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Insurance: Winning through claims & procurement

Learn how winners improve loss ratios by 1-3 percentage points

Overview

Insurance Claims and Procurement departments are disjointed at best, antagonistic at worst.

Claims organizations typically underutilize procurement disciplines, while procurement departments misconstrue what matters to claims—both of which fuel a misguided turf war. And in the ensuing battles, everybody loses.

The cost of procured products and services from third-party vendors heavily influences the economics of claims, and procurement is typically an uncomfortable partner in this process. Improving the strategic planning, sourcing and management of billions of dollars spent on products and services can strengthen claims’ performance as a driver of competitive advantage for the insurer, leading to greater efficiency, more accurate loss ratios and enhanced customer engagement.

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Key Findings

If both departments were to look beyond tactical practices to the common goal of increased competitiveness, they could make three critical improvements:

Claims departments struggle to create objective criteria and they are frustrated by their perception that Procurement obsesses over rate cards and volume. Claims and Procurement must collaborate to translate qualitative Claims criteria into tangible Procurement measures that enable objective selection and contractual terms.
Antiquated processes and a lack of technology/automation hold insurers back from better claims efficiency and customer service. By agreeing on the strategic use of technology across claims and procurement value chains, insurers can achieve innovation and unlock value currently lost in conflicting tactical approaches.
Global claims procurement programs need local optimization because regulatory and procurement practices across countries affect strategic priorities and economic realities. Value levers may vary according to the geography, so claims and procurement practices must be customized for each country.

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Recommendations

Claims and Procurement need to build a model that coordinates their operating principles from a strategic perspective.

Decision-making, governance, process ownership and performance management—among other factors—should be unified.

Win at the intersection. Design a future state where Claims and Procurement work together to select, manage and pay vendors.

Go digital. All systems touching claims activity should be synchronized and share data.

These actions, sustained through operating model changes, will help insurers move toward seizing a potential 1-3 percentage points improved loss ratio. For one carrier, such measures resulted in an over $100M reduction in loss.

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