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.

Insurance - - FEATURE - by Joash Tan Ah Chuan Char­tered Loss Ad­juster and Man­ag­ing Di­rec­tor of Mes­tari Ad­justers Sdn Bhd

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.

Chang­ing Land­scape

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.

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