How to Achieve Claims Excellence And Not Breach New Complaints Legislation

2. INTRODUCTION Insurance claims management has come under the spotlight and poor claims handling is cited as one of the major culprits when it comes to insurance grievances. Moreover, the Insurance Act coming into effect throughout 2016 is set to cause the biggest shake up of insurance law in over a decade. It focuses on the need for transparency and certainty which means insurers must take steps to ensure that they aren’t still operating in the dinosaur era when it comes to the systems and processes that their company use when dealing with suppliers and customers. Figures published show that there are a growing number of complaints in motor and more complex cases such as medical and property claims. The Financial Ombudsman has quoted that the most complaints arise where there are 3rd parties involved in the fulfilment of a claim. This is often as a result of not having a clear set of instructions, as well as the customer and supplier expectations not being effectively identified, communicated and agreed upon. Even though the issuance of an instruction at the First Notification of Loss (FNOL) is regularly well executed, any subsequent instructions are frequently lost into a black hole and additional visibility is needed with regards to the ongoing status of claims. In this white paper we will explore recent complaint statistics and year-on-year (YOY) trends, along with how poor communications with your suppliers and customers can lead to a higher number of complaints and increasing costs. We’ll summarise some of the latest legislation along with highlighting helpful ways to prevent complaints through applying improved processes and new technology. INSURANCE WHITE PAPER

3. HOW TO ACHIEVE CLAIMS EXCELLENCE AND NOT BREACH NEW COMPLAINTS LEGISLATION • Complaints by numbers – what are some of the trends? • Firstly, to remove any confusion as to “What defines a complaint?” according to the Financial Conduct Authority’s Handbook its “any oral or written expression of dissatisfaction, whether justified or not, from, or on behalf of, a person about the provision of, or failure to provide, a financial service or a redress determination”. • On 26 May 2016, the Financial Ombudsman's Service (FOS) published its annual report. It contains statistics for the period between 1 April 2015 - 31 March 2016 as well as detailed commentary on trends and themes which we’ve summarised below. • Key themes • PPI still accounts for half of all complaints received by FOS but the volume of new complaints are dropping. • Insurance (excluding PPI) made up 9% of complaints received • New insurance complaints (excluding PPI) were up from 30,080 to 31,284. • Complaints about misselling made up 24% of insurance complaints. • 5% of Small businesses complaints were about commercial property insurance The loudest message from the FOS for the insurance industry is that it needs to continue improving its communications with customers to avoid complaints and improve service levels.

4. HOW TO ACHIEVE CLAIMS EXCELLENCE AND NOT BREACH NEW COMPLAINTS LEGISLATION • Key trends • The biggest contributor to complaints (excluding PPI) was for motor with a share of 27.5% • Buildings insurance came next with 13%. • Most other sectors were below 5% • Poor communication at both point of sale and during the claims process is the most significant driver • Out of all the complaints received who gets the most? • Banks are responsible for 72% • General insurers are responsible for 10% • Insurance brokers are responsible for 3.5% • Mortgage intermediaries are responsible for 2% • Independent Financial Advisors are responsible for 1% Poor communication at both point of sale and during the claims process is the most significant driver for complaints arising!

5. Taking a closer look at Year On Year complaints statistics for the insurance sector INSURANCE WHITE PAPER

6. Taking a closer look at Year On Year complaints statistics for the insurance sector Motor Motor has already been cited as being responsible for the most insurance complaints and the FOS usually leans in favour of the consumer in most cases. People also complained to the FOS about the repairs that their insurer had arranged after car accidents. Some said the damage hadn’t been adequately repaired – or that further damage had been caused by the repairs carried out.  Buildings and Contents Insurance Last year, the FOS were seeing complaints mostly where insurers instructed a 3rd party to act on their behalf and insurers were failing to take responsibility for their actions (or inactions). For example, Loss Adjusters may be accused of not being thorough and one of the reasons is poor communications and instructions from the insurer. The floods for instance, generated a number of complaints. Typically, people were upset that their claim hadn’t yet been dealt with and were concerned about significant delays in the process, or were unhappy with the quality of repairs. Travel and Medical Insurance The FOS has also seen a number of problems with annual travel policies – particularly those that come with a packaged bank account. These problems often came about because someone’s health had changed during the year – and when they came to make a claim, they found they were no longer covered. INSURANCE WHITE PAPER

7. Taking a closer look at Year On Year complaints statistics for the insurance sector The other sorts of complaints arose due to customers not being made aware that their level of cover had changed since the original policy was written. This is often the case in private medical complaints where cover for different conditions can change from year-to-year. Furthermore, complaints were made as a result of policies not keeping pace with the increased cost of medical fees so limits applied were unrealistic, leaving customers out of pocket to cover the shortfall. This customer satisfaction chart from Capgemini’s ‘2015 World Insurance Report’ also shows that customer experience scores deteriorate during the insurance lifecycle from quote gathering, through policy acquisition to claims servicing. This suggests that more needs to be done at each stage in the insurance process but greater focus should be given to the claims fulfilment or servicing process. INSURANCE WHITE PAPER

8. What are the changes being introduced by the 2015 Insurance Act? • The Insurance Act 2015 mainly applies to non-consumer insurance and reinsurance but also in part to consumer insurance and comes into effect on 12 August 2016. It brings into force the Third Parties (Rights against Insurers) Act, with minor corrections and represents a significant change to the legal framework of insurance contracts. • Here is a summary of the changes being introduced: • 1. The Duty of Fair Presentation: • Insureds will hold the general obligation to disclose all material facts. The insured will have to disclose every material circumstance that he or she knows or ought to know, with sufficient information to put a prudent insurer on notice that it needs to make further enquiries to reveal the material circumstances. This applies to disclosure before the contract is concluded, for both new contracts and renewals, as well as mid-term variations. • 2. New Remedies for Non-Disclosure: • New proportionate remedies are available to insurers following a breach of the new duty of fair presentation. For example, where a deliberate or reckless breach of fair presentation occurs, insurers can still avoid the insurance and retain any premiums paid. This would normally be from inception except where breach relates to a variation such as a mid-term adjustment. The onus will be on the insurer to show that a qualifying breach was deliberate or reckless and will need to be judged by the courts. • 3.Warranties and Other Terms • Warranties are to be treated as suspensive conditions, meaning that an insurer’s liability will only be suspended during a period of breach and a breach of warranty will no longer automatically terminate the policy. The breach of the warranty must have some bearing on the actual loss by increasing the risk of the loss occurring. INSURANCE WHITE PAPER

9. Fraudulent claims • If the insured makes a fraudulent claim the insurer is not liable to pay it. If such a claim is presented the insurer may recover sums paid in respect of the loss and the insurer may give notice terminating the insurance as from the date of the fraudulent act and need not return the premium. Claims arising from an event before the fraud would however continue to be payable. This reflects the law as it currently stands as established by the Courts. In this area the Act does not change the law but merely codifies it. • Contracting Out and the Transparency Requirements • For consumer contracts, an insurer cannot agree terms which put the insured in a worse position than that set out in the Act. For non-consumer contracts, parties will be entitled to agree terms which are less favourable to the insured than those set out in the Act subject. However, there are certain transparency rules that require; (i) the insurer to take “sufficient steps” to draw “disadvantageous terms” to the insured’s attention; (ii) the “disadvantageous term” must further be made “clear and unambiguous”. It will therefore not be possible for insurers to avoid the Act by introducing a simple additional clause into their policy documentation excluding the application of the Act without bringing the Act to the insured’s attention. • The Third Parties (Rights against Insurers) Act 2010 •  The Third Parties (Rights Against Insurers) Act 2010 is intended to enable victims of wrongdoers to proceed directly against the insurer, but it has not come into force due to a number of technical deficiencies. The latest Act rectifies these deficiencies and should allow the 2010 Act to come into force. INSURANCE WHITE PAPER

10. How can insurers be prepared? • Although some of the changes may seem subtle they will require new processes and audits to ensure compliance, especially as there is a shift towards the insurer having more responsibility to question insureds thoroughly in order to disclose any possible required information. Especially as there is a shift towards the insurer having more responsibility for ensuring the insured has had an opportunity throughout the length of the policy to disclose and update any required information. • For underwriting: • Claims, fraud and underwriting IT systems will need to be connected so that underwriters can underwrite at the policy inception stage in real-time. • More detailed, thorough questioning to the insured needs to be carried out and documented with further information sought if necessary. • Underwriters need to be clear that they are responsible in providing the insurer with all of the information required under the Act. • Insurers must work with underwriters and sales teams to make them aware of their duties so that they don’t fall foul of the Act. • Insurers need to review their policy wordings, certificates, notices to policyholders, underwriting criteria and question sets to ensure they are compliant with the Insurance Act. INSURANCE WHITE PAPER

11. For claims: • Claims teams should have access to the information provided by the insured at inception. • Detailed records must be stored and easily accessed by claims teams to ascertain the facts provided in the event of discrepancies. • There needs to be close interaction between claims and underwriting teams to establish whether or not a material circumstance is substantially correct. • Closer co-operation between claims and underwriting teams will also help to identify and fight fraud. • Handling guidelines and standard documents/letters will need to be updated to remove references to insurance being a contract of utmost good faith and setting out the basis of the new ‘duty of disclosure’. • Once the Act comes into force care will need to be taken when handling claims to apply the new provisions and not confuse them with the old ones. INSURANCE WHITE PAPER

12. How can insurers be prepared? • For Complaints: • Processes will need to be amended to take into account the provisions of the Act. • Due regard should be given to the Financial Ombudsman Service, their jurisdiction, their likely interpretation of the Act, and their powers to apply what is fair and reasonable in their adjudications. • Insurers should bear in mind the view from the regulator that insurers should put their customer at the centre of their business and provide policies that provide real value. • For Marketing: • Insurers should review all marketing materials including their websites to ensure that they are fit for purpose in light of the recent changes. • For Brokers: • Training will be needed for all brokers, partners, and key suppliers to ensure that they will be ready for the Act. • During the underwriting stage, these changes should encourage both the insurer and the insured to ask more questions of each other, which may in turn increase the role and responsibility of brokers. When the Act comes into force, insurers should have a very careful look at their standard terms to ensure they comply with transparency requirements. INSURANCE WHITE PAPER

13. What’s The FCA changing around complaints legislation? The FCA publishes complaints data every 6 months. They collect data at a market and firm level but only publish data on those firms reporting 500 or more complaints. These firms must also publish the complaints data on their own websites. In terms of when and what had to be reported, the rule was that firms must formally acknowledge all complaints by ‘the next business day’. However, they didn’t have to report on any of the complaints that were resolved by close of business, on the day following the day that it was received. New legislation by the FCA means that financial firms must now report on all of their complaints, and they need to submit details on the size of their company, along with more contextual data around their complaints handling. The purpose being to provide an improved service to consumers and provide greater access to the Ombudsman service. It also provides greater transparency and competitive analysis for end-customers which could be used to assist them during the process of selecting their financial service providers. INSURANCE WHITE PAPER

14. Therefore, the FCA are on a mission to improve the complaints process for the consumer and new guidelines have been set out for firms to begin implementing from March 2016. The FCA expect these changes to be in place within a year. Consequently, from March 2017 firms’ complaints handling and monitoring procedures need to be well prepared to cope with the new guidelines as summarised below: • The FCA are extending the ‘next business day rule’. Therefore, firms are permitted to handle less serious complaints more informally, without sending a ‘final response’ letter, to the close of three business days after the date of receipt. • Firms will now need to report and publish on all claims received, even those resolved by the next business day. • Firms will also need to raise consumer awareness of the ombudsman service, by sending a ‘summary resolution communication’ to all consumers for complaints resolved by the close of the third business day after receipt. • There are new rules coming into play that must limit the cost of calls for a consumer and firms have to adhere to a maximum ‘basic rate’, including all post-contractual calls and all complaints related calls. • There will be an enhanced ‘complaints return’ process which will require more contextual information and transparency around the detail of the complaint and how it was handled against a set of new metrics. • More detailed information regarding the changes and what’s required from the new ‘complaints return’ process can be found in the FCA’s Consultation Paper on Improving Complaints Handling. INSURANCE WHITE PAPER

15. How can insurers reduce complaints during the claims process? It’s important to build trust with customers and your suppliers through having transparency during the writing of a policy and during the claim should it arise. As the Financial Services industry is cited as one of the least trusted markets in the 2016 European Trust Barometer, it’s important the insurance industry shifts public opinion by putting customer service and communication as it’s number 1 priority. The fallout from a bad customer experience is now bigger than ever before due to consumers sharing experiences, seeking reviews online and via social media. A recent success story to evolve from having an open, transparent service is Uber. The customer gets to see the journey of their taxi in real-time and can leave a review for each driver. Additionally, the driver can leave a review for the passenger so the trust needs to be mutual. Likewise, for an effective insurance policy it’s crucial to know what is important to the customer from the very beginning of the relationship and ensure that the pertinent points are clearly communicated without room for misinterpretation. INSURANCE WHITE PAPER

16. Below are some of the key things a consumer should have clear instructions about: • What’s included in my policy – what can and can’t be claimed? • When’s my renewal due? • How is my renewal calculated? • How can I save? • Are there customer loyalty discounts/benefits? what further products / services are available to me? • How do I claim – what information is required, and routes to do so? • How much is my excess? • How long will my claim take / what stages will it go through? • What’s the status of my claim? • How was the decision reached? • Who will be appointed to carry out the work for my claim? • What’s their customer service rating? • Can I choose which supplier I use? • I want convenience in how I access my policy/claim information. INSURANCE WHITE PAPER

17. How can insurers reduce complaints during the claims process? The FOS have cited that one of the main causes for complaints is down to the insurer not explaining clearly why a claim was rejected. The reasons and language used to communicate to the customer should tally up with the original policy wording so there’s no room for doubt or uncertainty. Insurers need to go to more lengths to communicate with policyholders in the event of a claim rejection to ensure the facts are understood as it could prevent the complaint from arising in the first instance. Another main cause for complaints is down to a lack of effective communication during a claim when a 3rd party is appointed. Past the initial claims instruction, both customers and suppliers are unsure what is happening, when and by whom. Suppliers have told the FOS that they have received poor instructions from the insurer. There seems to be something of an abyss where communication and status updates are lost in simple and more complex claims that are handled by a 3rd party. In these cases, the complaint is almost always upheld due to insurers having failed to take responsibility for the actions (or inactions) of their agents. So more needs to be done in order to keep all parties informed during the claims process which is the ‘moment of truth’ for the insured. This is where customer loyalty can be made or broken. INSURANCE WHITE PAPER

18. In the modern digital age, there is no excuse for poor communication. The tools exist to help insurance networks made up of multiple suppliers, agents and 3rd parties to collaborate and in real-time. Furthermore, customer interaction preferences are changing. Gen Y’s preference to interact exclusively via digital self-service (web or mobile) increased to 27 percent in 2015, up from 21 percent in 2011. And, this trend is only set to continue as new start-up entrants to the market such as ‘Trōv’ are causing a stir and attracting high investment from main insurance companies already. Therefore, adopting technology that connects your insurance supply chain and helps you to keep your customers informed is crucial to prevent unnecessary grievances. Complaints will always be part of an Insurers Claim File and it’s practically impossible to have a 100% complaint free claims service. But as regulators become noisier and customers more vocal, it has never been more important to treat complaints with the upmost priority from the board level and down. INSURANCE WHITE PAPER

19. How to prevent 3rd party claims data falling into a black hole Although distribution of the initial Instruction is generally well executed, the actual content can be poorly written and misunderstood. Added to this, claim status updates are not always subject to the same clear process and data exchange as the instruction. Claim handlers are opting to call or email each other for the latest position or claim status information. This seems to indicate a lack of trust in the quality of the data or the system behind it. It may also indicate that logging onto many different supplier portals and navigating through different workflows and dashboards is just too complex and time consuming compared to email and telephone. Instead look to the following steps to improve communication and collaborative ways of working. INSURANCE WHITE PAPER

20. Implement a centralised claims portal to access all claims information Adopting a system that has a defined process and enables claims to be centralised, transparent and visible should mean that claims are dealt with more proactively. Customers can speak to just one contact for a complete picture about their claim. Additionally, any complaint that arises against a claim can be seen and dealt with swiftly. A single portal can also help to shorten the length of time taken to resolve an issue by highlighting where an exception is occurring outside of the standard process and alerts the insurer and supplier to bring additional resource into play. Set achievable targets for resolution and create alerts for issues Recognising that performance perfection is unobtainable in every single claim instruction means that a more obtainable goal of resolving mistakes and problems quickly and to high levels of satisfaction is achievable. Implement automated alerts to relevant parties when follow up actions fall outside normal and acceptable response times. Being able to concentrate both insurer and supplier resources on these problems, by way of quick, clear communications can help to bring about a satisfactory and satisfying outcome before a complaint arises. If something has gone wrong during the claims process, this needs to be turned into an opportunity to go beyond the call of duty and fix the issue for the policyholder which can in turn lead to improved customer loyalty. INSURANCE WHITE PAPER

21. Speed up communications through using multiple channels Using the phone is not the most efficient way to communicate. Insurers and suppliers recognise that automating the claims instruction process and sharing status updates instantly and electronically over the internet would reduce operational costs and improve the service for the policyholder. It also provides a digital historical communication chain that is often lost if conversations are carried out via telephone. Instead messages could be sent to the policyholder directly through the internet to their phone via SMS, email or a claims app. Future options will include other notification methods, such as Facebook Messenger, Kik and perhaps even robo-advisors. Standardise process through the entire supply chain Most claims admin systems will help to improve the internal claims process but most do not include the required functionality to get the best out of the external claims supply chain. Whether this is the provision of a supplier view of the claim, communication with the supplier or management of the supplier. As an example, if your system does not help you with supplier management then relying on the suppliers to provide the management information to monitor Service Level Agreements means, at the very least, that you are not in full control of when and how you view it. INSURANCE WHITE PAPER

22. What are the risks of doing nothing to improve claims and reduce complaints? • Lastly, what could happen if insurers don’t take heed of new legislation and work towards more transparent and collaborative processes when it comes to writing insurance policies and managing claims? In this digital age, it could create a perfect storm as consumers have access to more information than ever before. They can quickly compare policy premiums and gather reviews and recommendations for certain products online, as well as be more informed as to how to complain to bodies such as the FOS. • The risks of providing a poorly written policy and slack claims service include: • Increasing number of fines from the Financial Ombudsman • Increased costs of managing complaints • Increased claims leakage • Loss of market share through poor customer feedback • Decreased profit margin INSURANCE WHITE PAPER

23. The continuation of high complaint volumes through not addressing straight forward opportunities to improve transparency to customers, and efficiency in managing information with their suppliers could be fatal for insurers. Real-time interchange of accurate information between the insurer and their suppliers is essential to providing a positive claims experience. A quicker, well designed and transparent claims settlement process is beneficial for everyone. A visible collaborative process is an enabler that puts the right information in the right people’s hands at the right time. Improved management of suppliers and partners can reduce the settlement time, reduce the potential opportunities to commit fraud, reduce frictional costs of processing the claim and improve the policyholder’s satisfaction. Insurers need to embrace the digital age and take the opportunity to provide more value added services to their customers as insurance cannot continue to be treated as a commodity as it will diminish premiums and profit margins. If insurers don’t look for more ways to work smarter and reinforce their supply chain processes and engage the customer and win back their trust – then it’s likely more foreword looking businesses will take their place. INSURANCE WHITE PAPER

24. About Adjuno Adjuno is a global software business that is made up of two former supply chain solutions companies that united to launch as a single world-wide brand in February 2016. We are also part of the $1 Billion + Allport Cargo Services Logistics Group. We provide a web-based claims fulfilment platform to a number of global insurance companies, as well as Lloyd’s of London insurance syndicates. Our platform connects insurers with their suppliers to reduce the cost per claim. Insurers who work with us gain complete visibility of their supply chain, enabling improved supplier management and reduced claims leakage. The end result is a faster, more efficient process, and a better customer experience. We have more than 20 years of experience in providing cloud-based business solutions, and a global client base spanning across America, Europe, South Africa, and Australasia. We have worked with companies of all sizes across the retail, insurance and consumer product industries, including AXA insurance, Marks and Spencer, ASOS, and John Lewis. Today, our claims management software has over 13K users logging on each day to effectively manage and drive their business, and every month we track over 11M processes, at more than 150 customer sites across the world. Contact us for more information Adjuno Regional – Europe/ UK Head Office Worcester House, No 6 Langley Quay, Waterside Drive, Langley, Berkshire, SL3 6EY +44(0)1753 260 400 enquiries@adjuno.com www.adjuno.com

25. About Adjuno Adjuno UK LIMITED is a company registered in England and Wales, VAT No. 226834456, Company No. 1239655 Registered office address: Allport House, Cowley Business Park, Cowley, Uxbridge, UB8 2AD INSURANCE WHITE PAPER