why is claims management important? n You need to identify and pay the valid claims n You need to identify and reject the invalid claims n Mistakes cost money and impact on brand n Hardening attitude of reinsurers

Why is claims management important?

The cost of not taking claims seriously – example 1 n 3 month review n 182 claims n 13 major errors n Value £844,382

The cost of not taking claims seriously – example 2 n Annual saving achieved by RGA – claims in 2002 = £2.0m n Annual saving achieved by RGA – claims in 2003 = £2.1m n Of the 2002 claims, 85% remain saved in 2004

The consequences are not just financial n Inexperience means you reject claims incorrectly. n Do that and you might be on the telly! n Damaging your brand & the industry – because you didn’t take claims seriously n Claims is your shop window

Impact of high use of reinsurance n Lack of investment in staff by insurers n Poor quality means less authority, so operational impact on the insurer… n …and higher costs for the reinsurer. n Ultimately leading to the insurer having higher rates and a poor reputation in the reinsurance market.

What makes a good team? n The right mix of experienced staff and trainees n Well qualified staff n Given the time to assess n Recognised for the importance of the role n It’s not brain surgery

The ‘gap’ between average and the best Recruited from admin No relevant qualifications Regarded as an administrator £30,000 pa Primarily assessed on productivity Underwriting, medical or legal CII qualifications at a minimum – Life & DI claims Diploma Regarded as a professional £45,000 pa Assessed on quality & productivity

The skills you need n The right qualifications nAt least ACII standard nPreferably Underwriting or Claims Diploma nLegal or medical qualifications n The ability to communicate clearly with people in difficult situations n A methodical enquiring mind n Understanding of medical & legal terminology

Training n Reinsurers have been cutting back for years n Most companies do very little n Contrast this with underwriting nIt’s not favourable nEven when trained the Underwriters have a manual to give them the answer

Recruitment n Already proving a problem – there aren’t enough good assessors n You don’t have to be an actuary to realise that given the sales of CI – there is going to be a claims tidal wave in the next 5 – 10 years n Are you ready?

The need for investment

Training – some positive news n CII’s – Life & Disability claims Diploma nIs your team studying, if not why not? n The L&G approach nA claims academy

Retaining staff n Treat them as professionals n Reward them accordingly nAt least on a par with underwriting n Provide the right training n Provide the right working environment

One Final Thought… An experienced, competent claims team can’t on it’s own make your CI business profitable… …BUT… …An inexperienced, claims team can make your business unprofitable even if you have got the pricing and underwriting right. (and damage your brand at the same time)