Claims Management and Distribution Quality Management (DQM) synergies

Introduction

All insurers aspire to pay every claim that lands on their desk. The claims process is the “moment of truth”, and our aim is to help vulnerable people; those with critical illnesses and the recently bereaved with the financial support they need, when that need it at its greatest. As an industry, we support thousands of customers, and the figures recently released by the ABI are testament to that.

In 2023, the industry paid out £7.34 billion across nearly 300,000 claims¹. These are astonishing figures which highlight the value of our products to consumers. However, regretfully, there are occasions when claims are declined. There are several reasons for this, although a major contributor is that many of those claims are declined due to misrepresentation.

The Protection industry always strives to do better. A great deal of work has been done to ensure that we get accurate disclosures and can appropriately assess the risk and reduce the amount of misrepresentation that occurs. One such control that insurers use to reduce misrepresentation and improve application disclosures is Distribution Quality Management (DQM).

What is DQM?

Distribution is a key stage of protection insurance sales, impacting not only the sales process and customer satisfaction, but also the persistency and claims experience emerging from the portfolio. This impact can be the result of many things including, how customers are targeted and acquired, sales practices, and even intermediary behaviour during the process. The intermediary often helps the customer understand the application process and encourages them to respond honestly to all the questions asked. When application questions are answered incorrectly, it could impact the insurer financially but could also leave the customer without adequate cover.

DQM is aimed at understanding the risk in this crucial part of the customer journey, mainly focused on the intermediary market who provide the majority of protection insurance sales in the UK.

A comprehensive DQM process employs a wide variety of tools to assess and react to the risk, from the collection of key performance indicators (KPI) from sales, finance, underwriting, and claims teams!

However, the most important element is a function-wide cooperation to make sure that information and insight gathered on distribution is shared and utilised across the whole of the organisation.

¹ Protection insurers pay out record £7.34 billion to support individuals and families | ABI

In the December 2017 edition of SCORacle, we had an article discussing DQM and can be found here: DQM article.

How could DQM and Claims management support each other?

Using DQM insight to support claims investigations.

Distribution watchlist and supporting information

DQM regularly produces watchlists on firms who fail their quality control metrics. This list represents a combination of KPI and qualitative insight from audits.

Currently, insurers' DQM focus is driven by persistency, credit control and customer sales complaints. These issues can correlate to poorer claims experience than expected, due to the chance of misrepresentation and fraud being higher during the sales process.

Due to this, SCOR recommend additional vigilance where there is a claim with a broker on a watchlist. For claims in this scenario, we recommend that we do not solely use customer supplied evidence (CSE) to validate a claim.

Although some insurers have adopted this, SCOR recommend integrating the claims team within the DQM forums to enhance cooperation between the teams.

Risk insights from data analytics

DQM teams accumulate information from other teams across the control cycle which could support claims monitoring and investigation:

• Underwriting disclosure reporting and modelling identifies trends in disclosures made during application journeys. This information is used by DQM teams to identify distributors or individuals who might be under disclosing relative to their demographic (Age, BMI, Smoker Status etc.). The same information could be used by claims teams to complement their analysis, such as:
  • Focusing on individuals and firms who were more likely to misrepresent.
  • Understanding which conditions are more likely to be misrepresented and fine tune claims procedures to reflect this.

Collecting distributor specific claims insight.

The claims team can provide essential insight for the DQM process, such as:

• Identifying an increase in early claims and fraudulent claims and flag if they are connected to a specific distributor. This could then result in targeted PIS.
• Highlighting specific trends in fraud which could be fed back to the DQM process to be monitored.
  • Examples include multiple frauds connected to a specific GP surgery, which were also connected to a specific distributor suggesting a wider problem.
  • The existence of this could be flagged to DQM teams to monitor in the future.

For a number of years now, insurers have used the information gained from DQM analysis to focus efforts on targeted post-issue sampling (PIS). By underwriting policies post-issue, we are ensuring the quality and credibility of the business we are writing and ensuring policies are maintained on appropriate terms, based on their risk.

To decide which intermediaries to focus on, SCOR will look at the percentage of rated cases, the percentage of smokers (particularly those that sell to lower socioeconomic groups) or the percentage that are accepted via straight-through processing (STP). A distributor with a high STP rate or a low percentage of rated cases may be indicative of a broker with under-disclosure on their applications.

Some insurers also look at how different groups of distributors behave. Do directly authorised firms have better disclosure rates than firms in networks? What about mortgage brokers? Do they have higher or lower disclosure rates than the wealth advisers? Identifying the patterns will help to focus DQM activities in the areas where they may have most impact and ensure application design and pricing is appropriate for the distribution channel.

The benefits to insurers, reinsurers and consumers of DQM cannot be understated and is an excellent control. Whilst DQM and PIS are now fundamental to underwriting, in many cases, it seems that claims are a little late to the party.

Claims philosophies from one insurer to the next can differ, and evidence requirements can be quite different. There are a number of reasonable factors for this, and all insurers will strive to make reasonable evidence requests to validate claims in an expedient manner. However, few claims’ teams consider the useful information derived from qualitative DQM analysis and use this information when requesting evidence at claims stage. Our underwriting colleagues have been doing this for several years, so why aren’t we?

Where could a Reinsurer support this cooperation?

Wider market presence helps to build a more credible picture

DQM information gathered by a reinsurer will cover a wider market segment, which provides additional advantages to in-house DQM systems:

• By having access to larger volumes, a reinsurer can build a view around a distributor’s performance earlier and therefore could act as an early warning system to DQM teams, and by extension, claims teams about potentially fraudulent claims or those where there is misrepresentation.
• It can also identify distributors in the market which are targeting specific insurance companies due to differences in underwriting and claim philosophies, compared to the rest of the market. This not only helps the market participants to identify these weaknesses earlier, but also helps to improve customer outcomes for the rest of the market.

More possibility to build credible claims experience

It takes a significant amount of time for a credible claims experience to emerge on a distributor, however by acting as a trusted counterparty, a reinsurer can build credible volumes much earlier, enabling support its partners in various ways:

• Providing early warning if a significant volume of early claims arise from a distributor.
• Providing insight into general claims issues in the market, enabling it to pass that information on to the rest of the insurers in its network.

Conclusion

In conclusion, by promoting cross-functional cooperation and leveraging insights from both DQM, PIS and Claims Management, we can not only reduce risk, but also improve customer satisfaction and outcomes.

The team at SCOR would be delighted to discuss this further with insurers and explore how this can be embedded into the claims process.