The Future of Loss Adjusting – Changes & Challenges
What is the future of loss adjusting? It may be appropriate to give a brief overview of what loss adjusters do in Malaysia.
The role of the adjuster in non-motor claims is to investigate the circumstances of the loss with the aim of ascertaining whether the loss falls within the policy coverage, and with some delegated authority, negotiate and agree on the conclusion of insurance claims on behalf of insurers. Many of the firms in Malaysia employ qualified loss adjusters – who are members of the Chartered Institute of Loss Adjusters (CILA) or the Australasian Institute of Chartered Loss Adjusters (AICLA) – as key personnel in their firm for this sector of work. Incidentally Malaysia has the highest number of chartered loss adjusters in this region. However, a larger part of the adjusting work in Malaysia is motor related – it relates to inspection and assessment of damaged vehicles due to collision, and also investigation of vehicle theft and accidents. In many countries, people engaged in this area of work are known as “motor claims engineer” or “vehicle damage assessor” and “auto accident investigator” respectively. In a way, the development in Malaysia is different compared to some countries, in that all these categories of work – whether motor related or non-motor – fall within the business of loss adjusting.
Changes & Challenges
What changes have taken place over the years – particularly the last 10 years? And what are the challenges ahead? Loss adjusting, like many other professions, is impacted by various changes in its respective industry. To survive and to continue to be relevant, the adjusting profession is learning to adapt, and to keep adjusting to these changes, this article hopes to start a trend. If loss adjusting CEOs are asked: What is the single greatest competitive pressure that they faced? I believe that most of them will single out the shrinking client base as a result of mergers amongst insurers. The industry has witnessed a series of M&As amongst the insurers over the years – companies are merging to become larger. In 1990, we had a total of 39 general insurers and 15 composite companies – a total of 54 companies. In 2011, only 22 general insurers are left and
If loss adjusting CEOs are asked: What is the single greatest competitive pressure that they faced? I believe that most of them will single out the shrinking client base as a result of mergers amongst insurers.
six composite companies remain – a total of 28 companies. This is not the end of the consolidation. I reckon within the next three years, the total number of insurers will further be reduced – probably less than 20 companies will remain in all! But the size of each company is getting bigger. Presently, 80 per cent of these companies have a General Gross Direct Premium (GDP) in excess of RM500 million, whilst five or six of them have in excess of RM1billion. A reducing client base puts the adjusting company under tremendous pressure to compete and survive. If one is not selected by or dropped from an insurer’s panel, finding another business source to plug the gap or grow its business organically is a tough one. Resulting from the shrinking client base, adjusters in Malaysia are, and have been, acting for third party claimants, in particular those work referred to as Third Party Property Damage claims. For some adjusting companies, this work forms a major source of income. This essentially is loss-assessing work, as they are acting for third party claimants. The M&A knock-on effects, besides reducing the client base for adjusters, provide insurers the opportunity to review their panel adjusters to streamline their claims operation. It is obvious that no one insurance company will include all of the 35 existing adjusting companies as part of its panel. Today, most insurance companies would have a selection committee to decide on panel participation based on some criteria, and in most cases, only a handful would be selected – this will definitely have an impact on an adjuster’s earning or market share if one is not found on any of the major insurer’s panel. The implication is obvious – the sustainability and growth of an adjusting firm depends very much on these panels. Another development is the adoption of centralisation of claims handling by insurers – that reduces the need for aggressive local branch marketing in most cases. In the past, adjusting companies had marketing directors/managers at branches and/or regional offices – spending time building relationships with insurers at their respective branch and/or regional level. Marketing roles still have a place at branch level, but that has been diminished substantially. There is an on-going emphasis by insurers to manage their operating costs. Claims costs make up 60 per cent or more of operating costs, depending on class of business. An adjuster’s fee is part of claims costs. So our earnings have not been left untouched! Various measures are adopted by insurers to contain operating costs and this have an impact on an adjusters’ earning – amongst the measures include the initiative of “in-housing” loss adjusting work. However, as much as insurers may want to do everything “in-house,” there will always be a good argument to outsource the claims adjusting work – the rationale is that the key driver of insurers is not purely cost but their core competencies, which amongst other things, include: sales, marketing, underwriting and risk related management activities. So the work for adjusters, in my opinion, will continue to be there, but the question is: in what form? We are already seeing “desk topping” adjusting as a common practice. Fast-tracking reporting in both motor and non-motor work is another. All these introductions come with a price to adjusters – the fee structure is negotiated, and of course not upward but downward. Partnerships are coined for such arrangements – and often for high volume, work pricing is the chief driver and dictated much by insurers. At one stage in the UK, this dumbing down of the fee has caused a decrease in new entrants to loss adjusting as the salary which is tied to the earning of the company is no longer attractive. Similarly the same could or already be happening here in Malaysia.
What else has changed?
Insurance has always been a client centric business. Nowadays, customers are more demanding and expect more. Customers’ retention, in part, has been linked to a satisfactory claims experience, and thus initiatives have intensified to create brand value that is tied to how a customer feels about the company. The performance of the claims department provides a barometer to gauge the satisfaction or displeasure of its clients. As part of an extension of an insurer’s claims department, an adjuster’s performance is measured against a range of KPIs, vis-à-vis, responsiveness on first notification of loss, turnaround time of reporting and final claim resolution.
...The general view is: loss adjusting will continue to be needed, if the industry continues to adapt and innovate to ensure its services stay relevant to the industry.
There is also an emphasis on claims leakage. The rationale is: claims costs form a major part of operating costs, and what better way of managing costs other than managing claims payouts. Adjusters are expected to assist to “plug” the leakages and play that role in various ways, including: • the quality of the adjusting
• securing adequate evidence to pursue subrogation
• timely advice to the insured to manage and minimise the loss
• identify third parties to transfer risk, e.g. contributions from other sources In motor own-damage claims, the KPIs to monitor leakages would include: average recommended payout per vehicle and variance with the industry average. Customers or policyholders are more informed nowadays and aware of their rights, realised through the various awareness programmes carried out by the industry, including the emphasis to “Treat Customers Fairly,” Various channels that deliver customer complaints are made available. This is a good thing! Consumers have the right to satisfaction and information; the right to be heard; and the right to redress. Therefore, adjusters’ findings could be challenged in the event of disputes, and adjusters will need to be sure what they recommend or do not, and also be able to support those recommendations with sound technical justification.
How are the adjusters faring?
Is the industry growing? Where is the growth? There are currently 35 adjusting companies in Malaysia, compared to 43 in 1990. In year 2000, the industry handled 224,403 claims – 87 per cent of which were motor related and the remaining non-motor. However, in 2011, the total number of cases handled shot up to 371,995 – 85 per cent motor related and 15 per cent non-motor work. The number of non-motor cases has only increased marginally over the years – over 11 years it has only increased by 47 per cent or a compound growth rate of 3.5 per cent per year; whilst the motor related cases have experienced a higher rate of growth – 70 per cent increase over 11 years or a compound growth rate of 5 per cent per year. The overall operating results of Malaysian adjusters have also increased by some margin – 55 per cent over the last 11 years or a compound growth rate of 4 per cent per year. However, the average fee per file has declined to RM540 in 2011, compared to RM580 in 2000. Notwithstanding the increase of cases handled and operating results, the resources employed over the last 11 years have more or less remained constant. In the near and medium term, the industry is unlikely to see a substantial increase in the numbers of employed resources – the reasons are various. This can be attributed to the efficiency in the claims processing, particularly in motor own-damage and small property claims. In addition, there is a trend of “in-housing” some of this work.
The statistics show that loss adjusting is pretty active – though not sexy! The general view is: loss adjusting will continue to be needed, if the industry continues to adapt and innovate to ensure its services stay relevant to the industry. What are some trends that is are changing the landscape? There will be changes in the handling of small value, high volume claims as seen happening in motor own-damage and small property claims – innovative ways will be used to drive this area of work.
The claims process flow will continue to be closely examined; speed is paramount in these classes of work. Technology will play a key part in the process flow. Just as currently, the estimating system plays a dominant role in auto inspection. Technology will continue to have an impact on how we do our business. Speed and capacity of PCs will increase over time and cost will be cheaper and the usage will be more widespread. However, technology cannot replace many aspects of the work of the adjuster, who needs skill sets or qualities that are not replaceable by some computers or machines. What are these qualities or skills sets which the adjusters have and could bring to the table? An anonymous writer some time ago aptly sums up the qualities of an adjuster as follows: “To be a good claims adjuster, one must be courteous, diplomatic, shrewd, persuasive, an expert jollier, of an equable temper, slow to anger, a Sherlock Holmes, up-to-date, presentable – with honest eyes and a willing hand, have a good memory, acute business judgment and be the embodiment of virtue, but with a good-working knowledge of sin and evil in all its forms. A claims adjuster must understand insurance, electricity, chemistry, mechanics, physics, bookkeeping, banking, merchandising, selling, shipping, contracting, law, medicine, real estate, horse-trading and human nature. He must be a mind reader, a hypnotist and an athlete. He must be acquainted with machinery of all types and materials of all kinds and must know the current price of everything from a shoestring to a skyscraper. He must know all, see all and tell nothing. He must be everywhere at the same time. He must satisfy the claims manager, the claims examiner, the home office claims department, the overseas claims department, the general agent, the local agent, the brokers, the solicitors, the insured, the claimant, the underwriter, the re-insurers and eventually, himself.” Many of the above attributes, the computer definitely does not possess.
What are the key enablers to make adjusting business successful?
The role of adjusters is evolving – loss adjusters no longer see themselves as the traditional loss adjusters, but as claims solutions service providers. Adjusting is no longer a work in isolation – it would need to encompass, amongst other things, an appreciation of the clients’ claim philosophy and managing service performance expectation. No two companies are the same – if you have a client base of 20, it is a challenge to have each and every insurers’ claims philosophy embedded in the operation to ensure that it performs according to the requirements of respective insurers. In the future, and already happening, the adjusting companies will be operating as a direct extension of the insurer’s claims department to enable the whole claim process – from point of notification to final resolution – to flow as seamless as possible. Loss adjusters very often also function as “project managers” in the sense that they have to manage a team of experts investigating the same loss, although on differing issues – they could be forensics engineers or accountants, legal experts, restoration experts – and thus adjusters have the added role of coordinating the respective services to avoid duplication and gaps in the service. All that has been said above are some of the ways adjusters add value in the claims supply chain. All these are only possible with people with the right skills and commercial acumen. So as in many businesses, the key enabler of a successful firm of loss adjusters is people. At the foremost, adjusting firms are judged based on the professional calibre of their personnel. In a recent survey in the UK, the claims industry was asked: What skills are the most in demand within your claims operation? Technical claims skills came first, followed by commercial acumen. I believed the same could be said for our local industry. Is the industry doing enough to update the skills required? Maybe we are only scratching the surface to address the issue. Technology is another part of the key enabler to make any adjusting outfit successful. This means some heavy investment by the adjusting firm is needed. Technology will be used to manage our clients and their clients’ claims – the system will drive the claim forward, providing insurers “real-time” updates. This will form part of the provision of management information to insurers – and has to be in a manner and comprising the type of information that meets the needs of their claims departments. With challenges there are opportunities. For example, with the ASEAN integration by 2015, there could be opportunity for cross border loss adjusting. There is always the question of outsourcing by insurers against in-housing claims activities. Probably the right approach is right sourcing – irrespective of whether one is leaning more to outsourcing or in sourcing. The loss adjusting industry should find a place within the local industry – although not in its traditional form of loss adjusting but changing in the way our services need to be delivered.
What has not changed?
With so many changes, so what has not changed? What are the unchanging principles? The logo of CILA is “Truth and Equity” – “truth” reflects the role of adjusters to get the true facts in their investigations and “equity” is to humanise how we need to deal with the customers and act impartially to obtain a fair claims resolution. Other features of our role that haven’t changed are the absolute requirement for trust and integrity, without which the profession will be called into disrepute. Successful loss adjusters find that they cannot rely solely on their previous experiences to address new challenges. They will need to go back to the drawing board to re-assess their business model, continue to upscale their skills and update their knowledge. So in conclusion, yes, adjusting will survive, provided: we adjust to changing times and continue to adapt; and continue to be relevant by innovating and being able to evident our deliverables and add value to our clients, i.e. the insurers.