Strategic Claims Management - 996

Strategic claims
management
996
2022
STUDY
TEXT
Strategic claims
management
996: 2022 Study text
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2 996/November 2021 Strategic claims management
© The Chartered Insurance Institute 2021

All rights reserved. Material included in this publication is copyright and may not be reproduced in whole or in part
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Every attempt has been made to ensure the accuracy of this publication. However, no liability can be accepted for
any loss incurred in any way whatsoever by any person relying solely on the information contained within it. The
publication has been produced solely for the purpose of examination and should not be taken as definitive of the
legal position. Specific advice should always be obtained before undertaking any investments.
Print edition ISBN: 978 1 80002 329 1
Electronic edition ISBN: 978 1 80002 330 7
This edition published in 2021
The authors
Beverley Lyn MBA FCII. Beverley has over 30 years’ practical experience in the general insurance industry in
claims, operational, strategic and change management. Beverley now runs her own consultancy business,
supporting clients with delivering change and designing and delivering training in both technical insurance,
leadership and management. She has a keen interest in creating and developing learning that helps the student to
engage with technical topics to facilitate long-term learning. Beverley has worked with the CII for a number of years
as an author, reviewer and trainer. Beverley is the author of all but chapter 2 of this study text.
Will Curtis MA (Cantab) ACII, Chartered Insurer. Will has worked in general insurance for 18 years,
predominantly in claims and compliance, initially as a claims adjuster in marine and political risk with a Lloyd’s
managing agent. He subsequently worked as a project manager in the Lloyd’s claims team and is now risk and
compliance manager at a UK domestic insurer. Will is passionate about the role claims plays for the organisation
and the customer, and hence about investment in claims and our profession. Will is the author of chapter 2 of this
study text.
Reviewers
Barry R Jones Dip CII (Claims)
Bill Keith MBA BA FCII FCILA FEUDI-ELAE FIFAA BDMAInsTech MIRM MCMI
Ed Gooda FCII Chartered Insurer
Acknowledgements
The CII would also like to thank the authors and reviewers of other CII study texts in respect of any material drawn
upon in the production of this study text.
The CII thanks the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) for their kind
permission to draw on material that is available from the FCA website: www.fca.org.uk (FCA Handbook:
www.handbook.fca.org.uk/handbook) and the PRA Rulebook site: www.prarulebook.co.uk and to include extracts
where appropriate. Where extracts appear, they do so without amendment. The FCA and PRA hold the copyright for
all such material. Use of FCA or PRA material does not indicate any endorsement by the FCA or PRA of this
publication, or the material or views contained within it.
Typesetting, page make-up and editorial services CII Learning Solutions.
Printed and collated in Great Britain.
This paper has been manufactured using raw materials harvested from certified sources or
controlled wood sources.
3
Using this study text

Welcome to the 996: Strategic claims management study text which is designed to cover
the 996 syllabus, a copy of which is included in the next section.
Please note that in order to create a logical and effective study path, the contents of this
study text do not necessarily mirror the order of the syllabus, which forms the basis of the
assessment. To assist you in your learning we have followed the syllabus with a table that
indicates where each syllabus learning outcome is covered in the study text. These are also
listed on the first page of each chapter.
Each chapter also has stated learning objectives to help you further assess your progress
in understanding the topics covered.
Your Advanced Diploma study material has been designed to help you develop study skills
that you may not be familiar with. The aim is that you should engage actively with the text,
which contains a number of features designed to assist your learning and study.
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additional reading), encouraged to learn from your own experiences (research exercises),
to think critically (critical reflections) and provided with opportunities to apply your
knowledge and skills through practical application (scenarios).
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of points made in the text. on the subject from industry sources.
Key terms: introduce the key concepts On the Web: introduce you to other
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Note: website references correct at the time of publication.
5
Examination syllabus
Strategic claims
management
Purpose
To enable candidates to understand the strategic direction and strategic leadership of claims function.
Target Candidate
Claims specialists with several years’ experience who are looking to develop their career through the
route: Section Head; Departmental Claims Manager; Company Claims Manager and anyone who
interacts with the claims function. It can also apply to those who receive claims data.
Assumed Knowledge
It is assumed that the candidate already has grounding in claims gained from study of M85 Claims
practice or 820 Advanced claims, and knowledge of insurance organisations, finance and regulations
as typically covered in IF1 Insurance, legal and regulatory, or M92 Insurance business and finance or
equivalent examinations.
Summary of learning outcomes
1. Discuss the role of strategic claims management within the insurance value chain
2. Evaluate the implications of regulation for a claims function
3. Evaluate the claims strategy within the broader business context, culture and corporate strategy
4. Evaluate the financial impact of the claims strategy on the business
5. Analyse the requirements of a leadership role in the claims function
6. Analyse wider issues that affect claims strategy
Important notes
• Method of assessment: Coursework – 3 online assignments (80 marks). Each assignment must be
individually passed.
• The syllabus is examined on English law and practice unless otherwise stated.
• Candidates should refer to the CII website for the latest information on changes to law and practice
and when they will be examined:
1. Visit www.cii.co.uk/qualifications
2. Select the appropriate qualification
3. Select your unit from the list provided
4. Select qualification update on the right hand side of the page
Published January 2022

©2021 The Chartered Insurance Institute. All rights reserved. 996
1. Discuss the role of strategic claims 6.5 Analyse the potential contribution and limits of
management within the insurance value modelling.
chain 6.6 Analyse emerging risks within the context of claims
1.1 Explain the insurance value chain and the role of management.
claims management within the value chain. 6.7 Analyse the reasons for closing an account and
1.2 Discuss the role of claims management within the managing run-off.
context of enterprise risk management.
2. Evaluate the implications of regulation for

a claims function
2.1 Analyse the implications of prudential regulation and
business conduct rules on the claims strategy.
2.2 Explain how the claims function manages its
regulatory responsibilities.
2.3 Explain the implications for the claims function of the
specific regulatory requirements affecting the London
Market.
3. Evaluate the claims strategy within the

broader business context, culture and
corporate strategy
3.1 Develop a claims strategy within the broader
business context, culture and strategy.
3.2 Develop a strategic claims plan.
3.3 Evaluate the strategic opportunities and challenges
in new and existing claims functions.
4. Evaluate the financial impact of the

claims strategy on the business
4.1 Explain the impact of the claims strategy on the
balance sheet.
4.2 Discuss the financial relationship between the claims
function and other internal functions.
4.3 Interpret financial claims management information to
inform the strategy.
5. Analyse the requirements of a leadership

role in the claims function
5.1 Evaluate the key skills and capabilities of a leader in
a claims function.
5.2 Analyse the culture and business resource
requirements and limitations of the claims function.
5.3 Develop a plan to deliver the resources to support
business requirements.
5.4 Explain how you will measure and manage the
performance of the claims function to ensure
achievement of the claims plan.
5.5 Explain how to ensure continuous business
improvement.
6. Analyse wider issues that affect claims

strategy
6.1 Analyse the effect of ethical claims management on
the business.
6.2 Analyse the importance of life-time value of
customers.
6.3 Analyse the impact of digital technology.
6.4 Explain the importance of business continuity
planning.
Published January 2022 2 of 4

©2021 The Chartered Insurance Institute. All rights reserved.
7
Reading list Malcolm Clarke, Baris Soyer (eds.).

Abingdon: Informa, 2016.
The following list provides details of various Understanding the Financial Conduct
publications which may assist you with your
studies. Authority: a guide for senior managers.
Ashley Kovas. Kibworth Beauchamp:
Note: The examination will test the Matador Books, 2015.
syllabus alone. However, it is important
to read additional sources as 10% of the Ebooks
exam mark is allocated for evidence of The following ebooks are available through
further reading and/or the use of
relevant examples. Discovery via www.cii.co.uk/elibrary (CII/PFS
members only):
The reading list is provided for guidance
only and is not in itself the subject of the Business continuity planning: a project
examination. management approach. Ralph L. Kliem,
Gregg D. Richie. Boca Raton: Auerbach
The publications listed here provide a wider
coverage of syllabus topics. Publications, 2016.
Customer value creation behaviour. Youjae
CII study texts Yi. London: Routledge, 2015.
Strategic claims management. London: CII.
Online resources
Study text 996.
Delivering excellence in insurance claims
Insurance, legal and regulatory. London: CII. handling: claims best practice guide.
Study text IF1. AIRMIC. 2010. Available via www.airmic.com
(register your details to access).
Insurance business and finance. London:
CII. Journals and magazines
Study text M92. The Journal. London: CII. Six issues a year.
Claims practice. London: CII. Post magazine. London: Incisive Financial
Study text M85. Publishing. Monthly. Contents searchable
online at www.postonline.co.uk.
Advanced claims. London: CII.
Study text 820. Reference materials
Concise encyclopedia of insurance terms.
Books / ebooks Laurence S. Silver, et al. New York:
A practical guide to corporate governance. Routledge, 2010.*
5th ed. Mark Cardale. London: Sweet and
Harriman’s financial dictionary: over 2,600
Maxwell, 2014.
essential financial terms. Edited by Simon
Insurance claims. 4th ed. Alison Padfield. Briscoe and Jane Fuller. Petersfield:
Bloomsbury Professional, 2016. Harriman House, 2007.*
Claims handling law and practice. Richard Insurance: Conduct of Business sourcebook
West et al. London: Kennedys Law LLP, (ICOBS). Available via
2018. www.handbook.fca.org.uk/handbook/
'Claims process at Lloyd's'. Chapter 13 in
Lloyd's law and practice. 2nd ed. Julian Specimen guides
Burling. London: Informa, 2017.*
Specimen guides are available for all
‘Claims under the policy’. Chapter 14 in
coursework units.
Bird’s modern insurance law. 10th ed. John
Birds. London: Sweet & Maxwell, 2016. These are available on the CII website under
the unit description / purchasing page. You
Digital insurance: business innovation in the
will be able to access this page from the
post-crisis era. Bernardo Nicoletti.
Qualifications section of the CII website:
Basingstoke: Palgrave Macmilan, 2016.*
www.cii.co.uk/qualifications.
Organisational behaviour: an introductory
text. Andrzej Huczynski, David Buchanan.
8th ed. Financial Times/Prentice Hall, 2013.
The Insurance Act 2015: a new regime for
commercial and marine insurance law.
* Also available as an ebook through eLibrary via www.cii.co.uk/elibrary (CII/PFS members only).

Exam technique/study skills

There are many modestly priced guides
available in bookshops. You should choose
one which suits your requirements.

9
996 syllabus
quick-reference guide
Syllabus learning outcome Study text chapter
and section
1. Discuss the role of strategic claims management within the insurance value chain
1.1 Explain the insurance value chain and the role of claims 1A, 1B, 1C, 1D, 1E
management within the value chain.
1.2 Discuss the role of claims management within the context of 1F
enterprise risk management.
2. Evaluate the implications of regulation for a claims function
2.1 Analyse the implications of prudential regulation and business 2A
conduct rules on the claims strategy.
2.2 Explain how the claims function manages its regulatory 2B
responsibilities.
2.3 Explain the implications for the claims function of the specific 2C
regulatory requirements affecting the London Market.
3. Evaluate the claims strategy within the broader business context, culture and corporate
strategy
3.1 Develop a claims strategy within the broader business context, 3E, 3F, 3G, 3H, 3I, 3J
culture and strategy.
3.2 Develop a strategic claims plan. 4E
3.3 Evaluate the strategic opportunities and challenges in new and 4F
existing claims functions.
4. Evaluate the financial impact of the claims strategy on the business
4.1 Explain the impact of the claims strategy on the balance sheet. 5A
4.2 Discuss the financial relationship between the claims function 5B
and other internal functions.
4.3 Interpret financial claims management information to inform the 5C
strategy.
5. Analyse the requirements of a leadership role in the claims function
5.1 Evaluate the key skills and capabilities of a leader in a claims 6A, 6B, 6C, 6D
function.
5.2 Analyse the culture and business resource requirements and 3A, 3B, 3C, 3D, 4A, 4B, 4C
limitations of the claims function.
5.3 Develop a plan to deliver the resources to support business 4D
requirements.
5.4 Explain how you will measure and manage the performance of 7A
the claims function to ensure achievement of the claims plan.
5.5 Explain how to ensure continuous business improvement. 7B
6. Analyse wider issues that affect claims strategy
6.1 Analyse the effect of ethical claims management on the 7C
business.
6.2 Analyse the importance of life-time value of customers. 8C
6.3 Analyse the impact of digital technology. 8E
6.4 Explain the importance of business continuity planning. 8A
6.5 Analyse the potential contribution and limits of modelling. 8B
6.6 Analyse emerging risks within the context of claims 8F
management.
Syllabus learning outcome Study text chapter

and section
6.7 Analyse the reasons for closing an account and managing run- 8D
off.
11
Introduction
996 Strategic claims management is an Advanced Diploma insurance unit and is intended
for students who are nearing the completion of their ACII qualification. You will already have
developed a solid grounding in the technical aspects of insurance and will be approaching,
or have already reached, first-line management. You need to be aware that, due to the target
audience of this syllabus we are making assumptions with regard to current knowledge. So,
for instance it is assumed that you already have knowledge of insurance organisations,
finance and regulations. In addition, such assumed knowledge could include:
• first-line supervisory management, including, e.g. interviewing techniques and
performance management;
• handling of complaints;
• negotiation skills; and
• the management of claims.
The overall aim of this unit is to provide you with an introduction to the concepts and
processes of strategic claims management, together with some of the issues that need to be
addressed by leaders at this level. Thus the syllabus and study text take you beyond the
day-to-day operational management of the claims function and are aimed at those who have,
or aspire to have, responsibility for a claims function as part of their role. Consequently, they
are designed to enable the evaluation of the following:
• the role of strategic claims management within the insurance value chain;
• the implications of regulation for a claims function;
• the claims strategy within the broader business context, culture and corporate strategy;
• the financial impact of the claims strategy on the business;
• the requirements of a leadership role in the claims function; and
• the wider issues that affect claims strategy.
Success in the 996 assessment will require you to be able to:
• evaluate key issues and concepts: this means that you must be able to demonstrate skills
in comparing and discriminating; assessing value and making choices;
• apply knowledge and skills to practical situations: solving problems and using information,
methods, concepts and theories; and
• synthesise different aspects of the syllabus: this means you must be able to demonstrate
skills in using old ideas to create new ones and draw conclusions.
The syllabus learning outcomes support the principle that understanding how and when to
use knowledge is as important as the knowledge itself. This study material has been
designed to support the achievement of these outcomes, but you should note that success in
the 996 assessment will require to you undertake further reading and independent research
beyond this core text.
Suggestions for further reading are included in the Reading List at the end of the syllabus
and bibliographies are provided within the text. You will also find a number of research
exercises and other activities are included (see the Using this study text section for further
detail). Taking the time to do these extra activities will not only enhance your chances of
success in the coursework assessments, but also increase your effectiveness in your chosen
career.
Throughout the text the generic term of a claims function is used, this can apply to a claims
function of any size in any type of organisation, such as insurers, brokers, MGAs, third party
providers and loss adjusters. These claims functions will vary in size from a small team
operating in a single location to many thousands of staff geographically spread across
the world.
It may be that some aspects of the text may be more akin/relevant to you, depending on
which part of the claims value chain your organisation is placed. However, all aspects will
help you understand the holistic view of the strategic management of a claims function.
13
Contents
1: Strategic claims management within the insurance value
chain
A The value chain 1/2
B The insurance value chain 1/3
C Differentiation analysis 1/6
D Supplier strategy 1/9
E Value chain for cost analysis 1/9
F Context of enterprise risk management 1/10
G Scenario 1: Risks and benefits 1/21
2: Impact of regulation on the claims strategy

A Prudential and conduct regulation 2/2
B Managing regulatory responsibilities 2/9
C London Market regulation 2/14
D Scenario 2: Regulatory change 2/20
3: Developing a claims strategy

A Corporate culture 3/2
B Analysis of culture 3/5
C Organisational performance and culture 3/8
D Leadership 3/9
E Developing the strategy 3/10
F Common elements in successful strategies 3/14
G Industry and environment analysis 3/15
H Resource and capabilities as a competitive strategy 3/22
I Development of the claims strategy 3/23
J Culture and strategy 3/26
K Scenario 3: Strategic fit 3/31
4: Analysis of resources and strategic planning

A Analysis of resources 4/2
B Assessing the claims resources 4/3
C Assessing the claims capabilities for a competitive advantage 4/7
D Developing a plan to deliver the resources 4/12
E Developing a plan to implement 4/19
F New and existing claims functions: strategic opportunities and 4/20
challenges
G Scenario 4: Resources 4/26
5: Financial impact of the claims strategy on the business

A Impact of the claims strategy on the balance sheet 5/2
B Financial relationship with other internal functions 5/8
C Interpreting financial claims information 5/14
D Scenario 5: Financial consequences 5/17
6: Leadership in the claims context

A Role of a claims leader 6/2
B What makes a leader? 6/3
C Leadership theories 6/7
D Leadership skills 6/11
E Scenario 6: Leadership 6/17
7: Leading to achieve the performance of the plan

A Measure and manage performance 7/2
B Ensuring continuous business improvement 7/8
C Ethical claims management 7/15
D Scenario 7.1: Continuous business improvement 7/23
E Scenario 7.2: Ethical claims management 7/24
8: Wider issues affecting claims strategy

A Business continuity planning (BCP) 8/2
B Potential contribution and limits of modelling 8/5
C Life term value of customers 8/8
D Run-off business 8/10
E Digital technology and the claims strategy 8/13
F Emerging risks 8/20
G Scenario 8: Digital technology 8/26
Appendix 1: Assessing and developing your own leadership skills A1/1

Self-test answers i
Legislation xvii
Index xix
Chapter 1
Strategic claims
1
management within the
insurance value chain
Contents Syllabus learning
outcomes
Introduction
A The value chain 1.1
B The insurance value chain 1.1
C Differentiation analysis 1.1
D Supplier strategy 1.1
E Value chain for cost analysis 1.1
F Context of enterprise risk management 1.2
G Scenario 1: Risks and benefits
Self-test questions
Learning objectives
After studying this chapter and private research, you should be able to:
• explain the insurance value chain;
• explain the role of claims management within the value chain; and
• discuss the role of claims management within the context of enterprise risk management.
Chapter 1 1/2 996/November 2021 Strategic claims management
Introduction
In this chapter we are going to look at the insurance value chain, what it is and how strategic
claims management fits within it. In this context we are going to consider the claims value
chain. We will consider the role of claims management within any organisation and,
specifically in the second half of this chapter, we turn our focus on to claims management in
the wider enterprise risk management context. In this way we will start to place our strategy
for claims within the wider world.
Key terms
This chapter features explanations of the following terms and concepts:
Claims value chain Cost analysis Differentiation Enterprise risk

analysis management
Insurance value Operational risk Primary activities Risk appetite
chain
Supplier strategy Support activities
A The value chain

The value chain as a management tool was developed by Michael Porter in his book
Competitive Advantage.1 A value chain is a sequential chain of the main activities of an
organisation.
A1 Purpose of value chain

A value chain can be used for:
• differentiation analysis: to help identify ways in which to differentiate the product from
competitors’ products; and
• cost analysis: to help identify opportunities to reduce costs.
A2 How do organisations create value?

The purpose of a business is to convert inputs into outputs by adding value to those inputs.
The aim is that the outputs should have a greater value than the original cost of creating the
output. If we take the fashion industry as an example, to make an item of clothing the
following inputs are required:
• material;
• accessories, such as zips, buttons and trimming; and
• labour to transform that material into the item of clothing.
The fashion retail industry is populated by many providers carrying out this process of
transforming raw materials into garments. The prices vary considerably: for example a
simple day dress can range from, say, £20 from a high street retailer to £3,000 for haute
couture.
What are the haute couture designers doing differently which allows them to command such
a price? Whilst there may be some differences in the quality of the material and the
construction of the garment, the difference in the price paid by the customer is significantly
more than the ‘actual’ costs of these inputs. The haute couture designers are able to add
sufficient value to the product so that the customer is willing to pay a premium price. It is not
the scope of this book to analyse the fashion industry, but this example illustrates how value
can be created so that customers are willing to pay a premium for it. The calculation of
margin is: value created and captured − cost of creating the value = margin.
The formula for profit is: total revenue – total costs = profit.
An organisation needs to understand how it creates value and where the opportunities for
creating more value are. It is in this context that Porter’s value chain analysis can be used.
Value is created and achieved by inputs costing less than the value they are creating.
Chapter 1 Strategic claims management within the insurance value chain 1/3
Chapter 1
Figure 1.1: Porter’s value chain analysis
Firm infrastructure
Human resource management
Technology development
Procurement
Inbound Outbound Marketing

Operations Service
logistics logistics and sales
A3 Primary and support activities

Porter’s value chain looks at the primary and support activities that are carried out by most
organisations.
A3A Primary activities
Primary activities include the following.
• Inbound logistics: the processes in connection with receiving, storing and distributing
inputs internally. Supplier relationships would fall within this activity, as would the activity
of sourcing the materials.
• Operations: this is where the activity that transforms the inputs to outputs happens. To
return to our fashion example, it is where the clothes are created.
• Outbound logistics: how products and services are delivered and distributed to
customers; for instance, high street shops, internet or fashion houses.
• Marketing and sales: how customers are persuaded to buy the product instead of that of
a competitor; the benefits offered, the perceived ‘image’, the language used and the
media channels selected.
• Service: how the value of the product or service is maintained after purchase.
A3B Support activities
The support activities, as their name suggests, support the primary activities and include the
following.
• Procurement/purchasing: finding suppliers and negotiating contracts, including prices
and service level agreements (SLAs).
• Human resource management: the recruitment and development of staff and
performance management.
• Technological development: managing and processing information and the company’s
knowledge base. Minimising technological costs and staying ahead of the game.
• Infrastructure: company support systems and functions, such as accounting, legal and
administrative functions.
B The insurance value chain

A simple description of the insurance industry’s value chain could be as follows. Insurers
source capital through shareholders, Lloyd’s members or other investors. They then create
insurance products to sell to customers, covering agreed risks for the policyholder.
Insurers do this through effective:
• investment management;
• product development;
• marketing;
• underwriting; and
• claims management.
Thus they are able to return a profit on the capital. How much profit and what drives it will
depend on how an organisation uses its value chain.
Figure 1.2: Insurance value chain
Risk and compliance
Firm infrastructure
Procurement
Financial Marketing Underwriting Sales and Claims

and capital and product • Quotes distribution • Notification
management development • Delivery
• Policy issue • Validation
• Reinsurance • Market channels
research • Risk • Payments
• Actuarial management • Agency
• New network • Fraud
• Portfolio • Policy management
management products • Direct sales
administration • Reserving
• Budgets • Brand
management • Supplier
• Treasury management
management
• Run off
accounts
B1 Claims value chain

The following is an example of the value chain for a claims process.
Figure 1.3: Claims value chain
Risk and compliance
Firm infrastructure
Procurement
Settlement
Notification Triage Investigation and Recoveries
negotiation
Research exercise
Consider the inputs and outputs for your own claims function and create a value chain
diagram highlighting the primary and support activities.
B1A The MGA model

In the MGA model, the underwriter is little more than a capacity provider, delegating the
functions of product development, marketing, underwriting and (usually) claims to a
managing general agent (MGA).
Figure 1.4 shows the MGA model. It reflects the dynamics of the insurance market and the
different ways in which capital is provided and insurance products developed and marketed.
Chapter 1
Figure 1.4: MGA model
Trading capital provided by

owners, usually a broker,
insurer or private investor
(often the directors of the MGA)
Managing general
Inflow of business from
agent (MGA)
public/direct business/
underwrite business;
intermediaries
manage claims
MGA income from commission

Can place business with one or as a percentage of premium
more capacity providers and profit commission
Insurers Lloyd’s Reinsurers
B1B Loss adjusters

Take a look at figure 1.5 which is an example diagram view of the inputs and outputs for a
loss adjuster. It shows how the claims instructions are received from an insurer (shown as
‘input’ on the figure), followed by a seven stage transformation process to complete the claim
and deliver the output to the satisfaction of the client.
Figure 1.5: Loss adjuster – inputs and outputs
Final report
(OUTPUT) New
instruction
(INPUT)
Agreement of
claim with
policyholder
Contact
policyholder
Interim
reports
Visit
policyholder
Investigation
and validation Preliminary
report to
insurer
C Differentiation analysis
The activities in the value chain can be analysed to identify opportunities for differentiation in
the product or service the organisation is offering. When seeking a competitive advantage, a
differentiation approach can be a more secure long-term strategy than a cost driven
approach, as low costs are always vulnerable to competitors following or new competitors
entering the market. However, in order for the differentiation to be a benefit it is important
that it is something of value to the customer, such that they are willing to pay the price for
that uniqueness.
Refer to
VRI0 described in VRIO – assessing the competitive advantage of resources and
capabilities on page 4/9
We discuss the use of the VRI0 model as a way of assessing resources and capabilities
later. It is also possible to use the same model for examining the value chain.
V Value: which activities are creating value for the customer and are worth expanding.
R Rare: are there elements of the value chain which are rare or are all competitors doing the same?
I Imitate: activities that are difficult for others to imitate, perhaps because of the way a group of activities are
bundled together.
O Organisational support: is the organisation appropriately organised to exploit the resources and
capabilities.
C1 Demand or customer’s perspective

The value chain can be analysed from the customer’s perspective to create a differentiation
that is of value to the customer. In order to do this, an understanding of the customer’s needs
is required. This assessment should include not only their physical needs, but also their
social and psychological needs.
A customer’s view of value can be affected by a whole host of factors such as:
• previous experience of an insurance claim;
• how involved they want to be in the claims process;
• the quality of advice they may need; and
• any help they may want if they have a large or complex loss.
Many clients may also be interested in associated claims activities, such as claims analytics,
loss prevention and post loss reviews.
To assist with differentiation Grant2 has prepared a number of questions which an
organisation should consider. These are shown in figure 1.6.
Chapter 1
Figure 1.6: Identifying the differential potential – the demand side
The What needs does it

What are its key attributes?
product satisfy?
Formulate
differentiation
strategy
• Select product
Relate patterns of customer positioning in
preferences to product relation to product
attributes attributes
By what criteria do • Select target
they choose? customer group
• Ensure customer/
What price premiums do product
product attributes command? compatibility
The
• Evaluate costs and
customer
benefits of
differentiation
What are the demographical,
What motivates sociological and
them? psychological influences on
customer behaviour?
For instance, if we look at the question ‘By what criteria do customers choose?’, the answers
are likely to be different depending on the customer, as shown by the following examples.
Example 1.1
Consumer buying a motor policy:
• Courtesy car provided on all claims;
• 24-hour facility for reporting claims; and
• speed of repairs.
Commercial policyholder with a public liability or employer’s liability policy:
• High quality technical decisions;
• involvement in the decision whether or not to pay a claim;
• regular review meetings; and
• management information on payments and reserves.
Commercial policyholder with a business package policy:
• Speed of service to ensure minimum disruption to the business;
• nominated claims handlers and/or loss adjusters; and
• high quality technical decisions.
The leader’s role is to manage the claims value chain and identify ways in which it can be
differentiated, or the outputs improved, to achieve competitive advantage.
Strategic claims management decision

Using the questions offered by Grant and the claims value chain you created in the last
activity, examine your claims service to identify opportunities for improvement in
differentiation.
Research exercise
How does your organisation identify the needs of its customers? Does this research
include claims? Do you know what is important to your customers in respect of the claims
service and for which features they are likely to pay a premium price?
C1A Building on previous learning

When carrying out a differentiation analysis of the value chain, it is important to consider how
products and services have worked or not worked in the past. An organisation needs to
ensure it has a way of capturing this learning and using it to develop better products and
services for the customer. This information can be obtained from a number of different
sources such as:
• complaints;
• customer surveys;
• informal feedback from customers; and
• staff feedback.
C2 Supply side differentiation

We have considered how to create differentiation by analysing the customer’s needs: the
demand side of the value chain. We can now review differentiation from the supply side of
the value chain. This is based on the resources the firm has available and how it performs its
inputs. According to Grant,3 Porter identifies several sources of uniqueness:
• product features and product performance, e.g. insurance package policies;
• complementary services, such as credit, delivery, repair;
• intensity of marketing activities, such as rate of advertising spending;
• technology embodied in design and manufacture, e.g. mobile phone apps, telematics;
• quality of purchased inputs – the supply chain, e.g. the use of suppliers, such as loss
adjusters and the providers of replacement goods and services;
• procedures that influence the customer’s experience, e.g. the rigour of quality control, the
notification of loss process and the amount of flexibility in the claims process;
• the skill, knowledge and experience of employees;
• location; and
• degree of vertical integration.
Bundling is a further way of achieving differentiation. Bundling is the offering of a
combination of complementary services and products, e.g. a loss adjuster that offers
restoration and recovery services, project management, surveyors and builders etc. in
addition to the normal claims handling service.
Consider this…
Can you identify ways in which insurance organisations ‘bundle’ products and services to
achieve uniqueness?
Refer to
MGAs described in The MGA model on page 1/4
One way in which insurers bundle their products and services is to provide capacity to an
MGA. An MGA will generally offer a broad range of services, such as underwriting, finance
and claims. However, an MGA with delegated claims handling authority will also have
service level agreements with service suppliers, such as loss adjusters, project managers,
surveyors and builders. Thus the full suite of a composite insurer’s services may be bundled
together and supplied, under the terms of a binding authority, to one or more subscribing
underwriters.

Review the claims value chain which you completed earlier and identify any opportunities
for achieving uniqueness.
Chapter 1
D Supplier strategy
Consider this…
Take a moment to list all the different suppliers that are used by your claims function.
Insurance organisations, and claims divisions in particular, actively use suppliers in the value
chain. The extent to which they are used varies between organisations, based on their
chosen strategy. Usage can be on an occasional basis for an individual claim, such as a
forensic engineer. Alternatively, the option can be taken to outsource all of the claims
process, e.g. travel claims.
Research exercise
Using the list of suppliers that you prepared earlier and the value chain for your claims
function, identify where in the value chain the suppliers are used.
How suppliers are used in the value chain is crucial for a claims organisation. They can
impact on all aspects of the claims delivery:
• service;
• quality of claims handling;
• indemnity costs;
• reserving; and
• processes.
Suppliers can be used to provide:
• expertise that is not held by the claims function;
• increased capacity, such as at times of a claims ‘surge’ event; and
• improved customer service, such as providing replacement goods.
Refer to
Cost of managing the claims process discussed in Impact of the claims strategy on the
balance sheet on page 5/2
When developing the claims strategy, decisions will be made whether or not to use suppliers
and the extent of that usage. Consideration has to be given to:
• core competencies of the organisation;
• how the supplier can improve the value chain;
• customer service, to check it will not be impaired;
• the impact on the cost of managing the claims process; and
• whether the organisation matches culturally.

How could you improve the supplier strategy for your claims function?
E Value chain for cost analysis

Finally, we review how the value chain can be used for analysing the costs of the
organisation or claims function. A costs analysis seeks to identify:
• the relative importance of each activity with respect to total costs;
• the cost drivers for each activity and the comparative efficiency with which the firm
performs those activities;
• how costs in one activity influence costs in another; and
• which activities should be undertaken within the firm and which activities should be
outsourced.
The process is as shown in figure 1.7.
Figure 1.7: Analysing costs in the value chain
Identify separate
activities
Allocate the costs for

each activity
Identify the cost

drivers
Identify any links

between activities
Identify the opportunities

for cost reduction
Adapted from Grant, R.M. Contemporary Strategy Analysis, 9th edition, Wiley p.187,
figure 7.10
We can expand on this as follows.
1. Identify the separate activities by defining the basic value chain and then identifying the key activities.
2. Allocate costs for each activity and identify the cost each activity contributes to the total cost. This will
provide sufficient information to identify those activities that have the greatest potential for cost reduction.
3. Identify the cost drivers for each activity. For example, repair costs are a driver of the claims indemnity
costs, or rehabilitation strategy will influence the cost of third party injury claims.
4. Identify any links between activities. For example, improved data input will lead to more accurate policy
records, which in turn will facilitate improved interpretation of the policy by the claims team, such as
endorsements and excesses, which could minimise leakage.
5. Finally identify opportunities for cost reduction.

Complete a cost analysis on your claims value chain.
How the value chain has changed over recent years

During the last 15 years the shape of the claims value chain has changed significantly, with
trends being for outsourcing, insourcing and offshoring, for instance. The expectations
placed on suppliers frequently change, often with insurers operating regular panel reviews,
such as every three or five years, rather than long-term relationships.
Consider this…
Reflect on the value chain for your own claims function and consider how that has
changed over the last ten years. What do you think the impact has been of those changes
for all parties concerned?
F Context of enterprise risk management

In preparation for this section, please read chapter 2 from 990 Insurance Corporate
Management and chapter 1 and chapter 3, section C from 992 Risk Management in
Insurance. You can access these via RevisionMate.
You might also find it useful to obtain some annual reports for your own and other
organisations and read the section on risk management (if applicable).
Chapter 1
F1 Enterprise risk management (ERM)
Enterprise risk management is a more integrated, organisational approach to risk
management and was defined by Professor Gerry Dickinson of the Cass Business
School as:
A process through which all of the risks embedded in the strategies, activities and processes
of an organisation are identified, quantified, managed and monitored.
The aims of ERM are to:
• improve capabilities and coordination;
• integrate the output to provide a unified view of risk for stakeholders; and
• improve the organisation’s ability to manage risks effectively.
Organisations will have their own view as to what ERM means. However, it is commonly held
to be a holistic view of all the organisation’s risks, including corporate and operational level
risks and aggregations and correlations of risk.
F2 Risk appetite
We now consider how the risk appetite of an organisation affects the strategy/work of the
claims function.
Chapter 3, section C of 992 Risk management in insurance establishes that an
organisation’s risk appetite is linked to its risk culture. Here will review the different
categories which are considered as part of the organisation’s risk appetite and how these
affect the claims function.
Insurance
The insurance category sets out the markets, type of risks, tolerance levels to loss ratios and
reserving philosophy the organisation chooses; all of which have a direct impact on the
claims strategy.
Markets
All organisations, whether they are insurers, intermediaries, managing agents or service
providers will outline:
• the range of products they want to offer;
• the markets in which they want to operate; and
• the risks they want to accept.
Range of products
Regardless of whether the claims function sits within a composite insurer, MGA, broker or
third party administrator, the claims function has to service the claims arising from the
products sold. Therefore it requires a strategy for servicing those claims in the most cost
effective and customer centric way so as to provide the organisation with a competitive
advantage.
The range of products the organisation offers will influence the following elements of the
claims strategy:
• outsourcing strategy;
• use and choice of suppliers;
• the number, skills and knowledge of staff;
• design and implementation of effective processes; and
• organisational structure and design.
The different products will generate different types of claims, both in their level of complexity
and their volume. Most personal lines products, e.g. household or pet insurance, are likely to
result in a high volume of claims, with the majority having a lower value and being less
complex. On the other hand, many commercial lines products, e.g. professional indemnity or
cyber liability policies, are likely to generate a lower volume of claims, but will tend to take
much longer to handle, being more complex and having a higher value.
You can see that these two contrasting products will demand different approaches to the
claims strategy. If we consider process design for household claims, the focus will be on
customer service, speed of claim handling, accuracy, good links with suppliers and minimal
‘touches’ on the claim file. For professional negligence claims on the other hand, whilst these
factors are important, there will be an increased focus on technical knowledge, investigation
skills, stakeholder management and negotiation skills.
In addition, where an organisation chooses to either stop offering or start to offer a product
will impact on the claims function. When a new product is launched a strategy is required to
set up a new claims function to handle those claims. When a product is in run-off, a strategy
is required for both handling the existing claims in the most cost effective way and for the
resources involved in handling those claims. The scale of that strategy will depend on the
numbers involved, which could range from just a few people to a full department of more
than, say, 100 people.
Research exercise
You are a claims director and you have been advised that a new account has been
secured that is due to start generating business in six months. This is a very important
piece of business to the organisation and will deliver significant premium/brokerage
income. The book of business is for a major financial institution and relates to their
property business, generated from mortgages and loans. It will include a mix of personal
and commercial business. The business will transfer across from the existing provider/
broker to your organisation on a rolling basis, and it is anticipated that ultimately it will
generate 80,000 claims per year.
Using your own organisation as an example, design and plan the claims strategy you
would adopt to handle these claims and the actions you would take between now and the
go-live date.
F3 Choice of markets
An organisation will choose the geographical markets in which it will operate, whether that is
national, European, worldwide or some other combination. The handling of international
claims in the UK will impact on all elements of the strategy.
One of the key areas to be affected if you are an insurer is the supplier strategy, as it is likely
that a number of local suppliers and experts will be required to handle aspects of the claims
process that cannot be handled from the UK office. The claims strategy will also need to
meet the regulatory requirements of working in international locations. It will need to take
account of the culture of third parties and employees of other countries, who will have their
own culture and way of operating a business. Equally, it must deal with the question of how
well the home corporate culture transfers across to such employees and suppliers.
All these factors will affect the overall management of the claims function and increase the
operating expenses, compared to handling equivalent claims from the home country.
On the Web
codeofpractice.com.au/
www.insurance.ca.gov/0250-insurers/0500-legal-info/0200-regulations/Index.cfm
Research exercise
You have been advised that your organisation is going to be handling business in the
Asian market and you have responsibility for the claims function that will handle the
claims. Create a strategic plan for handling these claims. At this stage you may not have
all the information you need, but what further information would you want to know to help
you develop this strategy? In particular, think about the:
• processes;
• culture of the Asian market;
• regulatory and local legal requirements; and
• supplier strategy.
Chapter 1
F4 Risk selection
The risk selection strategy will influence the type of risks that the organisation is willing to
accept. Let us consider the two opposite ends of the spectrum:
• the organisation could adopt a conservative approach, with careful selection of high
quality risks; or
• it may aim to attract risks which fall into the high risk category. This may either be due:
– to the business model of the organisation, for instance, some organisations
specifically target high risks, such as drivers with a poor driving record, drink driving
convictions or high performance sports cars; or
– to a strategy of rapid growth, where there is a desire to grow the book of business as
quickly as possible.
Using an insurance company’s property portfolio as an example:
• high risks will include factories where industrial processes are carried out, oil rigs, power
stations, petrol refineries etc; and
• low risks will include residential, shops and offices.
The risk selection influences the number and nature of the claims generated, and
consequently the claims strategy. For instance, for risks at the high risk end of the spectrum
it is more likely that large and complex claims are generated, e.g. the explosion and fire at
Buncefield in December 2005 and the collapse of Didcot power station in 2016.
Research exercise
Research the Buncefield incident. The HSE report is on their website:
www.hse.gov.uk/comah/buncefield/buncefield-report.pdf.
F5 Impact on ERM
You can see that from a risk perspective there are many decisions that can influence the
claims strategy and lead to a need to vary it. In our discussions we have assumed that the
claims function is aware of the organisation’s risk strategy and how it affects the claims
function’s ability to plan and implement a strategy. However, there may be times when some
changes are not communicated to the claims function, limiting the time they have to prepare
for the consequences. For instance, if underwriting were to change its approach to risk
selection and this was not proactively communicated to claims, the claims team may find it is
receiving an unexpected increase in the volume and complexity of claims. This is risky for
the claims function and the organisation: the claims function may have insufficient staff or too
few staff with the right level of expertise and knowledge to deal with the influx of claims. This
could lead to higher indemnity costs or inadequate reserving. Equally, processes may not be
adequate and the supply chain might not be appropriate for the increased numbers and
complexity. The same can apply within a broker when new business is won and this is not
communicated to claims. This can mean that their first knowledge of a client, or a certain
type of risk, is when a claim occurs.
Handling international claims will, as we have discussed, require additional skills, suppliers
and resources. If a claims function is not experienced in these areas it could expose the
organisation to unexpected risks and, potentially, lead to it breaching regulations. A survey of
risk management and compliance executives at 150 multinational companies found that 83%
of respondents had suffered significant losses in emerging markets, through regulatory,
bribery, fraud or reputational issues.4
Research exercise
Research FCA prosecutions for offences in respect of bribery, corruption and conflict of
interest. How many were for operating in international markets?
F5A Growth strategy

If an organisation’s objective is to grow rapidly and consequently has demanding sales
targets, this may lead to less onerous risk selection. Consequently, there is likely to be a
higher frequency of claims generated from those risks and the claims could be more
complex, increasing the risk of leakage, regulatory breaches and higher indemnity costs.
F5B Reserving
Claims organisations set tolerance limits with regard to reserving accuracy. We will discuss a
number of times in this study text the need for the claims function to ensure the accuracy of
the reserves and how this impacts on the overall business. It can be seen how reserving
accuracy plays a vital role in the risk management of an organisation: if the reserves cannot
be relied upon, the whole financial model and strategy of the organisation is undermined.
All of the areas we have discussed, new products, new markets and a new approach to risk
selection, can lead to issues with reserving accuracy if the claims staff do not have the
correct level of knowledge and expertise. They may also lead, perhaps, to the use of new
and untested suppliers.
If the organisation’s liabilities are not accurately assessed because of reserving inaccuracy,
then inappropriate amounts of reinsurance may be purchased: either too little or too much. If
too little is purchased, the organisation is at serious financial risk; if too much is purchased
this can affect solvency ratios and the amount of money available for investment into the
business.
Consider this…
Is there a risk to an insurer delegating claims handling authority, including reserving, to an
MGA? If the MGA is remunerated based on profit, how might this affect the MGA’s
approach to reserving? How should the insurer minimise or eliminate any risks that you
identify?
What are the risks to the MGA if its capacity is provided by an insurer operating a
‘pessimistic’ reserving philosophy?
F5C Loss ratios

Losses contribute to the overall profit of the business.
Research exercise
Choose one of the two following research exercises depending on the type of organisation
for which you work.
Exercise A
Your organisation is planning to launch a new product in the cyber insurance market.
Based on the current structure and operating model of your organisation consider the risks
for the claims function and how these risks can be minimised and managed.
Exercise B
Your organisation is planning to move into a new market of specialist theatre insurance.
You have a small panel of insurers who can offer a specialist policy and you have
connections with two of the largest amateur and professional theatre associations in the
country. Based on the current structure and operating model of your organisation,
consider the risk for the claims function and how these risks can be minimised and
managed.
F6 Risks organisations face
Research exercise
Review Aon’s Risk Solutions biennial global risk management survey and in particular the
top ten risks which companies are facing. How do the risks listed compare with the risks
identified by your own organisation?
www.aon.com/2019-top-global-risks-management-economics-geopolitics-brand-damage-
insights/index.html
Chapter 1
Research exercise
Review the risks your organisation has identified. What are the top ten on that list? How
do you think that list will look in future years in light of the COVID-19 pandemic faced by
the world in 2020?
You may also like to review the risk register and consider how these risks are being
mitigated by the organisation.
As well as exposure to large losses, organisations face different risks depending upon how
their claims are managed. An organisation which handles its claims in house, e.g. a
composite insurer, has the best opportunity to manage and control claims in accordance with
the organisation’s claims strategy. Where claims are delegated, e.g. to a broker or MGA,
risks may arise due to conflict of interest.
Consider this…
Where are the potential conflicts of interest in this scenario? If you are the claims manager
of an MGA, how would you identify, quantify, manage and monitor these conflicts?
F7 What key risks can the claims strategy influence?

Let us now consider the key risks which the claims strategy can influence.
F7A Reputational risk
We discuss potential damage to an organisation’s reputation a number of times in this study
text and this is a major risk for an organisation. We can see it is identified as risk number one
on both of the previous lists, and also for the industry. An organisation is not only affected by
any damage to its own reputation, but also to the industry’s reputation. Examples of such are
the PPI scandal or the failure to handle effectively the claims arising from a major incident.
Consider this…
Think back to the banking crisis of 2008 and how the reputation of all of the banks
suffered as a result of the crisis, regardless of their own performance.
Think about the reputation of the insurance industry. How do you think it is currently rated
by its customers? How has this changed over the last ten years? Has that been for better
or worse?
You may like to carry out further research in to the Financial/banking crisis of 2008.
The claims function is probably one of the key risk factors for the organisation’s reputation,
along with regulatory breaches and/or loss of data.
By the very nature of claims work, interactions with customers take place at a very emotional
and traumatic time, as they have suffered loss or damage due to:
• fire;
• burglary;
• flooding; and
• car accidents.
These can be personal losses. Maybe their home has been made uninhabitable due to a fire
or, perhaps, a business which they have built up over a number of years cannot open due to
flooding.
Therefore, an organisation needs to ensure that the claims strategy is robust and is able to
handle all claims in an effective way, including those notified during a surge following a
‘catastrophic’ event. This will involve giving special consideration to the:
• outsourcing strategy and the chosen suppliers;
• design of processes; and
• number of staff and their skills and knowledge.
Organisations need to have a strategy for dealing with the many hundreds of claims that are
notified on a daily basis. But they also need one to deal with major weather incidents, such
as the floods and storms we have seen over recent years.
The expectations of all stakeholders, including customers, regulators, industry organisations,
government and media, are high, and organisations are expected to deliver on performance,
not only throughout the year, but also at times of major loss. This pressure is accentuated by
the increasing use of social media, giving people the ability to immediately communicate a
message, good or bad, out into the wider domain.
The claims strategy needs to be stress tested to ensure that it can cope with a major
incident. For example, when outsourcing or using suppliers the question to ask is: do they
have the capacity to cope at the time of a major incident? For instance, in the loss adjuster
market the many mergers and acquisitions mean there are fewer loss adjusters providing
services to insurers.
In times of a claims surge due to a severe weather event, the supply chain can often be at its
maximum capacity. Suppliers are often working for more than one insurance organisation, so
when there is a claims surge the pressure will be on the supplier from many organisations.
An organisation needs to understand how the supplier will prioritise work from its different
clients.
The claims function will have to give consideration to these issues and others, such as
resource availability and processes, as part of its plan for handling ‘catastrophe’ events.
Offshoring
There have been instances where the reputations of some organisations have been
damaged when they have chosen to use non-UK based organisations to service their
customer facing processes. In response to customer demand, some organisations have
brought back their client facing work to the UK and at least one UK bank advertises that it
has all UK based call centres.
Of course, the claims service, both on a day-to-day basis and at times of pressure, presents
the organisation with a great opportunity to exceed a customer’s expectations, augment its
reputation and provide a competitive advantage.
Research exercise
Review your own organisation’s claims strategy and look at how it identifies opportunities
to build the organisation’s brand through the claims reputation. Has the claims strategy
been stress tested to ensure that the appropriate service levels can be fulfilled even
during a major event?
F7B Increasing competition

The insurance market is cyclical (the market can be soft or hard) and there are times when
the market is soft when there is increased competitive pressure to keep premiums as low as
possible. This will reduce the amount of income available to the organisation, leading to
reducing budgets for all functions, including claims. As a consequence, operating expenses
need to be reduced and indemnity costs minimised.
A drive to reduce indemnity costs may lead to a change in the claims philosophy concerning
the approach to claims settlement, for instance adopting a stricter interpretation to policy
wordings and the use of negotiation. Reductions in staff numbers could lead to a number of
outcomes, such as poor service, increased leakage, reserving inaccuracy and regulatory
breaches. Alternatively, organisations may seek to offer an enhanced claims service and
look favourably on coverage disputes in order to retain customers and gain critical mass in
time for when the market hardens, thereby maximising profitability in the long term. This is
arguably one feature of the MGA model, where MGAs are remunerated based upon a
percentage of the premium (i.e. commission).
In a bid to save further costs, some organisations may choose to outsource part of the
claims function. In the short term this may appear to save costs, but in the longer term may
not be the best option for the organisation. Some of the risks associated with outsourcing are
the long term loss of a skill base, the loss of control and the risk of reputational damage or
regulatory breaches, depending on the quality of the suppliers chosen.
Chapter 1
The alternative when there is increasing competition is to have a strategy which avoids
competing on price and is based on the resources and capabilities of the organisation.
Research exercise
Review your current claims strategy. Are there elements of the strategy which were
developed because of decreasing budgets arising out of increasing competition and the
need to reduce costs? If so, what are the risks associated with those decisions and what
actions have been taken to control or mitigate those risks?
F8 Operational risks
Operational risk can arise from internal processes, people and systems or from external
events. Figure 1.8 shows some of the key sources.
Figure 1.8: Sources of operational risk
Fraud
Regulatory
Process
& statutory
management
breach
Operational
risk
Employment Business
practices interruption
Supply
chain
F8A Regulatory and statutory breaches

The requirements of regulation and statute continue to increase, e.g. the EU General Data
Protection Regulation (GDPR) which was effective from May 2018, and consequently so
does the risk of a breach and the potential impact of that breach. Organisations need to
ensure that the compliance and risks teams are proactively involved in relevant areas of the
organisation, such as product and process design, to mitigate this risk.
The risk of regulatory breach is relevant to all functions in the organisation, including claims.
This includes not only FCA breaches, but other breaches which may arise, e.g. a breach of
the Data Protection Act 2018.
Research exercise
Review the website for the Information Commissioner's Office: ico.org.uk/action-weve-
taken/enforcement/. Research the enforcements they have carried out, noting the type of
offences and the levels of fines.
The claims function also supports the fulfilment of any Prudential Regulation Authority and
Solvency II requirements by ensuring no breaches arise from the information it provides,
such as payments and reserves. Since 2017 when the Enterprise Act 2016 came into force,
insurers and reinsurers have been subject to a statutory requirement to pay damages for the
late payment of claims.
F8B Business interruption
Refer to
BCPs discussed in Business continuity planning (BCP) on page 8/2
The potential for the business to be interrupted due to physical damage to premises, e.g. a
fire, or due to IT issues arising from internal faults, breakdowns or cyber-crime, is a major
risk for an organisation. Organisations will have a Business Continuity Plan (BCP) in place,
which should be for the whole organisation and the claims function.
Business interruption can lead to a regulatory breach and reputational damage, in addition to
delays in the claims service due to time lost.
Research exercise
Go to the FCA website and search ‘fines’. Review the fines and punishments meted out
for the past year. How many have been for interruptions to the business and what was the
size of those fines?
F8C Supply chain

We have discussed a number of times the value and use of suppliers in the claims process.
The supply chain is an area of risk for the claims function as it will use suppliers such as loss
adjusters, lawyers and third party providers to a lesser or greater extent.
The risks that flow from the supply chain need to be identified and managed in the usual
way. Suppliers are vulnerable to the same risks as any other organisation, so they may:
• suffer a physical loss at their premises;
• go into liquidation;
• merge with another organisation; or
• breach regulations.
All of these events will have a varying degree of impact on the service the supplier is to
deliver for the claims function. Therefore, the claims function and the organisation need to
understand, not only their own risks, but also the risks generated by their supply chain.
When a supplier is unable to fulfil its service commitment there can be serious
consequences for the claims function. For instance they will need to quickly find an
alternative supplier, which may compromise customer service and the quality of the work.
Costs are likely to increase due to the limited opportunity for negotiation.
Some situations, such as a takeover or merger, may highlight underlying issues with the
work that had not previously been identified, perhaps with the quality of the claims handling
or the reserves. Additional work within the claims function will be necessary to manage these
issues, e.g. carrying out audits, and this is likely to stretch existing resources.
When designing and then implementing the supplier relationship it is crucial that
conversations take place about the supplier’s risk management strategy.
F8D Fraud
Fraud can arise from an internal or external source, e.g. the embezzlement of funds or a
false claim. In the claims function, monies can be secured fraudulently via the claims
payment system or through the misuse of data.
Example 1.2
In this case an Aviva employee had been selling data.
bit.ly/2hAIbsK
Apart from the financial cost of the fraud, it also leads to reputational damage and,
potentially, regulatory fines. Processes need to be rigorous to minimise this risk, supported
by a robust system of internal audit.
Chapter 1
Strategic claims management decision: Fraud risk
How can an insurer protect itself from such risks when delegating claims to a third party
administrator or MGA?
How can an MGA protect itself from these risks when handling claims on behalf of
insurers?
Refer to
Ethical claims management discussed in Ethical claims management on page 7/15
External fraud can arise from individuals or from organised criminal gangs. The claims
strategy will outline its approach for detecting and investigating potential fraud. Later in this
study text we reference the challenge for the claims strategy of detecting potential fraud,
while still delivering good customer service to genuine customers.
Research exercise
Research recent cases in which attempts were made to defraud an insurance
organisation, either from an internal or external source.
On the Web
www.mib.org.uk/managing-insurance-data/mib-managed-services/ifb
F8E Process management

These are risks which arise from inadequate processes or from the poor implementation of
processes. This can lead to:
• miscommunication;
• incorrect data input and/or handling;
• loss of client’s data; or
• internal or external fraud.
For instance, in the claims environment, poor processes could lead to incorrect claims
information being sent to suppliers, or to a failure to detect fraud.
F8F Employment practices
These are losses arising from the failure to implement employment practices and various
workplace regulations, such as Health and Safety. Inappropriate employment practices can
lead to having to defend cases at a tribunal, for instance. Depending on the case, there
could be publicity surrounding it, in addition to the associated costs.
F8G Failure to attract or retain talent
The failure to attract or retain talent will have a severe impact on the claims function. This
inability may arise for a number of reasons. It may either be driven by internal factors, such
as culture, leadership, terms and conditions or reputation in the market, or by external
factors, such as competition in the local market or a lack of potential recruits in the market,
perhaps due to location.
Some of the risks for the claims function of not being able to attract and retain the talent
include:
• poor customer service;
• increased levels of leakage;
• reserving inaccuracy;
• reduced ability to innovate; and
• limited succession planning.
Less experienced staff means there are likely to be higher recruitment costs and increased
expenditure on training and development.
Refer to
Importance of ability to innovate described in Creativity and innovation on page 7/9
Talented staff are required, not only to deliver the claims service, but also to ensure that all
aspects of the strategy are as good as they can be, for instance having effective processes
and the ability to innovate. High quality staff are required to ensure continued good
leadership in support of all aspects of the claims organisation and the effective
implementation of the claims strategy. The long term sustainability of the organisation relies
upon there being sufficient talented, skilled and innovative staff.
Within the organisation the claims function should ensure that it has a strategy for retaining
talented staff by:
• implementing the organisation’s performance and development policy;
• having in place training and development plans for all staff;
• having strong leadership; and
• offering career progression plans for all staff.
Part of the risk strategy should also include a robust succession plan to ensure the ongoing
development of staff and the availability of staff for future roles.
Research exercise
Find out the attrition rates for your claims function. How do they compare with the rest of
the organisation and the market in which you operate? Can you identify ways to improve
the attrition rate?
F8H Failure to innovate
Refer to
Creativity and innovation discussed in Creativity and innovation on page 7/9
In an increasingly competitive market, creativity and innovation are vital if an organisation is

to continue to succeed and be competitive. Therefore, all organisations must continue to
innovate and this includes the claims function. This is a more secure long-term strategy
when there is intense competition: rather than organisations competing on price, it is about
having the ability to create new ideas, improve processes and find new ways of working and
solutions – in particular, those for which the customer is willing to pay a premium.

In respect of your own claims function review the following risks and identify ways in which
your current strategy is addressing these risks and whether or not improvements can
be made:
• increasing competition; and
• failure to innovate.
F9 Connections
We can see that many of these risks are connected and one may lead to another. So, for
instance, a regulatory breach or a poor reputation in the market may make it harder to recruit
the required numbers of talented staff, leading to reduced staff levels with the discussed
impact on customer service etc.
A regulatory breach may damage the company’s reputation to such an extent that suppliers
may not wish to work with the organisation. This will then impact on all other aspects of the
claims service.
This demonstrates that a risk that becomes an issue can ripple out to many other aspects of
the claims function and on to the wider organisation.
Chapter 1
References
1. Porter, M. Competitive Advantage – Creating and Sustaining Superior Performance The
Free Press 1985
2. Grant, R.M. Contemporary Strategy Analysis 9th edition Wiley 2015 p.193
3. Ibid. p.192
4. Post Magazine, 17 September 2015
Additional reading
Porter, M. Competitive Advantage – Creating and Sustaining Superior Performance The
Free Press 1985
992 Risk Management in Insurance
990 Insurance Corporate Management
Aon Risk Solutions biennial global risk management survey:
www.aon.com/2019-top-global-risks-management-economics-geopolitics-brand-damage-
insights/index.html
G Scenario 1: Risks and benefits

G1 Question
You are the head of a claims function for a general insurer. The claims function has
successfully handled motor and property claims for many years. Although, your organisation
has always underwritten pet insurance, the claims have been handled by an outside third
party provider.
Unfortunately, a recent audit has identified issues with the handling of these claims by the
third party provider. Regrettably, the relationship with the third party has deteriorated since
the audit results were published and so it is proposed that these claims be brought in-house
to be handled.
The Chief Operating Officer has asked you to compile a report that identifies the risks for the
claims function and the wider organisation of the following two options:
• continuing to have the claims handled by the third party provider; or
• bringing the claims in-house.
G2 How to approach your answer

Aim
This scenario aims to test your ability to assess the risks and benefits associated with
strategic decisions.
Key points of content
Your answer should be in the form of a board report that considers the advantages and
disadvantages of each option linked to the claims strategy.
It should identify the risks for each option in connection with the following:
• reputation: not only the impact on the reputation for handling pet claims, but on other
claims;
• operations: the number of staff required, their skills and knowledge and how easy it will
be to recruit those staff;
• customer service: how customer service on the current claims portfolio may be affected,
in addition to the service provided for the pet claims;
• regulatory obligations; and
• reserving.
It should contain a cost benefit analysis and identify other options.
Self-test questions
1. What is a value chain?
2. What are the two uses of a value chain?
3. What is the formula for calculating margin?
4. What are considered primary activities in Porter's value chain?
5. What are the primary activities in a claims value chain?
6. What is important in respect of a differentiation for it to be a benefit?
7. What factors can influence the customer's view of value?
8. Which areas of the claims delivery can suppliers have an impact on?
9. When considering risk appetite, what aspects of the claims strategy can the range of
products influence?
10. According to Aon's Risk solutions biennial global risk management survey, what are
listed as the top five risks?
11. What are the potential consequences if an organisation is unable to attract and retain
talented staff?
12. What could be the impact on the claims strategy if a growth strategy is pursued by an
organisation?
13. If there is a drive to reduce indemnity costs, what changes in the claims philosophy
may that lead to?
14. Where can operational risks arise from?

You will find the answers at the back of the book
2
Chapter 2
Impact of regulation
on the claims strategy
outcomes
Introduction
A Prudential and conduct regulation 2.1
B Managing regulatory responsibilities 2.2
C London Market regulation 2.3
D Scenario 2: Regulatory change
Self-test questions
Learning objectives
On completion of this chapter and private research, you should be able to:
• analyse the impact of prudential and conduct regulation on the claims strategy;
• explain how the claims function manages its regulatory responsibilities;
• consider the regulatory implications of outsourcing and delegated authority in claims; and
• outline the regulatory framework for claims in the London Market.
2/2 996/November 2021 Strategic claims management
Introduction
In preparation for this chapter please read 990 Insurance Corporate Management, chapter 8
Chapter 2
and 992 Risk Management in Insurance, chapter 4.

So far, we have considered the role that strategic claims management plays in the
organisation as part of the insurance value chain and enterprise risk management. One of
the impacts that the claims function has on value generation and risk management comes
from its approach to meeting regulatory requirements. Therefore, in this chapter we will
examine the strategic decisions the claims function needs to make as a result of regulation.
Regulators around the world want to ensure customers are fairly treated and insurers remain
solvent. Broadly speaking we can divide regulation into conduct regulation, which considers
how the business conducts itself with customers, and prudential regulation, which considers
solvency. Claims is a relatively highly regulated area within the organisation because it
involves both of these aspects: contact with customers and the assessment of reserves
required to pay reported claims.
Sometimes, regulation is felt to be a burden and the goal is to achieve the minimum level of
compliance. While this could be a valid strategy for a claims function, a better way is to think
about how achieving regulatory requirements can actually enhance delivery of the
commercial objectives. For example, what if the claims strategy aims to deliver market-
leading customer service? Devoting attention to conduct regulation could help achieve the
customer-focused culture required, whilst efficiently meeting regulatory expectations.
Where regulation is principles-based, the claims strategy must interpret these principles and
consider how to achieve them. Even where detailed rules exist, decisions are required about
how to effectively comply with them while delivering the organisation’s commercial
objectives.
Finally, strategic decisions in claims may have regulatory implications. We will explore how
using outsourcing requires consideration of the regulatory impact.
Remember that there may be personal consequences, such as incurring fines, for senior
managers at insurers and brokers who fail to diligently ensure regulatory compliance or
protect customers.
Key terms
Case reserves Claims agreement Claims performance Conduct

practices management management
information
Conduct regulation Delegated authority Due diligence Prudential regulation
Reserving Root cause analysis
philosophy
A Prudential and conduct regulation

The claims function within an organisation is relatively highly regulated as it both deals with
customers and affects the solvency of the organisation. Clearly, therefore, both prudential
and conduct regulation will need to be taken account of when developing the claims strategy.
A1 Prudential regulation
Prudential regulators concern themselves with ensuring that financial services organisations
remain safe and solvent. For the insurance industry, this primarily means requiring insurers
and reinsurers to maintain minimum levels of capital, and effective systems of risk
management to ensure this is accurately calculated. As we’ve seen in chapter 1, the claims
function in an insurer contributes to both these aspects.
Chapter 2 Impact of regulation on the claims strategy 2/3
A1A Reserving
Refer to
Chapter 2
Relationship with actuarial and finance described in Actuarial and finance on page 5/10
In the light of this it is clear that case reserves, i.e. the reserves set on individual notified
claims, are one of the key pieces of information an insurer needs to calculate its solvency
capital requirement. In chapter 5 of this study text we will explore the relationship between
claims and the actuarial and finance functions. Reserving information is one of the most
important things the claims function will share.
Similarly, while prudential regulators are not concerned with service providers directly,
insurers may need their providers to help them meet their regulatory requirements. In
addition, similar principles will be adopted by such organisations anyway, as part of sound
corporate governance.
The managers setting the claims strategy need to implement a reserving philosophy that
ensures case reserves are set on a consistent basis that the rest of the organisation
understands. Where the claims strategy involves other people handling claims on behalf of
the organisation, the strategy will need to ensure these businesses also adhere to the
reserving philosophy. In turn, this may affect the claims strategy of brokers and claims
service providers (such as loss adjusters) who provide reserving information and may handle
claims under delegated authority.
How much the need for accurate reserving impacts on the claims strategy will depend on the
type of business written. An organisation handling high volume, low value claims on
attritional business may experience relatively predictable claim volumes and values, e.g.
home buildings and contents claims. The claims strategy may be focused on achieving
consistent, detailed reserving. An organisation with a low volume of high value claims, e.g.
satellite insurance claims, may experience more volatility and require a strategy that ensures
an expert individual review of each case.
Note: Any change to the reserving philosophy must always be communicated to the rest of
the organisation, since the basis on which other reserving analysis is made is being altered.
Research exercise
Obtain details of the reserving philosophy of your own organisation or, if you are a broker
or service provider for instance, one of your clients. How would you go about monitoring
how accurately claims handlers adhere to the philosophy?
What might be the regulatory impact if the claims strategy doesn’t deliver accurate case
reserving?
A1B Risk management

We’ve already seen in chapter 1 how the claims function contributes to enterprise risk
management. Prudential regulations typically require an effective system of risk
management in an insurer or reinsurer so that all risks are taken into account in calculating
the solvency capital requirement. Thus the claims strategy will need to effectively identify,
assess and control the risks within the claims function and escalate those which exceed risk
appetite. This activity will therefore involve service providers in the claims supply chain and
is also likely to be adopted by brokers.
Example 2.1
XYZ Claims is a new claims handling firm that is setting up its claims function.
Recognising the requirement to contribute to enterprise risk management, the claims
Chapter 2
director establishes a claims risk committee comprising her senior management team,
which will meet quarterly. The claims risk committee creates a risk register by identifying
the risks that could arise in the claims function. It assesses them, before deciding what
controls will be implemented. When the claims risk committee identifies a risk which
exceeds the organisation’s risk appetite, it escalates it to the company’s board for action
or acceptance.
ABC Insurance Brokers is updating its central risk register. Their compliance and risk
manager asks the claims leader to review the central risk register and consider whether
there are any new or emerging claims risks that should be added. The claims division
maintains its own record of claims related risks that is reviewed and updated by the claims
leadership team once a quarter.
Consider this…
What risks does the claims function in your own organisation face? Consider operational,
IT, financial and people factors, as well as regulatory risk.
Leading indicators are signs of future change that is of strategic importance to the
organisation. Leading indicators will be observed in claims, such as:
• trends in the frequency of certain causes of loss;
• new types of claims fraud; and
• an increase in the cost of particular types of loss.
It’s important the claims strategy implements ways of capturing and sharing these indicators
with other parts of the organisation, or with clients, since they may have an impact on future
solvency capital requirements.
A1C Outsourcing
Managers setting the claims strategy often consider whether to outsource some claims
activities to a service provider. This can deliver operational efficiencies, specialist capabilities
or enhanced service, but at the risk of having less control. Where a regulated organisation
chooses to outsource an important function, e.g. claims handling as opposed to
administration, prudential regulators may see this as increasing the risk of failure.
This will be particularly important for insurers and claims-handling organisations with
operations based in the UK or the European Economic Area (EEA). Pillar 2 of Solvency II
places requirements on an insurer’s system of governance and makes specific reference to
how the outsourcing of key functions must be managed. Later we will explore the
implications for the claims strategy, including the knock-on impact on service providers and
on brokers holding delegated claim authority.
Refer to
These implications discussed in Managing regulatory responsibilities on page 2/9.
Consider this…
Some prudential regulators also have responsibility for ensuring organisations comply with
international sanctions and detect and prevent financial crime. What will the claims
strategy need to deliver to meet these requirements?
A2 Conduct regulation
While prudential regulation is mainly relevant to insurers and reinsurers, conduct regulation
affects any financial services organisation dealing with customers.
A2A Conduct regulation and customers
Conduct regulation addresses the way firms conduct themselves with customers, regulators
and the market and is concerned with ensuring that customers get high quality outcomes. A
manager setting the claims strategy may find synergies can be achieved, where delivering
desired customer service levels also achieves compliance with the regulations.
Chapter 2
Consider this…
What do you think the term ‘conduct risk’ means? Is this a helpful concept for managing
regulatory compliance?
Typically, conduct regulators are most concerned with protecting consumers and small
businesses, rather than large corporate entities. This is because consumers are likely to be
less expert and more at risk of harm if a firm does not treat them with appropriate levels of
care. Conduct regulation is, therefore, seen as more relevant to the claims strategy of
organisations handling consumer claims, than to those handling large corporate risks. In
practice, however, customers fall on a spectrum from the least knowledgeable, or even
vulnerable, to the most expert and professional. Therefore, a bespoke approach the different
customers a firm handles claims for is needed.
In particular, the needs of vulnerable customers have been researched and better
understood over recent years. A vulnerable customer is defined by the FCA as 'someone
who, due to their personal circumstances, is especially susceptible to harm, particularly
when a firm is not acting with appropriate levels of care'. Anyone can be a vulnerable
customer at some point in their lives, driven by factors such as health conditions, major life
events, low financial resilience or factors affecting their capability such as poor numeracy.
Claims managers need to consider the specific needs of vulnerable customers when
designing claims handling services. They need to make sure these processes protect them
and provide them with outcomes that are equally as good as those achieved by other
customers.
Finally, there are overarching conduct requirements to consider too. In the UK almost all
employees of brokers and insurers must abide by the FCA's Conduct Rules, regardless of
what type of customers the firm serves. The FCA is also consulting on a new Consumer
Duty, which will be published in 2022. This will enhance obligations across financial services
to ensure good customer outcomes.
Members of the Chartered Insurance Institute (CII) must also adhere to the CII Code of
Ethics, which requires them to maintain high standards of integrity, probity and ethical fair
dealing. Note that both the CII Code of Ethics and the FCA's ICOBS rules require insurance
professionals to act 'in the best interests' of customers, something that claims managers
should consider in decision-making, design of claims services and in developing staff training
and culture.
In any event, the principles of conduct regulation are generally seen as good business
practice. The claims strategy will need to take into account the types of customer whose
claims will be handled, and how quality outcomes will be ensured.
Remember too, that both the Consumer Insurance (Disclosure and Representations) Act
2012 and the Insurance Act 2015 also have things to say on how claims from different
types of customer should be handled.
Research exercise
Consider the introduction of a value assessment for insurance products as part of the
FCA's product oversight rules (which took effect for most products from 1 October 2021).
Go to PROD 4 in the FCA Handbook and analyse rules PROD 4.2.14A and PROD
4.2.14E. What is the role of the claims function in delivering product value and helping
with its assessment? What will be the information the claims manager will need to supply
to help assess the value of the relevant insurance products and the claims services?
Consider how this will vary (and to whom it will need to be supplied) depending on
whether the firm is an insurer, broker or claims service provider.
On the Web
FCA's policy on vulnerable customers: www.fca.org.uk/firms/treating-vulnerable-
consumers-fairly.
Chapter 2
The FCA's Conduct Rules: www.handbook.fca.org.uk/handbook/COCON/2/1.html and

Insurance Conduct of Business Sourcebook: www.handbook.fca.org.uk/handbook/ICOBS.
CII Code of Ethics: www.cii.co.uk/about/professional-standards/code-of-ethics.
From your own research and reading of the financial press, you will be aware that conduct
regulation is an area of change, with organisations being continually encouraged to achieve
more. The claims strategy will need to respond to these changes and a choice must be
made between being reactive to the changes or proactive. If the claims strategy fails to
achieve regulatory compliance, it could lead to fines and reputational damage. Claims
managers devising the claims strategy have to make a trade-off between investing resources
to minimise this risk and the cost of not complying.
Example 2.2
Company A is an outsourced service provider that handles claims on behalf of an insurer.
The insurer makes a strategic decision to reduce leakage and instructs Company A to
implement a less generous claims philosophy. The implications in terms of customer
conduct, considering indemnity costs, reserving accuracy and operating costs are
explored below.
Indemnity costs Reserving accuracy Operating costs
Reducing leakage means The reserving philosophy should In addition to the cost of achieving
indemnity costs will go down, but be amended so that reserves take lower leakage, the cost of handling
there could be more dissatisfied into account the tighter approach a greater number of complaints will
customers. to claims adjustment. This will need to be considered.
need communicating to any
Complaints volumes may rise. Additional complaint handling
external service providers, e.g.
resources may be required.
Since more compensation may loss adjusters, and to the insurer’s
need to be paid, this needs to be actuarial and finance functions. External service providers, e.g. loss
offset against the saving to get the adjusters, may need to spend more
Reserves for affected claims will
true picture. time on each claim, possibly
need to take account of the
increasing cost.
increase in compensation for
complaints. If the claims philosophy is changed
to the extent that customers no
longer get a fair outcome, the
insurer could be fined by the
regulator and lose business through
reputational damage. This would be
the case if the insurer handled the
claims itself rather than an external
service provider.
A2B Complaints and root cause analysis

The claims function is where customers get to see the value of their insurance product.
Conduct rules may be breached if the customer does not receive what they are entitled to
under the policy or fair treatment in the process of their claim. The claims strategy therefore
needs to ensure that monitoring of customer outcomes, and making improvements based on
the findings, is integral to the claims function.
Complaints handling itself is often a highly regulated activity and provision for this will also
need to be made in the strategy. In the UK, the FCA’s DISP rules govern complaints
handling. These rules require organisations to undertake root cause analysis to find out
exactly what is affecting customer outcomes and fix any problems. This will need to be
specifically catered for, including 'triangulating' across different sources of information
relating to customer outcomes.
Examples of indicators of customer conduct in claims that could be used in the strategy
include:
• ratio of complaints to claims handled;
Chapter 2
• repudiation rate on different products;
• loss ratio as a measure of product value; and
• percentage of abandoned telephone calls.
Reinforce
What other indicators of customer conduct can you think of? You may want to consider
what customers can tell you as well as what information the organisation generates
internally.
A2C Data protection

Claims often involve the collection of significant amounts of information, including information
about the customer or the third party claimant in liability claims. The claims strategy should
therefore ensure adequate protection and retention of this data, to balance the needs of the
business and any applicable rules.
Rules to protect people’s personal data are typically made directly by legislation and not by
financial regulators. For example, in the UK, the General Data Protection Regulation
(GDPR) and the Data Protection Act 2018 govern the use of personal data about living
persons and the regulatory body is the Information Commissioner’s Office (ICO).
Managers setting the claims strategy will need to decide how much information to obtain and
how long to retain it, considering cost as well as complying with the law. So, for example, if
the strategy involves claims administration or handling overseas, perhaps by insourcing to
an overseas service centre, will transferring data there be permitted by law and how will it be
protected?
The claims strategy will also need to consider the security of the information held, especially
since personal data is of increasing value to criminals. While the organisation’s overall
information security provisions may be adequate, can the same be said of any outsource
providers used? Examples of what the claims strategy will need to consider include:
• security of the claims IT systems;
• training for staff on how to recognise attempts to obtain customer details; and
• policy on vetting new employees for unspent criminal convictions.
Research exercise
Look up recent news stories concerning the theft of claims data. What were the
consequences for the affected organisations? Explain what the claims strategy could
include in order to combat this.
The GDPR, which came into effect on 25 May 2018, is an evolution of existing data
protection law and introduces the principle of ‘privacy by design’. In other words, a firm must
consider the protection of data subjects in the design of its processes, systems and
products. The claims strategy will need to ensure this is considered when designing claims
processes and at the outset of projects affecting personal data processing, and that
managers can recognise when a Data Privacy Impact Assessment is needed, to assess the
acceptability of risk to data subjects from any changes.
On the Web
Information Commissioner’s Office guide to the GDPR
bit.ly/2A10ayF
The GDPR brings greater potential penalties for non-compliance, up to four percent of global
annual turnover, making it all the more relevant to decision-making. A lawful basis has to be
established before any personal data processing takes place and this needs to be
documented. Data subjects need to be informed what personal data will be processed and
on what basis. Thus, careful analysis of the claims processes is necessary to ensure that the
relevant documents and privacy policy are accurate and up to date.
A narrower range of lawful bases exists for processing ‘special category’ (sensitive) and
Chapter 2
convictions data. Special dispensation for the insurance industry has been provided in the
Data Protection Act 2018 to ensure activities, such as personal injury claim handling, can
continue without gaining the explicit consent of the individual. The claims strategy for such
processing will need to be reviewed to confirm it remains compliant. For example, it may be
necessary to consider whether information about others involved in an accident can lawfully
be obtained when investigating an incident, before a third party has actually sued the
customer. Subrogation actions involving customer or claimant data also require special
consideration.
Data subjects have also gained additional rights. Firms have for many years been required
to provide individuals, on request, a copy of any personal data the firm processes. Under the
new law, the option of charging a token administration fee has been removed and the time
frame for responding has been shortened to one calendar month in normal circumstances.
Meanwhile data subjects have gained the right to an explanation of any automated
(computerised) decision-making involving their personal data, and for a manual (human)
review. Strategic decisions have therefore been necessary as to how data subject rights
requests, breaches and so on will be resourced and managed by the claims function, and
whether IT systems need to be changed to provide the required support.
Contracts with claims suppliers and delegated authority holders have also required more
stringent data protection provisions to ensure that the parties are protected and clear on their
responsibilities, whether as Data Controllers or Data Processors. For example, since data
protection breaches that put the data subject at a foreseeable risk of harm have to be
reported to the ICO within 72 hours, the claims function may need to require its business
partners to report potential breaches as soon as practical or risk breaching the time frame.
Consider this…
What impacts has the GPDR had on commercial customers, and therefore on claims?
Has your organisation observed or implemented a change in policy coverage relating to
GDPR?
A3 International variations in regulation

Across the insurance markets of the world regulation varies. The overall tone and level of
regulation differs, with some jurisdictions being more protective of customers or tougher on
solvency than others. There are differences in the extent to which regulation is principles-
based rather than rules-based, and differences in the extent to which regulation is separated
into prudential and conduct aspects.
Consider this…
When was the UK’s financial services regulator split into the PRA and the FCA? Why was
this done and how successful has it been in achieving the desired objectives?
The implication for the claims strategy is that it needs to be tailored according to where the
organisation does business. Further complexity is added where the organisation operates in
multiple jurisdictions. For example, an insurer domiciled in Singapore but with customers
based in Australia may be subject to prudential regulation by the Monetary Authority of
Singapore and the Australian Prudential Regulation Authority, as well as conduct regulation
by the Australian Securities and Investments Commission.
Fortunately for managers trying to ensure the claims strategy meets requirements, there is
increasing similarity in prudential regulation around the world. In particular, Solvency II is
harmonising prudential regulation across the EEA and this approach is influential on other
regulators. The EU has declared the prudential regimes in Switzerland and Bermuda to be
equivalent to Solvency II, and that of the US, among others, to be provisionally equivalent.
There is less similarity in conduct regulation, which is therefore more relevant when tailoring
the claims strategy.
Research exercise
Briefly research the California Fair Claims Settlement Practices Regulations:
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bit.ly/2OtNu9e.
Are these principles-based or rules-based? Explain what the claims strategy will need to
consider if an organisation is to handle claims arising in the US state of California.
Consider this from the perspectives of an insurer, a broker and a loss adjuster.
B Managing regulatory responsibilities

We have examined how regulation affects decisions when setting the claims strategy. We
now need to consider what strategies a claims manager can use in practice to meet
regulatory requirements.
B1 Strategies to meet regulatory requirements

B1A Management framework
A key question is: who will own the objectives relevant to regulation – such as complaint
handling – in the claims strategy? In the three lines of defence model, claims is a first line
function in the organisation. As such, it is responsible for its own compliance with
regulations, under the guidance and supervision of the second line compliance or risk
function. Regulators, and the organisation as a whole, will expect senior managers in the
claims function to be accountable for regulatory compliance. Indeed, some senior managers
may hold a specific regulatory function, or need to be certified as fit and proper persons.
The claims management team may, therefore, decide that ownership lies with one member
of the team or with many. In any event it is likely that a number of objectives in the claims
strategy will contribute to regulatory compliance, such as customer service and reserving
accuracy.
Well defined roles and responsibilities in the claims function may make for efficient and
effective deployment of the strategy.
Consider this…
How important do you think the ‘tone from the top’ is in achieving regulatory compliance in
the claims function?

Will there be a separate complaints handling team in the organisation or the claims
function? Will there be a ‘virtual team’ of complaints experts among the claims team to
whom complaints are escalated? Or will complaints best be handled by those who are
handling the claim? Consider the pros and cons of each option and identify what strategy
your own organisation’s claims function has adopted.
B1B Key performance indicators (KPIs) and measurement

Earlier we identified various aspects of the claims strategy affected by regulation.
Achievement of many of the regulatory requirements can be measured, for instance
complaint frequency or repudiation rates. This enables quantitative targets or Key
Performance Indicators (KPIs) to be set in the claims strategy and monitored through
management information.
Some claims KPIs may be made public by regulators. In the UK the FCA has started to
publish tables of ‘value measures’ on certain types of consumer insurance, such as claim
acceptance rates and average sizes.
On the Web
www.fca.org.uk/data/general-insurance-value-measures.
Other general measures of claims performance will doubtless be monitored by the claims
managers. Some of these will also be relevant to assessing regulatory compliance, for
example:
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• average claim lifecycle, which is relevant to customer outcomes;

• number of detected fraudulent claims, which is relevant to the obligation to prevent
financial crime; and
• time taken for opening reserves to be set, which is relevant to reserving risk.
Management information on regulatory compliance should incorporate the relevant
measures and be pertinent to the regulatory issues. For example, measuring how many
complaints occur per 100 claims will provide more insight than simply knowing the volume of
complaints received. The use of external experts and suppliers in the claims strategy will
also need to be considered, with relevant information on their performance and the claims
they handle being included in the analysis.
The claims managers will need to set up a framework for reviewing the information,
examining the root cause of any issues and delivering improvements.
Research exercise
What KPIs and management information reports in your own organisation can be used to
assess whether the claims strategy is achieving regulatory compliance? Is there anything
you would add?
B1C Audit or file review

Management information is an example of a monitoring control: something put in place to
keep an eye on whether the claims strategy is delivering what is required. A second
monitoring control that is important for assessing regulatory compliance is auditing, 'quality
assurance' or file review.
Regulators will expect the claims function to be able to demonstrate how it complies with
regulations. In addition to showing that suitable processes and measures are in use, a
powerful way to evidence compliance is through the actual claim files. The claims
management team can also gain real insight into possible improvements through an effective
audit process.
The claims strategy will need to identify whether audits are to be carried out internally or by
external experts. It should describe how the results will be reviewed to ensure lessons are
learned. Key risk areas, such as more complex types of claim, could be audited more
frequently. The criteria against which the files are to be reviewed will also need to be agreed.
Research exercise
Describe the audit programme in the claims function of your own organisation. Do you
think it is appropriate for the claims portfolio and the risks presented?
B2 Deciding to delegate claims authority

In chapter 1, the strategic option of outsourcing, offshoring or otherwise delegating the
processing or handling of claims was considered. Another common strategy involves
delegating claims authority to a third party on particular accounts. This is typically the case
with ‘schemes’ or ‘binding authority’ business, where a broker or a Third Party Administrator
(TPA, also known as a Delegated Claims Administrator (DCA)) will handle claims up to a
given limit of authority. The FCA regards this as outsourcing and subjects it to the same
controls, as detailed in section 13.9 of the SYSC part of the FCA Handbook.
Solvency II also requires controls over outsourcing, particularly ‘material outsourcing’, which
is where a key function in the organisation is carried out by a third party. Claims handling or
processing is commonly interpreted as being a key function. In the UK, the PRA’s Conditions
Governing Business (section 7) implement the controls on outsourcing, as well as article 274
of the Solvency II delegated regulation.
Since a degree of outsourcing is commonly deployed in the claims strategy, we will explore
how it can be managed to achieve regulatory compliance.
Before proceeding you should read the FCA’s 2015 thematic review of delegated authority
claims handling, which states one regulator’s requirements regarding claims outsourcing.
Chapter 2
On the Web
You can find the FCA’s thematic review of delegated authority claims handling at:
bit.ly/2RIIBv6.
B2A Regulatory risk from outsourcing
Refer to
Regulator’s view given in Outsourcing on page 2/4
We outlined some of the risks that outsourcing may present in chapter 1 and have identified
in this chapter that regulators view the outsourcing of claims handling as a risk factor. This is
principally because, while the regulated organisation choosing to outsource remains
answerable to the regulator, it is delegating achievement of the regulations to a third party.
This third party will be controlled at arm’s length, and a lot depends on the efficacy of this
control. A strategy for effective control will therefore be needed if this approach is chosen.
Example 2.3
An insurer has given delegated claims authority to a TPA on a scheme for small pleasure
boats. At inception of the scheme the insurer asks the TPA to adopt its reserving
philosophy, which is summarised as ‘most likely outcome plus 10%’. The scheme runs for
two years, at which point the insurer’s actuarial team raises a concern that the account is
under-reserved. Reserves have to be increased, which takes capital from the rest of the
business. An audit is carried out retrospectively and this identifies that the TPA had a
number of similar delegated authorities with differing reserving requirements and the staff
applied a general reserving approach of ‘most likely outcome’. If the insurer had been
aware earlier, it could have made provision for extra reserves or agreed for extra training
to be given.
An insurer and a broker develop a scheme together for private art and antiques
collections. The broker holds delegated claims authority for smaller claims including
repudiations. The scheme is allowed to run for some time before it is noticed that the
repudiation rate is higher than expected. A joint audit is carried out and identifies that one
member of the claims handling team has misunderstood the policy cover and wrongly
denied a small number of claims. The customers have to be contacted and reimbursed,
and additional training provided to the claim handler.
B2B Due diligence

Before selecting a service provider or agreeing to delegate authority, an organisation needs
to establish that the third party:
• is adequately skilled and resourced;
• will deliver to the required standards, including high quality outcomes for customers; and
• will not expose the organisation to unacceptable risk.
This is done through a process of due diligence, which may follow, or be part of, a
competitive tender process. Due diligence involves assessing the third party’s suitability for
the role, typically using detailed checklists or questions. Documentary evidence is generally
required to back up the answers.
Due diligence for claims handling operations may include the following areas:
• information security;
• business continuity;
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• capability and resourcing;

• data protection;
• customer service;
• regulatory compliance;
• complaint handling;
• corporate and social responsibility; and
• financial crime controls.

You are assessing how suitable a company is to receive your delegated claims authority.
What precisely would you look for, both qualitative and quantitative, under these
headings?
If outsourcing or delegated authority will feature in the chosen claims strategy, a plan needs
to be in place for carrying out due diligence and making consistent decisions based on the
findings. The organisation may have a supply chain function that can provide the expertise.
Equally, if the claims function is going to be the service provider or receive the delegated
authority, it should be prepared to respond to the due diligence requests of the principal.
While burdensome in terms of time and effort, understanding and meeting the requirements
of the companies you want to trade with can bring in new business and improve client
confidence.
Once due diligence is complete, improvements may be required before the principal agrees
to continue. These should carry a time frame and an owner.
Consider this…
Will the strategy for due diligence be the same for all arrangements? Would you expect
the same approach on a delegated authority arrangement with 50 claims a year and a
major outsourcing arrangement with thousands of claims? What does the regulator require
as a minimum?
B2C The contract

Regulators expect there to be a written contract in place between the principal organisation
and the service provider, and, of course, this is sound business practice.
This should ensure there is clarity on the:
• limits of authority and any exceptions;
• duration of the arrangement;
• service levels;
• charges and payment;
• persons authorised to handle the claims;
• key requirements of the principal regarding information security, data protection, financial
crime, complaint handling, professional indemnity and public liability insurance limits and
choice of claims suppliers;
• liability of the respective parties if something goes wrong; and
• process for terminating the agreement, including (in the UK) what will happen to
employees under the Transfer of Undertakings (Protection of Employment)
Regulations 2006 as amended 2014.
B2D Management and monitoring

Once an outsourcing or delegated authority arrangement is in place, there will need to be
ongoing management and monitoring of the performance. This should ensure that any risks
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presented are spotted early, including potential failures of conduct towards customers,
inaccurate reserving and other critical issues.
The claims strategy of an organisation choosing to outsource or write delegated authority
business will therefore need to address how this will be owned, carried out and evidenced.
Likewise, the claims strategy of an organisation acting as a service provider will need to
ensure the information required can be delivered to the principal.
Management information (MI)
Much of the ongoing monitoring information will be in the form of management information
about the performance of the service provider. This should be obtained frequently enough,
and the scope be broad enough, that any emerging issues are identified and corrected
before they constitute a breach of contract or regulations.
The principal’s claim strategy should identify what the key measures will be. With regards to
prudential and conduct regulation, the measures may include:
• repudiation rate;
• claim lifecycle;
• reserving accuracy;
• reserving timeliness;
• achievement of service levels (where a broker has outsourced claims handling these will
generally be the key measures and will be fundamental to the outsourcing contract); and
• complaint frequency.
As the FCA’s thematic review makes clear, regulators expect this information to be obtained
and reviewed frequently.
On the Web
You may wish to read about Lloyd’s approach to conduct information on delegated
authority business in Section 8 of the Customer Minimum Standards MS9:
www.lloyds.com/market-resources/requirements-and-standards/minimum-standards.
Audit
Refer to
Internal approach to audit and file review described in Audit or file review on page 2/10
Having set up the outsourcing arrangement, the claims strategy will need to make provision
for the regular audit of its performance – like the internal approach we described earlier. The
frequency, scope and assessment criteria for these audits will need to be chosen, such that
regulatory compliance can be confirmed alongside any general performance assessment.
To confirm regulatory compliance, an audit of a delegated claims authority arrangement
might include assessment of (among other things) whether:
• claims settlements are fair and accurate;
• repudiations are accurate and properly explained to the customer; and
• complaints have been handled according to the rules.
The claims strategy will need to identify how the audits will be managed and reviewed, with
any actions arising being managed with the service provider.
Consider this…
What other aspects of performance or compliance would you assess when auditing a
delegated claims authority arrangement? Consider the typical contractual and due
diligence requirements made by the principal.
C London Market regulation

C1 London Market regulatory context
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There is no special regulator for the London Market. Insurers, reinsurers, brokers and claims
suppliers in the market operate under the existing UK regulatory regime, administered by the
PRA and the FCA. The exception is the Lloyd’s syndicates, who in order to trade in the
Lloyd’s market have also to comply with various requirements made by Lloyd’s.
C1A Relevant market bodies
Although here is no special regulator for the London Market, there are, however, a number of
market associations which:
• support member firms in understanding regulatory requirements and provide guidance;
• lobby for change or have an input on new regulations, on behalf of their members; and
• make agreements or establish market practice on how things work.
All of these activities are relevant to claims regulation. We will now take a brief overview of
some the relevant market bodies.
Market body Membership Relevance to regulation
The London and International Lloyd’s insurance and Represents members in discussions with the
Insurance Brokers Association reinsurance brokers FCA, Lloyd’s, the UK Government, the EU and
(LIIBA) operating in the London and other bodies on regulatory matters.
international markets.
www.liiba.co.uk Publishes guidance to members on complying
with regulations.
Participates with members in projects
developing market practices and systems that
will, in turn, support efficient regulatory
compliance.
The Lloyd’s Market Association Lloyd’s managing agents and Represents members in discussions with
(LMA) members’ agents. Lloyd’s, the FCA, the UK Government, the EU
and other bodies on regulatory matters.
www.lmalloyds.com
Publishes guidance and delivers training to
members on complying with regulations.
Leads collaboration between members to
develop ways of jointly meeting regulatory
requirements.
Participates with members in projects
developing market practices and systems that
will, in turn, support efficient regulatory
compliance.
Procures joint services for members that assist
in meeting regulatory requirements.
International Underwriting International and wholesale A market association which leads collaboration
Association of London (IUA) insurance and reinsurance between members.
companies operating in the
www.iua.co.uk London Market and outside Participates with members in projects
Lloyd’s. developing market practices and systems that,
potentially, in turn, support efficient regulatory
compliance.
Procures joint services for members that may
assist in meeting regulatory requirements.
London Market Group Speaks collectively for Leads collaboration between members on
market practitioners and claims agreement matters and supporting
lmg.london
delivers change on growth technology.
and modernisation issues.
Research exercise
Research the websites of the above associations. What recent activities have they carried
out that are relevant to regulation?
C1B Role of Lloyd’s in claims regulation

Before reading this section, review Chapter 8, section I (the London Market supplement) in
990 Insurance Corporate Management. You will find it on RevisionMate. This explains the
Chapter 2
position of Lloyd’s in delivering prudential and conduct regulation of the Lloyd’s market.
The Corporation of Lloyd’s works to maintain the success of the Lloyd’s market, lead the
future development of the market and ensure that regulatory requirements are met in all
countries where Lloyd’s operates.
Lloyd’s has very wide powers to control the operation of the market, stemming from the
Underwriting Byelaw, which applies to the syndicates. Lloyd’s regulations are typically
communicated to the market via Market Bulletins.
On the Web
Lloyd’s Market Bulletins can be read on www.lloyds.com.
The role of Lloyd’s also involves providing support for managing agents in meeting the
sometimes complex regulatory requirements of different jurisdictions, including:
• supporting syndicates in addressing specific regulatory issues, such as Medicare
reporting in the United States;
• reporting to regulators worldwide, for example on the volume and value of claims arising
from major losses such as earthquakes or windstorms;
• liaising with, and lobbying, regulators and governments on claims issues;
• contributing to the market’s management of central service provider contracts, which is
relevant to the syndicates’ achievement of regulatory compliance; and
• setting the rules under which leaders agree claims on behalf of followers in the
subscription market, via the Lloyd’s Claims Schemes.
Within the Corporation, the Lloyd’s Claims Team is responsible for supporting managing
agents in these activities.
Claims managers setting a claims strategy in the Lloyd’s market will also need to consider
Lloyd’s Minimum Standards and detailed Lloyd’s rules applying to delegated authority,
including where claims handling authority is delegated. Claims service providers working
with Lloyd’s syndicates and brokers will need to be aware of the requirements, so their own
claims strategy can be tailored to meet their clients’ needs. Note too, that the claims strategy
for some specialist types of London Market organisation – such as service companies and
consortia – will need to take into account additional requirements.
We will now examine the:
• claims performance management framework;
• key delegated authority rules relevant to the claims strategy of syndicates and brokers
operating in Lloyd’s; and
• conduct standards.
C2 Lloyd’s claims performance management framework

The Lloyd’s operational teams design and administer a framework for performance
management. This is applicable in the Lloyd’s market and so needs to be taken account of
by all operating in claims in the Lloyd’s market.
C2A Components of the framework
The main claims components of the performance management framework are:
• approval of a new syndicate’s claims function as part of the application process to
Lloyd’s;
• assessment of syndicates against Lloyd’s Minimum Standards;
• measurement and reporting of performance to syndicates;
• provision to managing agents of management information; and
• reviews of performance, which may identify areas for enhancement.
The Minimum Standards are of particular relevance to those setting a claims strategy in the
Lloyd’s market. Syndicate performance is reviewed against the standards on an ongoing
basis by Lloyd’s. Approval of new syndicates is also based on confirming that the managing
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agent’s claims function will achieve the standards through an acceptable business plan.
C2B Lloyd’s Minimum Standards
Before proceeding, review the Lloyd’s Minimum Standards that are most relevant to the
claims strategy.
On the Web
You can find the relevant Minimum Standards within the MS9 Customer standards here:
www.lloyds.com/conducting-business/requirements-and-standards/minimum-standards.
Lloyd’s Minimum Standards set out the Lloyd’s framework for the managing agents who
underwrite and handle claims for the syndicates they manage. As you will have seen, there
is a mixture of principles and rules, with the rules being minimum levels of achievement.
Managing agents have successfully argued that the minimum standards should not be made
so stringent that there is no room for differentiation and competition between the managing
agents on service.
You can see from Standards CS1.3 and CS1.4, that the board of a managing agent is
required to choose and document its approach to, and strategy for, the management of
claims, delegated authority, conduct risk and complaints. The board should set a risk
appetite and maintain oversight of the delivery of the strategy and review appropriate
information to monitor this.
From CS1.3 and the guidance in Section 1, we can see that the managing agent should
consider the claims resulting from the chosen underwriting business plan, and plan for the
resources, technology, supply chain partners and potential outsourcing required. Section 2
requires the setting of key performance indicators for claims and the monitoring of these
through the management structure.
Consider this…
How do you think the Lloyd's claims Minimum Standards compare to practices in the wider
insurance market. Are they more or less stringent?
C2C Claim file reviews

Standard CS2.5 requires managing agents to put in place a file review process (see Audit or
file review on page 2/10). Note how conduct risk factors are required to be considered, such
as whether complaints have been handled properly, and the requirement for the sample to
include claims on products that are assessed as posing a greater potential risk to customer
outcomes.
C2D Case reserving
Standard CS4.1 refers to the need for a documented reserving philosophy (see Reserving
on page 2/3), which should be approved by the relevant management committee. This
standard also addresses the need in the subscription market for case reserves to be
communicated to the following market in a timely manner, and with a rationale. The need for
a system of claim handling authorities is also addressed here.
C2E Claims handling
Standard CS7.2 addresses the fair and prompt settlement of claims and the provision of
progress updates to the customer or broker. Again, we see the Standards addressing
conduct risk, with the statements that communications and the claims handling approach
need to be appropriate for the customer's position on the spectrum of relative knowledge and
experience.
Research exercise
What other, more general standards, within the Lloyd's Minimum Standards overall are
relevant to the claims function?
C3 Lloyd’s delegated authority rules

Approximately one third of Lloyd’s premium income comes from delegated authority or
‘coverholder’ business. This means managing delegated claims authority will be a
Chapter 2
consideration in the claims strategy of many Lloyd’s brokers and managing agents.
Like other regulators, Lloyd’s expects a robust framework for oversight to be in place when a
third party delivers key functions on behalf of the insurer. Coverholder business is also a
common route through which Lloyd’s syndicates and brokers become involved in serving
consumers, as opposed to corporate clients.
An additional challenge faced in the London Market is the operation of delegated authority in
overseas territories, where rules and customs are different. The FCA has indicated that it
expects insurers domiciled in the UK to adhere to its conduct principles, wherever the
customers are actually based.
Lastly, as in claims performance management, Lloyd’s wants to strengthen the market’s
reputation for fast and fair claims handling. For these reasons, Lloyd’s operates certain
controls around delegated authority, both to support the market in writing this kind of
business and to ensure the risks are managed. These will be taken into account in the
claims strategy.
Research exercise
Review the Lloyd's framework governing the delegation of claims authority:
www.lloyds.com/conducting-business/delegated-authorities/delegated-claims-
administrators.
Anyone to whom a Lloyd's managing agent delegates authority to determine claims –

essentially to decide on coverage and the amount to be paid – must be registered with
Lloyd's first. Third party administrators, now called Delegated Claims Administrators (DCAs),
must undergo a standard due diligence process before acceptance. This process is initiated
by the managing agent proposing them and is reviewed by Lloyd's. Coverholders who will
handle claims themselves are exempt, but already go through due diligence and registration
with Lloyd's as a coverholder in the first place.
Research exercise
At this point you should read section 8 of the Lloyd's MS9 Customer Minimum Standards:
www.lloyds.com/market-resources/requirements-and-standards/minimum-standards.
The Lloyd’s Minimum Standards also specify the basic requirements for appointing and
overseeing DCAs along the dimensions we have already explored, comprising due diligence,
contract, management information and audit. Note also the difference in approach, whereby
the FCA states the principles and Lloyd's provides detailed rules and guidance on how
managing agents can discharge these obligations.
As can be seen, the claims strategy of an organisation operating a delegated authority in the
London Market may need to account for resources and processes to meet a diverse set of
requirements.
C4 Lloyd’s Minimum Standards and conduct risk

information
Research exercise
Review Standard CS2.3 and Appendix 1 of the Lloyd's MS9 Customer Minimum
Standards.
Firstly, let us consider the introduction to these Standards, and their purpose. What would be
the strategic benefit to the Lloyd’s market if Lloyd’s can establish an accepted interpretation
of what the FCA expects? Managing agents would otherwise need to collaborate and make
an interpretation, or tackle this individually.
Secondly, we should note the potential application of these Standards. Are they relevant only
to Lloyd’s managing agents? Most insurers, brokers and claims service providers operating
in the UK may find these useful.
Chapter 2
In any event, the claims strategy of a Lloyd’s managing agent needs to consider how the
required information will be obtained and reviewed, and the actions to be taken as a result.

If you work for a Lloyd’s broker or claims supplier working with managing agents on
delegated authority business you will also need to consider the impact of these demands
for information. What additional resources or technology changes may be required? How
will coverholders react?
C5 Challenges in the London subscription market

Many, if not most, organisations trading in the London Market do so in the subscription
market. In other words, in a market where there are multiple insurers or reinsurers
underwriting the risk. This presents the claims function with strategic decisions. Let us now
look at the regulatory dimensions to these.
C5A Broker claims strategies in the subscription market
For brokers, certainty and speed are required for the customer, together with low costs.
Added complexity can arise from the processes of the subscription market, so this may
involve the use of processing centres, possibly offshore, and decisions around the number of
skilled staff based in London. The claims strategy will need to consider the effects of the
chosen business model on conduct risk. Brokers placing more consumer business may
make different choices to those placing commercial risks.
Research exercise
Choose two large international brokers with operations in the London Market. Investigate
their claims strategy and identify the similarities and differences. What are the regulatory
questions that each will have addressed in making these strategic choices?
C5B Insurer claims strategies in the subscription market

For lead insurers, the strategic challenge may be how the claims function can deliver the
desired level of service when there is a following market not under the organisation’s direct
control. This could present a conduct risk. There is also the risk when following that the
reserving philosophy of the leader is different to the organisation’s own. Unexpected reserve
changes could occur, with an impact on prudential risk.
The claims function may, therefore, need to respond to the organisation’s overall strategy on
whether to be a leader, an additional claims agreement party or follower. Let’s now look at
the specific London Market regulations around claims agreement in the subscription market
to identify the controls in place over these risks.
Company market
The claims agreement rules applying to any Market Reform Contract of insurance are
specified in the Subscription Agreement section. Companies in the London Market may opt
to be an agreement party in their own right, or they may subscribe to the IUA’s Claims
Agreement Practices, under which they may follow the company lead. If a company’s claims
strategy is to be an agreement party where possible, they may gain a greater degree of
control over conduct and reserving risk, but at the expense of making the broker seek
agreement from an additional party.
Lloyd’s market
The position for Lloyd’s syndicates is different, since they are required to comply with the
Lloyd’s Claims Scheme. For almost all new business, Part II of the Lloyd’s Claims Scheme
(Combined) applies – the Lloyd’s 2010 Claims Scheme – which is designed to lead to more
efficient claims agreement. This could benefit customer conduct.
Research exercise
You should now read the Lloyd’s 2010 Claims Scheme, forming Part II of the Lloyd’s
Claims Scheme (Combined). Review the obligations on leaders and second leaders under
Chapter 2
the Lloyd’s rules.
www.lloyds.com/claimsscheme
Under this regime, claims are segmented into ‘standard’ and ‘complex’ types by the lead
Lloyd’s syndicate on the risk. Standard claims are agreed for all the participating Lloyd’s
syndicates by the lead only. Complex claims have two agreement parties, the leader being
joined by the second Lloyd’s syndicate, whose identity will have been written into the
subscription agreement at the point of placing. The majority of claims are standard, with the
categories being defined so that approximately 80% of claims fall into this category.
Single claims agreement party
In February 2018 LIIBA, the IUA, the LMA and Lloyd’s introduced a new model called Single
Claims Agreement Party (SCAP), which takes matters a stage further. Even though within
the Lloyd’s and company markets there are simplifying practices, risks combining both
Lloyd’s and company market insurers still have multiple agreement parties across the
market, which increases the time taken for claims agreement.
SCAP, however, allows the agreement of a claim by the lead insurer only, across the
subscribing company and Lloyd’s market, provided it is non-complex and below £250,000.
This requires the lead and all following insurers to opt-in, but promises greater speed and
ease of claims agreement in the London Market, particularly since the majority of claims fall
within the threshold. Claims outside the threshold continue to be agreed as normal, as per
the Subscription Agreement.
On the Web
Detailed information on the significant development represented by SCAP can be found
at: www.lloyds.com/market-resources/claims/single-claims-agreement-party
lmg.london/wp-content/uploads/2019/07/SCAP-Guidelines-Version-2.1-April-2019-1.pdf.
Therefore, the claims functions of London Market insurers writing subscription business face
a number of strategic decisions, as follows.
• Will the insurer want to be the lead, given the benefits of control? In which case, the
claims function will need to discharge the leader’s obligations, such as conducting
financial crime checks on behalf of the followers. What will be the resource requirements
and cost?
• Will a managing agent want to be identified as the second leader from amongst the
Lloyd’s followers? This would lead to a higher level of control over claims that are of a
material size, but with an associated cost.
• Should the strategy vary across the different classes of business written?

You are the claims director of a newly created Lloyd’s managing agent. The managed
syndicate will be underwriting large, complex business. Initially the organisation’s strategy
is to participate on this business as a follower, but a number of experienced underwriters
are recruited and lead lines are in fact written. How will you need to change your claims
strategy in light of this, given the Lloyd’s claims agreement rules? What will be the impact
in terms of cost and risk?
C6 Conclusion
Prudential regulation is concerned with the solvency and stability of financial services
institutions. Prudential regulation is mainly relevant to the claims strategy of insurers, through
Chapter 2
the impact of case reserving, risk management and outsourcing. However, brokers and
claims service providers also participate in the reserving process, particularly where there is
delegated authority.
Conduct regulation relates to the fair treatment of customers and affects the claims strategy
of all types of organisation. It is particularly onerous where the customers are consumers or
small businesses, as opposed to large businesses. The claims strategy will need to interpret
the regulatory principles and choose how it will approach meeting the requirements.
Strategic decisions will be made by the claims function on whether to meet or exceed
regulatory requirements, and there may be trade-offs required. These will involve
considering the resources needed, possible synergies with commercial objectives, such as
customer service, and choices around outsourcing or offshoring.
Outsourcing, which includes delegated authority, is a common part of the claims strategy.
Organisations choosing to outsource will need a strategy for setting up and monitoring the
arrangements that meets regulatory requirements. Both prudential and conduct requirements
apply. Organisations who will be the service provider, will need to respond to the
requirements and be ready to deliver detailed information to the principal.
Organisations operating in the London Market need to consider both the UK regulatory
environment and certain specific claims regulations. Lloyd's is the main source of these
additional regulations. Lloyd's requirements are often framed as Minimum Standards and
apply to Lloyd's managing agents, but in turn affect demands on brokers and service
providers. They support achievement of the UK regulators' goals and can be informative for
organisations outside Lloyd's, and indeed the London Market.
Claims agreement practices in the London Market are being simplified and the claims
strategies of brokers and insurers need to consider the implications and adapt.
D Scenario 2: Regulatory change

D1 Question
You are the claims director of an outsource service provider handling household insurance
claims and any associated complaints. The regulator is about to enhance the complaint
handling rules that it requires firms like yours to follow, with tighter deadlines and more
generous compensation guidelines.
Analyse the impact this will have on your claims strategy.
D2 How to approach your answer

Aim
This scenario aims to test your understanding of how regulation can affect the claims
strategy.
You should aim to include the following key points of content in your answer:
• What will be the impact on indemnity costs, reserving accuracy and operating costs?
• What will you need to discuss with your clients given the effect on your services?
Consider contractual changes, costs and how you will demonstrate you have adapted to
the enhanced rules.
• What strategic decisions will be required both by you and by your clients?
Self-test questions
1. Consider a broker whose clients are a mixture of consumers and businesses. Identify
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the different types of customer and place them on a spectrum from those with the
least knowledge of insurance and greatest risk of harm when interacting with
financial services, to those with the greatest knowledge and the lowest risk of harm.
Explain how the claims strategy will achieve high quality customer outcomes for
each group.
2. You are a claims manager setting-up two claims outsourcing arrangements. One will
be for commercial liability claims and the other for student contents insurance.
Analyse your approach to setting-up and monitoring the performance of these
arrangements. Where you take a different approach between the two, explain why.
3. Describe how the claims strategy will differ between a broker placing a high volume
of varied business in the London subscription market and a broker placing a low
volume of specialised business.
4. Evaluate how far the London Market claims agreement practices meet the regulatory
requirements applying to the followers, when they delegate claims authority to the
leader.
Developing a claims
3
strategy
Chapter 3
outcomes
Introduction
A Corporate culture 5.2
B Analysis of culture 5.2
C Organisational performance and culture 5.2
D Leadership 5.2
E Developing the strategy 3.1
F Common elements in successful strategies 3.1
G Industry and environment analysis 3.1
H Resource and capabilities as a competitive strategy 3.1
I Development of the claims strategy 3.1
J Culture and strategy 3.1
K Scenario 3: Strategic fit
Self-test questions
Learning objectives
• analyse the culture of the claims function;
• explain the interaction between culture and strategy; and
• develop a claims strategy that takes account of the broader business context, culture and
strategy.
Introduction
In this chapter we are going to start to develop a claims strategy. However, the strategy
cannot be developed in isolation and one key influencer on the strategy is the culture, both
within the organisation and within the claims function itself. Later sections will look at the
broader business context in which the strategy is developed.
Key terms
Chapter 3
Claims strategy Cultural web Culture Emergent strategy

Industry Leadership Operational strategy Paradigm
attractiveness
PEST Pillar approach Porter’s Five Forces Service culture
Strategic fit Strategy Sub-cultures SWOT analysis
Taken-for-granted Values
assumptions
A Corporate culture
Corporate culture receives an immense amount of attention from management writers and is
a topic of great interest to organisational leaders. A major reason for this interest is the view
proposed by many writers that organisational performance is improved when an organisation
has a culture that supports the strategy.
While researching for their book In Search of Excellence, Peters and Waterman1 found that:
without exception, the dominance and coherence of culture proved to be an essential quality
of the excellent companies.
In particular, they found that the requirement for manuals, policies and procedures was
reduced when the culture was stronger and focused towards the market place. Strong
cultures can exist in companies with poor performance records, although that culture is
usually dysfunctional, often focusing on internal politics or just the financial numbers.
Consider this…
Do you agree with the above suggestions? What is your experience or observations of
organisational cultures? Do you believe they are crucial to the success of an
organisation’s performance?
Refer to
More on the AIG and Independent case studies in Development of the business strategy
on page 3/20
In The Roads to Ruin (A report by CASS Business School on behalf of Airmic) the authors
identify seven key risk areas that can pose a potential threat to organisations, one of which is
poor leadership on ethos and culture. In particular the AIG and Independent case studies are
of interest.
Research exercise
Download and read a copy of The Roads to Ruin – A report by CASS Business School on
behalf of Airmic from: www.airmic.com/technical/library/roads-ruin-study-major-risk-
events-their-origins-impact-and-implications.
Chapter 3 Developing a claims strategy 3/3
A1 How can we define culture?

Culture can be difficult to articulate, some definitions from key writers on the topic are as
follows.
The way things are done around here

(Deal and Kennedy 1982)
Organisational culture is the collection of traditions, values, policies, beliefs and attitudes
that constitute a pervasive context for everything we do and think in an organisation.
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(McLean and Marshall 1993)
Shared patterns of behaviour.
(Mead 1953)
A set of basic assumptions which have evolved over time and are handed down from one
generation to the next.
(Schein 1985)
The collective programming of the human mind.
(Hofstede 1991)
According to Schein2 organisational culture is:
the basic assumptions and beliefs that are shared by members of an organisation, that
operate unconsciously and define in a basic taken for granted fashion an organisation’s
view of itself and its environment.
Pettigrew3 has a different approach to culture. His view is that values are not shared by all
members; he believes that when people work together they develop the way they should
relate to each other; a sense of what they are doing and why. The culture is the system of
the visible accepted meanings of the group.
Critical reflection
Reflect on these different definitions for organisational culture. What has been your
experience of the ways the culture has developed in the organisations for which you have
worked? If you have worked for a new team or function how did the culture develop? You
may like to ask your colleagues for their views and experiences.
Reviewing these definitions we can see that organisational culture evolves and develops
over time and creates a shared meaning and understanding among employees. It can be
about creating a reality through which people see and understand particular events, actions
or situations in specific ways. Companies with strong cultures articulate clearly exactly how
they want their staff to behave and what is and isn’t acceptable, so employees and
customers know what to expect.
Johnson and Scholes4 quote Edgar Schein who proposed the following four layers for
culture:
• values;
• beliefs;
• behaviours; and
• taken-for-granted assumptions.
Values
Many organisations have values and they are frequently written down, so they are quite easy
to identify. However, sometimes the strategy that is being developed does not match the
documented values of the organisation.
Consider this…
If your organisation has articulated values, do you feel its current strategy is in line with
those values?
Deal and Kennedy argue that ‘since organisational values can powerfully influence what
people actually do, we think that values ought to be a matter of great concern to managers’.5
In their studies they found that successful companies placed a great deal of emphasis on
values and generally shared the following three characteristics.
• They stand for something: they have a clear and explicit philosophy about how they aim
to conduct their business.
• Management pays a great deal of attention to:
– shaping these values to conform to the economic and business environment of the
company; and
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– communicating the values to the organisation.

• The values are known and shared by all employees at all levels.
The benefit to a company of having strong values is that everyone knows what they should
be doing, how they should behave and the way in which they should respond to various
scenarios.
Research exercise
Identify an organisation where its publicly stated values correspond with your experience
of it and one where they do not.
Can you identify the reasons for these two different outcomes?
Beliefs
Beliefs are more specific and can usually be identified through listening to how people talk
about the issues an organisation faces. For example: ‘the handling of claims should always
be an in-house function’. When considering values and beliefs it is the collective values and
beliefs which are being considered, not those of an individual.
Behaviours
These are the day-to-day ways in which an organisation goes about its business, such as
work routines and organisational structure, including symbolic behaviours, where these
behaviours can be observed by those both inside and outside the organisation. It is likely
that these behaviours become the ‘taken-for-granted ways of doing things around here’.
Taken-for-granted assumptions
These are the core of an organisation’s culture. Johnson and Scholes refer to these as the
‘paradigm’ of the organisation and they are present in all organisations. They are based on
the collective experience of those within the organisation and provide it with a common
understanding.
When developing and implementing a strategy, these assumptions can be extremely
valuable in supporting it. Conversely they can work against the organisation when a major
strategic change is required.
A2 Influence of culture on the strategy

The development of the strategy is influenced by these shared basic assumptions and
beliefs, as they shape the way people respond to given situations. Johnson, Whittington and
Scholes6 outline the following reasons:
Cultural glue These are the taken-for-granted benefits of an organisational culture, in other words
what will happen automatically without the need for intervention. For instance,
Josephine Rydberg-Dumont, president of IKEA, says that an aspect of its culture is to
constantly question the status quo which fuels innovation. This is in line with the
findings of Peters and Waterman when they refer to a reduction in the need for
manuals, policies and procedures.
Captured by culture When a change to the strategy is required, perhaps due to a changing business
environment, the leadership team are more likely to search for what they can
understand and cope with in the existing culture. This results in an incremental step
change to the strategy when, perhaps, a more definitive change is required.
Managing culture The nature of culture, i.e. it is difficult to identify and control that which is taken for
granted, makes it difficult to manage.
Refer to
Changing the culture discussed in Changing cultures on page 3/29
Managers who want to minimise or reduce the influence of the culture on future strategy
development will need to address changing the culture. On occasion, when making a senior
appointment an organisation will make a conscious decision to appoint someone from
outside the organisation, with the intention of bringing about a cultural change.
B Analysis of culture
Chapter 3
If leaders understand an organisation’s culture and its historical roots, it will help them to
understand how the culture will influence future strategy development and its
implementation.
A good way for us to analyse culture is to use the cultural web.
Figure 3.1: Cultural web

‘The cultural web shows the behavioural, physical, and symbolic manifestations of a
culture.’
Symbols
Power
Stories
Structures
Paradigm
Rituals and Organisational

routines Structures
Control
Systems
Source: Johnson G, Whittington R, Scholes K, Angwin D, Regner P, 'Cultural Web of an

organisation' in Exploring Strategy 11th edition Pearson-books.com, p.175
Paradigm
This is the collective commonly held set of assumptions in an organisation or function. These
assumptions are often very basic and are rarely discussed, which can make them difficult to
identify, particularly from within. A useful exercise to help identify these assumptions can be
to observe and listen to what people are saying and doing.
Sometimes the paradigm may not be in line with the strategy. Consider the following
example.
Example 3.1
The staff of a nursing unit in a private residential care home have the basic assumption
that the ultimate reason/purpose of their role is to provide high quality medical care and
ensure all patients’ needs are met.
Whereas, the strategy of the residential home is to also ensure a profit is made for the
owners/shareholders of the home, through robust management of income and
expenditure. This may, on occasion, lead to a clash between the paradigm and the
strategy.
Routines
Routines are ‘the way we do things around here’ on a day-to-day basis. They support the
smooth running of the organisation. Sometimes they can support organisational capabilities.
Rituals
Rituals are activities or special events that emphasise, highlight or reinforce what is
important in the culture. These can be informal or formal activities, ranging from social
evenings through to formal training programmes and promotion assessment procedures.
Stories
Stories told either internally or externally about heroes, villains or mavericks are a way of
highlighting what is important in an organisation.
Symbols
Symbols are the objects, events and acts of people, which convey, maintain or create
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meaning over and above their functional purpose. For example, job titles, office layout and
company cars may be suggestive of hierarchy and status. The type of language that is used
may be symbolic of some underlying assumptions.
Some of the other elements of the web are also symbolic, such as routines, control and
reward systems.
Power
Refer to
Stakeholder management discussed in Stakeholder management on page 6/12
Power is the ability of individuals or groups to persuade, induce or coerce others into
following certain courses of action. Power structures distribute power to individuals in the
organisation. Later in this study text we discuss the influence of power in stakeholder
management.
Structures
Organisational structures are the roles, responsibilities and reporting relationships in an
organisation. The importance of different roles etc. can be seen through the types of
structures available to an organisation. Hierarchical mechanistic structures might suggest a
‘top-down’ approach to strategy development, whereas flatter more informal structures are
likely to adopt a more collaborative approach.
Control systems
Control systems describe the formal, and informal, ways of monitoring and supporting people
within and around an organisation. They include measurement and reward systems that
influence behaviour. For example, targets and reward systems based on the individual are
likely to encourage individual focused behaviour as opposed to teamwork. Control systems
also cover the number of audits and quality control systems used and how these are
implemented.
In addition to the cultural web it is also useful to review the public statements the
organisation makes about its cultural values, beliefs and purpose. These are often
incorporated into the mission or value statements and the business plan.
Research exercise
Complete an analysis of the culture of your organisation using the cultural web and the
formal cultural statements made by the organisation.
As part of this exercise you might like to consider the following questions.
• Can you define the culture for your organisation?
• Do you believe the culture is appropriate to provide your organisation with a
competitive advantage in your industry?
• Are you able to identify how the culture has influenced the strategy?
B1 Industry cultures
Cultures are not unique to an organisation: industries often have a culture. Within an industry
there can be variations, for instance, within financial services the culture in Lloyd’s and in the
London Market is different to the culture elsewhere in the UK.
Critical reflection
What do you think are the factors that drive the different cultures in the insurance
industry? Are there certain traits that are unique to different segments of the industry, such
as insurers, brokers and MGAs?
Consider this…
There are almost 100 Managing Agencies in Lloyd’s each with a different corporate
culture. Lloyd’s itself has a culture also. What are the potential consequences when these
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cultures clash?
B2 Sub-cultures
Consider this…
Consider your organisation: how does the culture of the claims function differ from the
organisational culture?
If there are differences, why have those differences arisen and how helpful are they to the
claims function?
So far we have discussed an organisation’s culture. However, organisations will often have
sub-cultures. These can arise due to:
• organisational structure and divisions, such as geographical locations, for instance UK
and Asia;
• the different functions within the organisation, such as underwriting, claims, human
resources; and
• acquisitions – purchased entities will already have their own established culture.
Organisations may also choose to have different cultures within the organisation when
operating different brands, for example.
It is evident from this that the claims function may have a different culture from the
organisation, albeit it will have been influenced by the organisation’s culture. It is also likely
to have a different culture from other functions within the organisation, for instance
underwriting.

Complete an analysis of the culture of your claims function using the cultural web and the
formal cultural statements made by the organisation/claims leadership team.
Are you able to ‘name/define’ the culture for your claims function?
Are you able to identify how the culture has influenced the claims strategy?
How is the culture impacting on the service, including the claims settlement, the customer
is receiving from the claims function?
Consider this…
What are the differences between the claims culture and the underwriting culture/
producing broker culture in your organisation?
How do you think these differences impact on the customer?
It is suggested that writers on corporate cultures pay insufficient heed to inherent conflicts
within organisations and the role of power and structured inequalities. The assumption is that
consensus and unity are created by the norm, values and beliefs of organisational
employees. Whereas often there is power in organisational structures and the way they work
and they are frequently not consensual. They have a variety of cultures, some of which are
conflicting.
Consider this…
What are your views on this contrasting opinion? Have you experience of working in an
organisation with conflicting cultures? What was the impact of those conflicts?
C Organisational performance and culture

We started this chapter with the quote from Peters and Waterman on the impact the right
culture can have on the performance of an organisation. As we have said, there is a great
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deal of interest in organisational culture due to the assertion that it is a key influencing factor
in organisational performance.
The management writers7 propose that:
• organisations have cultures;
• they become more effective when they develop the right ‘strong’ cultures, which should
be carefully defined;
• these cultures create consensus and unity and motivate staff;
• cultures have an effect on corporate performance;
• when necessary, cultures can be and should be changed; and
• it is the responsibility of senior managers to change them.
The above approach assumes that it is possible to assess, manage, construct and change a
corporate culture with the intention of improving performance. It is assumed that, as part of
this approach, the employee’s norms, beliefs and values can be changed and that economic
success is dependent upon the cultural transformation of large-scale business.
Consider this…
How realistic do you think this statement/declaration is?
Research exercise
If you have worked for different organisations, did the claims functions have different
cultures? Can you describe the differences and the impact those cultures had on the
performance of the claims function?
Alternatively, in respect of clients or suppliers you work with, have you observed
differences in their cultures and the impact they have had on the performance of that
organisation?
C1 Service culture
The insurance industry is a service industry. Therefore, when considering a culture that is
going to deliver a competitive advantage the requirements of a service culture should be
considered.
Critical reflection
Reflect on the culture of the insurance industry: how do you think it compares with those in
other service industries? Do you think there are opportunities for improvements? If so,
what would they be?
Competing priorities have to be balanced to achieve an optimum result, for instance

achieving a balance between the right level of customer service and the cost of achieving
that service. Achieving a culture that will deliver a competitive advantage for a claims
function will also need to balance the following demands:
• the needs of the customer;
• the speed of service;
• the quality of service; and
• behaviours.
Service cultures are often defined by asking the following questions:

• Why am I here?
• What do I need to do?
• How do I need to do it?
• What should I measure?

Define the culture you would expect to be present in your claims function to give it a
Chapter 3
competitive advantage.
You might find it useful to map the elements of this culture on to the cultural web, so you
can see how the culture would be evidenced.
Review the analysis you did earlier for your claims function against the expected culture
you have just defined. What are the differences?
Start planning how you would make changes to the current culture to achieve the
expected one you have just defined.
D Leadership
Consider this…
When you completed the earlier research exercises did you identify leadership as an
influencing factor on the culture of the organisation or the claims function?
According to Chorn,8 leadership has the greatest bearing on the culture of an organisation.
The power of leadership arises because:
• leadership behaviour acts as a role model, setting an example to staff;
• the leadership sets and communicates the strategic vision for the organisation, thereby
creating clarity and an explanation as to why things are being done in the way they are;
• the organisational structure defines working relationships; and
• individual behaviours are influenced by the rewards and incentives that are in place to
motivate staff to achieve goals.
If you analyse the cultural web, you will see that leadership can influence all elements of the
web, for instance:
• Power structure: what symbols of power are there? Who makes things happen? Who
stops things happening?
• Control systems: the level of monitoring and control which is in place. Do staff feel
restrained and restricted or is there a degree of freedom and empowerment?
• Routines and rituals: what behaviours are encouraged, both internally and externally
and throughout the hierarchy? What sort of language is used in verbal and written
communication?
Therefore, we can see that the leadership style and approach has a profound impact on the
culture of the organisation.
Research exercise
Using your own claims function for this exercise, can you now assess the impact the
leadership has on the culture? You may find it helpful to use the cultural web to help you
work through this exercise.
E Developing the strategy

In preparation for this section please read chapters 3 and 5 of the 990 Insurance Corporate
Management study text. You will find them on RevisionMate.
Before starting to develop the claims strategy, we first need to consider what strategy is and
the different types of strategy that can be formed. We also need to review the different tools
and techniques that business leaders can use to help them develop a strategy.
We can then consider, in the second part of the section, how the claims strategy is
developed and how it is influenced by:
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• business context;
• business strategy; and
• business culture.
E1 What is strategy?
Competitive strategy is about being different. It means deliberately choosing a different set
of activities to deliver a unique mix of value
(Michael Porter9)
a pattern in a stream of decisions
(Henry Mintzberg10)
the determination of the long-run goals and objectives of an enterprise and the adoption of
courses of action and the allocation of resource necessary for carrying out these goals
(Alfred D Chandler11)
Strategy is a plan of action designed to achieve a long-term or overall aim, which provides
coherence and direction to the activities and thought processes of individuals in an
organisation. Strategy enhances and supports the following.
• Decision making: it helps the decision making process. When faced with choices,
individuals can focus on the strategy and this will help reduce the choices available and
provide direction for reaching the correct decision and consistency over time.
• Coordination and communication: the planning process often involves managers from
a number of levels in the organisation and this process of contributing to the strategy
development and planning aids communication and coordination.
• A clear target: the strategy links with the mission and the vision, providing a clear
direction for the company.
E2 Levels of strategy
The main ideas in this section are drawn from Exploring strategy12 by Johnson, Whittington
and Scholes.
E2A Corporate strategy
Corporate strategy is concerned with the overall scope of the organisation and how value
can be added to each part of the business. The corporate strategy will define the
organisation’s intentions with regard to the industries, markets and range of products it
engages with. For instance, this could be a decision by an insurer to diversify into the Asian
markets or move into a new product line.
Example 3.2
When the RAC moved from just being a roadside repairer to offering a new claims
notification service to insurers this was an example of a change of corporate strategy.
They started to operate in a different market and their competitors were no longer the AA
and other roadside repair companies, but insurers and other third party suppliers.
E2B Business strategy

The business strategy sets out how the individual business is going to compete within the
given industry or market. It will define how the business will deliver a superior performance to
its competitors, such as through the nature of its policy wordings or by the way it reaches its
customers. It will also consider how the claims function will contribute to the strategy; will it
be seen as a core competence for the organisation? Some organisations own a number of
businesses and each business will have its own strategy.
Consider this…
Chapter 3
Can you identify organisations within the insurance industry which own different
businesses? Can you identify the differences in the strategies that they adopt?
E2C Operational strategy

Operational strategy is the further development of the business strategy within the functions
and can sometimes be known as the functional strategy.
Figure 3.2: Levels of strategy and organisational structure
Corporate strategy Corporate head office
Commercial Personal
Business strategy
lines lines
IT
Functional strategies
HR
Underwriting Underwriting
Claims Claims
Marketing Marketing
Sales Sales
This strategy deals with how each operational area or function will effectively deliver the
corporate and business strategy.
E2D Conclusion
What is important for an organisation is the way these three levels of strategy are interlinked
and work together.
In this section, we are considering the development of the claims strategy, which is likely to
sit at the operational/functional level, although this will depend on the nature of organisation
and its other activities. However, wherever it sits, it will be influenced by the corporate and/or
business strategy of the organisation and, likewise, would aim to influence those strategies.
The concepts and theories we will study in this section are relevant to the development of
strategy at all levels.
Research exercise
For your organisation please obtain a copy of each of the following:
• corporate strategy;
• business strategy; and
• claims strategy.
Can you identify the links between these strategies? We will continue to use these
strategy documents as we work through this section.
Research exercise
Review the annual report for another organisation, either in the insurance industry or for a
successful organisation outside the insurance industry. Can you identify the different
levels of strategy for that organisation and how they are linked?
E3 Strategic fit
Grant provides a basic framework for strategy, as illustrated in figure 3.3.
Chapter 3
Figure 3.3: Link between the firm and its environment
The firm The industry

• Goals and environment
values • Competitors
• Resources and Strategy • Customers
capabilities • Suppliers
• Structure and
systems
Source: Grant, R.M. ‘Basic framework: strategy as a link between the firm and its
environment’ in Contemporary Strategy Analysis 10th edition Wiley, p.9
In this model, Grant is highlighting how strategy provides a link between the organisation and
the external environment. Therefore, strategy defines how the organisation will deploy its
resources to achieve its long term goals, and how it will organise itself to implement the
strategy.
To achieve strategic fit, the firm’s strategy should be appropriate for both its external and
internal environments. The internal environment consists of its:
• goals and values;
• structures;
• systems; and
• resources and capabilities.
Questions to be considered around this are:
• Is the agreed strategy being formed on the basis of a sound understanding of the
organisation’s competitive markets and its relationships with customers and suppliers?
• Are the organisation’s goals and values appropriate to its resources and capabilities?
The objective is for the alignment between the organisation and the external market to be as
close as possible.
The concept of strategic fit is also relevant when considering:
• mergers and acquisitions; and
• strategic alliances.
In these scenarios, consideration should be given to whether or not the organisation in the
proposed merger or alliance supports or strengthens the organisation’s strategy.
E4 Approaches to strategy development

E4A Intended strategy
An organisation will plan and devise the strategy, articulating the intended actions before it
puts that strategy in place. This is described as the intended strategy. Once a strategy is
implemented this is known as the realised strategy, although often in reality the realised
strategy represents only a percentage of what was originally planned. This can be due to a
number of reasons, such as:
• inadequate implementation;
• the competitive environment moving faster than originally anticipated making parts of the
strategy ‘redundant’; and
• an emergent strategy.
E4B Emergent strategy

According to Henry Mintzberg, an emergent strategy is a set of actions or behaviour,
consistent over time; ‘a realized pattern [that] was not expressly intended’ in the original
planning of strategy.
Emergent strategy develops over time, possibly due to the unexpected success of an
activity, and could be considered accidental. Emergent strategy is an example of the
organisation learning as it goes along.
Refer to
Chapter 3
Innovation considered in Creativity and innovation on page 7/9
The benefit of emergent strategy is that it can be more agile and flexible than an intended
strategy, allowing an organisation to adapt and quickly respond to a changing environment
and customer needs. In order to maximise the opportunities for emergent strategy, the
appropriate culture has to be developed and innovation encouraged.
It is often the case that strategy is a combination of emergent and intended strategy.
Research exercise
Examine the strategy for your claims function. How much of the intended strategy has
been realised? Why is this so?
Can you identify which elements are part of the intended strategy and which aspects have
developed due to emergent strategy?
Research exercise
Complete further research into these two approaches to strategy development and
analyse the advantages and disadvantages of each.
E5 Role of leadership in strategy development

The leadership of the organisation plays a key role in the development of the strategy;
leaders provide the vision and the strategic intent for the organisation. They share their
overall vision for the organisation with the aim of motivating everyone to the shared vision.
Refer to
The leadership style will also be important in influencing the way in which the strategy is
developed. It is highly likely that the process of strategy development will involve a significant
amount of decision making and the leaders will have to create a cohesive strategy based on
the information presented. In addition stakeholders will need to be managed.
Refer to
Influence of culture on strategy described in Influence of culture on the strategy on page
3/4
We have already discussed the influence of culture on strategy development. Where the
validity of the current culture is to be challenged, leaders will require an opening and
questioning approach. If the leadership team does not have this approach, then this will
place limitations on the process.
F Common elements in successful strategies

Figure 3.4: Common elements in successful strategies
Successful
Strategy
Chapter 3
Effective implementation
Clear,
Objective
consistent and
Profound appraisal of
long-term
understanding of resources
objectives
the competitive
environment
Source: Grant, R.M. Contemporary Strategy Analysis 10th edition Wiley 2018, figure 1.1
How do we ensure we deliver a successful strategy? We have already mentioned the

important aspect of strategic fit between the organisation and its external environment. In
addition Grant13 proposes the following key elements in respect of delivering a successful
strategy.
• Goals that are clear, consistent and long term.
• Profound understanding of the competitive environment.
• Objective appraisal of resources: how an organisation maximises its strengths and
capabilities.
• Effective implementation: a strategy is only as good as its implementation. It can be the
most powerful and inspirational strategy, but the results will not be achieved if it is not
effectively implemented. Implementation, rather than content, is one of the biggest
reasons strategies fail.
Example 3.3
In his book, Contemporary Strategy Analysis,14 Grant refers to two different case studies
of Queen Elizabeth II and Lady Gaga; he suggests their success can be linked to common
factors, even though these ladies operate in totally different areas. Their approach
provides wider lessons for those of us who work in claims.
Goals that are simple, consistent and long term
Both the Queen and Lady Gaga have pursued goals which have remained consistent over
the long term, in particular the Queen has remained consistent to her goal of sustaining
the British monarchy and fulfilling its duties throughout her 60 year reign.
In a claims department a goal could be to ensure the customer is at the centre of all
claims processes.
Profound understanding of the competitive environment
They have shown a thorough understanding of the market in which they operate, for
instance, the Queen is sensitive to the changing political environment and the moods of
the nation. Lady Gaga has identified the marketing potential of social networking and the
needs of generation Y.
From a claims perspective this could be being alert to a change in case law and the
implications for current and future claims reserves.
Objective appraisal of resources
The Queen has maximised her family and network of loyal supporters and Lady Gaga
deploys a variety of talents in her Haus of Gaga.
A claims environment example would be having an objective and reliable framework for
assessing the capability of staff.
Chapter 3
Effective implementation
The Queen and Lady Gaga are effective leaders and have created loyal and supportive
organisations.
The claims function will need to have a clear plan for implementation, which will include
ownership of plans and a method for monitoring and redress.
Research exercise
We mentioned earlier that realised strategy is the aspect of the intended strategy that has
been implemented. You reviewed your claims strategy to identify how much of the
intended strategy had been realised and what the possible reasons were.
Review your original list of reasons for the difference between intended and realised
strategy and, in light of the above information, see if you can identify any further reasons
for the difference.

Review your claims function or corporate strategy for the next three years and the ‘road
map’ for attaining the goals. Do you think it achievable?
What influences do you think could affect the plan? Think about internal, external, micro/
macro influences.
G Industry and environment analysis

We will now start to consider the tools available to the leadership team for analysing the
business context in which an organisation operates. There are a number of factors which
contribute to the profit earned by a firm, such as creating value for the customer so they are
willing to buy the product or service.
However, value alone will not guarantee profit, as it will depend on a number of other factors,
such as:
• suppliers in the market;
• intensity of competition – which is likely to influence the price charged for a product or
service; and
• cost of materials/services from suppliers – the ability to obtain these at a better price than
competitors will influence the profit margins.
The purpose of a strategy is to identify ways in which to generate profit and one of the first
steps in this process is to understand what influences the level of profit in an industry.
G1 Industry attractiveness
Industries have different rates of return based on the average return on equity (ROE), so
there is a view that the chosen industry is an important factor when considering
organisational performance. Consequently, strategy development should be externally
focused.
However, in recent years a contrasting view has been proposed: Johnson, Whittington and
Scholes15 detail two surveys, one for manufacturing and a second which included service
industries. These surveys found that firm-specific factors had a greater influence on
organisational performance than industry factors. The implication of this research is that
organisations should focus on internally orientated strategies. We discuss such an approach

later in this section when we review a resource based approach to strategy development.
Rumelt16 in his research of 2,180 business units, found that only 4% of the variance of return
on assets was attributable to the influence of the industry.
Research exercise
Using the internet or business magazines, research the ROE for different industries and
then compare these with the insurance industry.
Chapter 3
G2 Porter’s Five Forces

Porter's Five Forces is a recognised and widely used tool for leaders to assess the intensity
of the competition in the industry. In this framework, the threats of new entrants, supplier and
buyer power, substitutes and competition between firms is analysed to understand the
degree of competition in the market and the attractiveness of an industry.
Supplier power
An assessment of suppliers involves analysing the following.
• The numbers involved. If there are only a few they are likely to be more powerful.
• How specialist is their knowledge or how unique is their product or service?
• Switching costs. This is not only the direct costs, perhaps any contract fees, but also
indirect costs, such as time spent by staff on the change, any re-training, relationship
building etc.
• Supplier competition threat. Are they able to cut out the middleman, for instance insurers
dealing direct with policyholders?
Buyer power
This relates to the influence buyers have on price: how easy is it for them to drive down
prices? It also includes the following.
• Switching costs. How easy is it for them to switch? For instance in the consumer market it
is very easy for this to happen.
• Number of buyers. Is there a large number of individual buyers or a small number of
larger buyers?
Industry rivalry
Questions arising under this heading include the following.
• How unique is the product or service being offered by your organisation?
• Are there a number of players in the field who can offer the same product and service or
is your organisation offering something unique?
In the insurance industry this will vary considerably depending on the specific segment of the
market. For instance, the retail market is highly competitive with many players, whereas in a
more niche market, such as aerospace, there will be far fewer competitors. Another example
is where an MGA trading with capital from an insurer finds itself competing against that
insurer where the insurer is offering to write insurance products either direct or via
intermediaries, as well as providing capital to the MGA.
Threat of substitution
The question here is: ‘How easy is it for a customer to substitute the product or service
supplied with something else?’ Where substitution is easy and appropriate, it weakens the
position of the provider. Policyholders may choose not to insure and carry the risk
themselves, either in its entirety or in part through a deductible. For some policyholders the
creation of a captive might be an option.
A non-insurance example might be the way that many people now use their mobile phones
as a camera and fewer people buy a separate camera.
Threat of new entry
Refer to
Capital requirements of the PRA described in Prudential regulation on page 2/2
The power of the Five Forces is influenced by how easy it is for new entrants to enter the
market and compete effectively by, for instance, moving into new products or new
geographical areas. The capital requirements should be considered, such as those required
by the PRA. Consideration should be given to the distribution channels, the opportunities to
Chapter 3
establish an agency network or the advantages provided by the internet.
The completed analysis will allow you to analyse how the structure of the industry drives
competition, which, in turn, influences the profitability of the industry.
Figure 3.5 is Porter’s Five Forces of competition diagram populated and adapted to the
insurance industry.
Figure 3.5: Porter’s Five Forces for the insurance industry
Supplier power
• Buyers’ price sensitivity
• Relative bargaining power
• Reinsurers
• Providers of capital, such as members
of Lloyd’s syndicates
• Also suppliers necessary to delivery of
service, e.g. loss adjusters, surveyors
Threat of entry Substitution

• Capital requirements Industry rivalry competition
• Economies of scale • Concentration • Buyers’ propensity to
• Absolute cost • Diversity of competitors substitute
advantages • Product differentiation • Relative prices and
• Product differentiation performance of
• Excess capacity and exit substitutes
• Access to distribution • Varies between markets –
• Legal barriers • Option to self insure/
commercial/personal/ captives
• Retaliation niche markets
• Eliminate the risk
• Industry knowledge, • Cyclical markets/soft
underwriting, actuarial, • Increase risk appetite
and hard
claims
Buyer power
Price sensitivity – will vary in different
markets
• Cost of product relative to total cost
• Product differentiation
• Competition between buyers
Bargaining power
• Size and concentration of buyers relative
to producers
• Buyers' switching costs – low in retail, cost
of value added services
• Consider brokers, networks and managing
agents
• Buyers’ ability to backward integrate
'The stronger the four 'outside-in' influences, the more intense the competition rivalry.'
Research exercise
In respect of the segment of the insurance industry in which you work, complete Porter’s
Five Forces analysis. You may wish to consult with your colleagues to provide as broad
and as in depth an analysis as possible.
G2A An alternative to Porter's five forces

Johnson and Scholes propose an alternative to Porter's competitive forces framework: a
'value capture model', which is based on game theory.17
Porter's model is based on defining the opportunities of the firm, whereas the 'value capture
model' emphasises how a firm's opportunities depend on how the firm, suppliers and buyers
create value together. Together, they comprise a value network of transactions that create
value to be shared among them. They then compete for a share of that value, based on a
single 'competition force' that each player has.
Chapter 3
A firm wants to make transactions with certain suppliers and customers to create value but,
also, to capture as much of that value as possible. The strength of each player's competitive
force depends on how many others it could create value with. So, if company A has many
alternative suppliers and buyers with which to create value, its competition force would go
up, as it can threaten to make transactions with someone else and thus bargain up its share
of the value pie this way. This, therefore, suggests that value creation and value
appropriation are linked in this model. The more value the firm can create with various
suppliers and buyers, the larger portion of this value it can capture.
Critical reflection
Do you think this proposed model could be relevant to the insurance industry and, in
particular, the claims element of the industry?
How do you think this 'value capture model' compares with Porter's five forces when
making an industry analysis?
G3 Analysis of the environment in which an industry

operates
PEST
To analyse the environment in which an industry or organisation operates a useful framework
is PEST, which allows consideration of the different areas:
• Political and legal.
• Economic.
• Social.
• Technology.
• Environmental.
• Competitors.
Figure 3.6 is a PEST analysis showing the different elements influencing the environment in
which the insurance industry operates, with a few suggestions for each heading.
Figure 3.6: PEST analysis for insurance industry
Political and
legal –
pressure groups,
Government agenda
for insurance
Competitors – Social –
Chapter 3
numbers, demographics,
strengths and customer
weaknesses expectations
Industry environment –
suppliers, competitors,
and customers
Environment – Technology –
global warming digital, online
Economic –
national,
international,
recession
Research exercise
Complete a PEST analysis for the environment in which your organisation operates,
including any claims specific elements. You may wish to consult with your colleagues to
provide as broad and as in depth an analysis as possible.
G4 Key success factors

Key success factors are those factors which an organisation must identify if it is to achieve
competitive advantage in an industry. The factors which need to be considered are:
• those which influence the customer’s choice in respect of the products they will buy,
– what elements of the product or service is viewed as a minimum,
– what makes them chose one brand over another; and
• the resources and capabilities required by an organisation if it is going to compete
successfully.

Identify the key success factors for your organisation.
Identify the key success factors for your claims function.
You will need to consider:

• what is important to your customers in respect of the claims service;
• what resources and capabilities does a claims function require to effectively compete; and
• finally, what does the claims function need to do to outperform its competitors?
When an external environment is changing Theodore Levitt18 suggested that companies
should define their markets broadly, rather than narrowly. For instance, railroads should
consider themselves to be in the transportation business. We can see examples of this
practice in the insurance market: for instance, some organisations market themselves as
providing risk solutions or financial solutions to risk. Claims departments no longer just pay a
claim, they provide the policyholder with complete solutions, e.g. the replacement of stolen
items, such as televisions and electronic equipment; offering rehabilitation to those who are
injured; or providing a full range of restoration services when property is damaged, such as
after a flood.
Loss adjusters, for example, no longer purely investigate and adjust a claim. They often
provide all of the services required to reinstate the damage, such as surveyors, restoration
services, building services and a project team to manage the whole process. This
diversification has been driven by a requirement to satisfy a client’s legal requirements, e.g.
health and safety regulation, and to ensure ongoing opportunities for insurance contracts.
Brokers often offer risk management services and some provide their own-label forensic
Chapter 3
claims offering to clients. This service is akin to that offered by independent assessors.
However, they are able to take advantage of their broader business knowledge of the risk
and can offer the service as part of the overall broker offering, allowing for cost benefits.
Conversely, some organisations may risk ‘commoditising’ their product in order to increase
market share or because they perceive it to be demanded by the customer. For example,
some loss adjusters offer a desk topping service for claims. Evidence suggests that margins
have been so small and servicing so challenging that it has caused not only financial, but
also reputational, harm.
Consider this…
Have you seen evidence of this, or a similar practice, in your organisation or in your
competitor organisations?
Research exercise
Review the websites of a number of organisations operating in the insurance market. Can
you find examples of where they have expanded their offering beyond the more traditional
‘insurance’ offering?
Research exercise
Research the CILA website to broaden your understanding of the range of services which
loss adjusters can offer:
www.cila.co.uk.
Critical reflection
Do you think that organisations that have diversified to broaden their offering have done
so successfully? Can you identify the factors that have contributed to this success? Have
you seen/experienced situations where the diversification hasn’t been successful? What
has been the impact on the organisation and their brand and what were the factors that
contributed to its lack of success?
G5 Development of the business strategy

We have reviewed the tools for analysing the external environment (PEST) and Porter’s Five
Forces to assess the industry attractiveness. We can now take our analysis internally to the
organisation and the claims function. We start the process by an assessment of how the
organisation is performing and drawing out its strengths and weaknesses. This would
consider all aspects/parts of the business such as:
• financial and actuarial;
• products and marketing;
• underwriting;
• claims;
• investment;
• management;
• organisation structure;
• human resources; and
• technology.
This information can be collated, together with the key issues and outcome of the external
analysis, into a SWOT analysis. Figure 3.7 is an example of a SWOT analysis
Figure 3.7: SWOT analysis
Strengths Weaknesses
SWOT
Chapter 3
Opportunities Threats
The strengths and weaknesses represent the internal view of the organisation. The
opportunities and threats are in respect of the external environment. Whether something or
someone is a strength or weakness requires careful consideration: it may be that a strength
could also be a weakness.
Example 3.4
Was Hank Greenberg a strength or a weakness to the AIG? During his 38 year reign at
the AIG the share price increased 180-fold in value. However, ultimately he was forced to
resign and paid $15 million to the US SEC to settle charges that he had altered AIG’s
records to boost results between 2000 and 2005.
At the height of the success of Independent Insurance, Michael Bright was deemed to be
one of its strengths. Ultimately, however, he proved to be a weakness and was prosecuted
for fraud.
Source: Roads to Ruin – A study of major risk events: Their origins, impact and
implications. A report by CASS Business School on behalf of Airmic, sponsored by
Crawford and Lockton.
It could be that different parts of a function will feature in strengths and weaknesses. If we
consider the claims function, the technical expertise of the claims department could be a
strength, but the processes could be a weakness if they are not as efficient as they could be.

Complete a SWOT analysis for your organisation.
Complete a SWOT analysis for your claims function.
G6 Organisational design – structure

The structure of the organisation will impact on all levels of strategy and on the culture. An
organisation has several options available to it when considering structure and these are:
• divisional;
• functional;
• project; or
• matrix.
Research exercise
The pre-reading for Developing the strategy on page 3/10 of this chapter included material
on organisational structures. You may wish to complete further research into the
advantages and disadvantages of each option.
Based on your research, can you identify the structure that is in place for your
organisation and claims function? What impact is that structure having on the claims
strategy and does the structure need to be changed in light of the claims strategy?
H Resource and capabilities as a competitive

strategy
So far, we have considered the development of a strategy by looking at the external and
industry environment and, internally, the strengths and weaknesses of the organisation.
Earlier in this chapter we referenced research that suggests that an internal focus on
strategy development may provide more opportunity for a competitive advantage. In this
section we are now going to review such an approach to strategy, which is based on the
resources and capabilities of the organisation. The concept of a resource and capability view
Chapter 3
of strategy came to the fore following the publication of Prahalad and Hamel’s 1990
landmark paper: The core competence of the corporation.19
When the external environment is constantly changing, the organisation itself, as in its
collection of resources and capabilities, may be a much more stable basis on which to
develop a strategy. For instance, if the market is rapidly changing, competitors can often
quickly follow the market leaders with new products and services, whereas it is much harder
to replicate/imitate a strategy based on the resources and capability of an organisation. To
take another example, insurance policy wordings or marketing gimmicks such as a free
cuddly toy can be copied, while a strategy supported by a claims service provided by staff
with sound technical knowledge, excellent customer service skills and who are empowered
to make decisions, is much harder to replicate. The more elements that contribute to the
competitive advantage, the harder it is for competitors to deconstruct it to identify the
constituent parts.
We can distinguish between resources and capabilities in the following way:
• resources are ‘what we have’; and
• capabilities are ‘what we do well’.20
Some academic material may refer to the capabilities as core competencies.
Internal resources and capabilities are more likely to provide a secure base for a long-term
strategy in an environment that is rapidly changing, because:
• many industries are subject to vigorous price competition: this is evidenced more strongly
in some areas of the insurance market than others, such as the consumer markets of
home and motor; and
• technological changes mean that the boundaries of industry are increasingly less well
defined, for instance, insurance is now being sold by banks, building societies, high street
retailers and through comparison sites.
The resource-based view is that the organisation is a collection of unique resources and
capabilities and that the competitive advantage is achieved when the strategy exploits that
uniqueness: it focuses on the differences between companies. In chapter 4 we discuss how
resources and capabilities can be assessed for their competitive advantage.
A resource based approach requires the following:
• the identifying of a strategy that takes advantage of the organisation’s resources and
capabilities, linked to the key success factors for the industry;
• ensuring that the profit potential of the resources is exploited and that they are fully
employed; and
• any gaps in resource are filled and they are developed for the future.
Competitors can easily follow a price reduction or replicate new products or services, but
resources are not easily replicated/imitated. So, for instance, whilst the list in the right hand
column of table 3.1 may be external indicators to the market, they might, however, be driven
by the resource capability of the organisation.
Table 3.1: Interaction between external indicators and an

organisation’s capability
Organisation capability External outcome visible to the market
Investment capability more competitive premiums/capital available for investment
Underwriting capability more competitive premiums/improved risk portfolio and loss

ratios
Supply management capability improved claims service/lower operating expenses
Chapter 3
Claims technical capability cost effective claims settlement/lower average claims payments
Process capability improved claims/customer service/efficiency/lower operating

costs/lower ratios

Can you identify the capabilities for your claims function?
Are these capabilities being used to their best advantage in your claims strategy?
You may wish to read VRIO – assessing the competitive advantage of resources and
capabilities on page 4/9 on the VRIO model, which discusses the competitive
advantage of resources.
I Development of the claims strategy

We have considered what strategy is and the different types of strategy and the tools for
analysis, including Porter’s Five Forces and PEST. We have also completed a SWOT
analysis for both the organisation and the claims function.
Consider this…
Based on the research exercises and strategic management decisions you have
completed so far in this chapter, you might like to take some time to reflect on how your
claims strategy has developed over time. What are the differences between now and, say,
five years ago?
I1 The pillar approach

Before we move on to developing the claims strategy, it is useful to consider the ‘pillar’
approach, which a number of organisations use to map out and develop their strategy. You
may recognise this approach as it is used by the PRA. The pillars represent the wider
activities of the organisation. For example, an insurance organisation could have the
following four pillars:
Products Technology People Service
Organisations will customise these pillars both in number and subject as required, so that
they are relevant to the organisational goals. When developing an operational strategy these
would be mapped against these pillars.
Research exercise
Can you map out what you think the pillars would be for your organisation?
Consider the impact these pillars are having or are likely to have on the claims strategy.
We now need to consider some of the elements that are considered in respect of a claims
strategy.
I2 Relationship between corporate and/or business

Chapter 3
strategy and operational strategy

Earlier, we explained that a corporate strategy sets out the markets and industries in which
an organisation will compete, which includes areas such as diversification, vertical
integration, acquisitions and new ventures. The business strategy sets out how the
organisation will compete in those chosen markets. This is sometimes known as the
competitive strategy, as it is how the business will gain an advantage over its competitors.
In some instances, where it is a single business organisation, the corporate and the business
strategy may well be the same.
The operational/functional strategies are the development and implementation of the
business strategy for each function, such as claims or underwriting.
Therefore, the claims strategy will be the implementation of the business strategy. For
example, if the organisation is entering into a new product market, such as cyber insurance,
the claims strategy will define a strategy for handling those claims in a way that provides the
organisation with a competitive advantage in its chosen strategy.
As we can see, key decisions made at the business level have a significant influence on the
claims strategy. Examples include an organisation deciding to stop writing a certain line of
business, such as liability insurance, and put it in to run-off or deciding to outsource the
whole of the claims function.
I3 Who is involved in the claims process?

Organisations will vary as to their approach to strategy planning and who is involved in the
decision making process. Clearly, however, the business strategy is a key driver of the
claims strategy, and it would be appropriate for representation from the claims function to be
involved in the decision making process so they can influence it. Remember when we
discussed the role of leadership in strategy development and how the leadership style of the
leader influences strategy development.
The claims function can and should be a positive influence on the business strategy by being
one of an organisation’s strengths, thus adding value and influencing sales/marketing. We
can see that the power of influence should be two way.
I4 How the different strategies are interlinked

Corporate Corporate – Decide to diversify into a new product,
strategy e.g. cyber insurance.
Business – How will we achieve competitive advantage,

Business
e.g. distribution networks or added products within the
strategy
policy
Functional – How will the claims function provide a

competitive advantage when handling these claims,
Claims strategy
e.g. use of supply chain or 24 hour claims reporting
service
In this section we consider some of the elements of the claims process that are considered
when defining the strategy.
I4A Claims strategy

We have established that the claims strategy is influenced by the corporate and business
strategy. Against that backdrop, the claims function, via its strategy, will look to add value to
the organisation’s competitiveness and to its brand by optimising:
• indemnity costs through effective claims settlements;
• operating costs through efficient use of resources;
• management and use of the supply chain so it is cost effective and adds value to the
claims offering;
Chapter 3
• the time taken to settle claims, through the use of efficient processes and a proactive
approach; and
• delivery of revenue.
This will require having:
• the right people with the right skills in the right places at the right time;
• efficient processes;
• an appropriate culture; and
• excellent supply chain management.
The decisions that need to be considered include the following.
• The type of markets: which products, the client base and whether national or
international.
• The nature of the claims: the volumes and complexity of the claims and their
geographical spread.
• Ongoing developments in statute and case law: potentially impacting on the number
and/or the value of claims.
• IT systems and technology: how they can be used to enhance the claims offering, via the
supply chain or communications, or by managing the claims processes.
• Outsourcing: what, if any, outsourcing is used and to what level.
• Supply chain management: how the supply chain is managed, such as loss adjusters,
lawyers, building services, suppliers of replacement goods and other experts.

Review your claims strategy and taking into consideration everything which we have
discussed in this section and others, in particular chapter 1, sections The value chain on
page 1/2 and The insurance value chain on page 1/3 on the value chain. Identify
opportunities for improvement in the claims strategy.
Figure 3.8 maps out the route to strategic analysis moving from a macro to micro level.
Figure 3.8: Strategic analysis
Strategic/situation analysis
Macro
Chapter 3
Culture CSR
value chain PEST
SWOT scenario
planning
Porter’s Five
Forces Micro
Consider this…
A reinsurer will receive claims notifications from its insurer cedants, all of whom are likely
to operate differing claims strategies globally. How is this likely to affect and impact the
claims strategy of the reinsurer?
J Culture and strategy

To conclude this chapter we will pull together our two strands and consider how culture
interacts with strategy. Culture follows an organisation’s strategy and needs leadership.
Leaders must understand and create an organisation’s culture. By aligning culture with
strategy the firm will create direction and achieve organisational fit.
Norman Chorn21 in his book Strategic alignment refers to culture and strategy as the
opposite sides of the same coin. Strategy refers to the pattern of behaviours and actions that
occur in the operating environment, while culture refers to the behaviour and actions that
occur within the organisation. Consequently, it is rare for an organisation to successfully
change its strategy without changing its culture.
Culture should support, rather than inhibit, the strategy. Different strategies will demand
different types of culture. So, for example, if the strategy is to be built around customer
service and putting the customer at the heart of all the organisation’s decisions, then the
culture will need to be one which supports this strategy; through its communications, the
decisions which are made, its rules and procedures and its performance management
systems.
A question to consider is what influence culture has on the development of strategy, e.g. can
the culture limit the development of the strategy?
Schein22 proposes three levels of culture describing the visible evidence of the culture to the
outside world. It ranges from high visibility for the artefacts through to low visibility for the
underlying assumptions. Schein’s three levels are as follows.
• Artefacts: the visible structures and processes of the organisation.
• Espoused beliefs and values: the organisation’s strategies, goals and philosophies.
• Underlying assumptions: the unconscious beliefs, perceptions, thoughts and feelings of
individuals.
These can be likened to the iceberg effect, where the artefacts are the visible parts of the
iceberg and the values, beliefs and underlying assumptions are invisible, under the water.
Figure 3.9: Relationship between artefacts and beliefs
• Strategy
Chapter 3
1. Visible patterns of • Structure VISIBLE
behaviour • Systems CONSCIOUS
2. Values and attitudes
• Goals of the
organisation
3. Underlying • Means used to
assumptions accomplish the
• Taken for granted goals
beliefs about the
organisational INVISIBLE
reality UNCONSCIOUS
Source: Chorn, N. and Hunter, T. Strategic alignment 2nd edition Woodslane 2010, p.97
The underlying assumptions are the essence of culture and are built up over time as a result
of repeated success in implementing beliefs and values. Because culture stems from these
underlying assumptions, they influence all the behaviours and actions of a group. Therefore,
if an organisation believes in strict controls and highly monitored processes, it is unlikely to
create a strategy based on creativity, innovation and freedom of decision making.
Consider this…
Reflecting on the culture of your organisation and the current claims strategy, can you
identify where the current culture has influenced the chosen strategy?
J1 Potential for misalignment

Culture develops in organisations over time and so is not easily changed. It is also possible
that a culture, which at one time worked for an organisation and was indeed an asset, may
become no longer appropriate due to changes in the external environment or to the strategy.
It has, therefore, become misaligned.
It is highly likely that a change in strategy will require a change in culture or leadership. It is
therefore useful to be able to identify the area of misalignment.
Figure 3.10: Areas of potential misalignment
Operating
environment
Strategy does not suit the
environment
Strategy
Culture does not support the
strategy
Chapter 3
Culture
Leadership is inappropriate for
the culture we are trying to create
Leadership
Source: Chorn, N. and Hunter, T. Strategic Alignment 2nd edition Woodslane 2010, p.200
There are three possibilities:

1. The strategy does not meet the needs of the customers. This may require the whole
strategy to be reassessed in order to add value for the customer. This will no doubt lead
to a change in culture and leadership.
2. The culture does not support the strategy. This is likely to affect the implementation of
the strategy. The aim is that the culture matches the strategy.
3. The leadership is not creating the required culture. This is a serious concern as the
leadership provide the role models for the rest of the organisation. An analysis of the
leadership will be required: we mentioned in Influence of culture on the strategy on page
3/4 how some organisations deliberately appoint a leader from an external organisation to
bring about a cultural change.
Consider this…
Can you identify any examples of an organisation, either in or outside the insurance
industry, that has ceased to be successful as a result of its culture no longer being
appropriate?
Reflecting on your own organisation’s culture, how has that changed during the last ten
years? What were the drivers for that change and how was, or is, the change achieved?
Refer to
See Sub-cultures on page 3/7 for sub-cultures
Organisations can have different cultures across divisions or departments.
Critical reflection
An organisation owns a business that sells direct to the customer via the internet only and
also owns a managing agent operating in the London Market. What do you think the
differences would be between these two businesses?
How do you think these differences impact on the organisational strategy?
Critical reflection
An MGA operates a number of binding authorities with capacity from several insurers.
What are the areas for potential culture misalignment between the MGA and the differing
cultures of the insurers supplying capacity to it? Some insurers supplying the MGA with
capacity may seek to pay claims and others may be aggressive in disputing claims. How
would you deal with the misalignment of these cultures and how could this impact the
organisation? How would you operate a claims department in this environment and still
complement your own organisation’s claims and corporate philosophies?
J2 Changing cultures
We have identified that the culture of an organisation needs to be appropriate to the defined
strategy, otherwise the strategy is unlikely to succeed. Therefore, an analysis of the culture is
required to identify areas where change is required. On a practical level, without the cultural
change, implementation of the strategy is likely to be hindered. This could be because staff
resist the change and/or because of communication problems and misunderstandings
between teams.
Research exercise
Chapter 3
In Analysis of culture on page 3/5 we completed the ‘cultural web’ to assess the culture of
the claims function. Using that analysis compare the culture you have with the claims
strategy you have created to see if there is a match. Or does the culture need to change
and if so, in what way?
Schein23 suggests a model for planned change, which is a development of Lewin’s change
management model. The stages are as follows.
Unfreezing/disconfirmation
This stage is about creating a desire to change, so that group members believe the change
will be of value to them and the organisation. This can be achieved by disconfirmation, i.e. by
providing information to show that the current way of doing things isn’t working and is
preventing goals being achieved, for instance leakage figures may by higher than the market
average.
Cognitive restructuring
Once the organisation has been unfrozen it is necessary for the group members to learn a
new way of doing things. This can be achieved in a number of ways and is likely to involve
some change in behaviours, which should be linked to goals.
Refreezing
Once the new ways have been learned it is then necessary to refreeze these new ways of
thinking, assumptions and beliefs so they become the norm.
This is a very brief summary of a plan for cultural change, and perhaps gives the impression
that such change is simple and straightforward to achieve, which is far from the case.
Research exercise
Read the full chapter 16 of Edgar Schein’s Organization Culture and Leadership, 3rd
Edition, Jossey-Bass
Research exercise
In respect of culture, research the FCA website and what it says about culture in financial
services organisations.
References
1. Peters, T.J. and Waterman Jr, R.H. In Search of Excellence: Lessons from America’s best
run companies Harper Business 2006
2. Schein, E. Organisational Culture and Leadership 2nd edition Jossey-bass 1992, p.6.
3. Pettigrew, A. ‘On studying organisational cultures’ in Administrative Science Managing
Organisations 1979 p.267-72
4. Johnson, G. Whittington, R. and Scholes, K. Exploring Strategy 9th edition FT Prentice
Hall 2011
5. Deal, T. and Kennedy, A. Corporate Cultures Harmondsworth: Penguin Books 1982
and 1991
6. Johnson, G. Whittington, R. and Scholes, K. Exploring Strategy 9th edition FT Prentice
Hall 2011
7. Mabey, Salaman, Storey, Human Resource Management – A Strategic Introduction
Blackwell Business p.462
8. Chorn, N. and Hunter, T. Strategic Alignment 2nd edition Woodslane 2010, p.110
9. Porter, M. E. ‘What is Strategy?’ in Harvard Business Review (November-December

1996) p.60
10.Mintzberg, H. Tracking Strategy: Toward a General Theory Oxford University Press
2007, p.3
11.Chandler, A.D. Strategy and Structure: Chapters in the History of American Enterprise
MIT Press 1963, p.13
12.Johnson, G. Whittington, R. and Scholes, K. ‘Levels of Strategy’ in Exploring Strategy 9th
edition FT Prentice Hall 2011, p.7
13.Grant, R. M. Contemporary Strategy Analysis 9th edition Wiley 2015
Chapter 3
14.Grant, R. M. Contemporary Strategy Analysis 10th edition Wiley 2018.

15.Johnson, G. Whittington, R. and Scholes, K. ‘How much does industry matter’ in
Exploring Strategy 9th edition FT Prentice Hall 2011, p.75
16.Rumelt, R.P. ‘How Much Does Industry Matter?’ in Strategic Management Journal
12(1991) p.167-185
17.Johnson, G. Whittington, R. Scholes, K. Angwin, D. Regner, P. Exploring strategy 11th
edition Pearson Books 2017. Within this the authors make reference to Ryall, M.D. 'The
new dynamics of competition' in Harvard Business Review, Vol 91, No. 60 (2013),
p.80-87
18.Levitt, T. ‘Marketing Myopia’ in Harvard Business Review (July-August 1960) p.24-47
19.Prahalad, C.K. and Hamel, G. ‘The Core Competence of the Corporation’ in Harvard
Business Review (May-June 1990) p.79-91
20.Rumelt, R.P. ‘How Much Does Industry Matter?’ in Strategic Management Journal
12(1991) p.167-185
21.Chorn, N. and Hunter, T. Strategic Alignment 2nd edition Woodslane 2010, p.200
22.Schein, E. Organizational Culture and Leadership 3rd edition Jossey-Bass 2010, p.25
23.Ibid. p.320
Additional reading
Ashkanasy, N.M., Widerom, C.P.M. and Peterson, M.F. editors The Handbook of
Organisational Culture and Climate 2nd edition Sage 2011
Chorn, N. and Hunter, T. Strategic Alignment 2nd edition Woodslane 2010
Grant, R.M. Contemporary Strategy Analysis 9th edition Wiley 2015
HBR’s 10 Must Reads On Strategy Harvard Business Review Press 2010
Johnson, G. Whittington, R. and Scholes, K. Exploring Strategy 9th edition FT Prentice
Hall 2011
McLean, A. and Marshall, J. ‘Intervening in cultures’, Working paper, University of
Bath 1993
Peters, T.J. and Waterman Jr, R.H. In Search of Excellence: lessons from America’s best-
Prahalad, C.K. and Hamel, G ‘The Core Competence of the Corporation’ Harvard
Business Review (May-June 1990) p.79-91
Roads to Ruin – A study of major risk events: Their origins, impact and implications – A
report by CASS Business School on behalf of Airmic sponsored by Crawford and
Lockton 2011
Schein, E. Organizational Culture and Leadership 3rd edition Jossey-Bass 2010
www.fca.org.uk/news/culture-and-governance
K Scenario 3: Strategic fit

K1 Question
A colleague, who works for an international loss adjuster, has been asked to make a
presentation to the board on the strategic fit of the current claims strategy. Can you explain
to him the meaning of strategic fit as outlined by Grant's model, using examples from your
own organisation to illustrate the key points?
K2 How to approach your answer
Chapter 3
Aim
This scenario aims to test your understanding of the application of the concept of strategic fit.
Your answer should outline the concept of strategic fit. It might then prove helpful to take
each of the key areas for the internal environment, and explain how their claims strategy is
appropriate for these areas. Likewise, the strategy can be compared to the external
environment. Examples should be provided as to how the strategy has been developed so
that it is appropriate to the external environment.
Self-test questions
1. How would you define culture?
2. What are Schein's four levels of culture?
3. Explain what Johnson, Whittington and Scholes mean by 'captured by culture'.
4. When considering organisational culture, how would you define the paradigm?
Chapter 3
5. What four things need to be considered when analysing a service culture?
6. What aspects of the cultural web can leadership influence?
7. How would you define corporate strategy?
8. How would you define business strategy?
9. Strategic fit, as defined by Grant, highlights how strategy provides a link between the
organisation and which other element?
10. How would you describe emergent strategy?
11. What are the four elements of successful strategies as proposed by Grant?
12. In Porter's framework, what are the five elements which are considered when
reviewing the intensity of market competition?
13. What are the key success factors an organisation must identify?
14. What are the four types of organisational structure available to an organisation?
15. How do Johnson, Whittington and Scholes define resources and capabilities?
16. How can the pillar approach be used in strategy development?
17. How would you define cultural misalignment?

Analysis of resources and
4
strategic planning
outcomes
Chapter 4
Introduction
A Analysis of resources 5.2
B Assessing the claims resources 5.2
C Assessing the claims capabilities for a competitive advantage 5.2
D Developing a plan to deliver the resources 5.3
E Developing a plan to implement 3.2
F New and existing claims functions: strategic opportunities and 3.3
challenges
G Scenario 4: Resources
Self-test questions
Learning objectives
• analyse the business resource requirements and limitations of the claims function;
• develop a plan to deliver the resources required;
• develop a strategic claims plan; and
• evaluate the strategic opportunities and challenges for both new and existing claims
functions.
Introduction
In the first part of this chapter we will look at how:
• to analyse resources;
• resources can provide a competitive advantage or a distinctive or core competence; and
• to build capability.
When we considered the development of a strategy in chapter 3, we looked at the external
environment and where the opportunities existed. We also identified that the resources and
capabilities of the claims function can inform the claims strategy and may, in fact, provide a
more secure competitive advantage.
Later in this chapter we look at how to develop a plan to deliver those resources in support of
the business. Once completed, we will be ready to develop the strategic plan, before we
conclude by looking at the strategic opportunities and challenges faced by a claims function;
whether it is new or long-established.
Chapter 4
Key terms
Capabilities Competency Core competences Distinctive

frameworks capabilities
Distinctive Gap analysis Intangible resources Resources
competences
Strategic challenges Strategic Strategic plan Tangible resources
opportunities
Threshold VRIO
capabilities
A Analysis of resources
Analysing the organisation’s or claims function’s resources has to be done at two levels:
1. an analysis of the basic units, such as the physical aspects, equipment, IT, premises,
number of staff and skills; then
2. an examination of the capability of resources, to see how they are used together to
create a competitive advantage.
Figure 4.1 reflects the relationship of resources becoming a capability, which can lead to a
strategy to deliver competitive advantage.
Chapter 4 Analysis of resources and strategic planning 4/3
Figure 4.1: Relationships among resources, capabilities and

competitive advantage
Industry key
success factors
Competitive
Strategy
advantage
Organisational
capabilities
Resources
Chapter 4
Tangible Intangible Human
Source: Grant, R.M. ‘The relationships among resources, capabilities and competitive
advantage’ in Contemporary Strategy Analysis Blackwell 1998
B Assessing the claims resources

The claims function can be part of any organisation: it can be part of an insurer, broker,
managing agent, third party provider, loss adjuster etc. Whilst the claims function will have
some of its own resources, the nature and amount of those resources is significantly
influenced by the organisation of which it is part. For example, if the organisation is
financially strong, it is likely there will be more capital available for investment in the claims
function, via budgets for areas such as IT and technology advancement, staff development
or premises.
In this section we are going to consider how we assess the claims function's resources. You
may wish to refer to table 4.1 as you read through the following section, which provides a
summary of how resources can be assessed.
Refer to
Find it in Assessing the claims capabilities for a competitive advantage on page 4/7
B1 Tangible resources
The tangible resources are usually the easiest to identify and measure.
B1A Physical resources
The physical resources could include premises and equipment.
Premises
• Where these are located geographically, in the UK and/or internationally. Does this
support the strategy? For instance, does the employment market facilitate recruitment of
the target employee? If there are no other insurance or financial services organisations in
the catchment area of the office, the recruitment of experienced staff is likely to be more
challenging. Consequently, it might be appropriate to review the recruitment strategy as to
the level of experience expected, which would also lead to increased training and
development requirements.
• Does the organisation own the premises or are they leased? If the latter, what is the
length of the lease? A short term lease may mean new premises have to be sourced in
the near future.
• What is the condition of the premises, are they appropriate for the work and staff? Do
they support the brand and provide the type of working environment the organisation
aims to have for its staff?
Equipment
Equipment includes things such as company cars, desks, furniture and IT, including
computers, lap-tops and iPads.
• Is the IT equipment appropriate for the roles fulfilled by the claims function?
• Will it need updating?
• Does it enhance or impair the claim function’s performance?

Analyse the physical resources of your own claims function.
Consider how the COVID-19 pandemic has impacted on these resources.
B1B Financial resources

Chapter 4
Refer to
Financial contribution of the claims function considered in Impact of the claims strategy on
the balance sheet on page 5/2
The amount of capital available to a claims function depends on the type of organisation it is
part of, the financial strength of the organisation and its chosen strategy. This will be
reflected in the budgets available for staff, learning and development, investment in
technology and change projects.
The claims function can influence the financial performance of the organisation by:
• consistency and accuracy in reserving;
• achieving loss ratios, such as;
– combined operating ratio,
– claims ratio,
– loss ratio, and
– expense ratio;
• indemnity spend;
• budgetary management and control;
• the effective use of suppliers;
• cost effective processes and effective use of resources; and
• delivering revenue.
The organisation will allocate budgets to its different departments, such as underwriting,
claims, IT and learning and development. Each function will be keen to obtain its ‘desired’
budget in order to fulfil all of its activities.
Research exercise
Review the budget for your own claims function and analyse how it is allocated amongst
the different resources.
Can you find out how available capital is allocated to the different functional budgets and
what the key drivers were which influenced those decisions?
B1C Effectiveness of tangible assets

When considering tangible resources from a strategic perspective the questions to be
considered are as follows.
1. How can these fixed assets be used more effectively, either by achieving more with the
same amount of assets or using fewer assets for the same amount of output?
Example 4.1
An organisation’s current premises could accommodate 50 employees, but there are only
30 claims staff based at the office. Alternative solutions might be to:
• source smaller premises, with the aim of reducing fixed costs;
• relocate additional staff in from another location, who may or may not be claims staff;
or
• rent out the spare space to another organisation or another division within the
organisation.
2. How can the existing assets be employed more profitably?

This would involve improving the return on the fixed assets.
Chapter 4
Following your earlier analysis of your claims function’s physical resources, what
opportunities are there for using them more effectively?
B2 Intangible resources
The value of intangible resources is rarely evident on the balance sheet, yet they are
extremely important to the organisation. They include:
• reputation;
• technology;
• human resources; and
• culture.
B2A Reputation
Consider this…
Which organisations in the insurance industry have a strong competitive brand? Do the
claims functions of those organisations also have a reputation that is providing a
competitive advantage? Can you identify the drivers that contribute towards a strong
reputation?
The reputations of an organisation and of the claims function are exceedingly valuable. They
can influence the ongoing success of an organisation. If a company has a strong brand it will
receive the following benefits:
• it will provide confidence to customers, who will want to do business with the company;
• customers will be willing to pay a ‘premium’ to do business with the company;
• staff will be proud to work for the organisation and prospective employees will be keen to
work for it, which will enable high quality recruitment, thereby continuing to support the
brand; and
• the organisation will be well respected in the industry and market and those associated
with it are likely to be asked to serve on industry committees, meaning it can influence
industry think tanks and strategic direction.
Research exercise
Analyse the reputation of your claims function. How would you describe it? Is it strong and
a positive asset to the organisation, or is it weak and a liability to the organisation? What
are the factors that have influenced your decision?
What actions would you take to improve its reputation?
B2B Technology
Technology includes the software and systems available to the claims function and how
these are used. For example, the development of digital technology that supports the claims
function. Areas to consider are its:
• ability to communicate between systems, such as with suppliers and customers;
• ability to transfer data between systems;
• links to underwriting information; and
• ability to provide relevant and appropriate management information.
B2C Human resources
Insurance organisations and claims functions are highly dependent on the people who
deliver the service. They provide their skill, knowledge and decision making to the claims
function. Excluding the financial capital, this is one of the most, if not the most, valuable
resource a claims function has. The people of the claims function are responsible for:
Chapter 4
• designing the process;

• the quality of the claims handling, including the indemnity spend; and
• creativity and innovation.
Importantly, it is the staff who are responsible for implementing the processes, engaging with
the customer and getting it right first time. All of these are dependent on the skills,
knowledge and attitude of the staff. Economists refer to this resource as ‘human capital’,
which highlights that it is durable and created through investment.
The assessment of human resources can be challenging. Assessment can be completed
when they are recruited and also on an ongoing basis. When staff are recruited there is an
assessment of their:
• work history;
• qualifications;
• references; and
• values.
All of which are suggestive whether or not that person will make a suitable employee.
Organisations will then operate performance management programmes to manage the
performance and ongoing development of staff once they are employed.
Competence frameworks
Organisations may assess the ongoing ability and competence of staff by mapping them
against a competency framework. These will be personalised to each function, focusing on
the specific skills required, although there will be some generic criteria across the different
functions. They also provide an opportunity to incorporate the values of the organisation. The
criteria which could be included are:
• reliability;
• relationships;
• customer focus;
• business awareness;
• efficiency;
• self-organisation;
• initiative;
• compliance;
• judgment;
• self-development;
• team working; and
• technical knowledge.
On the Web
You may wish to review the CII competency framework:
www.cii.co.uk/media/1921347/coh_j010283_-_insurance_competency_framework_v3.pdf.
Using such criteria provides a more holistic review of a person’s performance and
contribution to the organisation. Individuals can then be measured against these
competences, providing a collective picture of the organisational/claims human resource.
Whether people can effectively implement all their skills and interact with others to a level
which maximises their ability, depends on the cultures of the organisation and of the claims
function.
Research exercise
Find out what method your claims function uses to measure the competence, skills and
knowledge of staff.
Chapter 4
What is your view of the method employed, is it successful?
What are the advantages and disadvantages of the method?
How does it inform the learning and development needs and recruitment strategy of the
claims function?
What, if any, improvements would you make to the current methodology?
B2D Culture
Refer to
The cultural web was discussed in Analysis of culture on page 3/5
In chapter 3, we discussed culture extensively and how it can provide a competitive

advantage for the claims function, if it is supportive of the current strategy. Alternatively, if the
culture is not appropriate for the current claims strategy, it will be a disadvantage for the
claims function. Culture plays a vital role in ensuring staff use their skills and knowledge to
‘get it right first time’, and this will impact on the reputation of the organisation. You may wish
to remind yourself now of how Johnson and Scholes’ cultural web can be used for assessing
the culture.
C Assessing the claims capabilities for a

competitive advantage
The human resources (i.e. the staff) of an organisation work together to provide the
organisation with the capability to do what it needs to do, e.g. ‘settle claims accurately and
quickly’. A further consideration is regulation: organisations have to ensure they achieve a
competitive advantage through adapting their resources to ensure they fulfil the ever
increasing regulatory demands.
Table 4.1 provides an example as to how resources can be assessed, including the
capability they provide.
Table 4.1: Assessing the claims resources

Resource Main characteristics Indicators/ Supporting How these are used to
evidence deliver competitive
advantage
Tangible resources
Physical Equipment, such as office Resale value of fixed assets, Efficient use of premises,
resources furniture, computers and other age of equipment. flexibility, consistency and
IT equipment, such as iPads, reliability.
Length of leases,
cameras and phones.
geographical spread and
Offices, even though may not locations, quality of offices.
own the offices.
Financial The organisation would For the organisation: debt to Management of cash flow
resources consider borrowing, capacity equity ratio. and investment ability.
and its reserves etc.
Claims: loss ratios, average Claims settlement capability.
Chapter 4
The consideration for claims claims costs and reserving

would be the financial accuracy.
contributions it makes to the
organisation, such as
reserving accuracy, indemnity
spend, budgetary control and
delivery of revenue.
Intangible resources
Reputation The reputation the claims Recognition of the brand. Marketing, effective use
function has with all key of brand.
stakeholders: customers, Sales based on claims
shareholders, other internal reputation.
departments, suppliers and Desire for suppliers and
partners. partners to work with the
claims function.
Involvement in industry focus
groups.
Technology Expertise in the application of Systems, innovation and use Productivity, flexibility,
technology. of technology in the service reliability.
delivered.
Human Skills of the staff. Qualifications. Application of experience,

resources knowledge and accurate
Adaptability of staff. Competency ratings.
claims management to
Commitment and loyalty Attrition rates. ensure no errors and
of staff. omission claims.
Use of relationships.
Creativity and innovation.
Fulfilment of regulation
obligations.
Culture The shared values and beliefs Assumptions of staff, what Culture is customer focused,
of the organisation. The taken- people do and say, how and supports the strategy.
for-granted assumptions. decisions are made.
Adapted from: Grant, R.M. Contemporary strategy Analysis Blackwell 1998, p.114
Be aware
In management literature the terms 'capability' and 'competence' are often used
interchangeably.
Distinctive competence
The term ‘distinctive competence’ is used in two different ways. Selznick1 uses it to describe
those things that an organisation does particularly well relative to competitors. On the other
hand, Ansoff2 uses it to describe an organisation’s growth strategies.
Core competences
This is used to identify those capabilities fundamental to an organisation’s performance and
strategy.
According to Hamel and Prahalad3 these are those that:

• make a disproportionate contribution to ultimate customer value or to the efficiency with
which that value is delivered; and/or
• provide a basis for entering new markets.
The advantage of these terms is that they focus on competitive advantage and, therefore, an
assessment of the organisation’s and/or claim’s capability relative to other firms. They help
answer the question: can a claims function settle claims more quickly, at optimum cost and
with a better customer service than its competitors?
Consider this…
What are your organisation’s/claims function’s distinctive competences?
Is claims a ‘distinctive’ competence for your organisation? If so, what aspects of the claims
delivery are contributing to that competence?
Chapter 4
C1 Threshold and distinctive capabilities
Johnson and Scholes4 refer to threshold and distinctive capabilities: those that are at a
minimum level and are required for an organisation to compete in its chosen market, and
those that are at a superior level and provide the organisation with a competitive advantage.
It is possible that, over time, the threshold requirements will change, for example the levels
of customer expectations in respect of service have increased significantly over the last
decade or more. Thus capabilities need to be dynamic to ensure sustainability as the
competitive market changes the nature of the required capabilities, both at threshold and
distinctive level.

Review your analysis of your claims resources and capabilities and identify those which
are threshold and those which are distinctive.
C1A VRIO – assessing the competitive advantage of resources and

capabilities
Johnson and Scholes5 propose the VRIO method for assessing which organisational
capabilities will provide a competitive advantage. VRIO stands for:
• V= value.
• R= rarity.
• I = inimitability.
• O = organisational support.
Value of resources and capabilities
Valuable resources and capabilities are those which create a product or service
that is of value to customers and enables the organisation to respond to
environmental opportunities or threats.
Source: Johnson, G. Whittington, R. and Scholes, K. Exploring strategy 11th edition Pearson Books
2017, p101.
The components which contribute to this value are those which:

• take advantage of opportunities and neutralise the threats an organisation faces;
• are of value to customers;
• provide potential competitive advantage, i.e. the product or service is something which
competitors do not have; and
• have a cost that still allows returns to be made.
Rarity
A rare resource or capability is one which is possessed by one, or only a few, organisations,
e.g. employing the few people who have specialist knowledge in a specific type of claims
handling. This allows the competitive advantage to last longer when compared with the
resources and capabilities that competitors have, which make it easier for them to quickly
replicate innovations (for instance copying additional features of a policy wording).
Inimitability
Sustainable competitive advantage requires identifying the inimitable resource capabilities,
i.e. those that competitors find difficult to imitate or obtain. Similar to rarity, it can be a
capability built around a team or an individual with specialist knowledge, or perhaps a
capability embedded in the culture of the organisation that makes the ‘right’ people want to
work for it. Factors that can contribute to the inimitability are as follows.
• Complexity:
– internal linkages – linked activities and processes that together deliver customer
value; and
Chapter 4
– external connectedness – activities with partners or customers upon which they

become dependent, e.g. Apple with app developers.
• Causal ambiguity: competitors find it difficult to identify the causes and effects that are
driving the competitive advantage.
• Culture history: resources and capabilities which involve complex interactions and inter-
personal relationships which are hard to replicate. For instance, coordination between
individuals happens naturally because they know where they fit into the wider picture.
See figure 4.2 on the criteria for the inimitability of resources and capabilities.
Figure 4.2: Figure 4.2: Inimitability of resources and capabilities
Culture and
history
• Taken for granted
activities
• Path dependency
Inimitability of
resources and
capabilities
Causal
ambiguity
Complexity
• Characteristic
• Internal linkages ambiguity
• External linkages • Linkage ambiguity
Source: Johnson, G. Whittington, R. and Scholes, K. 'Distinctive Resources and Capabilities as a basis of
competitive advantage' in Exploring Strategy 11th edition Pearson Books 2017 p103
Organisational support
The organisation must be organised in such a way that it is able to support the resources
and capabilities and so exploit their competitive advantage. This can be done, for instance,
through appropriate structures and informal and formal management systems.
Summary
The discussion of VRIO can be summarised by the following diagram.
Figure 4.3: VRIO diagram
Value: Do capabilities exist that are valued by

V customers and provide potential competitive Increasing
advantage? bases of
substantial
Rarity: Do capabilities exist that no (or few) competitive
R competitors possess? advantage
Inimitability: Are capabilities difficult for competi-

I tors to imitate?
Organisational support: Is the organisation

O appropriately organised to exploit the resources
and capabilities?
Chapter 4
Source: Johnson, Whittington and Scholes, Exploring Strategy 9th edition FT Prentice Hall
2011 p.94

Analyse the resources and capabilities you identified as providing a competitive
advantage and compare them with the VRIN model. Can you identify ways in which you
can improve the sustainability of your competitive advantage?
The VRIO analysis

Finally, the following table can be used to help an organisation evaluate its resources and
capabilities against the VRIO framework. The analysis shows the cumulative effect that
resources and capabilities provide a sustainable bases for competitive advantage the more
they meet all four criteria. This framework can be used to analyse different functions or
individual resources and capabilities.
Is the resource or capability... Competitive implications
Valuable? Rare? Inimitable? Supported by the Competitive implications

organisation?
No No Competitive disadvantage
Yes No Competitive parity
Yes Yes No Competitive temporary

advantage
Yes Yes Yes Yes Sustained competitive

advantage

Analyse the resources and capabilities you identified as providing a competitive advantage and compare them
with the VRIO model. Can you identify ways in which you can improve the sustainability of your competitive
advantage?
D Developing a plan to deliver the resources

Refer to
Creating a claims plan to deliver the strategy discussed in Developing a plan to implement
on page 4/19
Once a strategy has been developed, the next stage is to create the plan to deliver the
resources required to implement the strategy. Later in this chapter we discuss how to create
a claims plan to deliver the strategy; in this section we will review how to develop a plan to
deliver the resources to support the business requirements.
The time period applicable to the plan is influenced by the strategy and is likely to cover a
three to five year period, with key milestones during that time. For example, if the strategy
includes opening a new claims unit in twelve months’ time, then the resources required will
need to be in place by twelve months’ time.
Chapter 4
An assessment of the organisation’s and the claims’ resources will have been completed as
part of the strategy development and this will now need to be analysed further. The process
we will adopt to create the plan will be as follows:
• identify resource requirements linked to the strategy;
• assess the current claims resources;
• carry out a gap analysis, i.e. identify the gaps between current state and desired state;
and
• develop a plan to fill the gaps.
The successful completion of this exercise will involve representation from a number of
areas of the organisation, including claims, accounts and actuarial, IT, human resources,
marketing and underwriting (as applicable). The representatives will provide information
relevant to each of the areas. Sometimes, external data may also be required, such as
customer surveys and market data.
D1 Identify resource requirements linked to the strategy

The first stage in the process is to identify the resources demanded by the strategy. The
process of developing the strategy will have provided an initial view of this information;
however, a more detailed analysis is required.
The headings are the same as those we looked at earlier in Assessing the claims resources
on page 4/3.
Tangible Intangible
Physical Reputation
Financial Technology
Human resources
Culture
We shall consider the resources in the same groupings we used for identifying the
requirements.
D1A Tangible resources
Physical resources
Included under this section are:
• Premises: including geographical spread, number of locations, where and when they will
be required and whether there is an international aspect to consider.
• Equipment: such as office equipment, IT equipment, lap tops, iPads etc.
Financial resources
In this section we will look at the financial support required for the effective implementation of
the strategy. Earlier we considered the financial capabilities of the claims function. We can
break this down into a number of points.
• A budget will be required so that resources can be provided to deliver the strategy. It is
likely to be phased over the three to five year period of the strategy. The extent of the
budget will be influenced by the requirements in areas such as:
– IT equipment and investments in technology;
– recruitment and salary costs, due to staff requirements;
– office or departmental relocations; and
– any allowances for redundancies, due to relocation or reductions in staff.
• Reinsurance arrangements – what will these be? Are they likely to increase due to
entering new product areas or increasing market share?
• Current financial capacity.
Chapter 4
• Ratios to be achieved that have been built into the strategy, such as:
– combined operating ratio;
– claims ratio;
– loss ratio;
– expense ratio;
• Cost and revenue mapping.
• Any revenue from claims related broking activities.
D1B Intangible resources
Reputation
What does the strategy demand? Is it focused on high quality decision making with highly
skilled professionals, or being specialists in a certain market segment?
Technology
Technology covers a wide range of areas including:
• IT systems and software: answers as to specification, performance levels, level of
functionality and reliability will be required.
• Telephony: questions include location, volume of telephone traffic in addition to other data
being transferred and call recording etc.
• Website performance and agility: what level of interaction and engagement is going to be
required via the website? Will it include things such as the underwriting of new business
and/or the notification of claims?
• Digital apps and other customer IT considerations.
Human resources
This includes the people who are required to support the strategy:
• the numbers;
• the type of skills and expertise they have; and
• their locations.
Culture
Refer to
How to analyse culture discussed in Analysis of culture on page 3/5
What culture will be required to support the strategy, both organisationally and in respect of
the claims function?

Review the claims strategy you developed earlier and identify the resources you would
require to fulfil it.
D2 Assess the current claims resources

Now you have a clear vision as to the resource requirements for your strategy, the next
stage in the process is to assess the current resources available. Although we are currently
considering the claims strategy, it may well prove valuable as part of this assessment to also
understand the resources available in the wider organisation. For example, there might be
premises not currently being used by the organisation, which could be used by the claims
function.
For each of the above headings a detailed assessment of the current position of those
resources should be completed.
D2A Tangible resources
Physical resources
This involves assessing the current premises and equipment available to the claims function.
As mentioned earlier, it will be beneficial to think wider than claims so, for instance, to
Chapter 4
include the premises other parts of the organisation are using.

Financial resources
A review of the current budgets, reinsurance arrangements, ratios and financial capacity
must be undertaken.
D2B Intangible resources
Reputation
Questions to consider under this heading include:
• What is the organisation’s and the claim function’s current reputation and brand in the
market?
• What do these represent?
• What are the strengths and weaknesses?
It might be appropriate to complete a SWOT analysis of the claims function’s reputation.
Technology
Technology covers a wide range of topics: IT systems; telephony; websites; digital apps;
current systems; functionality, performance and reliability. Many organisations often have a
medley of legacy systems that have evolved through the history of the organisation.
Frequently, these systems are not integrated; meaning internal communication and transfer
of data is limited.
Human resources
Information can be obtained from performance management systems or a current database
of skills and knowledge, such as competency frameworks or details of qualifications.
Analysis should include, not only the numbers, departments and seniority, but also the
specific skills and competencies the staff have.
Culture
Refer to
Culture covered in Analysis of culture on page 3/5
The current culture of the organisation needs to be analysed.

Complete a detailed assessment of your claims function’s resources.
D3 Gap analysis
The next stage in the process is to complete the gap analysis by comparing the current
resources with those demanded by the strategy. Once this stage is complete then a plan can
be developed to fill any gaps.
D3A Appraising resources and capabilities

In the matrix shown in figure 4.4, we measure resource against two criteria:
• strategic importance based on the claims strategy; and
• the current strength of the resource for the claims function.
Figure 4.4: Appraising resources and capabilities
Strength for the claims function 10 Superfluous strengths Key strengths

B3
B2 C1
A1
A2
5
B1
Chapter 4
Zone of irrelevance Key weaknesses
1 5 10
Strategic importance based on the claims strategy
Adapted from Grant, R.M. Contemporary Strategic Analysis, Concepts, Techniques,

Applications 3rd edition Blackwell Business 1998, p.131
For ease, resources could be coded and then plotted as we have done with the examples in
the chart. In this case the capabilities are as follows:
Physical A1 A strength, however it is not of key strategic importance.
Financial A2 Of strategic importance, but is in the lower half of the ‘key strength’
quartile.
Technology B1 Of strategic importance but has been identified as a weakness.
Reputation B2 Of strategic importance, it is a strength, but is in the lower half of

the square.
Culture B3 Of strategic importance and is a strength.
Human resources C1 The staff have been identified as of key strategic importance and,
although they are in the key strength square, they are in the lower
half.
In order to seek competitive advantage from the claims function’s resources and capabilities,
the claims strategy will have been developed based on the current strengths of the claims
function. However, it is still likely that the completion of the gap analysis will identify resource
gaps or, perhaps, even surpluses.
The chart in figure 4.4 can be used to identify the following:
• key weaknesses;
• key strengths; and
• superfluous strengths.
We need to consider each of these and develop a plan to close the gaps in order to support
the strategy and make it more effective.
Key weaknesses
When developing a resource gap there are a number of options available, including:
• Build: e.g. increase the knowledge and skills of staff through training.
• Buy: purchase the required resource, e.g. technology, from a supplier.
• Strategic alliances/partnership: work with someone who has the resource, such as a
supplier, either in respect of human resources or technology.
It might be appropriate to use a combination of the options. For instance, a strategic alliance
may be agreed for a period of twelve months whilst the skills of existing staff are developed.
A further consideration is the staffing structure, for instance the blend between permanent
staff and flexible workers, such as consultants and contractors. The flexible and contract
workers can be used to bring expertise into an organisation on a temporary basis, to
complete a specific project or to build the skills of existing employees.
Key strengths
A number of the resource evaluations fall within this quadrant, which is ideally what you
would expect if the strategy has been based on the resource strengths of the organisation.
However, even within this quadrant, there are some which are at the lower end and
development is required, for instance:
Refer to
Changing cultures considered in Changing cultures on page 3/29
• financial: e.g. reserving may not be consistently accurate; and

• culture: it may not display sufficient levels of innovation and creativity.
Chapter 4
As with the weaknesses, a plan is required to improve these resources as they have been
identified as key to the delivery of the strategy.
Superfluous strengths
These are the strengths which have been identified as exceeding those required by the
strategy. In our example, physical resources fall into this category; these could be buildings
and equipment. For instance, historically the organisation may own/lease a number of
buildings that are no longer needed for the current strategy. A plan will be required as to the
best course of action, e.g. whether to sell properties or to rent or sub-let leased properties.

Analyse the resources of your claims functions compared to the current claims strategy
and complete the above model.
Ultimately, you will have some high level information that will include all of the resources
required, the current position and the gap which needs filling. Here is a simple example.
Resources required Current position Current gap
Ten claims handlers in twelve Six claims handlers Four claims handlers
months
It may be that the gap analysis has highlighted a resource, such as premises, that may not
be required.
D4 Develop the plan to fill the gaps

Once the gaps have been identified, a plan has to be developed to outline what actions will
be taken to close them. It is highly likely that the claims management will have been involved
in the process to this point. However, it is especially important that they are involved in this
key planning stage, as they will be concerned with the implementation.
The size and detail of this plan will vary, depending on the size of the project agreed actions.
However, it is likely to be quite substantial, with a number of different activities being
undertaken at the same time and will require the skills and expertise of project management.
Some organisations may have the benefit of a programme management team, who can
manage a number of projects at the same time. It isn’t the remit of this course to study
programme and project management in detail. To support your learning, you may wish to do
some wider reading on project management.
On the Web
The Association for Project Management: www.apm.org.uk.
In this text, we consider the key elements that should be included in a plan that is to be used
to manage any change, small or large. The difference will be the level of detail and breadth
of content which may need to be included.
The plan will describe:

• what actions are to be done;
• why they are being done;
• who will do them;
• when they will be done – key timelines;
• what resources will be needed;
• the success criteria – how success will be measured; and
• monitoring mechanics.
We will now consider each of these in more detail. Each time we will use a simple example
to illustrate the points.
D4A What actions are to be done?
If we use our earlier example of staff needed for the opening of a new claims unit in twelve
months’ time, a plan for filling that gap could be as follows:
Chapter 4
• a recruitment plan, which will include identifying opportunities for recruiting from the wider
organisation;
• two extra claims handlers to be in place two months before the start date of the unit; and
• a further two handlers to be in place one month before the start date of the unit.
Each of the above actions will be broken down into smaller tasks, including key milestones.
D4B Why it is being done
It has been identified that accuracy and consistency of reserving needs to be improved. This
will improve the financial performance of the organisation.
D4C Who will do it
There will be a number of people involved in the different activities, for instance each of the
actions described will have an owner. However, within each activity, there will be a number of
small tasks that are likely to be allocated to other people. The important part of the plan is to
ensure that there is an owner for each activity.
D4D When it will be done – timelines
Things to be considered are:
• the phasing of the overall project(s);
• concurrent activities, i.e. those which can be carried out at the same time;
• series activities, i.e. those that are intended to be carried out after each other. For
example, the process guide cannot be fully completed until the reserving philosophy is
agreed; and
• the duration of activities, for instance, if it is going to take two months for the reserving
philosophy to be agreed, then this will impact on the start day for other activities.
D4E What resources are needed?
These are the resources required to achieve the completion of the activity, such as people,
budget and IT. It is usually the case that the majority of the resource required is staff. The
nature of this resource will need to be specified as follows:
• Quantity: how many people, over what period and for how long? For instance, five days
of actuarial expertise could be required but this may be over a six week period.
• Skills and expertise: what type of expertise is required? This could range across
departments, claims, underwriting, marketing, finance and HR.
• Budget: this will detail the cost of the project. It will include direct costs, e.g. any
purchasing from suppliers, and indirect costs, such as staff time. Staff time is often
costed-out at an agreed rate or, perhaps, at different rates depending on the grade/
department of the employee.
D4F Other key aspects of the plan

Milestones
Milestones are the significant, measurable events in the journey of the project. They are
‘markers’ along the way to completing the project. For example, key milestones for the
delivery of the reserving guide might be:
• outline of the guide;
• first draft completed;
• feedback received from stakeholders;
• final draft completed;
• sign off by key stakeholders; and
• guide published.
Stakeholder plan
Chapter 4
Refer to
Stakeholder management considered in Stakeholder management on page 6/12
All project plans should include a stakeholder plan. The process for preparing the plan
involves:
• identifying all stakeholders, i.e. anyone who has an interest in the project/change being
managed by this plan;
• ranking of the importance of the stakeholders;
• analysis of stakeholder influence; and
• developing a plan to manage the stakeholders.
Communication plan
A plan should also have a communication plan. To develop it the following questions should
be asked:
• Who needs to know and what do they need to know?
• How much do they need to know?
• How often must they be informed?
A plan should be developed that will provide the appropriate level of information in
accordance with this analysis.
Risk log
Refer to
Risk management discussed in Context of enterprise risk management on page 1/10
The management of risks is crucial to the implementation of any plan. We have already
discussed risk management in detail. The process is the same, except that in this scenario, it
is the risks relevant to the project that are being discussed.
D4G Success criteria
The success criteria should be agreed at the beginning and are the criteria against which the
project will be judged. Success may mean different things for different stakeholders and,
therefore, it is important to obtain a number of views from key stakeholders. For example,
the customer ‘end user’ is likely to have a different view of what success means compared
with, say, the project manager.
In some scenarios, those who are responsible for delivering a project may receive rewards
for the achieving of key milestones and the final completion of the project.
D4H Monitoring
There has to be a system of monitoring the plan to ensure that the work is on track. A
method for reporting progress will need to be agreed.
Research exercise
Access the project plans for the strategy projects that are ongoing in your own
organisation and consider the detail within those plans. What has been your experience
as to how accurate project plans are with regard to cost and time taken? Consider a
successful and a less successful project with which you have been involved: what
contributed to those projects being either a success or not?
D4I Thinking wider

Although this section is about delivering the resources to support the claims strategy, it may
well be necessary to think wider than just claims: for instance, what resources are required
Chapter 4
from other functions, such as marketing and communications. There could be several
aspects of the claims strategy that are likely to require support from other functions, for
example, how will the claims function communicate key aspects of the strategy to the wider
audience internally and externally? There are likely to be new and improved features of the
claims service which need to be ‘marketed’ in order to achieve their best outcome.
E Developing a plan to implement

In this section we consider how a strategic claims plan is developed. Once the strategy has
been agreed, the next stage is the implementation. You will recall that a key element of a
successful strategy is its effective implementation.
A key requirement of a successful implementation is a robust plan, which is then
implemented and monitored. There is no point in having a wonderful strategy if there is no
robust plan for implementation. Equally a robust and detailed plan serves no purpose if it is
not actively used and monitored.
You will have read chapter 5 of 990 Insurance Corporate Management as part of your
studies in chapter 3. You will recall that it outlines:
• the approach for strategic and operational planning, including at Lloyd’s;
• various strategic planning tools;
• an insurance group planning cycle; and
• a template for a three year plan.
When compiling the claims plan it is important to think of all stakeholders, e.g. other internal
functions and customers. It is necessary to consider how the implementation of the plan will
impact on these stakeholders and how this will be managed throughout implementation. For
example, if there are going to be changes to the claims process, how will this be
communicated to customers and how will they be supported through the changes?
Example 4.2
Managing stakeholders within the strategic plan is of particular importance for Managing
General Agents (MGAs), in particular where the MGA derives all or part of its business
from brokers. MGAs are often owned by brokers themselves, so the MGA may be owned
by a broker working in competition with the broker placing business with the MGA. The
MGA is likely to derive significant income via commission from competing businesses,
possibly putting the MGA under pressure to pay as many claims as possible, quickly, to
maintain good relationships with the competing placing broker. However, this may be in
contravention of the capacity provider’s claims strategy. The development of a strategic
claims plan for an MGA accepting business from third party brokers must respect all of
these conflicting issues.
Research exercise
In respect of your organisation, obtain a copy of the current claims strategic plan and the
claims operational plan.
Are you able to identify the links between the operational plan and the strategic plan?
Are you able to identify the difference in the level of detail between the two plans?
In respect of the operational plan, can you identify the key milestones and the measures
that are in place to monitor and check progress?
Is the plan flexible and being adjusted and updated as things change?

Using the strategic suggestions you have developed as a result of your work in chapter 3,
develop an operational plan for the implementation of those ideas in your claims function.
Chapter 4
This claims plan will be used again when we consider measuring the performance of the
claims function to ensure achievement of the claims plan.
F New and existing claims functions:

strategic opportunities and challenges
The strategic opportunities and challenges of new and existing claims functions can be very
different. A new claims function could be part of the creation of a new insurer, broker or
managing agent or it could be a new function within an existing organisation that is now
going to offer a claims service, such as a third party administrator or loss adjuster. The
opportunities and challenges available to the claims function vary depending on which of
these scenarios apply. A claims function that is being created as part of an existing
organisation may not be able to leverage all of the benefits of a new start up, for example
when designing the technology and processes there are likely to be limitations linked to the
current platforms and software in place.
If we consider Direct Line, when it opened for business in 1985 it was the first to sell direct to
the public over the telephone, and thus changed the way insurance was distributed in the
market. One of the key advantages it had was being able to design IT, technology systems
and processes to meet its needs, without the restrictions of existing and legacy systems.
This allowed it to access its markets and deliver on service. Initially, when other
organisations followed it they had to adapt existing systems and processes to facilitate the
direct sale and servicing of products. This often involved the use of ‘bolt-ons’ to adapt current
systems. Outside the insurance market we can see how Amazon, which was founded in
1994, has been able to take the platform and process from its original business of selling
books online to expand into general online retailing.
Critical reflection
Do these examples suggest that new organisations, or new claims functions within new or
existing organisations, have a distinctive competitive advantage compared with an existing
claims function?
Consider this…
Think about the market in which you work, have there been examples of new claims
functions being set up? If so, how successful have they been and what has been the
secret of their success? How has that affected other claims functions in the same market?
How have they competed in the situation?
A further possibility is that the new claims function is being created following a merger or
acquisition, which could mean it is a new claims team or a hybrid of two different claims
functions. It may be aiming to achieve competitive advantage through evolution rather than
revolution. For example, some loss adjusters seek evolution and competitive advantage by
merging firms in order to leverage what the other has in order to improve the claims process.
However, not all mergers work. A possible disadvantage is that fewer players in the market
mean that challenging service standards can be harder to achieve, especially in times of a
‘surge’ event.
F1 Generic considerations
Before considering specific areas of the claims strategy with regard to the opportunities and
challenges of new and existing claims functions, let us consider some of the generic
differences.
New teams are credited with having more agility and energy than existing organisations/
functions, which can find it more difficult to implement change quickly as a result of hierarchy
and bureaucracy.
When creating a new claims function, there are a number of strategic opportunities available
to the organisation. A new claims function is starting from fresh, providing a great opportunity
for creative thinkers to invent perfect systems, processes, organisational design and
structure, without the limitations of an existing system.
Chapter 4
It initially appears that the lack of history can be seen as an advantage and a provider of
excellent opportunities. However, there can be challenges associated with the lack of history,
for instance, a shortage of previous experience and knowledge when making decisions to
help understand what has and hasn’t worked well.
We discuss later in this section the value of human resource in any claims unit. When setting
up a new function, the leadership team is extremely important in supporting effective
implementation. They also play a key part in developing the culture of a new function.
F2 IT and technological systems

A new claims function will, subject to any budgetary constraints, have a free hand in
designing the IT systems and software so that it meets its current and future needs in
support of the effective delivery of the claims strategy. A new function has the advantage of
not being restrained by an existing or legacy system, which can place limitations on the
development of IT and technological systems.
When designing IT systems, some of the areas that need to be considered are:
• the transfer of data and information internally, e.g. between underwriting and claims, and
externally, between the claims function and its suppliers, partners and customers;
• how the systems and processes can support the claims function in achieving excellence
in process design and a customer centric service; and
• the degree of intuitiveness built into the technology to enhance system delivery both
internally and externally. Examples might be the inclusion of automatic warnings for
potential fraud, or alerts for identifying potentially vulnerable customers.
On the Web
See FCA’s paper on vulnerable customers:
www.fca.org.uk/your-fca/documents/occasional-papers/occasional-paper-8.
An existing claims function usually has an IT system and software that has been developed
over a number of years and that has been adapted at different stages to meet the needs of
the claims function. However, these re-designs would have been within the constraints of the
existing IT systems. Historically, IT systems are usually designed, in the first instance, with
the underwriting process in mind and then adapted for claims. As a result it is sometimes not
the best fit for claims and its needs.

Imagine you have the opportunity to design a new IT system for your claims function.
At a strategic level, what would be the key features and functionality of such a system?
F3 Organisational structure and design

An existing claims function will have a structure and organisational design that has evolved
over a number of years as the organisation has grown and, perhaps, merged with or been
acquired by other organisations. It may not be the most effective for the current and future
demands of a claims function, e.g. can it maximise advances in technology, such as a
paperless office, or the requirement that staff be connected while not necessarily in the same
location? The number of staff and the spread of skills and expertise required may not be in
the most suitable locations, either geographically for the client base, or for the nature of the
claims being handled.
When reviewing the existing claims function from a strategic point of view, the current
structure and design has to be taken into account. Questions to consider include the
implications for it if a new structure is chosen and what effect this will have on the indemnity
spend and operating expenses.
Example 4.3
It has been agreed to change an existing organisational design to create centres of
excellence based on the handling of claims for specified products, e.g. property, liability or
motor. Consideration needs to be given to the following.
Chapter 4
• The current location of offices.

• Facilities at the current locations: are they suitable for a centre of excellence? Do they
have the space and necessary infrastructure?
• The number of staff required and their skills and knowledge.
• Location of current staff and the spread of knowledge and expertise.
• What provisions need to be made in respect of current staff, how can they be re-
deployed or may redundancies be necessary? The recruitment plans required where
additional staff are necessary.
• Training and development plans to support the development of the skills and
knowledge of staff.
• The quality of the service that needs to be delivered.
• Client and market needs.
A new claims function, either as part of a new or an existing organisation, would have more
opportunities to develop a structure and design that best fits the claims function, without the
historical legacy of previous structures and designs. The claims structure and design could
be developed allowing a best fit with the claims function’s current strategy. This would allow
the choice of:
• locations, based on the demands of the strategy, linking to the employment market;
• recruitment, based on the current and future needs of the organisation at the planned
locations; and
• organisational design, one appropriate for the current processes and skill set required by
claims.
F4 Human resource – number, skills and expertise

The life blood of any claims function is the claims staff. Whilst they are supported by effective
processes, technology and the appropriate structure, they are the largest contributor to the
success of a claims function. It is their skills, knowledge and expertise that ensure:
• correct technical decisions are made;
• robust negotiation of claims settlements;
• strong broking relationships with markets;
• delivery of a customer centric service;
• design of effective processes; and
• innovation.
Refer to
Developing a strategy based on claims capabilities for competitive advantage discussed in
Resource and capabilities as a competitive strategy on page 3/22
An existing claims function will have staff with a variety of skills, knowledge and expertise,
usually based at different locations. We have already discussed the concept of developing a
strategy based on the claims resources, capabilities and staff and how this can undoubtedly
be the major source of a competitive advantage. A claims function which is resourced with
an appropriate number of experienced and skilled staff is in an advantageous position.
Within any organisation, the staff have a lot of tacit knowledge about systems and clients,
along with claims handling skills. Organisations try to make as much of this information as
possible explicit through the use of manuals, process guides, mentoring etc. However, there
will always be an element of knowledge which remains tacit.
An existing claims function may face a challenge where the skill set of staff does not match
the current claims strategy, either, perhaps, due to changes in processes or type of claims.
The claims function then has to develop a plan for bridging that gap.
Refer to
Ways in which gaps can be closed described in Develop the plan to fill the gaps on page
Chapter 4
4/16
An opportunity for a new claims function is that it is able to identify how many staff, with what
skills and expertise it requires, but may face a challenge in how to access them. The size of
this challenge will vary depending on the skills required, the location and the numbers
involved. We have already discussed the ways in which a gap between the current and
required resources can be closed. For instance, consideration can be given to:
• outsourcing;
• partnerships with suppliers; and
• recruitment.
A combination of these options could be pursued. However, whichever option is chosen, the
following will need to be taken into account:
• recruitment costs;
• training and development costs; and
• the lead time until staff have the necessary skills and knowledge.
An alternative option is to recruit experienced staff. Depending on the market/geographical
location, this could involve paying higher than average salaries to attract new staff to a new
team. A further possibility is to initially outsource until staff, skills and knowledge have been
built up in-house. Then work can be brought in-house over time as the skills and knowledge
of the staff develop as illustrated by figure 4.5.
Figure 4.5: Interaction of outsourcing with staff skill building

No. of
claims Outsourcing In house
handled staff
Time – in house
skills building
Consider this…
Think about the tacit knowledge of your claims staff at all levels. How does your
organisation make this knowledge explicit?

Imagine you have a team of claims handlers who handle a specific type of specialist
claims. If 50% of that team of claims handlers were to leave, what knowledge would go
with them?
Outline the ways in which you would approach filling the knowledge gap. What steps can
you take now to minimise the impact of such an event in the future?
F5 Processes
The processes in place in an organisation will have evolved over a number of years, either
Chapter 4
through step change or, at times, due to quite revolutionary changes, e.g. following the
introduction of a paperless system. An existing claims function has the advantage of a
history of knowledge as to how the processes developed over the years and what lessons
have been learned. A new claims function does not have this benefit.
The optimum process is one which ensures straightforward claims are handled as quickly as
appropriate, with the minimum touches, and which appears seamless from the customer’s
perspective. To achieve this there are a number of elements in the process that need to
work: IT, technology and software; suppliers and staff knowledge and skills. Sometimes, an
existing organisation may not be able to create the optimum process because of limitations
arising from the different elements required, such as IT systems or the organisational design.
A new claims function has the benefit of being able to design the ‘visionary’ ideal process
and ensure all the parts are included to make it seamless. However, a significant contribution
to the achievement of this result is having the right staff with the knowledge to design these
processes. We have previously discussed the resources for a new claims function.
In any claims function there are always a number of claims that are more complex for a
variety of reasons, and therefore won’t fall into the ‘straightforward’ claims category. Despite
this, the claims function should have the same objectives with regard to the processes for
these claims.
F6 Culture
Refer to
Culture described in How can we define culture? on page 3/3
A brief definition of culture could be ‘the way things are done around here’ and it is
something that is developed and built over a period of time. An existing claims function will
have formed its own culture, and this will also be influenced by the organisation’s culture.
You will recall that there are benefits in having the correct ‘strong’ culture for a claims
function. Where an existing organisation has built a culture that works for the organisation
and is strong and appropriate for the claims function, this is an advantage. Conversely, if the
organisation has a culture which does not support the organisation’s strategy and is not
strong and appropriate for the claims function, then the challenge is for the existing claims
function to change the culture.
New organisations have the benefit of being able to build an appropriate culture. New teams
and groups can generate a higher level of team spirit, enhanced by the sense of
achievement that comes from creating the new team from zero.

Imagine you are creating a new claims function. What sort of culture would you want to
develop that will add value to the corporate culture? What would be the key features,
thinking of the different levels? What would you ensure was in place to help create this
culture, thinking of areas such as:
• leadership;
• reward and recognition;
• organisation design and structure; and
• employee relationships.
Research exercise
Please research Tuckman and Jensen’s model on team development.
You may wish to read Bruce Tuckman’s model on new teams: Forming, Storming,
Chapter 4
Norming, and Performing model:
bit.ly/1DRMxMQ.
Once you have completed your research, reflect on how these stages would impact on a
new claims team. A suggested example is provided:
Tuckman and Jensen’s 1977 four group Contextualised to designated claims team
development stages
1. Forming Designated claims handlers brought together.
2. Storming Manager will issue weekly activity targets/results to

stimulate competition.
3. Norming Once changes become accustomed, the team begins

to co-operate.
4. Performing Productivity will begin to show with slowly rising

results – effective.
References
1. Selznick, P. Leadership in Administration: A Sociological Interpretation Harper &
Row 1957
2. Ansoff, I. Corporate Strategy Harmondsworth Penguin 1965
3. Prahalad, C.K. and Hamel, G. ‘The Core Competences of the Corporation’ in Harvard
Business Review (May-June 1990)
4. Johnson, G. Whittington, R. and Scholes, K. ‘Threshold and Distinctive capabilities’ in
Exploring Strategy 9th edition FT Prentice Hall 2011, p.87
5. Johnson, G. Whittington, R. and Scholes, K. 'Distinctive Resources and Capabilities as a
basis of competitive advantage' in Exploring Strategy 11th edition Pearson Books 2017
p.101
Additional reading
990 Insurance Corporate Management, chapter 6, section B
Chorn, N. And Hunter, T. Strategic Alignment 2nd edition Woodslane 2010
Johnson, G. Whittington, R. and Scholes, K. Exploring Strategy 9th edition FT Prentice
Hall 2011
McLean, A. and Marshall, J. ‘Intervening in cultures’ Working paper, University of Bath
1993
Peters, T.J. and Waterman Jr, R.H. In Search of Excellence: Lessons from America’s best-
Young, T.L. Successful Project Management 5th edition Kogan Page Limited 2016
G Scenario 4: Resources
G1 Question
You are the head of claims for xyz Brokers. The claims function currently handles travel
claims on a delegated authority. There are currently five staff in the team handling 18,000
claims per year.
You have been advised that the organisation has just secured the authority to handle
commercial property claims on a delegated authority for a panel of insurers. The board have
asked you to report on the resourcing requirements for this unit and submit your plans for
fulfilling this resource gap by the end of the month.
The start date for handling these claims is in three months' time. You understand that initially
there will be approximately 200 claims per week and that this will increase to 2,000 per
month over a six month period. You are advised that only new claims will be handled and
that there is no intention to hand over existing claims.
Chapter 4

Aim
This scenario aims to test your understanding of the interaction between resources and the
strategic plan.
Your answer should take the form of a board report. It needs to identify the resources
required to handle the claims based on the initial number of claims to be received and then
allowing for the increase to the 2,000 per month. Your report should contain an analysis of
the different types of resources, including tangible and intangible and a gap analysis. A plan
for delivering the resources required, both prior to the start period and then during the initial
phase until full capacity is achieved, should also be included.
Self-test questions
1. What are considered to be intangible resources?
2. How can the claims function influence the financial performance of the organisation?
3. List six criteria that could form part of a competence framework.
4. How do Hamel and Prahalad define a core competence?
5. What, according to Johnson, Whittington and Scholes, are threshold capabilities?
6. When assessing capabilities what do the letters VRIO stand for in Johnson
Whittington and Scholes' VRIO model?
Chapter 4
7. What are the key stages/steps when creating a plan to deliver resources?
8. What options are available to bridge a resource gap?
9. What actions should a plan include?
10. How would you define success criteria in respect of a project?
11. What would you consider when assessing human resources?
12. When considering financial resources, what ratios could be built into the strategy?
13. Identify some of the generic opportunities and challenges for new and existing claims
functions.
14. What areas need to be considered when designing a new IT system?
15. If you were to create a centre of excellence for handling property claims, what would
you need to consider in respect of the premises?
16. The claims staff are key to the success of a claims unit. To which aspects of the
claims function do their skills, knowledge and expertise contribute?
17. What options are available to a claims function to close the gap between the current
level of staff and the required level?
18. What should the optimum claims process look like?

Financial impact of the
5
claims strategy on the
business
outcomes
Introduction
A Impact of the claims strategy on the balance sheet 4.1
Chapter 5
B Financial relationship with other internal functions 4.2
C Interpreting financial claims information 4.3
D Scenario 5: Financial consequences
Self-test questions
Learning objectives
• explain the impact the claims strategy has on the organisation’s balance sheet;
• discuss the financial relationship that the claims function has with other internal functions;
and
• interpret financial claims management information and use it to inform the claims strategy.
Introduction
Before studying this chapter, please read chapter 7 in the 820 Advanced Claims study text.
You will find it on RevisionMate.
In this section we are going to consider the impact the chosen claims strategy may have on
the business, in particular on its balance sheet. In our earlier study of strategy we identified
that the key purpose of a strategy is to provide the organisation with a competitive advantage
and, ultimately, a profit.
What are the key numbers that we should be considering in the financial accounts?
It is likely that these will include:
• pre- and post-tax profits;
• underwriting profit;
• profit from broking activities;
• shareholder dividend;
• net tangible assets;
• underwriting result;
• investment result net written premium;
• net earned premium; and
Chapter 5
• ratios, such as combined operating ratio, loss ratio and return on equity ratio.
Research exercise
Obtain a copy of your organisation’s annual report and review the financial section to
identify the key financial ‘numbers’ outlined in this report.
Key terms
Balance sheet Cause and effect Fishbone diagram Growth rates

analysis
Indemnity costs Management Operating costs Performance
information management
Retention Root cause analysis
A Impact of the claims strategy on the

balance sheet
Refer to
Refer to M92: chapter 9
From a claims perspective, the key matters of importance to the balance sheet are:
• consistency and accuracy of reserves, including the release of reserves; and
• operating costs (the cost of claims handling within the organisation).
A1 Indemnity costs
This is the total amount spent by an organisation in settling a policyholder’s claim. As
previously mentioned, indemnity costs can be benchmarked against a competitor’s
performance.
Key strategic factors which contribute to the indemnity costs are shown in figure 5.1.
Chapter 5 Financial impact of the claims strategy on the business 5/3
Figure 5.1: Factors influencing indemnity cost
Organisational
Choice & use structure Number of
of suppliers staff
Staff skills &

Outsourcing
knowledge
Claims Indemnity
costs Processes
philosophy
Organisations aim to achieve optimum indemnity costs, but this is not as straightforward as
one might expect. The correct figure for the settlement of a claim is the figure for the valid
claim, which is in line with the policy wording and the claim submitted, without leakage.
The organisation is aiming for the optimum settlement for the claim, but this is a fine balance.
If the settlement is too high, it will allow short-term competitiveness in obtaining new
business, but in the long term it will lead to the loss ratio deteriorating. If the settlement is too
low, this may keep the indemnity costs lower, but in the long term may lead to a loss of
business, due to a poor reputation in the market in respect of claims settlements.
Chapter 5
Let us explore this a little further.
The settlement figure is influenced by the claims philosophy. Some organisations build their
brand and reputation on a generous interpretation of policy wordings and claims settlements.
On the other hand, some have a claims philosophy that demands meticulous investigation
and negotiation of every aspect of the claim, regardless of value, leading to a lower
indemnity spend, although their claims handling costs may be greater.
Research exercise
Research, perhaps by speaking to colleagues in the industry, for an organisation which
has a reputation for either a ‘reasonably’ generous approach to claims settlement or the
opposite. Is this impacting on their ability to retain existing business or acquire new
business? What evidence is there to support this? Does your example organisation use
particular branding to recognise their approach to claims settlement?
It is not quite as simple as it appears. We cannot assume that the company with the lowest
indemnity costs has the best strategy for the organisation’s balance sheet. There are other
factors that need to be considered, including the following.
• The time taken to settle claims: if a claims department is looking to negotiate the lowest
settlement, it is likely to prolong the amount of time it takes to settle a claim, meaning
claims take longer to settle overall and leading to delays in reserves being released.
• The number of staff required to handle claims: if a meticulous examination of every
claim is required it is likely that more staff will be needed to prevent unacceptable
backlogs building up, which will result in increased operational costs.
• The organisation’s reputation: this approach will likely cause the organisation’s
reputation to suffer, which ultimately will impact on the amount of business it retains or
acquires.
On the other hand a slightly higher or a more realistic claims settlement, one termed ‘firm –
but fair’, could result in:
• speedier claims settlements;
• earlier release of reserves;
• improved customer service; and
• a positive image for the reputation and brand.
The secret is how to achieve all this without excessively increasing operating costs and
indemnity spend. The challenge for the leadership team is to achieve a fine balance between
all the contributory factors at play.
Research exercise
Consider the claims philosophy adopted by your organisation. At which end of the
spectrum of the two options just described does it sit?
Figure 5.2 considers two factors: the cost of claims settlement and the potential impact on
customer service.
Figure 5.2: Cost of claims settlement v. customer service

£000s
Cost of Claims settlement too
settling high – positive impact
the claim on customer service –
but costs too high
Potential optimum
Chapter 5
claims settlement
Claims settlement too low –

although costs are low – negative
impact on customer service
– Positive impact on +
customer service
Research exercise
Review your own organisation’s customer surveys. Do they support the above view? How
do you think the customer’s view varies between different markets, such as between retail
and high value commercial markets?
There are further considerations for an MGA or broker who handles claims under a
delegated authority arrangement. When such an MGA or broker makes claims payments, it
uses insurer’s funds to make them. This has important implications:
• the insurer will be keen to ensure that claims are being paid correctly. An MGA or broker
overpaying claims may be asked to reimburse overpayments and may, ultimately, lose
any delegated claims handling authority, which is often a significant revenue stream for
the MGA or broker; and
• insurers often remunerate MGAs or brokers with profit commission. If claims
overpayments are made this will reduce the profitability of the book of business and thus
any profit commission.
A1A Recoveries
Recoveries are an important part of an effective claims process and include the:
• accurate identification of potential recoveries; and
• speedy recovery of monies due.
An effective recovery process can make a significant difference to the cash flow of an
organisation, both through the speed at which the claims function pursues a recovery and
the speed at which the cash is recovered. This allows claims to be settled more quickly,
resulting in the release of reserves and capital availability.
Research exercise
Research the recovery management information (MI) for your, or any other, organisation
and review for each class of business the:
• number of days taken to recover money from other organisations; and
• accuracy in identifying potential recoveries.
Do you think there are opportunities for improvement?
How do your organisation’s results compare with those of competitors? If you cannot
access this information ask colleagues who may have worked for other organisations or,
perhaps, use LinkedIn groups.
or
If it is not possible for you to obtain recovery data then identify the different factors that
affect recoveries for your claims function.
A2 Consistency and accuracy of reserves

As we know, a claims function should ensure that claims are reserved in accordance with the
organisation’s reserving policy. It is necessary that reserves are as accurate as possible
reflecting the potential of the claim, and should be updated regularly to reflect the current
and relevant picture. Claims should be settled as quickly as is appropriate to ensure the
Chapter 5
release of the reserves.
The accuracy and consistency of reserves is important to actuaries and the finance team as
it provides a clear view of the organisation’s liabilities, reflected in the loss and other ratios.
Based on this information, actuaries are able to advise on the:
• capital available for reinvestment in the business, including implementing the strategy;
and
• reinsurance requirements, to ensure that there is no over or underinsurance.
Consistency in reserving minimises the risk of any unexpected adjustments being required,
which are always unpopular with stakeholders, both internally and externally. They also have
an impact on confidence levels in the claims function.
An organisation with a strong reputation in respect of reserving accuracy will also find it
easier to obtain reinsurance at competitive rates. Similarly, an MGA with a strong reputation
in respect of reserving accuracy will have a reputation for honesty and integrity and so will
find it easier to obtain capacity at favourable rates of commission.
Research exercise
Arrange to have a discussion with a colleague from the actuarial or finance department (or
where this is not possible use your wider network or social media, such as LinkedIn, to
assist you) and establish:
• how they use the information provided to them by the claims reserves;
• what is important to them in respect of the reserves; and
• what contextual information do they need to support the numbers.
A3 Operating costs
The operating costs are all the costs associated with the running of the claims function, of
which some costs are fixed and others are variable, depending on the number of claims
received. The costs which will fall under this heading are as shown in figure 5.3.
Figure 5.3: Operating costs
Salaries and
associated IT equipment
costs
Cost of Operating Training and

premises costs development
Research exercise
For your own claims function, obtain details of the operating expenses. Review them to
identify how each item is calculated and the key drivers for each item.
A4 Interaction with claims strategy

We have now considered the key factors from the claims perspective that affect the balance
sheet. In this section will see how these factors link to the claims strategy.
Chapter 5
You will see as we discuss the different options, that it is not necessarily a simple ‘straight’
line equation: that one action will simply lead to an increase or decrease in costs. Often an
action in one area may lead to a positive result there, but may cause a negative result in
another. To demonstrate, let us take a very simple example.
Example 5.1
Company A wants to have ‘zero’ tolerance to any backlog in claims and this is to be a key
element of its strategy. To achieve this strategy, the claims function would have to be
staffed appropriately and have effective processes etc. This approach is likely to have a
positive impact on customer service and result in new business. However, Company A’s
operating costs would increase due to the higher levels of staff. Company A needs to
complete a detailed cost benefit analysis to evaluate if the increase in salary costs is
justified by the new business achieved.
Often there are ‘compromises’ to be made. It is always a matter of balancing all the different
factors to achieve positive results, without generating a negative result elsewhere.
Let us look again at the interaction between decisions about backlogs and cost, although, of
course, there can be many other factors which influence customer service.
Figure 5.4: Backlog strategy v. cost

£000s
Zero backlog – 1
day turn around –
Cost of
excellent customer
running
service
with zero
backlog
Optimum point of
backlog – taking into
account strategy of
the organisation
Extremely high backlogs

– poor customer service
35 days Backlogs in 1 day

days to process
Figure 5.4 takes a simple approach and considers only two factors. However, in reality, not
just direct costs, but indirect costs, should be taken into account. Again, this is best
illustrated by considering a simple example.
Example 5.2
Company B is understaffed. To manage this it decides to follow a strategy of running with
high backlogs for a while, relying on overtime and the goodwill of staff to achieve its
targets. If it follows this strategy for a significant period of time, however, it is likely to lead
to high attrition rates and increased levels of sickness in the longer term. This in turn will
cause recruitment and training and development costs to rise.
We will now review some of the different options that could be included in a claims strategy
and the impact they might have on:
• reserving accuracy; and
• operating costs.
Table 5.1 shows how outsourcing affects these different elements of the claims strategy.
Table 5.1: Effect of outsourcing on the claims strategy
Chapter 5
Chosen strategy: Outsourcing
Indemnity costs Linked to the expertise and efficiency of the outsourcer. If this is superior to the
organisation’s claims function this could lead to a lower indemnity spend.
Conversely, if the outsourcer does not have the expertise, there could be a
negative impact on the indemnity spend.
Consistency and accuracy of As with the indemnity costs, this will link to the expertise of the outsourcer and
reserves the quality of communication between the two organisations to ensure that the
outsourcer has a good understanding of the organisation’s reserving
philosophy.
Operating costs There will be a cost saving in all areas:

• staff salaries and associated costs;
• training and development;
• IT equipment; and
• potentially, premises.
These savings must be balanced against the fees which will have been agreed
with the outsourcer, plus the cost of managing the relationship.
Outsourcing would be a variable cost as usually the fee is per claim, so the
costs are directly linked to the number of claims received. Whereas staff costs
are not entirely fixed but not completely variable. Therefore those costs will,
within reason, stay the same, regardless of the number of claims received.
Table 5.2 shows a similar exercise carried out in respect of restructuring.
Table 5.2: Effect of restructuring on the claims strategy

Chosen strategy: Restructuring
Indemnity costs The intention of a restructure would be to have a positive impact on the
indemnity spend. For example, if centres of excellence are created, then they
will be developing expertise in all aspects of the claims handling process.
Consistency and accuracy of The intention would be that restructuring should improve the quality of the
reserves reserves, as per the example under indemnity costs.
Operating costs It is usual for a restructure to be intended to reduce costs.

However, the implementation of the restructuring is likely to involve increased
operational costs, such as office moves, relocations and redundancies etc.
Research exercise
Complete a similar exercise for the following elements of a claims strategy:
• choice of suppliers;
• processes; and
• number of staff, their skills and expertise.
Consider the direct and indirect impact that they can have on:
• reserving; and
Research exercise
How is the claims strategy influencing the balance sheet of your organisation? Is it the
most cost effective strategy? Can you identify the different factors and where the strategy
has been chosen to drive certain results in different areas? If a process has been
changed, what is the anticipated impact? How is this being monitored? What are the
results?
A5 Retention and growth rates

Chapter 5
In this section we have been looking at the impact the claims strategy can have on the
balance sheet. At the beginning we identified some of the key financial numbers which an
organisation is likely to include in its financial report and accounts.
Two key drivers of these numbers are the retention and growth rates. We discuss a number
of times in this study text the impact the claims service can have on customer service and
the reputation/brand of the organisation, and how it can help to support the growth of the
organisation.
Research exercise
Identify the elements of the claims service that can influence the retention rates and
revenue growth of your organisation. Think as widely as possible, for instance are there
some factors external to claims that influence the claims delivery, such as policy
wordings?
Once you have identified all the factors, rank them in order of importance. To help with this
activity you may wish to carry out some research with your client/customer base to obtain
their views.
B Financial relationship with other internal

functions
Claims financial information is extremely important to the organisation and helps inform key
elements of the corporate strategy, such as whether or not to continue to underwrite a class
of business and the pricing model. If the information provided by claims is not accurate, then
decision making can be seriously flawed and affect the profitability of the company.
The financial information which the claims function provides includes:
• claims payments;
• cost of handling per claim;
• outstanding reserves, including IBNR and IBNER;
• catastrophe reserves; and
• re-opened reserves.
Figure 5.5 shows how a claims function interacts with all the other functions within, for
example, an insurance organisation.
Figure 5.5: Claims in relation to other functions
Underwriting
IT Actuaries/
finance
Claims
Human Sales and

resources marketing
Compliance
and risk
Chapter 5
In some situations, the claims function provides specific financial information to another
function, such as to actuaries and finance. In others, it is about the effective use of another
function’s time. The claims function needs to share its strategy plans with these other
functions to aid long-term planning and budgeting.
B1 Underwriting
The underwriting function is responsible for deciding:
• whether or not to accept a proposal of insurance;
• what terms and conditions to set;
• the proportion of a risk to underwrite; and
• the price at which to rate the insurance.
Underwriters take the following into account:
• break-even: the price must be set at a level that will cover the cost of future claims,
administrative expenses and broker commission;
• profitability: the price set should achieve the organisation’s profit goal; and
• market conditions: these also affect the rating, for instance if it is a soft or hard market.
B1A What information do underwriters need from claims?
Underwriters require details of the claims experience both for individual risks and for an
overall account. This will include claims paid and the outstanding reserves on open claims.
Underwriting will then analyse the past claims experience and, by projecting the future cost
of claims, determine the particular characteristics, the underwriting factors, that gave rise to
the annual claims cost and the claims trend exhibited. This analysis will be completed for an
account or an individual risk.
B1B Reserves
In order for underwriters to be able to rely on the information provided, the claims team
needs to ensure that reserves are accurate and up to date. However, the information
provided needs to be far more comprehensive than just numbers; it should include the
contextual information. This is likely to involve sharing more qualitative information, probably
face-to-face, about the claims experience for a particular risk. The underwriters will thus be
able to develop a more detailed knowledge of the risk insured, or of the account, to
understand the trends and the risks.
It could be that suppliers can also add value to this process: loss adjusters, for instance, can
provide both quantitative and qualitative detail as they will have first-hand experience of the
claim. Thus they can provide good data for both underwriters and claims to review.
Underwriters need to have a sound understanding of the reserving philosophy adopted by
claims. This will help them understand the figures presented and how they reflect the
ultimate cost of a claims settlement. For example, some organisations may choose to
reserve on a very conservative basis, which means that a proportion of their claims settle
below the reserved figure. Actuaries are able to support the underwriting and claims
functions by explaining the trends within, and the impact of, the chosen reserving philosophy.
The reserves will include the figures for IBNR and IBNER claims and, as above, narrative will
be required to help underwriters understand the numbers.
B1C Claim settlements
Although the responsibility for the settlement for claims rests with the claims function, there
needs to be good communication between underwriters and claims. Sometimes, it is
appropriate to discuss with underwriters the specific details of a policy wording or a risk that
have come to light during the investigation of the claim. This latter point is of particular
relevance when considering what is deemed to be 'insurer knowledge' under the Insurance
Act 2015.
Claims should provide qualitative information to the underwriters in respect of policy
wordings. It should make them aware of any aspect of the policy wording that is causing
Chapter 5
‘difficulties’ when claims are being settled, or where lack of clarity is leading to claims being
paid where that wasn’t the intention. Claims should also be keeping underwriters up to date
with any trends developing in case law, statute or, perhaps, in specific industries, e.g. with
regard to industrial disease.
The claims strategy needs to take account of this very important relationship and identify
ways in which the communication between the two functions can be enhanced. This may
involve improved IT systems, so that a significant amount of data is easily accessible to both
functions, e.g. accurate cover details or risk information. The content and accessibility of
management information should be designed with both functions in mind. Furthermore, in
addition to formal communications, e.g. documented meetings, informal communication is
equally valuable. Such communication frequently takes place between colleagues, for
instance, during informal conversations at coffee machines or through personal
networks etc.
There may be additional considerations in respect of the communication between claims and
underwriting where the two functions are not part of the same organisation, for instance if the
claims function, or part of it, is outsourced.
Research exercise
If you are involved in an organisation that carries out underwriting as well as claims,
review both the formal and informal communications between the underwriting and claims
teams in your organisation, ensuring, as part of this research, you talk to the underwriters
and the claims team. How good is the communication between these two functions?
Could it be improved and, if so, how?
B2 Actuarial and finance

The role of the actuary and finance team is to monitor the financial performance of the
organisation, and clearly the claims function plays a key role in that. Claims financial
information is vital to their work. As with underwriters, it is not just about supplying the
numbers but also the context, so that the actuaries understand what lies behind the financial
information. This is of particular importance in the reinsurance industry, where many treaties
are priced by brokers and then offered to the reinsurance market, rather than the traditional
insurance model where insurers quote for business.
An organisation needs to be able to assess its claims reserves by class of business for a
number of reasons:
• FCA regulation;
• its annual report and accounts;
• management control, including budgetary control;
• to determine future underwriting strategy;
• to assess reinsurance requirements; and
• to ensure sufficient funds are available to pay outstanding claims.
The key information which the actuaries require for each class of business includes:
• outstanding claims reserves;
• IBNR and IBNER reserves; and
• claims paid.
In addition, information will be required in respect of anticipated release of reserves.
Significant decisions are based on the financial information provided by the claims function
and, therefore, accuracy is vital. A qualitative commentary, providing context to the numbers
and including views on trends and developments in the claims market, should accompany
the financial figures.
Based on this financial information, the actuaries will calculate:
Chapter 5
• the capital provisions as required by Solvency II;
• the funds required to pay current and anticipated future claims; and
• the amount of capital available for further investment, such as in IT and other strategic
projects.
Based on all this information, a decision will be made with underwriters as to whether the
current reinsurance arrangements are appropriate or require adjustment, e.g. is further
reinsurance required or can the current level of protection be reduced? It is vital that these
requirements are accurately assessed to ensure the cover is appropriate and the balance
sheet of the organisation is protected.
Research exercise
Arrange to speak to your colleagues in the actuarial and finance function, if applicable.
What information do they want from claims and how is it used? Could the information they
are currently provided with be improved?
B3 Sales and marketing

The financial relationship with sales and marketing is less direct. The purpose of the sales
and marketing function is to retain current business, secure new business and promote the
organisation. Claims can contribute to this activity, and thus the success of this function, by
promoting the claims function as a competitive advantage and showing how it can be used to
enhance the marketing process.
This is of particular relevance to insurers seeking business directly from members of the
public and MGAs who derive their income via commission.
Example 5.3
An MGA offering an excellent claims service is best placed to meet or exceed the
expectations of customers at the time of a claim if marketing literature is agreed with
claims management before going to print. The claims department thus helps the MGA to
retain business, to the ultimate benefit of the MGA remunerated by commission. This will
be so, regardless of whether the underlying insurance product makes money or loses
money for the capacity provider to the MGA.
The claims function can achieve this by helping the sales and marketing team to understand:
• what claims do: the full service that is provided when dealing with claims;
• the unique selling proposition (USP) of the claims service; and
• what it can offer clients and why it provides a competitive advantage.
This can be supported by providing ‘positive’ stories to inform the publicity and marketing of
the organisation and, consequently, helping to encourage sales.
The claims function can also help the sales and marketing teams to understand some of the
unusual areas of a policy wording, so that when marketing material is prepared it provides
clear information about the policy cover. This service can also be extended to the sales
teams to minimise the risk of misleading information being provided during the sales
process.
Some organisations have a marketing strategy that actively uses the claims service to
promote themselves, e.g. in their marketing material or television adverts.
Research exercise
If your own organisation has or is using the claims service as part of its marketing
strategy, how successful has this been? How does the marketing department analyse the
success of a marketing campaign?
Research other organisations and identify those that are using the claims service as part
Chapter 5
of their marketing campaign.

Strategically, how well do these functions communicate? Are claims involved in new
business presentations when quoting for a major new client?
A further example of how sales and claims can be strategically linked is where a claims
function identifies the key reasons for repudiations and these are included in the key facts/
summary documentation.
Research exercise
For your own organisation, investigate how well the claims function and the sales and
marketing function communicate. How well do they understand each other’s roles? Are
there opportunities to improve this relationship?
B4 Human resources
All organisations are structured slightly differently but, for the purpose of this text, we are
making the assumption that the human resources (HR) function has responsibility for the
following key areas:
• recruitment, including role profiles and job specifications;
• training, both induction and ongoing development; and
• performance management, including appraisals and management of the competence
framework.
Organisations vary in their approach but, often, HR time is costed-out to each function,
usually based on the number of full time employees (FTE) in that function. Bespoke services,
such as a training course, may be charged out separately, based on the cost of the event.
Regardless of the way in which HR time is costed-out, its time and skill should be used
effectively.
B4A Recruitment
The HR department will support the claims function in designing job specifications and in
recruiting for new roles. Claims can contribute to the effectiveness of this process by
ensuring that it is clear what skills and knowledge are required for the roles so that this is
reflected in the recruitment literature.
The guidance provided by HR with regard to an appropriate recruitment process should be
followed to secure the best opportunity of recruiting the right person.
There should be a structured development programme for new recruits to ensure the correct
people stay with the organisation and to minimise attrition rates in the early stages.
The claims function should provide HR with its recruitment plans on a one to two year rolling
basis to allow for long-term planning.
B4B Training and development
When the claims function completes its detailed training analysis, the results should be
shared with the HR function to allow for long-term planning. Again, this should be on a
rolling basis.
When a training need is identified, there should be liaison with the HR team to develop the
most cost effective solution, including reviewing the different learning interventions available.
The delivery of training should be based on a training needs analysis and not simply
delivered to everyone, regardless of need.
Once the training has been completed, it is necessary to follow it with ongoing coaching and
support to facilitate the embedding of the training. There should also be a cost benefit
analysis exercise completed, to ensure ongoing evaluation of the training completed.
As we can see there are a number of areas where the claims department are ‘paying’ for the
services of HR, either on a costed-out basis or because the cost of the HR function is a cost
for the organisation.
B4C Performance management
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The HR function will support the design and implementation of the performance
management system. This is likely to include, amongst other things, appraisals and the
management of the competence framework. It will provide time and expertise, so the claims
function should ensure the effective implementation of these key processes.
Systems and frameworks will vary amongst organisations as to their sophistication and as to
how they link to the overall pay structure and career development of staff. An important
aspect is the ongoing assessment of the competence of claims staff, not only for the claims
function to successfully fulfil its strategy, but also its FCA obligations.
B5 Information technology (IT)

In a similar way to HR, IT time is often charged out to the different functions based on the
number of FTE. Alternatively, an amount may be allocated to a specific project, such as a
system change. In either situation it is important that IT time and services are used
effectively.
In respect of projects, claims should ensure that the correct information is provided to IT
during the design and specification stage of a project. When staff are required at the testing
stage they should have the correct skills and knowledge to obtain the optimum results from
the testing and thus ensure the system will meet the needs of the organisation.
B6 Legal and compliance

The relationship with legal and compliance involves the claims function fulfilling its
responsibilities and duties in such a way as to prevent any legal or compliance costs being
incurred, either directly or indirectly, by the organisation. The legal department will deal with
any proceedings where the organisation is named as a defendant, e.g. when a policyholder’s
claim has been repudiated and they issue proceedings under breach of contract. Claims can
minimise this risk by accurately handling claims and ensuring that the correct complaints
procedure is followed.
In respect of compliance, claims should ensure it meets all its regulatory obligations so that
the organisation does not incur any fines as a result of its errors. Remember, that where
there is delegated claims authority, any breach is likely to result in a fine and/or penalty, not
just to the organisation operating the delegated authority, but also to the organisation
providing the capacity. This is because the delegated authority holder acts as an agent of the
insurer in this set of circumstances.
Research exercise
Review the financial relationship between claims and one of the following functions:
• HR;
• IT; or
• legal and compliance.
Identify ways in which it can be improved.
B7 Producing brokers
Within a broker, the relationship between the producers of business and the claims function
is critical to understanding the financial viability of business being handled. Traditionally,
producing brokers have been rewarded based on revenue income, rather than net profit per
account. Improved IT has enabled management to have a far greater understanding of the
costs of delivery. This means that the costs of claims handling per risk is now far more
transparent and thus can drive product strategy far more effectively.
Research exercise
If you work in a broking environment establish, by discussing with your finance function,
the margin according to class that your organisation considers acceptable for business
production, net of claims and other operational costs.
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C Interpreting financial claims information

On the Web
Before starting this section you will find it useful to refresh your knowledge of the FCA
guidelines for Management Information in respect of the fair treatment of customers:
bit.ly/2zxZm4L.
C1 Management information (MI)

Information is crucial to the successful management of an organisation. It helps an
organisation understand whether or not its objectives are being achieved. Good quality MI is
essential for effective financial reporting, risk management, monitoring the implementation of
the current strategy and for planning future business activity.
Management information should include a whole range of data: financial, quantitative,
qualitative and anecdotal. It should be tracked on an ongoing basis to identify:
• inconsistencies;
• trends; and
• variations.
In addition to understanding past and current performance, management information can
also be used to proactively identify future activities. It not only reveals areas that need
improving, it can help identify areas in which the organisation is strong. It helps with
understanding what is behind these successes and shows how they can be developed and
shared in other areas/functions.
An MGA is likely to have to provide claims MI to its capacity and this can be complex where
it has a number of capacity providers operating under different binding authorities, each with
differing MI reporting requirements. Such MI may include tracking actual claims activity
against projected activity and calculating the profit commission owed by the capacity
provider to the MGA.
C1A Types of management information

Financial MI is likely to include the following:
• loss ratios;
• reserving statistics;
• leakage results;
• triangulations;
• regulatory required information; and
• cost to revenue.
When reviewing and analysing financial management information, it is also of value to
consider non-financial information such as:
• the life cycle of a claim: number of days to settle;
• stock levels: new claims received compared with claims settled; and
• customer surveys.
C2 What to consider when interpreting MI

When interpreting management information, whether it is financial, quantitative or qualitative,
it is important to always take into account the context of that information. We have already
Chapter 5
discussed benchmarking and comparing the organisation internally and externally. When
considering MI it is important to understand the context and some key questions to ask are
as follows.
• Who collected the information and what, if any, interest do they have in the results?
• What was the main purpose for which the information was collected?
• How was the sample selected and is its ‘content’ representative of the portfolio for which
it is being used? For example, if 40% of property claims are for accidental damage is that
represented in the sample?
• How was the information collected?
• What questions were asked?
• What was the context at the time the data was being collected? For instance, were claims
notifications high due to storms or were there any staffing issues?
• When was the MI collected? Is it as up to date as possible?
Management information should be interrogated to ensure the information is being correctly
interpreted.
C2A Root cause analysis
Management information should not be taken at face value. Whilst there may be some initial
views as to what is leading to given outcomes, it is always recommended that detailed
analysis and investigation is completed in order to establish the root cause or causes. It is
possible that the reasons may not rest with the claims function; for instance, an increase in
indemnity spend may be because of a change to the policy, or to the underwriting policy, and
this has altered the portfolio of business. It is quite likely that there is more than one cause
leading to the outcomes.
Audits are a very useful tool as part of the analysis and it is probable a detailed audit will be
required to assist in identifying the root cause.
C2B Cause and effect analysis
A useful tool when carrying out cause and effect analysis is the so-called fishbone diagram.
Professor Kaoru Ishikawa devised this method of analysis to help structure the process of
identifying the possible causes of a problem. The process encourages the development of a
comprehensive and balanced picture, which involves all stakeholders. As a result of the
process, partial or premature solutions are discouraged and the relative importance of, and
inter-relationships between, different parts of a problem are highlighted.
This is a commonly used tool and you may wish to carry out further research on the internet
to see how it is used by different organisations. It is ideally suited to a group situation, but
can be used in lone working.
The process is as follows:

1. Draw a long arrow horizontally across the middle of the page and label the arrowhead
with the title of the issue to be explored.
2. Draw spurs coming off the ‘backbone’ at an angle, one for every likely cause of the
problem the group can think of and label each one at its outer end.
3. Additional spurs are drawn to these spurs to represent the likely subsidiary causes.
4. The group then discusses each spur/sub-spur.
5. Ideally, the diagram should be re-drawn so the position along the backbone reflects the
relative importance of the different parts of the problem, with the most important at the
head end.
6. The key cause or causes are then highlighted so they can be taken forward for further
analysis, perhaps by audit, work groups or further sampling.
As an example of how a fishbone diagram can be used, let us take as a possible issue one
which could be highlighted in the MI, and that is ‘inconsistent reserving’. The resulting
fishbone diagram is shown in figure 5.6.
Figure 5.6: Fishbone diagram examining inconsistent reserving

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Inadequate diary
management Capability issues
Lack of Role requirements
Diary system
clear policy Lack of not clear
not user friendly
on diary knowledge
Inappropriate
Diary system not management
Inadequate role structure
consistently used
training
Inaccurate reserves
– constantly too low
Lack of proactivity Unclear

Insufficient/ objectives Performance
Delays in incorrect management not
process questions asked implemented
Insufficient information Inadequate performance

available management
The diagram illustrates a number of potential causes. Now these have been identified, the
next stage in the process would be to carry out investigations to establish the actual major
cause or causes. Once that is known then the appropriate strategy can be defined.
As an example, let us look at capability issues. Following investigation into the possible
causes it is established that the training is inadequate. This could then lead to a training and
development programme.
Research exercise
You have been advised by the board of your organisation that the operating expenses for
claims is higher than other functions, based on an average amount per full time employee.
Use the fishbone diagram to identify possible causes.
C3 MI indicators and possible drivers

The first column of table 5.3 shows a number of potential financial indicators that the MI may
highlight. The second column lists the aspects of the strategy that could be driving those
financial indicators. Once it is established which driver is leading to the outcome indicated by
the MI, then the strategy can be amended appropriately. For example, if the higher indemnity
spend is due to outsource capability, then possible actions might be to change supplier or
have the current supplier address the capability issue.
Table 5.3: MI indicators and possible drivers

What message is the MI telling us Possible drivers
Higher indemnity spend (average Legislative or case law developments

claims costs)
Outsourcing strategy
Supply chain capability
Capability issues, e.g. knowledge and skills of staff
Number of staff relative to workload, i.e. are there enough staff?
Claims philosophy
Catastrophe events, e.g. severe weather events
Processes
Reserving – inaccurate/ Capability issues, e.g. knowledge and skills of staff

overgenerous movements in
Supplier capability
Reserving policy
Processes
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Number of staff relative to workload
Leakage Supplier capability
Role profile and specification
Capability
Processes
IT – accurate policy records
Communication between parties
Operating expenses Premises expenses
Salary costs
Role profiles and specification
Organisational design

If you are able, review the financial management information for your claims function and
identify areas where there are opportunities for improvement.
Carry out a detailed analysis of the information to validate it.
Complete a root cause analysis, either using the fishbone diagram or a method of your
own choice.
Develop and implement strategic solutions to improve the issues.
D Scenario 5: Financial consequences

D1 Question
You are the head of the claims function for ABC insurer. The claims function currently deals
with private and commercial motor claims, commercial property and home insurance claims.
The notification of loss for the home claims is currently handled offshore in India.
The current claims strategy is proposing that this part of the process is brought back to the
UK and is handled in-house. There is an increased cost to the claims function as a result of
this strategy, but you believe that in the longer term it will provide the company with a
competitive advantage and there will be financial benefits to the organisation. The finance
director has asked you to make a presentation at the next board meeting to explain how this
strategy will be advantageous to the organisation both competitively and financially.

Aim
This scenario aims to test your ability to assess the financial consequences of strategic
claims decisions.
It may be helpful to refresh your knowledge on the advantages and disadvantages of
outsourcing.
Your answer should take the form of a presentation and should:
• outline the challenges and disadvantages of the current process; and
• outline the competitive benefits to the organisation of bringing in-house this key aspect of
the claims process and how this will ultimately lead to financial benefits for the
organisation.
Chapter 5
Self-test questions
1. What, from a claims perspective, are the key factors that affect the balance sheet?
2. What are the two elements of the recovery process?
3. When actuaries have a clear view of the organisation's liabilities, what are they able
to advise on?
4. What are likely to be considered under operating costs?
5. What other functions does the claims function interact with?
6. Why does an organisation need to be able to assess its claims reserves?
7. What is the key information which actuaries need in respect of each class of
business?
8. What will the actuaries calculate based on the financial information?
9. What should be tracked when reviewing management information?
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10. What is financial management information likely to include?
11. What are the possible causes of a higher indemnity spend?

Leadership in the claims
6
context
outcomes
Introduction
A Role of a claims leader 5.1
B What makes a leader? 5.1
C Leadership theories 5.1
D Leadership skills 5.1
E Scenario 6: Leadership
Self-test questions
Learning objectives
Chapter 6
• evaluate the key skills and capabilities of an effective leader; and
• apply those skills and capabilities within a claims context.
Introduction
In this chapter we are going to consider some of the skills a leader requires to succeed in
today’s business environment. Leadership is a significant subject and we could easily write a
full book on this topic alone. Therefore, by necessity, this chapter will focus on providing you
with some theory, and, in line with other chapters, will encourage you to carry out your own
research and discuss your findings with colleagues and your wider network. You will then be
able to analyse your research before drawing your own conclusions.
Without doubt, leaders have an impact on all aspects of the strategic leadership of the claims
function and the role of leadership has been mentioned a number of times as we have
moved through the different sections.
Key terms
Collaborative Communication skills Emotional Leader

leadership intelligence (EI)
Manager Networking Relationship building Self-awareness
Stakeholder
management
A Role of a claims leader

Leadership is a topic on which many authors have chosen to share their views; some similar
views and others contrasting. It is important as part of your research to read a wide cross-
section of material and form your own views linked to your personal experience, your
Chapter 6
organisation and the section of the industry in which you work.

You will no doubt discover that many of the theories and ideas will work best if you take them
and adapt and mould them so that they work for you in your particular field.
A1 A day in the life of a claims leader

A leader’s role in a claims function is diverse: on an average day a leader of a claims
function will be involved in a number of activities, which will vary considerably and will
demand a variety of skills and competencies. An average day could see the following
activities being undertaken:
• addressing a performance issue with a member of the management team;
• overseeing a technical discussion with regard to the level of reserve to allocate to a
complex serious injury claim;
• meeting with regulators during an audit of the organisation;
• holding an operational meeting with the management team;
• attending a strategic meeting with the board; and
• discussing broking priorities with a team leader.
This list shows the varied skills and competencies a leader needs to be able to draw on at
different times. They need to be able to operate at different levels, ranging from the strategic
to the operational management level. We discuss later how the leader often moves between
the roles of manager and leader.
If we consider the topics we have covered in this book, a claims leader is expected to have:
• a sound understanding of the current competitive market and the ability to anticipate
future trends;
• a deep understanding of their own organisation, including its strengths and weaknesses;
• thorough risk management knowledge;
• sound knowledge of the mechanics of managing a claim;
• strong financial knowledge, so they can understand the links between claims
performance and the balance sheet;
Chapter 6 Leadership in the claims context 6/3
• an understanding of the regulatory environment and the obligations that have to be

fulfilled;
• a full range of people management skills, so they can manage people at all levels,
motivate them and secure commitment and performance delivery from them;
• a good understanding of process management;
• a high level of strategic vision; and
• knowledge of the market place.
Research exercise
As a starting exercise, can you identify the competences and skills you think today’s
leader of a claims function should have? To help with this exercise, you can review the
competencies which your organisation sets out for its claims leader and other leaders.
Can you now start to assess your own strength in each of the identified skills/
competencies?
You may like to use the document in appendix 1, which allows you to list the skills and rate
your own strength in these areas using a simple scoring of 1 to 10. Finally, in the last
column you can document suggestions for how you could work on those skills. You can
then take this information and use it to document your personal development plan.
This document can be a dynamic document upon which you build by adding different skills
as you work your way through this chapter and complete your own research.
Sometimes an individual is appointed to a claims leadership role who has not previously
worked in a claims function. The intention may be to bring other skills to the leadership team
or, perhaps, the aim is to bring about a cultural change. When this occurs, it is necessary to
address the knowledge gap.
Chapter 6
Consider this…
If a claims leader was appointed who lacked claims knowledge, can you identify ways in
which the leader could acquire that knowledge?
B What makes a leader?

B1 Leaders v. managers
Management is doing things right; leadership is doing the right things.

Peter F. Drucker
The most dangerous leadership myth is that leaders are born – that there is a genetic
factor to leadership. That’s nonsense; in fact, the opposite is true. Leaders are made
rather than born.
Warren Bennis
A leader takes people where they want to go. A great leader takes people where they
don’t necessarily want to go, but ought to be.
Rosalynn Carter
In this book we have used the generic term ‘leaders’, due to the strategic nature of the
content. Yet, with many of the topics we have discussed, there is a crossover into the role of
the ‘manager’. Let us now consider the differences between leaders and managers. This
question has occupied many hours of research, reflection and writing on the part of
academic writers.
Consider this…
Based on your experience, what do you think the differences are between managers and
leaders?
There are numerous theories on the differences between the skills required by managers
and leaders.
Nebeker and Tatum1 propose that ‘management’ is continually planning, organising,
supervising and controlling resources to achieve organisational goals. Managers take
responsibility for processes and are always looking to improve them. Leaders, on the other
hand, are looking to the future in anticipation of the organisation’s global needs and long-
term success.
Terry2 noted that when voted on at leadership panel discussions, one third of the group
usually voted in favour of a distinct difference and two thirds in favour of an overlap between
the two roles. Kotter3 has developed a summary which blends how Kotter and Zaleznik4 view
leadership versus management functions.
Table 6.1: Comparison of management and leadership process

differences in the workplace
Process Management Leadership
Vision establishment • Plans and budgets. • Sets the direction and develops the
• Develops process steps and sets vision.
timelines. • Develops strategic plans to achieve
• Displays impersonal attitude about the vision.
the vision and goals. • Displays a very passionate attitude
towards the vision and goals.
Human development and • Organises and staffs. • Aligns organisation.

networking
• Maintains structure. • Communicates the vision, mission
• Delegates responsibility. and direction.
• Delegates authority. • Influences the creation of coalitions,
teams and partnerships that
• Implements the vision.
understand and accept the vision.
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• Establishes policy and procedures to

• Displays driven, high emotion.
implement vision.
• Increases choices.
• Displays low emotion.
• Limits employee choices.
Vision execution • Controls processes. • Motivates and inspires.

• Identifies problems. • Energises employees to overcome
• Solves problems. barriers to change.
• Monitors results. • Satisfies basic human needs.
• Takes low-risk approach to problem • Takes high-risk approach to problem
solving. solving.
Vision outcome • Manages vision order and • Promotes useful and dramatic
predictability. changes, such as new products or
• Provides expected results approaches to improving labour
consistently to leadership and other relations.
stakeholders.
Research exercise
Review table 6.1 and complete the following activities:
1. Based on your experience do you agree with the differences between leadership and
management?
2. Review the list of competences you identified at the beginning of this text and, in light
of this table, make any amendments.
Bass5 found that in reality leaders sometimes manage and managers sometimes lead. This
was based on research using diaries, observations, interviews and questions. They found
that the demands of the roles were different with some overlaps.
Consider this…
Do you agree with Bass? Do you think that is a more realistic reflection of the different
roles in organisations today?
B2 Influencing through the task of managing

When Boddy6 uses the term ‘management’, he uses it generically to mean management at
all levels in the organisation. He provides a summary of management through the tasks of
managing, which nicely pulls together many of the topics which we have discussed in
this book.
Figure 6.1: Influencing through the tasks of managing
External
environment
Organisation
Tasks in
managing
transformation
Input Output
• People • Goods
• Finance • Services
• Materials • Reputation
Controlling Planning
• etc. • Waste
Leading • etc.
Organising
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Feedback
Source: Boddy, D. Management: an introduction Pearson, p.20
B2A External environment
Refer to
Porter’s Five Forces discussed in Porter’s Five Forces on page 3/16
In this context, the external environment refers to the organisation’s need for the external
environment to provide resources. This includes things such as people who are willing to
work for the organisation, suppliers of skills and technology and customers who are willing to
buy products and services. We have discussed how leaders analyse the external
environment (Porter’s Five Forces) and leverage resources and capabilities to provide a
competitive advantage for the organisation.
B2B Planning
Planning involves deciding the scope of the business and which areas to work in, forecasting
future trends and assessing resources. It then involves deciding on the markets and
products and how to compete in the chosen areas.
B2C Organising
Refer to
Developing the strategic plan examined in Developing a plan to deliver the resources on
page 4/12
Organising transforms the abstract into reality. It creates a structure for the organisation,
developing policies such as HR. It encourages innovation and identifies the resources
needed, such as people and technology.
B2D Leading
The concept of leading describes the role of generating effort and commitment: influencing,
motivating and communicating. It includes the tasks of planning, organising and controlling.
B2E Controlling
Controlling is about monitoring progress, comparing it with the plan and taking corrective
action as necessary.
Research exercise
Review figure 6.1 and link the topics which we have discussed in this book to the various
headings.
B3 Self-awareness
Exceptional leaders look within first to enrich, enlighten and expand themselves…They
use self-awareness to control themselves and ultimately to have greater influence on
others.
Warren Blank The 108 skills of natural born leaders7
I am able to control only that which I am aware of. That which I am unaware of
controls me. Awareness empowers me.
Sir John Whitmore Coaching for performance8.
A successful leader needs to have sound business knowledge, covering such areas as
markets, their own business and their customers. This will enhance the quality of their
decision making, strategic vision and proactive leadership.
Chapter 6
If a leader is to pursue a robust path of self-development and the improvement of their

leadership skills, it is vital for them to know what their own skills and abilities are as this
allows them to develop their competencies and strengths. Furthermore, this knowledge will
allow them to respond to different situations in given ways, whilst also having the opportunity
to control their reactions and behaviours.
B4 Collaborative leadership
Phillip Ullah9 suggests that a new kind of leadership is required to meet the challenges of the
current financial markets. He proposes one based on collaboration, rather than a directive
style of leadership, which is, perhaps, the more traditional approach.
Ullah proposes differences between collaborative and traditional leadership for the following
key areas of leadership.
Collaborative leadership Directive leadership
Vision Build and share a vision Set out and sell a vision
Influence Facilitate Motivate
Domain Informal networks Organisational silos
Focus Ideas and knowledge Business transformation
B4A Vision
Providing a clear vision and direction for the organisation/function and its employees is an
important part of a leader’s role. How leaders create this vision varies: some will use a
directive style, setting out their vision with the aim of inspiring their teams and taking them
with them. Others take a collaborative approach, which is a more inclusive style involving the
teams being led. They allow the staff/teams to contribute to developing the vision, thus
creating a sense of commitment to that vision.
B4B Influence
Refer to
We know that a key skill for leaders is to be able to influence others, e.g. influencing skills
are invaluable for managing all the different stakeholders. A directive style of influence
involves the leader motivating via the position held by them, perhaps through the use of
rewards or by gaining commitment to the vision. However, often leaders are expected to
influence those who they do not directly manage, as we will see with stakeholder mapping.
In these cases the leader relies on being able to influence through facilitation, using the skills
of listening, coaching, finding points of agreements and the sharing of ownership of ideas
amongst those involved.
B4C Domain
Directive leaders operate within a function or line management, in our case the claims
function. Their role is to ensure that their function achieves its results, through optimisation of
processes and efficiencies. They ensure it is aligned with other functions in the value chain
and will negotiate with these other functions when appropriate.
On the other hand, a collaborative leader is more likely to work in informal networks and
across functions. Often, these networks can be related to specific projects or programmes,
which can frequently be short-term.
B4D Focus
Historically, the leaders of the 1990s and 2000s were focused on business transformation –
changing the direction of the organisation to support a new vision. More recently, the
emphasis has been on promoting informal and formal networks to solve problems and create
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ideas.
Summary
As with many leadership models, it may not be that one particular way is always the right
way. A leader has to be able to adapt and be flexible in their approach, choosing the most
appropriate style for the situation, in order to achieve the best outcome in that situation.
Research exercise
Carry out your own further research into collaborative leadership, either by reading Ullah’s
book or using the internet to find related articles.
From your research and your own experience, which do you believe is the most
appropriate style of leadership for a claims function today? Or do you feel there are
aspects of both styles of leadership that can be of value in different situations? If so, in
what scenarios would you apply the different styles?
C Leadership theories
We are now going to consider articles from two leading authors on the attributes of a
successful leader. These are brief résumés of two articles published by the Harvard
Business Review.
Research exercise
Once you have read these summaries, read the full articles and carry out one, some, or all
of the following activities:
• What is your view of these theories? Do you believe that one is more appropriate than
the other and, if so, why?
• Based on your experience, identify one or more successful leaders and identify the
skills which made them successful. Map across their skills and attributes to either
Drucker’s or Goleman’s theory.
• Analyse your own skills and attributes as a leader and map them across to Drucker’s
and Goleman’s theories. Does one of these theories match your style more closely?
C1 What makes an effective executive: Peter F. Drucker
On the Web
hbr.org/2004/06/what-makes-an-effective-executive
When thinking of leaders, we often assume that leaders should display a certain set of
personality traits, values and beliefs. However, based on an extensive career with many
years of working with a significant number of leaders, Drucker found that leaders came with
all types of personality traits. However, he discovered that effective leaders followed the
same eight practices.
• They asked: ‘What needs to be done?’
• They asked: ‘What is right for the enterprise?’
• They developed action plans.
• They took responsibility for decisions.
• They took responsibility for communicating.
• They were focused on opportunities rather than problems.
• They ran productive meetings.
• They thought and said ‘we’ rather than ‘I’.
Why these practices are effective is considered briefly in the following sub-sections.
C1A What needs to be done?
When asking this question the leader is taking an opportunity to gain knowledge; they are
looking at what needs to be done, not what they want to do. When faced with a number of
important tasks and the need to prioritise, the leader decides which task they will focus on,
selecting only one or two to ensure effectiveness. Having completed the first task, they then
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ask the question again, rather than proceeding straight to the second task on the list. They
do this because there is a real possibility that the priorities may have changed.
C1B What is right for the enterprise?
Leaders focus on what is right for the enterprise, rather than on individual groups of
stakeholders, such as shareholders, customers or employees. Whilst acknowledging their
importance, leaders have the view that, if an action or decision is right for the organisation,
then ultimately it will be right for all stakeholders.
C1C Developing action plans
Once the knowledge has been gained, this has to be converted into plans, as the knowledge
only becomes effective once translated into actions. The action plan should specify desired
results, probable restraints and include future revisions, check-in points and implications for
how the leader will spend their time.
When translating these plans into action, the leader needs to pay particular attention to:
• decision making;
• communication;
• opportunities – as opposed to problems; and
• meetings.
C1D Take responsibility for decisions
A decision has not been made until people know:
• the name of the person responsible and answerable for carrying it out;
• the deadline;
• who will be affected by the decision and therefore need to know about, understand and
approve it; and
• the names of the people who have to be informed of the decision, even if not directly
affected by it.
Often, decisions run into trouble because not all of these have been covered.
Consider this…
Can you recall from your own experience occasions when decisions have run into
problems because one of these actions was not covered? What was the impact for the
organisation?
C1E Take responsibility for communicating

When developing action plans, leaders need to ensure that they, and the information they
need from others, are understood. They share their plans with superiors, subordinates and
peers and seek their views and comments. Equally, they need to pay important attention to
peers’ and superiors’ information needs.
C1F Focus on opportunities not problems
Effective leaders achieve results by exploiting opportunities not solving problems. They scan
the internal and external environment and identify changes in new technologies, product
innovations and new market structures. They ask, ‘How these can be exploited to benefit the
organisation?’
Whilst problems have to be resolved, the focus is initially on opportunities not problems.
There might be an occasion when a catastrophic problem may need to take priority.
C1G Making meetings productive
A significant amount of a leader’s working day can be spent in meetings. These can range
from spontaneous, informal meetings with just one other person, through to more formal
meetings with other senior leaders. Therefore, making these meetings productive is
paramount. One of the key elements to running an effective meeting is to decide, in
advance, what type of meeting it is going to be. This is because different meetings require
different types of preparation, different formats and produce different results.
Chapter 6
Research exercise
Reflect on the meetings that you run and those where you are an attendee. How
productive are these meetings? Are there opportunities for improvement? Analyse the
positive aspects of these meetings and the areas where improvement is required.
Carry out your own research into the process of running successful meetings and create
an action plan for improving the meetings you run. In respect of the meetings where you
are an attendee, identify ways in which you can use your influencing skills to improve the
quality of those meetings.
C1H Think and say ‘we’

An effective leader knows that they have ultimate responsibility, which can be neither shared
nor delegated. However, they are in their position because of the trust the organisation has
placed in them. This means that they should think of the organisation’s needs before
their own.
C2 What makes a leader: Daniel Goleman
On the Web
hbr.org/2004/01/what-makes-a-leader
A copy of this article is available from CII Knowledge Services: www.cii.co.uk/learning/
knowledge-services/, within the book On leadership HBR's 10 must reads.
Goleman believes that whilst intelligence and technical skills are important for a leader, these
are only the minimum capabilities. Goleman has found that the most effective leaders are
alike in one crucial way: they all have a high degree of what is known as emotional
intelligence (EI).
Emotional intelligence is a group of five skills that enables the best leaders to maximise their
own and their followers’ performance. When senior managers at one company had a critical
mass of EI capabilities, their divisions outperformed earning goals by 20%.
The emotional intelligence skills are:

• self-awareness;
• self-regulation;
• motivation;
• empathy; and
• social skill.
Goleman analysed the competency models from 188 companies to identify which personal
capabilities drove outstanding performance. He then grouped the capabilities into three
categories:
• technical skills;
• cognitive abilities; and
• competencies demonstrating emotional intelligence.
This analysis produced significant results, showing that cognitive skills such as big-picture
thinking and long-term vision were particularly important. However, when he calculated what
ratio of technical skills, intelligence and emotional intelligence provided the ingredients of
excellent performance, emotional intelligence proved to be twice as important as the others.
In particular, it played an increasingly important role for those fulfilling senior positions.
Let us look at a brief summary of the five elements of emotional intelligence.
C2A Self-awareness
Self-awareness means knowing one’s strengths, weaknesses, drives, values and impact on
others. People with strong self-awareness are neither overly critical nor unrealistically
hopeful; they are honest with themselves and others. They recognise how their feelings
affect them, other people and their job performance.
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C2B Self-regulation
Self-regulation involves controlling or re-directing disruptive impulses and moods. It is an
ongoing inner conversation: although the individual feels moods and emotions just like
everyone else, they find a way to control them and channel them in useful ways.
C2C Motivation
Motivation comes from relishing achievement for its own sake. Whilst many people are
motivated by external factors, such as high salaries and status, those with leadership
potential are motivated by a deeply embedded desire to achieve for the sake of
achievement.
C2D Empathy
Empathy is about understanding other people’s emotional makeup. This is the thoughtful
consideration of employees’ feelings, along with other factors, in the process of intelligent
decision making.
C2E Social skill
Social skill is shown by building rapport with others to move them in desired directions. This
attribute, along with empathy, is about a person’s ability to manage relationships with others.
Social skills include friendliness with a purpose and moving people in the direction desired,
such as agreement on a new product. Socially skilled people tend to have a wide circle of
acquaintances and have the ability to build rapport with others through finding common
ground.
Take the time now to complete the research exercise provided at the beginning of our
discussion of these two articles.
D Leadership skills
D1 Networking
Networking is the development of connections to create enduring relationships with others
and includes those:
• internal and external to the organisation;
• across different functions and divisions and the different levels of hierarchy; and
• inside and outside the industry.
D1A Benefits of a strong network
In this section we discuss the value that can be realised by a leader through having a strong
network.
Understanding the dynamics of the industry
A strong network helps the leader increase their understanding of the dynamics of the
insurance industry and how it works and this will feed into improved decision making. It
includes not only their specific area of expertise, such as reinsurance or claims, but involves
exploring other areas, such as Lloyd’s, broker networks or the London Market.
Knowledge resource
Knowledge can be obtained through official channels, such as seminars and conferences,
but also through relationships within the network, for instance being able to approach people
for advice or information. LinkedIn groups are often an excellent source of information and
advice.
Understand the real issues in an organisation
Using internal networks can help leaders understand the real issues in an organisation.
There is a risk that if a leader restricts their network to only their direct reports or those in
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their immediate circle, they are missing out on a wealth of information which, for various
reasons, is not reaching them.
Improved understanding of a customer’s industry
It is helpful to know more about the industry you specialise in, to be able to adapt products
and services to meet its needs. By using the various networking opportunities available, it is
possible to gain a deeper understanding of either a customer’s organisation or of a specific
industry. There are a number of ways this can be achieved, such as subscribing to the
industry magazine, or possibly joining an appropriate LinkedIn group and following
organisations on Twitter or Facebook.
Creativity
Greater knowledge of how other organisations, either within or without the insurance
industry, do things can encourage creativity and innovation amongst leaders.
Business opportunities
Networking may lead to new business and clients, through conversations and relationships.
It may also provide other opportunities for joint ventures and partnerships.
Anticipating change
Networking outside the organisation and industry can help to identify changes in the external
environment. It can also help in understanding customer’s needs.
Personal development
Networking is an excellent way of building confidence. There may also be further
opportunities from unexpected areas, such as to write articles or present at conferences, all
of which will develop a leader’s profile and skills and the organisation’s reputation in the
market.
Example 6.1
As a result of a networking conversation, your local CII representative finds out you have
recently changed your claims process, which has made a real difference to customer
service and this is supported by evidence. Consequently, assuming you are happy to
share your success, they invite you to make a presentation at one of the Institute’s
lunchtime CPD lectures.
Personal satisfaction
Networking is a two-way avenue and so there are often occasions when you can help others,
either through putting them into contact with someone from your own network or providing
them with some information. This provides a sense of personal satisfaction, in addition to
raising your own profile and credibility with others.
D1B Spread of the network
Networking is the development of connections to create enduring relationships. These
relationships should include the following areas.
• Internal and external to the organisation: networks should not just be internal. Always
look outside the organisation to understand how others are doing things and take the
opportunities to learn from others.
• Inside and outside the industry: do not just limit networking to your area of the
insurance industry or, in fact, to the insurance industry. Network as widely as possible,
cross into other areas of the insurance market and in to other industries.
• Across different functions and divisions: within your own organisation network with
other functions and departments, if you are in claims, network with marketing, actuaries,
underwriting and others.
• Across different levels of the hierarchy of the organisation: wherever you are in the
organisation, network with as many levels as possible, both above and below your own.
D1C Ways of networking
Traditionally, networking has been through business associations, seminars and
conferences. However, social media has now opened up a whole new arena through
LinkedIn groups, Facebook, Twitter etc., which enable networking on a much wider and
broader scale, including internationally. It is possible to join groups from other industries to
understand their challenges and hot topics.
Chapter 6
Research exercise
Examine your own network.
Create a list of all those in your network. Are all the areas described in this section
covered by your network, or do you tend to network specifically for your role, such as with
potential clients or people in the same industry or area of the business as you, e.g. those
in claims in other organisations? Are you leveraging the benefits described here from your
network, or do you need to expand it?
Create a plan for improving the breadth and depth of your network. If there are areas in
our list where you do not have relationships, what actions can you take to improve your
network?
D2 Stakeholder management
Leadership in today’s business environment involves collaboration at all levels, with both
internal and external stakeholders. It is no longer possible for a leader to operate in splendid
isolation – if it ever was!
The management of stakeholders is a key part of a leader’s role on a day-to-day basis. A
leader has to satisfy many different stakeholders, both internally and externally, when making
decisions on strategy. Stakeholder support and commitment is important when seeking
agreement to strategy development and implementation. It is important to understand the
power of different stakeholders and their likely attention to issues.
D2A Who are stakeholders?
Stakeholders are individuals or groups who have an interest in the organisation and
therefore may have an influence over the organisation’s strategy or, in respect of the claims
function, the claims strategy. It is likely that there will be many stakeholders, some of whom
will have conflicting views.
A valuable exercise for leaders is to complete an analysis of the stakeholders. This will
inform their understanding of the dynamics of the different stakeholders and where they
should focus their energies. It will include identifying stakeholders, their level of influence and
their views.
Research exercise
For your claims function and/or organisation can you identify all the different
stakeholders?
It is important to think as widely as possible as figure 6.2 illustrates.
Figure 6.2: Sources of potential stakeholders
Shareholders
Suppliers Customers
Government Other
functions
Stakeholders
Regulators Leadership
team
Community
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Employees
groups
Unions
It is likely that you have produced quite an extensive list. Further analysis is necessary if a
leader is to understand the dynamics of the different stakeholders, their views and opinions
and likely influence on the development and implementation of the strategy. Furthermore, it
will help the leader to understand the potential conflicts amongst the stakeholders – which is
important given how likely they are to occur. The leader will then know where they should be
focusing their efforts.
As stated, it is likely that there will be conflict between the expectations of the different
stakeholders. For instance, improved cost and efficiencies may lead to reductions in the
number of employees. A manager may find that the desire to prove themselves in the short-
term might not be in the long-term interests of the company.
Consider this…
Reviewing your list of stakeholders can you identify any potential conflicts with regard to
their expectations of the claims strategy?
To assist with this process ‘stakeholder mapping’ can be used.

Figure 6.3: Stakeholder mapping

Low Level of attention High
Low
A B
Minimal effort Keep informed
Power
C D
Keep satisfied Key players
High
Source: Johnson, G., Whittington, R. and Scholes, K. Angwin, D. Regner, P. Exploring

strategy, text and cases 11th edition Pearson books 2017, p.137
The power matrix allows the analysis of:
Attention The extent to which a stakeholder is likely to attend to each particular strategic issue.
Power The power each stakeholder has to influence the strategy.
Research exercise
Using the list of stakeholders you identified earlier, map your stakeholders on to the
power/interest matrix.
Chapter 6
Completing the matrix allows the stakeholders to be categorised based on their influence on
strategic decisions. The positioning of each stakeholder may vary, depending on the
particular strategic issue, as there may be some issues that are more important than others
to certain stakeholders.
Power is: 'the ability of individuals or groups to persuade, induce or coerce others into
following certain courses of action'.10 Power can come from a number of sources, such as
hierarchy, control of a function or budget or, for suppliers and customers, it can arise from
the ease with which a customer can switch away from your organisation or your organisation
can switch away from a supplier. There are similarities to the 'Value capture model'
mentioned in An alternative to Porter's five forces on page 3/18.
Attention
The attention stakeholders pay to a particular issue will vary. Three factors that are of value
when assessing the potential level of attention are:
Criticality How critical the strategic issue is to the stakeholder
Channels Are there good channels of communication and information, which allow stakeholders to
access the information they need or want to know about.
Cognitive capacity Sometimes there might be too much information and stakeholders are overwhelmed, for
instance institutional investors may have a wealth of information on all the companies in
which they invest. Therefore, they have to focus on a few key issues.
The completion of the matrix allows a leader to identify where they should focus their
energies in respect of communications with the stakeholders and, perhaps, those who need
to be influenced. Any strategy needs to be accepted by the key players.
Other considerations to be borne in mind when analysing stakeholders are as follows.

• It is important to identify who are supporters and who are potential blockers of the
strategy.
• It might be appropriate to change the positioning of some of the stakeholders, for
instance it may be appropriate to reduce the influence of a key player.
• It is of value to remember for those who are in block C and need to be kept satisfied that,
although their interest may be passive, something may happen which turns them into key
players. For instance, an institutional shareholder may fall into this category, but if the
share price were to drop, for example, it will likely move into D and become a key player.
• It is necessary to differentiate between the role and the individual. In other words, is it the
role that carries the power or the individual?
How a leader manages stakeholders will be influenced not only by their style of leadership,
but also the organisation’s governance structure and approach to corporate social
responsibility. For instance, an organisation that is less concerned with its social
responsibility may take less interest in the views of community groups.
A leader may be presented with ethical choices to make with regard to stakeholder
management. For instance, are they able to create a strategy which meets the expectations
of all stakeholders or do they just focus on one stakeholder, such as shareholders? An
alternative view might be that the power rests with the leader and they devise a strategy
which best meets their needs and manage stakeholders to ensure acceptance.
D2B Sub-groups
Care has to be taken when considering groups such as customers, as it may be that there
are sub-groups within the group. For example, the view might be taken that a strategy of
moving to an online offering would be in the interests of its customers, whereas within the
customer group there might be sub-groups for whom moving online may not be appropriate,
and who would not benefit from the offering.
Chapter 6
Finally, having identified and mapped the stakeholders the next stage is to develop a plan,
based on this analysis, as to how they are going to be managed and communicated with.

Take your detailed analysis of your stakeholders and develop a plan for managing and
communicating with them.
D2C Influencing skills

We have discussed in this section the need to be able to influence stakeholders. Therefore,
you may wish to carry out your own research into influencing skills. You may wish to assess
your current ability to influence others and then create a plan for developing your influencing
skills.
D3 Relationship building
We have discussed the management of stakeholders and earlier the value of networks. A
key skill that is useful to support these elements is relationship building.
Relationships are a valuable part of the insurance industry; we are a service organisation
and all the way through the ‘value chain’ relationships play an important part. Being able to
build and maintain relationships is an important skill for leaders and those aspiring to
become a leader.
In a claims scenario, the relationship the claims handler builds with the customer is
established when the claim is initially reported. If suppliers are used, yet further relationships
are created.
Research exercise
Identify the different relationships a leader is likely to have, within the claims function,
internally in the wider organisation and externally to the organisation.
Research exercise
You might like to make an assessment of the breadth and depth of your own relationships.
If you need information, help or have a problem, who do you turn to? How wide is the
network? Are most of the people on the list in your own function?
Own function
Other functions in
the organisation
External to the
organisation such
as clients, partners,
suppliers
Plot all your relationships on the diagram. How strong are your relationships in the outer
circles?
Consider the quality of those relationships; are they predominantly transactional, focused
on procedures with minimal levels of trust, or are they high quality relationships?
You may need to consider developing your network of relationships and building those
relationships in order to reap the benefits of networking we discussed earlier. You can link
back to the power/interest matrix you completed in the stakeholder management section to
Chapter 6
help you identify the relationships on which you should be focusing.
D4 Communication skills
A leader, at any level, needs excellent communication skills: when we considered our ‘day in
the life of a claims leader’, every example involved communication, either on a one-to-one
level or in groups. There were also situations where the leader was communicating with
different levels internally and externally.
®
In studies carried out by The Ken Blanchard Companies , in which more than 1,400 leaders,
managers and executives shared their views on the critical skills and common mistakes
connected to leadership, the ability to communicate appropriately was identified as an
essential component for effective leadership. In the follow-up study, 43% of the respondents
identiﬁed communication skills as the most critical, while 41% identiﬁed the inappropriate use
of communication as the number one mistake leaders make.
Research exercise
Research how leaders can develop effective communication skills. Identify the key
elements and examine your own strengths against those identified.
If appropriate create a plan to develop and improve your own communication skills.
D5 Personal development
As mentioned at the beginning of this chapter, the topic of leadership is a significant subject
with a wealth of material and reading widely available. Within the context of this study text it
is possible only to touch the surface of the topic. It is highly recommended that you pursue
your own reading and investigations to develop your own leadership skills.
As a result of your research, you may wish to take the opportunity now to complete the table
in appendix 1.
References
1. Nebeker and Tatum ‘Understanding organisational processes and performance’ in
Lowman, R.L. (ed) Handbook of organisations consulting psychology Jossey-Bass 2002,
p.668-691
2. Terry, R.W. Authentic leadership, Jossey-Bass 1993
3. Kotter, J.P. Force for Change: How leadership differs from management The Free
Press 1990
4. Zaleznik. A. ‘Managers and leaders: Are they different?’ in Harvard Business Review on
Leadership Harvard Business School Press 1988
5. Bass, B.M. Bass and Stodgills’s Handbook of leadership: Theory, research and
managerial applications 3rd edition Free Press 1990
6. Boddy, D. Management: an introduction Pearson 2005, p.20-22
7. Blank, W. The 108 skills of natural born leaders AMACOM 2001
8. Whitmore, Sir J. Coaching for performance N. Brealey Pub. 1996
9. Ullah, P. Collaborative leadership in financial services Gower Publishing 2011, p.14
10.Johnson, G. Whittington, R. Scholes, K. Angwin, D. Regner, P. Exploring strategy, text
and cases 11th edition Pearson books 2017, p.137
Additional reading
Blank, W. 108 skills of natural born leaders AMACOM 2001
Goleman, D. Emotional Intelligence – Why it can matter more than IQ Bloomsbury 1996
HBR’s 10 Must Reads On managing yourself Harvard Business Review Press 2011
Johnson, G., Whittington, R. and Scholes, K. Exploring strategy, text and cases 9th edition
FT Prentice Hall 2011
Kohn, S. and O’Connell, V.D. The people management formula: Six indispensable human
Chapter 6
relations practices used by bosses everyone admires most Writers Showcase 2002
Peters, S. The mind management (The chimp paradox) Vermilion Books 2012
Ullah, P. Collaborative leadership in financial services Gower Publishing 2011
Yeung, R. The extra one per cent MacMillan 2010
E Scenario 6: Leadership
E1 Question
You are the head of claims for an international loss adjuster. The HR director is sponsoring a
fast-track leadership programme for those who have been identified as having leadership
potential. The HR director has asked if you would participate in the programme in two
ways, to:
• help the HR team understand the skills and knowledge required of a claims leader; and
• suggest some learning interventions that will help support the programme.
You have been approached not only because of your leadership role but also because you
are recognised for your innovative approach to problem solving.
E2 How to approach your answer

Aim
This scenario aims to test your understanding of the qualities of leadership.
Your response should:
• identify the skills and knowledge required by a claims leader; and
• identify the ways in which the knowledge and skills could be acquired.
You will find it useful to refresh your knowledge on creativity and innovation and explore the
wider business environment to identify opportunities.
Self-test questions
1. What are the four processes in Kotter's comparison of leadership with management?
2. What are the four tasks in managing transformation in Boddy's influencing through
the tasks of managing?
3. What, according to Ullah, does a collaborative leader do in the four key areas of
leadership?
4. According to Drucker, what eight practices do effective leaders follow?
5. What are the emotional intelligence skills?
6. What aspects of stakeholder management can be analysed in the power matrix?

Chapter 6
Leading to achieve the
7
performance of the plan
outcomes
Introduction
A Measure and manage performance 5.4
B Ensuring continuous business improvement 5.5
C Ethical claims management 6.1
D Scenario 7.1: Continuous business improvement
D Scenario 7.2: Ethical claims management
Self-test questions
Learning objectives
After studying this chapter, you should be able to:
• explain how to measure the performance of the claims function to achieve the claims plan;
• explain how to manage the performance of the claims function to achieve the claims plan;
• explain how to ensure continuous business improvement;
Chapter 7
• explain ethical claims management; and
• analyse the effect of ethical claims management on the business.
Introduction
In this chapter we are going to review the different ways that organisations can measure and
manage the performance of the claims function to ensure achievement of the claims plan.
In today’s fast changing and highly competitive market place it is not enough for an
organisation to simply implement the plan. It needs to change and develop to meet new
demands from customers and new challenges from competitors. Therefore, in this chapter
we will also look at how an organisation continues to improve through the development of
creativity and innovation.
Finally, an organisation may successfully implement its strategy, be flexible and ready to
innovate but if it loses the trust of its customers it will not prosper. One way to keep the trust
of its customers is for the organisation to take an ethical approach, not only to how it is run,
but to how it handles claims.
Key terms
Balanced scorecard Benchmarking Cause and effect Creativity and

assumptions innovation
Dashboards Ethical claims Ethical decision Internal audits
management making model
Learning Performance Quality audits Quality programmes
organisations measures
RAG rankings Single and double Systems thinking
loop learning
A Measure and manage performance

In order to prepare for the work involved in this section please remind yourself of the FCA’s
requirements in respect of the training and competence of staff and its suggestions in
respect of the criteria that management information should meet.
Chapter 7
Refer to
Developing the claims plan reviewed in Developing a plan to implement on page 4/19
We have already reviewed how to develop the claims plan necessary to implement the
claims strategy. In this section, we are going to look at the different ways in which the
performance of the claims function can be measured and managed, both on a wider generic
basis, but also against the specific claims plan.
The performance management of staff is crucial to the overall performance of the claims
function at every level. It includes:
• appraisals;
• reward and recognition;
• training and development;
• management of competence; and
• human resources policies and procedures.
It is not the brief of this book to review the performance management systems used by
organisations: the topic of performance management is vast and could justify a book of its
own. Organisations will all have different methods of performance management, which will
vary in their level of sophistication.
As an initial exercise we would suggest that you complete the following research exercise.
Chapter 7 Leading to achieve the performance of the plan 7/3
Research exercise
Please carry out a review of your own organisation’s performance management policies
and procedures and then consider the following questions:
• How applicable is it to the claims function?
• Does it drive the right behaviours?
• How measurable is it?
• Does it support a customer led service environment/culture?
In chapter 4 we discussed the process of strategic and operational planning. As a result of

those studies you created a claims plan for your claims function. You will find it useful to refer
to this as we consider balanced scorecards, quality programmes and audits in this section.
A1 Balanced scorecard
Before reading on, please take the time to read 990 Insurance Corporate Management,
chapter 6, section D1, which you will find on RevisionMate. From your reading you will have
discovered that the balanced scorecard has become a popular way of measuring the
performance of an organisation. It is helpful for measuring an organisation’s intangible
assets, such as brand, competencies and processes. Organisations measure many things,
usually far more than they can use: a balanced scorecard helps them to focus on those
critical to success. Let us consider some further reasons that make it a useful tool.
A1A Time dimension
The time dimension goes from bottom to top, in that actions taken in the previous quarter or
year are likely to have contributed to current profitability. Therefore, actions taken now will
impact on the efficiencies and financial results in the forthcoming periods.
A1B Internal and external measures
The scorecard shows both internal and external measures, e.g. key internal processes plus
the customer’s perspective, as figure 7.1 demonstrates.
Figure 7.1: Perspectives shown by the balanced scorecard
Financial perspective
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Profitability/growth/
debt/equity
Customer perspective Process perspective

Customer satisfaction: Efficiency: maintain and
retention rates/new utilise assets
clients
Development perspective
Learning: adding new skills
A1C Cause and effect assumptions

The links that exist between the quadrants, and the measures inside the quadrants, should
be considered by senior management, in particular:
• the strength of those links, e.g. process improvement leading to improved customer
service;
• the time delays, e.g. the time between staff training and its impact on customer service;
and
• how reliable are those links in light of external competition and change?
To be financially successful, an organisation must satisfy customers so they will buy its
products and services. To do this, its products and services must meet the customer’s
needs. In addition, the organisation needs to learn and develop in order to improve
processes and products.
The scorecard should include outcome measures and performance drivers, which represent
lead indicators for future outcomes. The performance drivers describe resources spend or
activities performed.
A1D Measures
Originally the word ‘perspectives’ was used: for example when considering customer service
the measures should be based on the customer’s perspective, such as how they
experienced the service. Over the years the scorecard has evolved and some organisations
now use the terms ‘focus’ or ‘focus area’, which provide a different meaning. So, for
instance, in respect of the customer it may be about what is important to the organisation,
such as market penetration, rather than what is important to the customer.
The measures in the scorecard need to link to the strategy, and key questions include:
• If we succeed with our vision and strategy, how will we look different to our shareholders
and customers:
– in terms of process?
– in terms of ability to grow?
• What are the critical success factors in each of the four perspectives?
• What are the key measurements that will tell us whether we are addressing those
success factors as planned?
Research exercise
Are balanced scorecards used in your organisation or one to which you have access?
Is there a separate scorecard for claims? Consider the measures that are used: how do
the measures on the claim’s balanced scorecard link to the claims strategy and what links
are there to the organisation’s strategy?
If there is already a balanced scorecard in place for your claims function are you able to
identify any improvements you would like to make to the scorecard? If there is no
Chapter 7
balanced scorecard in place, perhaps you could create one for your claims function?
When completing this activity consider the claims plan you have created and the target
and measures which are within that plan.
A2 Quality programmes
Refer to
Internal benchmarking discussed in Benchmarking on page 7/14
Internal quality programmes are a valuable way of managing the claims performance as they
can provide a more instant view. Often, a number of the measures included in the quality
framework are measured elsewhere in the organisation and collated to form part of the key
performance indicators (KPI) or the balanced scorecard. However, the benefit of a well-
designed quality framework is that it provides an analysis of performance at the different
levels of the claims function, ranging from individual, to team and through to department.
This allows for a more detailed analysis and the opportunity to manage improvement in
specific areas and at different levels. It will also include the validation of compliance with
FCA regulations. Performance can be managed by middle management and team
supervisors, in addition to senior management. Data and the information flowing from the
quality results can also be used for internal benchmarking.
Any amendments to the quality programme, such as to the questions asked, will need to be
signed off by the risk and compliance team.
A2A Benefits of a quality programme

A quality programme measures performance against agreed standards. The benefits are as
follows.
• It identifies areas for improvement across measured areas, such as customer service or
reserving.
• It provides validation of the way processes are implemented.
• It identifies the development needs of staff.
• It provides a view of the quality of the technical decisions made, e.g. was the claim
covered?
• It provides validation of compliance with FCA regulation.
• It provides validation of financial measures, such as reserves and payments.
• It identifies opportunities for improvement.
Quality audits can also be used to manage suppliers. As part of the contract it is likely to be
a requirement that the supplier has a quality programme in place and that the results are
shared with the client. Sometimes clients require the supplier to adopt their quality
programme.
Example 7.1
Measures which an insurer might use to assess an adjuster’s performance could include:
• quality: a service free of complaints;
• speed: resolving claims on site faster provides a competitive advantage to the insurer;
• dependability: providing a reliable service and building trust;
• flexibility: being able to cope and adjust to varying volumes, such as when surge
events happen; and
• claims cost: claims are resolved fairly, ethically, efficiently and as economically as
possible.
A2B Development of a quality programme

When developing a quality framework there are a number of factors to be considered. We
examine them in this section.
Chapter 7
What to measure
In order to gain the benefits from a quality programme, senior management need to decide
what it wants to measure. The following areas should be considered.
Customer service There are various areas to consider when reviewing the service
experienced by the customer and whether or not there has been any
customer detriment. The areas for review should be linked to the strategic
vision and could include:
• technical information;
• quality of decisions made;
• the customer experience;
• speed; and
• complaints and the accompanying handling strategy.
Supply chain This is an opportunity for measuring the service received from suppliers and
to observe its impact on the organisation’s performance.
Financial measures The financial decisions made on the file can be reviewed for accuracy, e.g.
the reserves set and payments made.
Regulatory performance Reviewing how well the organisation complies with regulation, such as that
of the FCA and Lloyd’s.
Questions
Questions will have to be created which draw out and focus on those parts of the key areas
that link to the claims strategy and plan. They will need to be clearly worded and
unambiguous to ensure they can be applied consistently. It may be appropriate to weight
some of the questions to reflect their level of importance.
Scores
The scoring system will need to be designed to ensure that the results are meaningful and
reflective of the work completed.
Volumes and samples
How many cases need to be reviewed and how the sample is selected has to be considered.
It is important to ensure that all aspects of the customer journey is reviewed, so it is likely
that paper files, telephone conversations and meetings will need to be included.
A balance is required between achieving sufficient volumes to ensure the result is
statistically reliable, and placing an inappropriate burden on those completing the reviews.
Moderation
A number of the decisions made on a claim can be subjective, within certain boundaries,
taking into account the circumstances and background to a claim. It is vital that the reviews
are completed as consistently as possible. Therefore, a method for ensuring the on-going,
consistent application of the quality review is required if management and staff are to have
confidence in the results.
A2C Dashboards
A common method of displaying the results of a quality programme and other measures is to
use a dashboard system. An effective dashboard will be simple and include clear metrics,
which the leadership team can use to manage performance.
The dashboard will include rankings. A common method is the use of red, amber, green
(RAG) rankings. It is important to understand the basis of the benchmark standards for the
RAG ratings: for instance, will they be aspirational, i.e. something to aim for, or will they be
more realistic? For example, when considering customer service, will the chosen measure
for green be set at 100% or 95%?
Example 7.2
A claims team uses the following RAG ratings:
95% or over = Green (G).
90 – 94.99% = Amber (A).
Less than 90% = Red (R).
Chapter 7
Reserving Customer Payment Technical

service accuracy accuracy
88% 92% 98% 98%

R A G G
Analysis and results comparison

The results should allow comparisons to be made between individuals, different teams in the
claims function and different locations. For some generic criteria it might also be appropriate
to compare results between different functions, e.g. between claims and underwriting.
Results can also be compared with external measures. Although the criteria will not have
been the same, such a comparison could be useful for sense checking. An example of this
would be comparing customer service internal quality results with external customer surveys
to check they are telling the same story.
A2D Communication
Quality audits sometimes receive a poor press; a common claim can be that staff feel
restricted in their decision making and scope for independent thought. However, a balance
can be found if the framework is implemented in a proper manner. Communication is key to
this: the negatives can be mitigated if the benefits are clearly highlighted and the results are
passed on to staff in a way they can use.
A2E Closing the loop
The results need to feed into any development that is undertaken, whether that is staff
development or process improvement. They must also be communicated to all those
involved, both at individual and team level. Managers need to have the right skills to be able
to deliver that feedback in an appropriate way, so that it is motivational and not de-
motivational.
When collecting customer feedback, whether formal or informal, it is important that it is used
to improve the service being offered by claims and, where appropriate, the products offered
by the organisation. An organisation needs to be able to evidence that they are making those
links, not only from a competitiveness perspective, but also to fulfil FCA regulations.
Research exercise
Review the quality programme in your own organisation and compare this with the areas
discussed. Do you think all the relevant areas are included? How do the questions and the
areas considered link to the claims strategy and plan?
How does the claims function use customer feedback to improve the claims service?
What if any improvements would you make?
A2F Quality audits and culture
Consider this…
Think about the culture you would want to create in a claims function. How do you think
quality audits would fit into that culture? Do you think they would aid or hinder the
development of the desired culture? What actions would you take to ensure they
supported the culture?
Research exercise
Consider the methods your claims function has in place for measuring its performance
and review those measures against the claims plan.
Are there clear measures in place for measuring the achievement of the claims plan?
Can you identify any opportunities for improvement?
A3 Internal audits
Chapter 7
In addition to quality programmes, organisations will carry out internal audits and these will
vary in their focus, frequency and level of detail. As a minimum, areas of focus will include:
• the financial integrity of processes, e.g. the process for authorising cheques and different
authority limits;
• leakage;
• reserving;
• process application; and
• meeting regulatory requirements, e.g. brokers addressing complaints appropriately.
Some of these audits may be carried out annually or more frequently. Depending on the
subject of the audit, the internal audit team will be involved in addition to claims staff.
Research exercise
For your claims function, research the different internal audits that are completed during
the year.
Refer to
Refer to 820: chapter 7, section C
It is important that a claims function understands its current leakage levels for different
claims and has a plan for minimising this leakage. Leakage impacts not only on the financial
aspects of the claims function, but also its reputation. Claims functions generally carry out
leakage audits each year.
Research exercise
For your organisation can you:
• review the results of current leakage audits;
• analyse how these results differ between the different types of claims; and
• review what was identified as the root causes of the leakage.
Do you agree with the findings?
What actions have been put in place to improve the results? Do you consider these
sufficient or would you take different actions?
Research exercise
Now we have reviewed the different ways in which the claims function can manage its
performance against the claims plan, take the time now to review the ways in which the
performance of your claims function is managed and identify any improvements you would
like to make.
B Ensuring continuous business

improvement
Refer to
Emergent strategy discussed in Emergent strategy on page 3/13
In today’s fast changing and increasingly competitive market place, organisations must find
ways to create and innovate to generate new ideas and change the processes. Yet often, the
capability in an organisation for creativity and innovation is underdeveloped and
undervalued. When we discussed emergent strategy in the earlier sections, a key driver was
innovation and creating the right culture for new ideas to be explored and developed.
Organisations are often not very good at learning, frequently repeating earlier mistakes.
They often do not listen to their customers and fail to recognise significant market changes
Chapter 7
or a competitor’s behaviour.
Consider this…
What is your view as to how good your organisation or claims function is at learning?
Have you experienced the situation where customers are not listened to or market
changes have not been recognised?
In this section, we will consider some of the different tools and techniques that can be
employed to foster/encourage creativity and innovation in order to ensure continuous
business improvement.
In the insurance industry, an organisation will aim to do one or more of the following:
• increase sales through finding new clients or by selling more to existing clients;
• increase retention of existing clients;
• improve financial ratios; and
• improve operational efficiency.
These can be generated as a result of:
• new products and services;
• improved investment returns;
• improved processes, so they are more efficient or impress the customer;
• competitive underwriting;
• fast and cost effective claims settlements; and
• developing people.
B1 Creativity and innovation
Critical reflection
Think about organisations you have either worked for or you are familiar with. How
innovative were those organisations? How did they encourage creativity?
Research exercise
Research an organisation outside the insurance industry that is synonymous with
creativity and innovation, such as Apple, Amazon, Google, Tesla or Netflix. Identify how
they foster such creativity and innovation.
Can you identify any ideas or techniques which you could incorporate into your claims
function?
To achieve improvement, new ideas need to be generated. Organisations need to encourage

creativity and innovation in order to leverage the following benefits:
• competitive advantage;
• increased customer satisfaction;
• improved turnover and profits;
• improvements in staff morale; and
• sustainability.
B1A Creating the right climate for innovation
Adair1suggests the following factors will contribute to creating the right climate for
innovation:
• management commitment;
• positive strategic change;
• a long-term perspective;
• flexibility to deal with change; and
• accepting the possibility of risk.
Chapter 7
Management commitment
Top management need to be truly committed to, and show their recognition for, innovation.
Change and innovation at all levels needs to be actively encouraged. It is important that it is
not just rhetoric and that words are supported by actions.
Positive strategic change
Organisations need to understand their business, its current position and where it needs to
be in three to five and ten years’ time. Questions to consider are:
• What are our strengths and weaknesses?
• Do we have the strategic resources to implement the strategic plans?
• What are our competitors’ plans? Do they pose a threat to our plans?
We have considered all of these questions in earlier sections.
A long-term perspective
Innovation should be part of a long-term strategic plan under the direction of progressive
leadership.
Flexibility to deal with change
When dealing with change, an organisation needs to be flexible. It may be that management
structures have to be flattened in order to push decision making further down the
organisation. Open and effective communication at all levels in the organisation is essential.
Accepting the possibility of risk
There is nearly always an element of risk with new ideas. This risk of failure should not
prevent innovation and, equally, an organisation should not be afraid to stop a ‘change’ idea
that is clearly failing.
Characteristics of an • Management is personal and/or informal.

innovative organisation
• Functional specialisation is not strongly emphasised.
• Employees are allowed freedom of thought.
• The management structure is quite flat and leaders are approachable.
• Clearly laid down procedures are kept to a minimum.
• Workers are encouraged to be creative, flexible and to develop themselves.
• There is open communication where feedback is often sought by
management.

Rate your organisation/claims function against the above criteria and identify areas for
improvement. What actions would you take to improve the levels of innovation?
Consider this…
How do you think reward, recognition and incentivisation impact on an organisation’s
ability to develop a creative and innovative climate?
B1B Culturally diverse teams

Adler2 suggests that culturally diverse groups can be an aid to creative thinking and the
generation of new ideas. However, sometimes there can be friction and misunderstanding
during the analysing and decision making stage. If teams are to take advantage of being
culturally diverse they need to be competent at working together; they need to understand
differences and be able to communicate effectively.
Example 7.3
An insurer which outsources part of its claims process to a third party administrator has an
opportunity to take advantage of the culture of its own claims department and the culture
of the third party administrator working together. This may be a benefit to both
organisations, although if they are not competent at working together and unable to
communicate effectively, the relationship is unlikely to be successful.
Chapter 7
Consider this…
If you have experienced culturally diverse teams, does the description above reflect your
experience? If not, in what way was your experience different?
If you have not worked in culturally diverse teams perhaps you could ask a colleague or
friend and find out about their experiences.
B1C Creativity inhibitors

Of course organisations can be very good at stifling creativity and innovation. Here are a few
ways in which they achieve this:
• culture of negativity;
• discouraging risk taking;
• too many rules and regulations;
• keeping everyone so busy there is no time for quality thinking;
• too much analysis applied to new ideas in the early stages; and
• lack of incentivisation.
Research exercise
Do some research into what stifles creativity and innovation and add them to this list. Do
you see evidence of these behaviours in your organisation/claims function?
B2 Single and double loop learning

We have discussed the need for organisations to encourage creativity and innovation, not
only to develop a competitive advantage, but to survive in an increasingly competitive and
changing environment. Now we will consider the concept of single and double loop learning:
• Single loop: learning by adjustment, the correction of an error.
• Double loop: the challenging of assumptions and mindsets.
Single loop learning addresses the problems that arise, but does not question or analyse
why the problem arose. Professor Argyris of Harvard Business School was the first to use
the phrase double loop learning, which takes the organisation into deeper analysis and
learning by challenging and questioning. This is illustrated in figure 7.2 which shows that
double loop learning is the questioning of whether norms are appropriate.
Figure 7.2: Double loop learning
Scan
environment
Question
whether
norms are
First loop Second appropriate
Adjust learning Check loop
against against learning
norms operating
if necessary norms
Source: Lynch, R. Strategic Management 6th edition, Pearson
Let us consider a simple example.
Chapter 7
Example 7.4
A motor claims department has the following process for dealing with motor claims where
the vehicle is severely damaged and is likely to be a total loss.
Notification of claim
Appointment made for engineer to inspect vehicle
Inspection completed – engineer advises claims handler vehicle is a

total loss
Claims handler writes to customer and requests documentation e.g.

MOT V5 etc
Documents received and passed to engineer
Engineer advises claims handler of valuation
Claims hander advises customer of valuation

Issue with the process: it is identified, through customer feedback, that this process
takes too long. Therefore, the claims team review the process and decide that a change is
required.
New process: the claims handler is now to ring the customer for the documents instead of
writing. This has reduced some of the delay experienced during the process.
Application of double loop learning

With double loop learning the team would challenge the whole process and the mindset
behind it. Let us apply this to our example.
Example 7.5
In our scenario a team using double loop learning would challenge and question the
following:
• the roles of the engineer and the claims handler;
• whether the engineer could view the documents on site;
• whether the claim has to go via the claims handler or whether it could go straight to the
engineer; and
• whether the documents are necessary to value the vehicle.
Single loop learning solves the presenting problems. However, it doesn’t solve the more
basic problem of why these problems existed in the first place.
Professor Argyris3
We can see from our example that the first type of learning can resolve an immediate
problem or improve a process. However, it is not always enough and may inhibit the
opportunity for deeper analysis. On the other hand, double loop learning involves challenging
the whole process. The questions should challenge the organisation’s ways and habits.
Some people and organisations may find the process threatening, particularly if an activity
that has always been done is seen as unnecessary. However, achieving transformational
and fundamental learning has to be based on questioning an organisation’s assumptions
Chapter 7
and values.
B2A Challenges of double loop learning
Achieving double loop learning is not easy for organisations and a number of theories have
been put forward as to why this should be. Some writers believe that the difficulties lie with
the organisations’ conventional structures and systems. All of these can be opposed to a
double loop learning process that calls into question its norms, objectives and basic policies.
In effect organisations learn not to learn.
Cultures can affect learning. Double loop learning requires open analysis: its assumptions
are explicit and it is open to critique. With double loop learning, errors or poor performance
provide an opportunity to be analysed and addressed; they are explored with curiosity and
without ‘punishment’. An element of ‘unlearning’ is required so that existing mindsets,
assumptions and values can be cast aside.
Thus a culture of openness is necessary, one in which norms can be challenged to
encourage the development of strategies that will give a competitive advantage.
Research exercise
Review the process your claims function adopts in respect of problem solving. Is it more
akin to single loop learning or does it adopt double loop learning? Can you identify any
opportunities for improvement in the problem solving of your claims function?
B3 Quality programmes
We have already discussed quality programmes and their value when managing
performance. Quality programmes can also be used to support continuous improvement in
an organisation. They are an immense source of information which, if acted upon, can lead
to the generation of new ideas and process improvements.
A quality programme measures against agreed performance standards and is, therefore,
identifying those places where performance did not meet those standards. Attention should
be paid to these gaps in performance to generate improvement.
Having identified areas for attention, consideration needs to be paid to the benefits of double
loop learning. In other words, thought should be given, not just to the gap in performance
and how to rectify the error, but to how it can be used as an opportunity to challenge the
mind set and the whole process.
Research exercise
In Closing the loop on page 7/6 you considered your quality programme and the areas
that it covered. Now review the results of your quality programme for the claims function
and identify areas where you believe there are opportunities for improvement.
Now develop and implement a plan to address that gap in performance, taking into
account the material covered in this section.
Consider this…
Think about creativity and innovation, which we discussed in Creativity and innovation on
page 7/9. How do you think a quality programme links into the climate demanded by
innovative organisations? How would you ensure that the two key areas could work side
by side in an organisation?
B4 Developing the capability of people

We have identified in this study text, that a strategy based on the resources and capability of
the organisation is likely to provide a more sustainable competitive advantage. Therefore,
the development of those resources is essential to the ongoing improvement of the business.
Chapter 7
Scholes4 suggests ways in which the ability of people can be developed so that they
recognise the relevance of what they do and how it contributes to the strategy. Let us look at
these now.
Table 7.1: Developing the ability of people – Scholes

Target training and development Training and development should be specific to a particular competence,
e.g. training in empathetic listening, rather than more generalised
telephone skills training.
Staffing policies These can be used to develop specific competences. For example, if it
has been identified that those handling liability claims need to improve
their investigation skills, secondments could be arranged with an external
investigator.
Organisational learning An aim to develop a competence of learning and development, through

continuous re-adjustment and refining the bases of the competitive
advantage.
Develop people’s awareness Help people to understand how what they do contributes to the strategy
and that their jobs matter at a strategic level. This is likely to increase
their motivation and desire to contribute positively to the achievement of a
competitive advantage.
Research exercise
Consider the approach adopted in your claims function for the development of the
capability of the staff. How does it compare with the suggestions in table 7.1? Can you
identify any opportunities for improvement?
B5 Benchmarking
Research exercise
Find out what benchmarking is carried out in your claims function. What type of
benchmarking is used and what are the outcomes?
Please read chapter 6, section D2 in study text 990 Insurance Corporate Management,
which you will find on RevisionMate. This section highlights the importance of benchmarking
as a method of ensuring continuous business improvement. In addition to external
benchmarking, there are opportunities for internal benchmarking and this could be done by
comparing the performance of different functions, offices or divisions within a company,
allowing for the sharing of ideas and best practice.

If your claims function uses benchmarking, can you identify a gap between current
performance and best practice? Can you identify ways in which the claims performance
could be improved?
or
Review the benchmarking activity for your claims function. Is it sufficient? Do you think
there are opportunities for improvement? Make a plan for implementing those
improvements.
B6 Learning organisations
As a result of his research, Senge5 identified that the most powerful learning was done by
groups or teams, not individuals. In applying this group learning concept to strategy
development, he refers to:
The Learning Organisation…where people continually expand their capacity to create the
results they truly desire, where new and expansive patterns of thinking are nurtured, where
collective aspiration is set free and where people are continually learning how to learn
together.
Chapter 7
A key aspect of Senge’s view is that strategy development involves the ‘knowledge creation’
process, which is best undertaken by groups. The aim is to develop a new ‘mental model’ of
an issue through the group dynamic.
Senge proposes five disciplines for developing and sharing mental models as part of the
learning process.
Table 7.2: Senge's five learning disciplines

1. Personal mastery Creating an environment which encourages groups to develop goals and
purposes, in addition to developing personal goals.
2. Mental models Understanding the pictures that managers and staff have of the world and
how these might influence actions and decisions.
3. Shared vision The aims of the group are agreed and explored as a group, to achieve
commitment.
4. Team learning Develop the intelligence, skills and abilities of the individuals beyond their
own normal abilities by using the group’s normal abilities.
5. Systems thinking A method of thinking about, describing and understanding the major
forces that influence the group.
Research exercise
There is a wealth of material on the subject of learning organisations so we would
recommend you do further research on this subject.
Once you have completed your research, analyse the requirements of a learning
organisation and how realistic it is to achieve. Do you believe the benefits of the learning
organisation can be realised?
B7 Systems thinking
Systems thinking tries to understand a system by examining the links and interactions
between the different components of that system. It is a way of considering the whole system
in relation to its environment. Systems thinking is an holistic approach for understanding,
analysing and talking about the organisation as a number of interconnected systems, both
human and non-human, that need to work together for the whole to function successfully.
Research exercise
Research system thinking and identify ways in which it can be used to help your claims
function as part of business improvement.
C Ethical claims management

In preparation for this section please read chapter 10 of 990 Insurance Corporate
Management. You will find it on RevisionMate. You will also find it useful to refresh your
knowledge of the:
• CII Code of Ethics;
• FCA’s Principles for businesses;
• FCA's Mission: Approach to Consumers;
• FCA's Occasional paper No 8 - Customer vulnerability;
• FCA's Guidance for firms on the fair treatment of vulnerable customers (consultation
document GC20/3); and
• Bribery Act 2010.
On the Web
Find the CII Code of Ethics here: www.cii.co.uk/about/professional-standards/code-of-
ethics.
Research exercise
Please also research the codes of ethics for two other industries of your choice.
Chapter 7
C1 Corporate social responsibility
In your pre-reading you will have considered corporate social responsibility (CSR) and how
stakeholders expect organisations to take social responsibilities seriously.
Research exercise
For your own organisation and one other please obtain a copy of the annual report and
review what is included as part of the corporate responsibility section.
In respect of your own organisation can you identify the benefits of the CSR plan and how
these are being measured? Can you identify any improvements to the CSR plan?
C2 CII Code of Ethics

The CII Code of Ethics applies to all its members and a breach of the Code will result in
disciplinary action.
Research exercise
Review the list of those who have been disciplined under the CII Code of Ethics and
consider the different offences that have led to those breaches.
C3 What are ethical standards?

Ethical standards are concerned with doing the morally right thing in a set of given
circumstances. They are concerned with behaviour and conduct and the ability of a
professional to step back from issues of self-interest and provide competent, independent
advice in the best interests of the client. It is more than just following the regulatory rules.
Ultimately, good ethical standards will inspire public trust in the organisation and the industry.
Equally, a failure in ethical standards will lead to an undermining of the public's trust in the
organisation and, potentially, the industry. When we discuss the value of life term customers
we will identify the importance of trust for the customer and the link to the long term
relationship with an organisation.
Refer to
Life term value of customers discussed in Life term value of customers on page 8/8
If our industry dealt with claims better, it could forge a stronger bond with clients as well as
generate a much more positive image for itself.
Caroline Langridge, UK Property Claims Head Hiscox6
There is an immense amount of regulation in our industry, requiring us to treat our customers
fairly and conduct our business with integrity. Many organisations state in their vision/
strategy that the customer is at the heart of their business and yet, as an industry, we appear
to struggle to build a reputation of trust with the customer.
Critical reflection
Do you agree with the quote above? What is your view of how the industry handles its
claims? How do you think the industry can improve its reputation?
C4 What is ethical claims management?

There is no definitive definition of ethical claims management, but if we were to try to define
it the starting point would be the definition of ethical standards we used earlier in the section.
Chapter 7
We can take some key phrases from this definition:

• ‘Doing the morally right thing in a set of given circumstances.’
• ‘Concerned with behaviour and conduct.’
• ‘Stepping back from issues of self-interest.’
• ‘Providing competent independent advice in the best interests of the client.’
• ‘More than just following the regulatory rules.’
Ethical claims management is an approach that embraces all of these, in all aspects of
claims management, from designing the strategy to the day-to-day handling of claims.
We have discussed a number of times in this study text the importance of the claims service
to the organisation and the industry. It is a vital element of the ‘trust’ relationship with clients.
Prior to the claim occurring, a policyholder has paid the premium for the policy and the
‘promise to pay’ made by the insurer. It is at the time of a claim that the insurer has the
opportunity to make good on that promise. Regrettably, the claims process has a number of
points at which the relationship of trust with the claimant can breakdown. Let us remind
ourselves of the claims value chain.
Refer to
Claims value chain described in Claims value chain on page 1/4
Figure 7.3: Claims value chain
Risk and compliance
Firm infrastructure
Procurement
Settlement
Notification Triage Investigation and Recoveries
negotiation
It is worthwhile reviewing the value chain and examining it for opportunities to build trust with
the customer. It can also be reviewed to check the integrity of the processes, together with
the processes and integrity of suppliers and partners. We can ask the following questions of
the different segments.
Notification Is there flexibility within the process to suit the needs of the customer? Do the staff have
the correct skills to be able to handle the claim sensitively? How quick is the first stage of
the process and what documentary evidence is required?
Triage What is the decision making process? What are the triggers which will send a customer/
claim along a certain path? How sensitively is this stage handled?
Investigation How and who carries out the investigation? How flexible is the process or is the customer
driven down a route to fit into the organisation’s processes? How does the customer feel
at the end of the process? Does the customer feel that barriers have been created?
How are potential fraud investigations completed? Do they leave the customer feeling as
though they are not trusted? On the other hand, do genuine policyholders feel the
organisation isn’t doing enough to detect fraud?
Settlement of What level of flexibility is there in the process? How does the customer feel? Do they think
the claim the insurer did as expected and looked for ways to reduce the claim or were they
Chapter 7
satisfied?
Recoveries Are genuine recoveries pursued? How is pursuing a recovery against an uninsured
person handled?
Research exercise
Review your claims strategy. How does it take opportunities to build trust with clients? Are
there aspects of the claims process that don't support building a relationship of trust with
the client? How do you ensure consistency of decision making? Are you satisfied that at
each stage in the process decisions are driven by integrity and professionalism?
Another area in which many commercial customers may feel less trusting, of an insurer for
example, is in respect of claims made by third parties under such as employers’ and public
liability policies. Often, policyholders feel that such claims are settled too quickly and too
expensively. A way of alleviating this situation is to involve customers in the decision making
process, for instance, by explaining the reasons behind the decision when settling a third
party claim.
Research exercise
Please complete whichever one of the following activities is most relevant to your role.
If you work for an insurer: how does your organisation deal with the handling of third
party claims on commercial accounts? Do you know how your policyholders feel about the
process? Are there ways this process could be improved?
If you work for a broker or a managing agent: how could you help build the level of
trust the client has in the insurer’s decision making process when settling third party
claims?
If you work for a loss adjuster: how could you improve customer expectations in respect
of the claims process and what impact is the potential impact on the customer relationship
of a breakdown in the claims process?
If you work for an MGA: how do you balance the demands of the policyholder with the
potentially conflicting demands of your capacity provider and your own organisation?
C4A Third party claims

The handling of third party claims is different from the handling of first party claims. Firstly,
third party claimants do not have a contract with the organisation and there is no existing
business relationship. Of course, depending on how their claim is handled, such a third party
could be tempted to become a customer of the organisation. Secondly, they are often
represented by a solicitor or another third party provider.
Research exercise
How do you think ethical claims management applies to third party claims? You may wish
to consider separately those who are represented and those who are not.
Has your claims function made any differentiation between first and third party claims
when considering ethical claims management?
What guidelines does your claims function have in place for handling the claims of non-
represented third parties?
C4B Suppliers and partners

Chapter 7
We know that suppliers and partners play an important role in the claims handling process.
Such suppliers and partners can include:
• loss adjusters;
• loss assessors who act for the insured;
• disaster recovery agents;
• surveyors;
• lawyers;
• approved repairers; and
• MGAs.
All of these people are representing your organisation and specifically the claims function. As
a claims function you need to be satisfied that they are also operating with a level of trust
and integrity that is in line with your culture of integrity and trust.
Research exercise
If relevant, review the suppliers and partners with whom your claims function interacts.
How confident are you of their culture of trust and integrity? What evidence do you have to
support those confidence levels?
C4C Implementation of ethical claims management

An important part of the ethical claims management will be driven by the claims philosophy.
Research exercise
Review the claims philosophy of your claims function and examine how it supports ethical
claims management and building trust with the customer.
Refer to
How values shape culture discussed in How can we define culture? on page 3/3
The culture of an organisation will make a significant contribution to the interpretation and
application of ethical claims management. We have already discussed how the values of the
organisation will help shape the culture.
Research exercise
Review the mission statement and values of your organisation or of other organisations in
the insurance market. Do they make reference to integrity and trust?
Achieving ethical claims management is more than just having the words included in key
documentation; implementation is crucial. It is important to ensure that everyone in the
claims function understands what it means for them on a day-to-day basis and then to
ensure that implementation takes place.
You might like to consider the following questions in respect of your claims function:
• During an audit a claim is identified that has been incorrectly repudiated when in fact it
was covered. How could that situation be handled?
• A motor claim is submitted for the total loss of a vehicle in an accident in which the driver
has been killed. A standard comprehensive motor policy is in force. Do you offer to pay
the death benefit under the personal accident section or do you wait for a claim to be
submitted?
• How do you know that all of your staff are taking a consistent approach to claims handling
and settlement?
Chapter 7
• Have you experienced the claims service as a customer and not as a senior manager?
• Are ethics and integrity discussed during any of your management meetings?
• If you are a loss adjuster and when visiting a claimant you identify ‘losses’ that are
covered but have not been claimed for, what action do you take?
C4D Benefits of ethical claims management
Refer to
Building life term customers discussed in Life term value of customers on page 8/8
How do we think ethical claims management will add value to the organisation? Instinctively,
we know it is the right thing to do. And trust is an important element in building life term
customers. We know that if customers trust an organisation they will not only continue to buy
from that organisation, they are highly likely to buy more and recommend the organisation to
their friends and family. This is illustrated by information collated by the Institute of Customer
Service.
On the Web
www.instituteofcustomerservice.com.
In addition, ethical claims management will allow the fulfilment of regulatory obligations.
Critical reflection
Think of organisations in and outside the insurance industry who have used the strength
of, and trust in, their brand to diversify into other areas. Examples include the strength of
the Virgin brand and how that allowed its expansion into many areas or the high street
retailers, such as Marks and Spencer or John Lewis, that have maintained a brand that
people trust, which has allowed them to move from retail into banking and insurance.
What is it about these organisations that has allowed them to create the strong brands
that has allowed this expansion?
C4E Ethical claims management v. profit

One of the challenges for the leader of a claims function is how to balance the needs of
ethical claims management with the, sometimes conflicting, demand to achieve a profit
through operational efficiencies. For instance, if we look at some of the examples of
implementing ethical claims management considered so far, they are likely to cost the
insurer more money, or may mean a claims handler takes more time to handle the claim.
However, as you will remember from your reading at the start of this chapter, there is a view
that ethical business is good for business, particularly in the long term.
C5 An ethical decision making model

Boddy7 presents an ethical decision making model which examines the influence of
individual characteristics and organisational policies on ethical decisions.
The model suggests that someone's response to an ethical dilemma depends on individual
and contextual factors.
Individual factors Contextual factors
• Stage of moral development: the person's ability to • Work group norms: the right and wrong behaviours
distinguish between right and wrong. as viewed by the group. (Think about the work we
• Ego strength: the ability to resist impulses and go have completed on culture and how this will impact
with the convictions. on ethical behaviour.)
• Locus of control: the level of control over life the • Incentives: management policies and rewards and
person believes they have. disciplines.
• Rules and regulations: policies about acceptable
behaviour.
Chapter 7
The model shows that behaviour feeds back into both the individual and the contextual
factors, and thereby shapes future responses.
Figure 7.4: An ethical decision making model
Individual factors
Stage of moral
development Ego
strength
Locus of control
Ethical/unethical
Ethical dilemma
behaviour
Contextual factors
Work-group norms
Incentives
Rules and regulations
Source: Boddy, D. ‘An ethical decision making model’ in Management: an introduction,

Pearson (Boddy references it to Trevino and Weaver 2003)
Once again we can see the importance of leadership: how leaders shape the culture and the
behaviour of an organisation, not only by the policies and procedures they set in place, but
also by their behaviours and attitudes.
C6 Ethical management and technological developments

A further development, which adds to the complexity of ethical management, is the rapid
technological change that is happening in our industry, such as the use of big data and
Chapter 7
artificial intelligence.
CII research report: Addressing gender bias in Artificial Intelligence
The Chartered Insurance Institute's (CII's) research report Addressing gender bias in artificial
intelligence, looks at how the data being collected could contain gender bias. Historic data is
used to develop algorithms, and a significant amount of that data is now unstructured,
coming from text, audio, video and sensors. However, engrained in that historic data are
decisions based upon historic biases, particularly around gender.
The report calls for individuals to rise to their professional obligations and translate the fifth
core duty in the CII's Code of Ethics into tangible actions to address this risk.
On the Web
You can find the report here:
www.cii.co.uk/media/10122027/cii-gender-bias-in-ai-research-report.pdf
Research exercise
Review the CII report and carry out further research on this topic.
Review how your organisation is using artificial intelligence and whether or not it is
vulnerable to breaching rule 5 of the CII Code of Ethics.
Information Commissioner's Office publications

Further reports that are of interest in respect of the ethical and data protection consequences
for artificial intelligence, have been published by the Information commissioner's office.
These reports are:

• The Information Commissioner's response to the Draft AI Ethics Guidelines of the High-
Level Expert Group on Artificial Intelligence; and
• Big data, artificial intelligence, machine learning and data protection.
On the Web
You can find these reports here: ico.org.uk/media/about-the-ico/consultationresponses/
2614332/eu-hleg-draft-level-ethics-guidelines-ico-response.pdf
and here: ico.org.uk/media/for-organisations/documents/2013559/big-data-ai-ml-and-data-
protection.pdf.
In addition, the EU's Ethics guidelines for trustworthy AI may also be of interest and can
be found at: wayback.archive-it.org/12090/20210728013426/digital-
strategy.ec.europa.eu/en/library/ethics-guidelines-trustworthy-ai.
C7 Conflict of interest
An area that is worthy of specific discussion in respect of ethical claims management is
conflict of interest and how this can occur in the claims process.
Example 7.6
An organisation, either an insurer or intermediary, has two customers who are involved in
the same claim, be that a motor or liability claim.
An intermediary receives revenue from both customers and insurers.
A broker is running an MGA underwriting on behalf a carrier, while another part of its
business is acting as a broker for a client. Thus different parts of their business are
involved in different roles for the client: one as their broker, one as their insurer. This
causes complex challenges if there are issues regarding disclosure, especially if there are
concerns regarding the broker’s role in placement.
On the Web
See FCA Thematic Review Commercial insurance intermediaries – Conflicts of interest
Chapter 7
and intermediary remuneration: bit.ly/2qyhZRO
Research exercise
Review your own organisation’s conflict of interest policy. Are all the possible conflicts of
interest that may arise in the claims function catered for in this policy? You might find it
useful to research other organisation’s conflict of interest policies.
C8 Broader areas of ethical management

The idea of doing the right thing/ethical management is given a much broader scope in some
organisations. It can encompass such concepts as:
• the ‘triple bottom line’;
• ethical management and leadership;
• Fairtrade;
• globalisation – addressing its negative effects;
• sustainability;
• corporate governance;
• social enterprise;
• mutuals, cooperatives, employee ownership; and
• life/work balance, the psychological contract.
Research exercise
What strategies/activities does your organisation undertake which could be considered
under the broader spectrum of ethical management?
How do you think these benefit the organisation as a whole and specifically the claims
function?
References
1. Thomas, N. (ed) Adair on creativity and innovation Thorogood 1990, p.43
2. Adler, N.J. International dimensions of organisational behaviour HR Management book
Kent Publishers, Boston, MA, citing Mabey, C., Salaman, G, and Storey, J. Human
resource management – A strategic introduction 2nd Edition Wiley-Blackwell 1998
3. Argyris, C. ‘Overcoming organisational defences: Facilitating organisational learning’ in
Thomas, N. (ed) Adair on creativity and innovation Thorogood 1990, p.2
4. Johnson, G. Whittington, R. and Scholes, K. ‘Managing people for capability
development’ in Exploring Strategy 9th edition FT Prentice Hall 2011 p.109
5. Senge in Lynch, R. ‘Learning organisations’ in Strategic management 6th edition Pearson
2011, p.443
6. Langridge, C. UK Property claims head at Hiscox, writing in the Post Magazine,
19 November 2015
7. Boddy, D. Management: an introduction 6th edition Pearson 2014
Additional reading
Argyris, C. On organizational learning 2nd edition Blackwell Business 1999
Armstrong, M. Performance management key strategies and practical guidelines 3rd
edition London: Kogan Page Ltd. 2006
Armstrong, M. and Baron, A. Managing performance: performance management in action
London: Chartered Institute of Personnel and Development 2008
de Bono, E. Six thinking hats Penguin 2009
HBR’s 10 must reads On strategy Harvard Business Review Press 2011
Chapter 7
HBR’s 10 must reads The essentials Harvard Business Review Press 2011
Michalko, M. Thinkertoys 2nd edition Ten Speed Press 2006
Olve, N.G. and Sjostrand, A. Balanced Scorecard 2nd edition Capstone 2006
D Scenario 7.1: Continuous business

improvement
D1 Question
You are head of claims for XYZ Insurer, a general insurer, which handles a full portfolio of
property and liability business. All of the claims are handled in-house, supported by a supply
network of loss adjusters and defence lawyers.
The new Chief Operating Officer is extremely keen on continuous business improvement
and achieving high level performance. She has seen a lot of references to both of these
concepts in the various business strategies, but she is keen to ensure that it is not just
rhetoric and that these words translate into the day-to-day activities of the business to make
a real difference. She has asked you to demonstrate how you are translating these concepts
into the day-to-day activities of your claims function.

Aim
This scenario aims to test your understanding of how day-to-day activities relate to
continuous business improvement and the claims strategy.
Your answer should:
• examine the meaning of continuous business improvement and high level performance;
• identify the specific activities and processes that support these two concepts; and
• create the link between the strategies and the actions and processes that staff carry out
on a day-to-day basis.
D Scenario 7.2: Ethical claims management

D1 Question
You are head of claims for ABC managing agents and the business strategy is focused on
customer service and doing the right thing for the customer. You believe very strongly in a
claims strategy based on ethical claims management. The board have asked for a report on
how ethical claims management can contribute to the overall competitive success of the
organisation and, in particular, the link with the current business strategy, which is focused
on customer service.

Aim
This scenario aims to test your understanding of ethical claims management.
Your answer should:
• outline what ethical claims management is and how an organisation's competitive
advantage can benefit from its implementation;
• outline the strategies you have in the claims function that support ethical claims
management; and
Chapter 7
• identify the ways in which these ethical claims management strategies support the overall
business strategy of focusing on the customer.
Self-test questions
1. What is the significance of the time dimension on a balanced scorecard?
2. When analysing the links between quadrants and the measures inside the quadrants
of a balanced scorecard in respect of the cause and effect assumptions, what in
particular should managers consider?
3. Identify six benefits of quality programmes.
4. Why would it be appropriate to weight some of the questions in a quality

programme?
5. What areas are internal audits likely to include?
6. What are the benefits to an organisation of encouraging creativity and innovation?
7. What factors does Adair suggest will help create the right climate for innovation?
8. If a team is going to take advantage of being culturally diverse, what does it need to
be competent at?
9. In what ways can an organisation inhibit creativity?
10. How would you define double loop learning?
11. What are the ways in which Scholes suggests the ability of people can be developed
in order that they recognise the relevance of what they do and how it contributes to
strategy?
12. What are the five disciplines for development that Senge proposes for developing
and sharing mental models as part of the learning process?
13. How would you define systems thinking?
Chapter 7
14. How would you define ethical standards?
15. In Boddy's ethical decision making model, what are the individual factors to be taken
into account?
16. In Boddy's ethical decision making model, what are the contextual factors to be taken
into account?
17. Can you name five broader areas of ethical management?

Wider issues affecting
8
claims strategy
outcomes
Introduction
A Business continuity planning (BCP) 6.4
B Potential contribution and limits of modelling 6.5
C Life term value of customers 6.2
D Run-off business 6.7
E Digital technology and the claims strategy 6.3
F Emerging risks 6.6
G Scenario 8: Digital technology
Self-test questions
Learning objectives
• explain the importance of business continuity planning in the context of the claims
strategy;
• analyse the potential contribution and limits of modelling in the context of the claims
strategy;
• analyse the importance of the life term value of customers in the context of the claims
strategy;
• analyse the reasons for closing an account and managing run-off in the context of the
Chapter 8
claims strategy;
• analyse how digital technology affects the claims strategy; and
• analyse emerging risks within the context of claims management;
Introduction
In this final chapter we are going to take a brief overview of a number of wider issues that
affect current claims and will go on to affect claims that arise in the future. Clearly, therefore,
they will have a significant influence on the claims strategy. Key changes surround the
growth of digital technology, but there are many other risks emerging in the modern market
and we will look at some of these.
First, however, we will look at a number of issues surrounding the continued success of the
business as a whole. We will start with business continuity planning whereby the claims
function is protected from disruption caused by a catastrophe incident happening to the
function itself. Of course, catastrophes are one of the things that insurance insures against,
so we will look at how modelling can help a claims function be prepared for, e.g. the claims
surge that will follow such an event.
Key to an organisation’s success are its customers. It has long been recognised that it is
more profitable to keep the customer you have, rather than continually looking for new
customers to replace those you’ve lost. We will examine how the life term value of customers
feeds into the claims strategy. Finally, we look at what happens when a market, product or
even organisation ceases to be profitable when we consider the challenges to the strategy
when in run-off. Don’t forget though, that the decision to go into run-off may be driven by the
strategy, but the challenges remain the same.
Key terms
Big data Business continuity Cloud computing Cyber security

planning (BCP)
Digital technology Emerging risks Internet of things Life term value
Modelling Run-off business Telematics
A Business continuity planning (BCP)

In preparation for this section, please read chapter 8, section E of 992 Risk Management in
Insurance. You will find it on RevisionMate.
On the Web
You will also find it useful to read FG16/5: Guidance for firms outsourcing to the 'cloud'
and other third party IT services, which you can find here: bit.ly/2RHETSf.
Chapter 8
In this section we are going to discuss the value of business continuity planning to an
organisation and its functions.
A1 What is business continuity planning?

Business continuity planning is also sometimes known as:
• disaster planning;
• contingency planning;
• crisis planning; and
• recovery planning.
Chapter 8 Wider issues affecting claims strategy 8/3
Definitions
Business continuity and business continuity management are defined in ISO 223300 as
follows.
Business continuity:
[the] capability of the organization to continue delivery of products or services at
acceptable predefined levels following disruptive incident.
Business continuity management:
[an] holistic management process that identifies potential threats to an organization and
the impacts to business operations those threats, if realised, might cause, and which
provides a framework for building organisational resilience with the capability of an
effective response that safeguards the interests of its key stakeholders, reputation, brand
and value-creating activities.
Figure 8.1 sets out the six stages of creating a business continuity plan (BCP). We will not
detail the process for creating a BCP in this study text. If you would like to do further
research on this topic, the Business Continuity Institute is a good source of information, as
are a number of Government sites.
On the Web
Business Continuity Institute: www.thebci.org/.
Figure 8.1: Six-step process of business continuity planning
1: setting up a
BCM
management
structure
6: embedding
2: analysing the
BCM in the
organisation’s
organisation’s
survival priorities
culture
Chapter 8
5: exercising, 3: determining
reviewing and continuity
maintaining plans strategies
4: developing
emergency
responses
A1A Risks an organisation may face

A number of risks may lead to an organisation implementing the business continuity plan:
• Operational risk: e.g. damage to the premises as a result of fire or flood; or, perhaps, a
major loss of staff, for instance a team winning the lottery, or a whole team leaving at
once to join another organisation.
• Impact and consequences of a pandemic.
• Terrorist threat: either due to damage occurring or to security alerts.
• IT risks: resulting from system failure or cyber-attack and leading to the failure of internal
systems or external facing systems, such as websites, or to digital technology/apps not
working.
• Financial/regulatory risk where the FCA restrict trading.
Refer to
Risks faced, including the top ten, are discussed in Risks organisations face on page 1/14
We discussed in chapter 1 the risks which organisations face and the potential
consequences if they become an issue, together with the role of risk management in
managing those risks. The BCP will be implemented if one of those risks becomes an issue.
The level of interruption may be quite small and, perhaps, only part of the plan may need to
be activated. For example, the BCP will have the steps to be undertaken if a building has to
be evacuated, perhaps due to a terrorist alert. How much of the plan is activated will vary
depending on the length of time of the evacuation: it may only be an hour or could be a
number of days, such as was seen in Spring 2016 when parts of the city of Brussels were in
lock down for several days.
It is undoubtedly accepted that a BCP is an absolute necessity for all businesses regardless
of their size.
We also read in chapter 1 that one of the top 10 risks listed in Aon’s Global Risk
Management Survey 2019 was business interruption. Businesses face an ever increasing
risk that their business will be interrupted. In addition to the traditional risks, such as fire,
flood and burglary, there are now the risks of failure of IT systems and software, data storage
and terrorist attacks or the threat of such attacks. We have also seen the catastrophic impact
on many businesses of the actions taken by governments during the pandemic to try and
control the spread of COVID-19, not only in the UK but across the world.
A1B Benefits of business continuity planning
We know that an interruption to a business is damaging to the business, not only because of
the actual business lost during the down time, but also from the damage to its reputation.
Chapter 8
Furthermore, the business may potentially face prosecution due to a regulatory breach.
On the Web
This link to the FCA site details the fines levied on RBS Group for IT failures that resulted
in customers not being able to access their on-line accounts etc.
bit.ly/2STQ63H.
Some of the reasons why business continuity planning is so important are as follows.
• It is good business practice.
• Key stakeholders, such as customers, partners and suppliers, shareholders, investors
and staff, are reassured that, should an incident happen, there are plans in place to
ensure service is maintained. In fact, most organisations will require a BCP to be in place
as part of any contractual agreements.
• Regulatory requirement.
• The plan instils systematic, orderly and effective control over what otherwise could be a
chaotic, arbitrary and ineffective approach.
• If an incident occurs, it minimises the thinking time needed to consider the necessary
actions after that incident and speeds up the recovery process. The BCP should be
updated and stored in a central place. Once an incident has arisen, everyone knows what
actions should be taken and how these should be managed.
• The impact of the incident can be minimised, reducing casualties and the extent of
damage.
• It demonstrates to staff that the company values its livelihood and is prepared to invest to
protect it and its staff.
• Any potential business interruption claim may be reduced and, in addition, any damage
that is not insured may well be reduced.
• The response to minor incidents will be superior as it will be quicker and relevant.
• Staff will have a stronger ‘what if’ mindset, making themselves and the company more
resilient.
Research exercise
Review the BCP that is in place for the claims function and/or your organisation. Are you
satisfied that it is robust enough? Could it be improved? Are there any risks/eventualities
that have not been identified?
The creation of a BCP sets out how the organisation is going to continue functioning if the
worst does happen.
A1C Suppliers and partners
In addition to their own BCP, organisations must consider the BCPs of their partners and
suppliers. They need to ensure that an incident within a supplier or partner will not affect
their own organisation.
Example 8.1
A claims function outsources its notification of loss to a TPA. It asks to see the TPA’s BCP
as it wants to have confidence in its robustness and rigour because the TPA’s ongoing
service delivery is crucial to the claims function’s service and reputation.
Research exercise
Review the contracts your claims function has in place with its suppliers/partners. Do
these contracts require a BCP to be in place? Assuming this is the case, are you satisfied
that the BCPs are sufficiently robust and cover your claims function’s potential liabilities?
On the Web
www.airmic.com
Chapter 8
FCA guidance for organisations outsourcing to the cloud and other third party IT services:
bit.ly/2RHETSf
B Potential contribution and limits of

modelling
Before starting this section, please read the LMA’s Guide to Cat Modelling.
On the Web
The LMA’s Guide can be found here:
bit.ly/2Dyi4xB
B1 Modelling
When we talk about ‘modelling’ we are referring to the prediction of events and exposure to
(re)insured and uninsured events. Catastrophe modelling is often known as cat modelling.
Although here we mainly look at how insurers use modelling, many brokers also carry out
their own analysis to help them understand the pricing for a risk and to create competition in
the market place.
B1A Purpose of modelling
Following your review of the LMA’s guidance for cat modelling, you will have identified that
the key reasons for modelling are risk pricing, portfolio management and capital
requirements.
Risk pricing
The internal technical pricing of a risk is supported by the repeated risk assessment of the
known locations and risks being offered. Cat modelling can provide additional information in
respect of potential exposure to given hazards including:
• hurricane;
• earthquake; and
• flood.
It is important to remember that there is always some uncertainty with regard to the model
assessments and these are intended to supplement the underwriter’s knowledge and
experience.
Portfolio management
Cat modelling can be used to assess the accumulation of risk across a portfolio. This
information can be used to support the business strategy. For instance it can be used to
identify areas of concern, such as a high accumulation of risk in a certain geographical area.
Alternatively, opportunities may be identified where diversifying risks could be added to the
portfolio with marginal impact.
Capital requirements
The output from a cat modelling process can be used to provide a risk profile. This can be
combined with other forms of business risk assessment to inform capital requirements in
support of solvency calculations and other regulatory capital requirements.
The analysis of portfolio accumulations and the composition of the catastrophe risk profile of
an insurer will inevitably inform decision making in the claims department.
B2 Limitations of modelling
Limitations can arise from either the model itself or from the exposure data used for the
modelling.
B2A Model limitations
Limitations arising from the model include the assumptions made on the hazards to be
considered. For instance, a model might cover wind damage, but consideration of flood may
have been omitted, meaning damage from flood is not accounted for. The user of the model
Chapter 8
would need to be aware of such limitations.

B2B Data limitations
Limitations also arise from the sort of data a user might input into the model. It’s all well and
good having a model capable of estimating losses for a risk with absolute geographic
precision, when in reality the insurer might, at best, know the general area where the risk is
located. This introduces quite a bit of uncertainty in the outcome. However, this limitation can
be controlled and quantified.
The quality of the data will limit the modelling, for instance if the data is inaccurate or
incomplete. The software will not be aware of these potential inadequacies and will produce
revised models based upon the data provided.
If the incomplete data is only small, and across only a few risks, the impact will be minimal.
However, if there are major issues with the data, then the impact could be significant with
serious consequences. For example, if an insurer has insufficient data to confirm exposures
in a geographical location known to flood then it might write too much business in that
location and in the event of a flood may suffer larger than anticipated losses.
On the Web
You might like to review the following report:
Systemic risk of modelling in insurance: White paper by the Systemic Risk of Modelling
Working Party.
www.oxfordmartin.ox.ac.uk/publications/view/2060
B3 Modelling and the claims strategy

We can see from the brief summary provided that the modelling will impact:
• risk selection;
• pricing of risk; and
• forecasting of risk.
The claims strategy will be affected by the nature and number of claims received: decisions
made on the model will lead to the type of risks selected. The model can also help the claims
function to understand the organisation’s exposures and the sort of risks it can expect to
receive, in their:
• nature;
• size; and
• location.
This information will help claims management develop the claims strategy and the claims
catastrophe planning: always, of course, being aware that these are only models and
therefore complete accuracy cannot be guaranteed; indeed, this is not the aim. However,
catastrophe models can provide a useful range of potential losses and supply an accurate
range of likely minimum and maximum exposures in various scenarios.
Research exercise
Review with appropriate colleagues the outcome of the cat modelling for your
organisation.
Review your claims strategy and identify any areas that need further development as a
result of the information you obtained following your discussion.
Research exercise
If you work for a broker, review your own firm’s approach to cat modelling. Where does
your company obtain its information from to support modelling? How is your company
using cat modelling to drive pricing for customers?
Chapter 8
B3A Scenario modelling
Modelling firms will respond to a live event by producing a model version of it. So, for
instance, when a hurricane is approaching it is customary for modelling firms to release a
pre-landfall estimate 24 hours before landfall and a post-landfall estimate 24 hours post
landfall. Some may even release a third scenario with parameters closer to reality.
Example 8.2
With Superstorm Sandy in 2012, it became apparent that loss from the superstorm was
mainly caused by flood. Therefore, all modelling companies released a third scenario
accounting for the flood footprint as well as the wind one.
This sort of event response by the modelling firms allows a claims function to estimate its
losses prior to receiving any notification, providing them with an opportunity to be better
prepared. Scenario modelling is also used to devise and stress test contingency plans in
areas like the deployment of loss adjusters, pre-employment of contractors etc.
Research exercise
Research modelling firms to develop your understanding of their activities.
C Life term value of customers

In this section, we are going to analyse the importance of life term value of customers for the
organisation and specifically the impact that has on the claims strategy.
All insurance organisations are aiming to have high retention rates of customers. Whilst
organisations are always looking to grow the business and add new customers to their
portfolio, the aspiration is to do this from a position of strength in that they already hold a
strong book of business.
A portfolio of business could consist of a high volume of individual customers, such as with a
personal account, or it could be a fewer number of larger commercial risks. Alternatively, it
could be a combination of both, where the accounts are with large commercial clients, such
as banks or building societies, but consist of several thousand personal policyholders. In this
latter situation there are two customers, the commercial client and the various policyholders
who are the customers of the bank. From a claims perspective, the majority of the interaction
will be with the policyholder.
C1 Benefits of life term customers

There are benefits to the organisation of having a portfolio with a high percentage of retained
customers.
Reduction in costs
We know that it costs significantly more to take on new business than renew existing
business. Figures suggest the cost of taking on board new business could be as much as
five times greater than renewing existing business.
Stability of portfolio
The underwriters have the benefit of a stable portfolio, which is statistically more reliable.
This allows for more confidence in the pricing model when setting premiums. This knowledge
about policyholders and the business can facilitate more competitive pricing.
Expertise
As a result of the stability of the account, expertise is built up in the underwriting or broking
teams concerning the policyholders and their various industries, leading to improved
assessment of the risk. Likewise, other areas of the business, such as actuaries and
surveyors, will also build up their expertise in the given areas.
Example 8.3
Chapter 8
An insurer has a number of customers whose primary business is the specialist area of
drug development. Its knowledge of this industry and its issues and challenges is much
greater than that of a rival insurer, which only has one or two clients operating in that field.
Building strong relationships

The different functions of the organisation can build strong relationships with the customers
over a period of time, leading to improved trust and more openness in the relationship.
Risk mitigation
A stable account of similar customers can provide more meaningful risk analysis, leading to
improved risk mitigation strategies for clients. Leveraging claims data from life term
customers can be very beneficial for all parties.
C2 Impact on the claims strategy

Stability
We have discussed how life term customers improve the stability of the underwriting
portfolio, and it is the same for the claims strategy. This will particularly help in areas such as
resourcing and supplier management. If the portfolio of a business consists of a significant
number of life term customers this will lead to predictability in respect of the number and type
of claims the account will produce. This facilitates improved planning with regard to the
number, skills and expertise of staff required.
Example 8.4
An account held by an organisation is a group property risk, producing an average of
10,000 claims per annum. Should this account stay with the organisation for a number of
years, this provides much greater stability to the planning process in all areas. However,
should this business be lost without a replacement, this will have a major impact on the
resourcing strategy of the claims function.
Of course, the numbers are all relative to the size of the organisation. For instance, a smaller
account that is handled on a delegated authority basis by a broker may provide the work for
two people. Even so, if that account is lost the claims function will need to manage the extra
resource available.
We know that within any claims process there are likely to be suppliers involved in servicing
some of the claims for different elements of the process. The stability of a claims portfolio
allows long-term relationships to be built with the suppliers, which will enable an improved
claims service and more competitive charging arrangements. Suppliers are also able to build
relationships with policyholders, in particular for large commercial risks.
Example 8.5
Let us look again at the large group property risk account. The loss adjuster appointed to
work on this account will develop a strong insight into the policyholder’s business and
industry, allowing for meaningful conversations when a claim occurs. The loss adjuster will
understand the issues and challenges the policyholder is facing, which may be specific to
their industry.
This is what happened for the nominated loss adjuster for Network Rail, who was able to
build up expertise and relationships over time.
The stability of the claims portfolio also supports the planning process, as there is more
confidence as to what the future is likely to look like with regard to the numbers, frequency
and type of claims. By contrast, if the portfolio isn’t stable this increases the challenge of
planning. It restricts long-term planning as the focus tends to be on the current and short-
term.
Building expertise
Refer to
Emerging risks discussed in Emerging risks on page 8/20
When we discuss emerging risks later we will identify that one challenge they present for
Chapter 8
claims is the lack of claims expertise in handling a new type of claim. If an organisation’s
portfolio of business is constantly changing this will, depending on the type of the change,
affect the nature of the claims. Such changes could be moving between different types of
products or different geographical locations. This could make it more difficult to build up
expertise in handling certain types of claim, either from a claims expertise perspective or
from the client/client’s industry perspective.
Strong customer relationships and trust
When a customer is with an organisation for a long time there is a greater opportunity to
build a strong relationship with the customer. For example, with commercial risks it is quite
usual to have regular claims review meetings with the customer during the year where
claims are discussed, including:
• liability assessment;
• potential quantum; and
• outstanding reserves.
The opportunity for face-to-face meetings allows personal relationships to flourish and
develop, building trust and mutual respect for both parties. This openness and transparency
has many benefits. For instance, whilst the policyholder is never going to like the decision
when a claim has to be repudiated, the trust and strong communication channels that have
been built make it more likely to be accepted.
The building of these relationships takes time and resources for the claims function, but it is
time well invested if the customer stays with the organisation for a longer period. The
building of such a strong relationship of trust can help persuade the customer to stay with the
organisation, perhaps even when tempted by a cheaper quotation.
If an organisation chooses not to invest in the claims function and allow it to add value in this
way, it risks jeopardising customer relations and trust. It is then more likely to need to deploy
additional resource into its sales and marketing functions in order to attract new business.
Research exercise
Identify the major clients for your organisation, either because they have been with you a
long time or because you would like them to remain with you a long time.
Review the claims strategy for handling those claims and identify any improvements you
could make to the claims strategy to help improve retention rates for the business.
D Run-off business
A run-off account can also be known as discontinued or legacy business. It includes all
former insurance or reinsurance policies that have remaining liabilities, but without new
underwriting.
When an account is in run-off no new policies are issued and existing policies are not
renewed. Consequently, there is no premium income. However, the claims which arise on
those policies for the period they were on cover, have to be honoured. A run-off account may
take only a couple of years to close down, e.g. for property risks, or take several years for
liability cover where there are long-tail risks, e.g. asbestos exposure.
A common reason for run-off is that an insurer has decided to pull out of a specific market,
e.g. China, or a specific product, e.g. employers’ liability.
D1 Current market
According to PWC, the run-off market is worth a significant amount of money, with current
reserves for Europe held in run-off accounts exceeding 220 billion Euros. All indications are
that this market will continue to grow.1 This view is based on the results from PWC’s survey
and the feedback received from participants. The key reasons for this are a desire to
improve capital and operational efficiencies in support of Solvency II, and a more transparent
approach as to the classification of what constitutes run-off business.
The growth of the run-off market continues to be fuelled by:
• ongoing worldwide economic pressures, such as low levels of growth and lower
investment rates;
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• regulatory requirements leading to stricter capital requirements;

• an improvement in value and risk based portfolio management techniques, which allows
managers to make quicker decisions with regard to the continuation of an account;
• emerging markets, such as Brazil, Russia, India and China (BRIC) having a greater
potential to generate run-off business; and
• large claims events leading to solvency issues, such as large natural catastrophes.
D2 Why run-off?
An account may be in run-off because the organisation has pulled out of a particular market,
e.g. it no longer writes pet insurance, or because it has pulled out of a geographical market,
e.g. it no longer writes business in Brazil.
There are a number of reasons that can lead to a decision to stop writing a certain line of
business.
• Focus on core business: the organisation has chosen to focus on the core business and
withdraw from markets where there is low growth or profitability due to deteriorating loss
ratios.
• Merger and acquisition: when organisations either merge or are taken over there can be
elements of the business that do not fit with the strategy and direction of the new
organisation.
• A proactive decision to focus capital on growth accounts and/or segments that are most
promising.
• The demands of Solvency II make some business segments less attractive, in that there
are more stringent capital requirements.
• Having insufficient capital to achieve Solvency II.
• The insolvency of the organisation.
• No longer being able to purchase reinsurance for the class of business or territory.
Research exercise
Research the internet to find out organisations that are currently insolvent:
www.fscs.org.uk.
D3 Options for handling a run-off account

When an account is in run-off, an organisation has a number of options as to how it handles
the claims. It can:
• handle the account internally: this maintains total control, but may bring other challenges
with regard to staffing costs and issues and to the overall management of the business;
• outsource to a specialist provider: this may be a more cost effective method, but some of
the direct control is lost; or
• sell the run-off book to an organisation specialising in run-off business: such
organisations aim to make a profit by managing the claims and investments more
efficiently than is implied in the purchase price of the book. This can be helpful for the
seller with regard to Solvency II requirements once the account has been sold.
Often organisations will reinsure part or the whole of a run-off book to limit the ongoing
exposure.
D4 Claims strategy
Once an account is in run-off, the majority of the work involves handling the claims and the
financial management of the account. Managing the claims of a run-off account presents
different challenges from managing the claims for an active account.
Large number of legal entities
When dealing with long-tail industrial disease claims, such as deafness or asbestosis, there
can be a number of different legal entities involved as insured companies have been bought
out, merged or gone into receivership. Equally, this can also be the case with the insurers, in
that they too may have been bought out or merged over the years.
Chapter 8
Example 8.6
Consider the history of the AVIVA brand.
1997 1998 2000 2000 2002
Norwich Commercial Norwich CGU and Aviva brand

Union floated Union & Union Norwich launched
on the Stock General purchase Union merge
Exchange Accident London &
merge to Edinburgh
create CGU
Many legacy IT systems

There can often be a significant number of legacy systems. In particular, if the organisation
specialises in handling run-off claims and have purchased a number of accounts, these will
more than likely be on a number of different systems.
Limited quality of data

We have mentioned that there will be difficulties generated by the number of different legal
entities involved. However, in the first instance there can be difficulties in tracing any of the
following:
• employment history;
• employers;
• evidence of employment; and
• witness evidence from former employees.
Brokers involved at the time may have gone out of business or merged with other
organisations. Any individuals involved in the account handling could have moved on to
other organisations or be retired.
Motivation and development of staff
If a run-off account is being handled in-house, the motivation and development of staff can
be challenging because, ultimately, as the claims are decreasing, so is the requirement for
the resource. Organisations whose core business is handling run-off accounts have the
advantage in this area. For them the whole of the claims function consists of a number of
run-off accounts and the business model is to continue to replace closing accounts with new
ones. Therefore, whilst the content of the claims portfolio leads to a different emphasis on
the skills and expertise of staff, there will be a career path and ongoing development for staff.
D4A Overall strategy to actively manage the portfolio
Although all claims functions should aim for a strategy based on proactive claims
management, this is particularly important when handling run-off claims. This proactive
management will allow for the quicker release of reserves and liabilities, leading to quicker
recovery of reinsurance funds and an increase in profits. Without this, there is a potential risk
that it may be necessary to extract capital from the organisation in support of the run-off
account.
On the Web
You may be interested to read the Bank of England’s Supervisory Statement:
4/14 – Capital extractions by run-off firms within the general insurance sector:
bit.ly/2PgPtmt
Staff working in a claims run-off unit require some specialist skills, in addition to the normal
claims handling expertise. These include:
• dealing with litigation;
• handling long-tail business, such as asbestosis;
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• attention to detail for tracing histories of insurers and employees; and

• relevant market and language skills.
We have mentioned previously that, depending on the organisation in which the run-off unit
sits, a further challenge will be planning the resource requirements. This is because, as time
goes on, the demand for staff is likely to reduce as the number of the claims in the portfolio
reduces. The claims strategy will have to plan for this and the impact this will have on
motivation. This is illustrated in figure 8.2.
Figure 8.2: Managing the number of staff over time

Claims
000s Number of staff
decreasing in line
with number of claims
Time
D4B Cash flow and management

We have seen that the proactive management of the claims is important to the overall run-off
account. From a claims perspective the key areas are:
• accurate and appropriate settlements;
• accurate reserving, including peer review;
• proactive pursuit of recoveries from other insurers etc;
• the identification and review of large losses; and
• the identification of any trends within the account.
E Digital technology and the claims strategy

As background reading prior to starting this section you might find it useful to read the
Accenture report: Accenture Technology Vision for Insurance 20: We, the post-digital people
– Can your enterprise survive the 'tech-clash'?
As background reading prior to starting this section you might find it useful to read the
Accenture report: Accenture Technology Vision for Insurance 20: We, the post-digital people
– Can your enterprise survive the 'tech-clash'?
On the Web
You can access the Accenture report here: www.accenture.com/us-en/insights/insurance/
technology-vision-insurance-2020. You can read an infographic highlighting the key
findings of the report here: www.accenture.com/_acnmedia/PDF-120/Accenture-
Technology-Vision-for-Insurance-2020-Infographic.pdf#zoom=50.
Chapter 8
In this section, we are going to look at the advances in digital technology and how they are
being, and could be, used by the insurance industry. We also look at the implications for the
claims strategy. We are going to focus on how these advances affect insurers primarily, as
an example. This is because the approach taken by insurers is relevant to many others who
deal with claims from other parts of the industry and space does not allow coverage of all the
possible permutations. As you study, take the time to think how this approach affects your
organisation and also how digital technology is impacting on your sector of the market.
Digital technology is a ‘hot’ topic with wide coverage, both in the insurance and
general media.
E1 Technology
E1A Internet of things
The internet of things involves communication and interaction between networked devices
that relay information across the network. These are connected devices that include sensors
that can, for instance, control temperature, sense smoke or detect escape of water from
leaky pipes. They can be used to activate alarms or allow for actions to be taken remotely,
such as cutting off the water supply. They can also allow the user to view what is happening
at their home while out, or are security systems that can turn on lights when someone rings
the doorbell or allow the user to speak to the caller. Some insurers in the USA are offering
premium discounts for having such devices.
These devices are becoming increasingly popular. According to the CII Journal December
2018-January 2019:
• nearly 1.5 million households plan to have their home fully controlled by smart devices
by 2023;
• in 2019, £10.8 billion will be spent on smart home devices; and
• 40% of device owners are expecting to upgrade within two years.
The data that these devices produce can help insurers gain a more detailed understanding
of risks, which will contribute to risk management and improve prices.
There is the potential to not only reduce claims costs, but also to take the claims offering to
another level. Instead of the claims process starting at the point the incident occurs, insurers
have the opportunity to be proactive, for example by sending a plumber to repair a leak
before any damage has been caused, perhaps even before the home owner is aware of
the leak.
These smart devices can also help with fraud prevention: claims will be based on the data
they collect.
On the Web
You may find it interesting to read IoT Case Studies: Companies leading the connected
economy by AIG. You can find it at: www.aig.com/content/dam/aig/america-canada/us/
documents/brochure/iot-case-studies-companies-leading-the-connected-economy-digital-
report.pdf.
E1B Telematics
Some manufacturers are fitting telematic devices to vehicles as standard. Effectively, they
are black boxes of data and they provide information on how and when the car is driven.
They provide insurers with the ability to manage policies on an individual basis, as details of
when, where and how the car is being driven is recorded. They have been used successfully
in some areas of the young driver market, for example Direct Line is now doing more
business in this market segment thanks to telematics.2
Research exercise
Telematics is a significant change to the motor insurance market. Complete your own
research on how the motor insurance market is being changed by this development. The
CII website has a number of interesting articles and you might also like to review the ABI
guide on ‘Selling Telematics Motor Insurance Policies’.
Chapter 8
Consider this…
Having completed the research exercise, how do you think these changes will impact on
the claims strategy?
E1C Cloud computing

Cloud computing refers to the on-demand delivery of IT resources via the internet with pay-
as-you-go pricing. Therefore, instead of organisations buying, owning and maintaining their
own data centres, servers and software, it is possible to acquire technology as needed. The
use of the cloud can be more cost effective and flexible than investing in the IT. It can
provide access to high performance computing (HPC) without the capital investment, on
demand and at the right scale.
Example 8.7
Mapfre, the largest insurance company in Spain, uses cloud to perform sales-based HPC
to calculate its solvency. Every month it performs a solvency check as part of its
compliance with EU requirements.
(Source: Post Magazine, 10 September 2015, p.19)
When considering the claims strategy, cloud computing may provide more opportunities with
regard to technology due to the flexibility and availability of software.
On the Web
FCA Guidance paper FG16/5 – guidance for firms outsourcing to the ‘cloud’ and other
third-party IT services:
bit.ly/2RHETSf
Chatbots
A chatbot is a computer program that uses artificial intelligence to mimic conversation with
people. According to the Post Magazine, 41% of insurers are using live chat functionality on
their websites. However, there are different views in the industry as to the value of chatbots
and how they integrate into a highly regulated industry where high levels of professionalism
are expected.
Example 8.8
Zurich that has built a claim 'bot' in its website for first notification of loss queries. The
insurer now sees 20% of its personal lines retail customers claiming through the bot. Its
net promoter score, which measures a firm's relationships with it customers, has risen to
+78. According to the Zurich, customers appreciated the 'flexibility' and 'empathy' of
the bot.
E1D Big data

Big data is the vast amount of data produced by people while using their digital devices as
part of their everyday lives, e.g. shopping, talking with friends, travelling and reading.
Insurers are spending a significant amount of time and money on analysing this data as they
believe it will change insurance in many ways, for instance the way premiums are calculated,
the use of lifestyle underwriting and the development of new products.
When considering how the information is used, the question of ethics is raised. How does an
ethical approach to business influence the use of big data? For instance, is too much data
being collected, is someone’s privacy being invaded to collect it and, lastly but far from least,
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how is this data used during the risk selection process and premium setting? Could there be
a risk that some customers may find their premiums so high that insurance is no longer a
feasible option?
Artificial intelligence (AI)
Artificial intelligence (AI) is the simulation of human intelligence processes by machines,
especially computer systems. These processes include:
• learning: the acquisition of information and rules for using the information;
• reasoning: using rules to reach approximate or definite conclusions; and
• self-correction.
It is believed that AI could transform the insurance market, reducing risk and giving
underwriters and claim professionals a deeper insight into their customers.
According to Post Magazine, Genpact, a global professional services firm that focuses on
digital transformation shows that 87% of insurers are investing more than £3.8 million per
year into AI. Plus, more than half are planning to use technology to transform their
businesses.
The insurance industry is a natural place for AI thanks to the amount of data it collects. Using
AI to crunch the data can identify links that would not normally have been picked up. For
example, one insurer identified that the distance of the car park from the front door of the
office and the underlying ground temperature were influencing factors in the number of trips
and slips.
Therefore, AI can provide greater insights into the risk, which may lead to a wider range of
risks being accepted or risks surveyed which previously would have been declined.
Using a combination of cloud computing and AI, a more sophisticated analysis of hurricane
related damage is possible, using digital imagery. This is allowing insurers to estimate levels
of damage far more accurately, which has a significant impact on an insurer's returns.
Driving operational efficiencies
AI can also do mundane tasks, thereby removing the risk of error and freeing humans to
focus on complex issues. One example is a medical insurer that is using image recognition
to extract relevant data from medical certificates, which can often be difficult to read and
thereby time consuming. In this situation the claims handler can then use their skills and
knowledge in reviewing the technical aspects of the claim.
On the Web
Draft guidelines on the ethical guidelines of using artificial intelligence: ico.org.uk/media/
about-the-ico/consultationresponses/2614332/eu-hleg-draft-level-ethics-guidelines-ico-
response.pdf
Big data, artificial intelligence, machine learning and data protection: ico.org.uk/media/for-
organisations/documents/2013559/big-data-ai-ml-and-data-protection.pdf
Government's response to the House of Lords Artificial Intelligence Select Committee's
Report on AI in the UK: Ready, Willing and Able?: www.parliament.uk/globalassets/
documents/lords-committees/Artificial-Intelligence/AI-Government-Response2.pdf
Addressing gender bias in Artificial Intelligence: www.cii.co.uk/news-insight/insight/articles/
gender-bias-in-artificial-intelligence/82803
FCA's Insight: Future market dynamics Part 2 - Big tech and data disruption:
www.fca.org.uk/insight/future-market-dynamics-part-2
Exploring public trust in technology & data: www.cii.co.uk/media/10123959/socp-new-gen-
exploring-trust-in-technology-data-report.pdf
E2 How well is the insurance industry adopting digital

technology?
Becoming a digital insurer is no longer simply about incorporating digital technologies into
an organization. It’s about using them to create a broader fabric that connects customers,
partners, employees and industries, and enables new insurance value propositions that
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expand value creation and growth.

(Source: Technology vision for insurance 2015, Accenture, executive summary)
Within the insurance market there are mixed responses to digital technology and the
opportunities it could deliver an organisation.
Insurers need to shift from selling a product to selling a lifestyle and digital technology is
the key.
Roy Jubrai, Managing Director for Insurance at Accenture
(Source: Post Magazine, 19 November 2015, p.8)
Insurers are starting to focus on protecting customers by preventing and reducing the day-to-
day risks. An example is the use of telematics to provide advice on the most fuel efficient or
safest journey, another is using data from smart devices to alert a customer to an issue.
An increase in interaction with the customer is vital. Currently, an insurance organisation
may only experience two or three customer ‘touches’ per annum. On the other hand,
organisations who have embraced digital technology will ‘touch’ the customer 30 plus times
per annum. When looking at digital, customers are benchmarking insurers against innovative
companies such as Amazon. In respect of claims, this may mean many more ‘touches’, with
the client taking advantage of digital technology to, for example, obtain updates on how
repairs are progressing. This is a change in perspective, because currently when looking at
effective processes, claims functions are often trying to minimise the number of ‘touches’.
This will be an interesting challenge for claims functions as they seek to find how these
apparently opposing views can be managed to deliver a competitive advantage.
Lloyd's Lab
The Lloyd's Lab is the home of InsurTech at Lloyd's. Innovative start-ups join the Lab for a
ten-week programme, where they work with Lloyd's market experts to shape the next big
innovation. They work on developing and proving their solutions; leveraging the expertise
and experience of their mentors and demonstrating how they can add value to the Lloyd's
market.
On the Web
www.lloydslab.com
E2A Challenges for insurers embracing technology

Here are some of the challenges that insurers face when considering embracing technology.
Culture
Most insurers prefer to make more considered decisions, considering the risks and
downsides prior to making a change. There are perhaps historical reasons for this, given the
nature of the business of insurance and the potential consequences of getting it wrong, e.g.
of inappropriately underwriting a risk either at acceptance stage or premium level.
Budgets
Often, significant amounts of an organisation’s budget are channelled towards regulatory
requirements, updating old legacy systems or meeting current operational demands.
Low profit margins
Some products, e.g. home insurance, have very low margins. Therefore, there is frequently
an emphasis on achieving profits with minimal expenditure, which can impact on the
availability of investment for innovation.
Lack of funding into research and development
The insurance industry spends around 1% on research and development3 compared to, for
example, Google, which spends in the region of 13% of its income on research and
development.4
Infrequent customer engagement
Other financial service providers, such as banks, find their mobile apps are frequently used
daily, whereas in insurance the usage is significantly lower. For example, according to Bob
Chapter 8
Skerret, telematics director at RSA in personal lines insurance, there was an average of 1.3
touch points with the customer per year.5 This will require a big change in how the insurance
industry interacts with the customer.
Legacy IT systems
A challenge for investment is that legacy IT systems and current mainframe systems have to
be maintained and are needed for the business, yet there is a desire to build something new
to fulfil a different purpose.
Helping lifestyle choices
As we saw earlier, telematics, for instance, can be used to advise on the most fuel efficient
or safest route for a journey.
Protection/sharing of data
Some in society are concerned that too much data about lives and lifestyles is shared. To
help reassure people over this concern, they need to know why data is being collected and
how it is being used. In addition there are increased penalties for any breach of the data
protection rules since the General Data Protection Regulation (GPDR) came into force on
25 May 2018.
Customer engagement
How willing are insurance customers to engage.
E3 Benefits
Despite the challenges, there are benefits to be gained from embracing technology.
Improvement of risk
A more detailed understanding of risks will lead to risk improvements by identifying factors
which could lead to incidents.
Example 8.9
Vitality health group use activity monitors via an incentive scheme. They have seen the
number of people engaged in physical activity treble as a result of this programme. This
has the potential to improve the health of policyholders and improve the claims
experience.
(Source: Post Magazine, 19 November 2015)
The same may arise in the motor market through the use of telematics and other offerings,
such as driver coaching. The general standard of driving could improve, leading to a
reduction in the number of claims.
Improved conversations with customers
The data collected will allow staff to have the right conversations with customers because
they understand their preferences and habits. When staff are handling claims, they will be
able to use this information to personalise the call and improve the overall experience for the
claimant.
Flexibility of product
Products could be more personalised and flexible to meet the needs of the customer. One
broker is currently offering hourly motor insurance. This may mean that a higher number of
claimants are only short-term policyholders, or that policies are more bespoke, leading to a
requirement that the overall claims service is able to cope with this variety of customers and
policies.
Sharing of data
Data can be shared to provide insights to drive product development and sales. Data sharing
can also be used to counter fraud. For instance, big data analysis can provide typical
patterns and what a claim should look like for a given policyholder; variations from this
pattern will allow insurers to focus their claims investigations.
Driving efficiencies
AI can be used to remove the mundane and routine tasks thereby allowing staff to focus on
the more complex issues.
Fraud detection
The quantity and quality of data assists in the detection of potential fraud, but, also, in the
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identifying of those risks where the level of trust is high and minimal investigation is required.
Research exercise
Review your organisation’s approach to digital technology. Is it being embraced by the
organisation or resisted? Having read the articles recommended, how well placed do you
feel your organisation is to leverage the benefits of technology?
E4 Impact on the claims strategy

E4A Telematics
The data from telematics or dashboard cameras provides information that can make the
assessment of liability much easier and less contentious, meaning less time is taken to settle
claims and there is less litigation. This equipment may also alert appropriate authorities if an
accident has occurred, perhaps leading to reduced consequences from injuries. Insurers
could also be notified to allow proactive handling of the claim. Most bus companies, for
example, use telematics as a means of addressing liability issues relating to accidents.
E4B Internet of things

The data/sensors are being used to detect smoke or water leaking. By alerting the customer
to the event these are likely to lead to a reduction in the damage incurred. Imagine the
scenario of someone away on a two week holiday, who suffers a leaking pipe in the loft.
Currently they would return to a house with potentially severe water damage. With this alert
system, however, the damage could be significantly reduced.
There could also be the opportunity for insurers to be notified when an incident is detected.
This would allow insurers to be proactive in contacting the customer before the claim
is made.
E4C Big data
The data which insurers hold will inform them of their customer’s lifestyles choices and this
could inform the supplier an insurer chooses to use or partner with. Equally, the quality of the
claims conversation with the customer can be more meaningful, because the level of
knowledge about the customer is much deeper.
By using big data analysis, claims functions will be able to have a view as to what a claim
from any given customer should look like. The investigation of the claim would then look at
why there are any differences, if any, in the claim presented.
Big Data in retail general insurance
The FCA has previously conducted a consultation on big data in retail general insurance. It
concluded at that time that firms’ use of date was broadly working well, but raised concerns
around the implications for data protection, pricing practices and risk segmentation. The FCA
consulted with the Information Commissioner’s Office (ICO) on data protection and
conducted its own research on pricing practices. It intends to remain alert to the potential
exclusion of higher risk customers and will take action should it become an issue.
FCA research
Technology, big data and AI all feature on FCA's agenda for research.
On the Web
You can download a pdf of the research agenda at: www.fca.org.uk/publications/
corporate-documents/fca-research-agenda.
The FCA states that artificial intelligence and big data are transforming the financial industry
and it needs to:
• understand how these developments are shifting market economics;
• understand the resulting benefits and harms and implications for regulation; and
• continue to capture new opportunities to use big data and advanced analytics as a
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regulator.
The FCA observes that the possibilities to harness AI to better understand markets, design
effective regulation, and operate more efficiently are growing.
Research exercise
You may like to read some of the FCA's insight publications, some of which include a
number of articles on the topics of AI and big data: www.fca.org.uk/insight
E4D Staff skills and expertise

The skill set of staff will need to change to enable full interaction between staff and the
technology to deliver the best outcome for the customer, for instance ensuring big data is
accurately interpreted and used to provide a competitive advantage to the claims function.
This will lead to an emphasis on analytic skills.
E4E Suppliers and partners
It may be appropriate for organisations to work with partners and suppliers to access
technology in the short-term whilst in-house expertise is developed.
The Mckinsey report: Claims in the digital age: how insurers can get started states that
digitizing the claims function holds tremendous potential. However, they make it clear that
current organisations must move quickly, as there are new entrants to the market that are
using digital applications and turning the process of buying a policy or submitting a claim into
a fast, simple and satisfying experience.
McKinsey recommends that, if organisations want to capture the value of digital, they must
embark on a transformation to become a customer-centric, digitally-enabled organisation.
They will need to excel in the three key areas of claims:
• customer experience;
• efficiency; and
• effectiveness.
McKinsey suggests that a digital claims function can boost performance in all of these
three KPIs.
Research exercise
Please read the Mckinsey report: Claims in the digital age: How insurers can get started,
which outlines a suggested process for a claims organisation to achieve a successful
digital claims transformation: www.mckinsey.com/industries/financial-services/our-insights/
claims-in-the-digital-age.
Once you have read the report and completed your own research, review your claims
strategy and, linked to your organisation's strategy for digital technology, identify
opportunities in it to maximise the benefits of digital technology in the claims function, as
outlined in the McKinsey report.
We can see that there are opportunities for the cost of claims to be reduced as a result of
some of the digital options. The claims function would also be able to offer a more proactive
and personalised service to customers.
F Emerging risks
In this rapidly advancing world, and with technology developing at an ever increasing rate,
there are many emerging risks for insurers, brokers and other organisations with claims
functions to consider, as policy wordings, for example, struggle to keep pace. Some of the
emerging risks include:
• cyber-crime, including data breaches;
• drones;
• exposure to the sun;
• synthetic biology;
• business interruption – non-physical damage;
Chapter 8
• autonomous cars; and

• climate change.
F1 General issues for the claims strategy

Interpretation of the policy wording for these emerging risks may be more complex, either
due to the policy wording itself or the subject matter involved. There may be less information
and knowledge available, either in the claims function or generally, due to the ‘newness’ of
the risk, e.g. synthetic biology.
The number of claims handled per staff member may well be lower due to the nature of the
claims and whilst knowledge and expertise is built up. There is likely to be increased
litigation and/or complaints as policy wordings are tested and liability issues resolved.
The claims team will need to build up its expertise in the handling of these claims. If we
consider how expertly insurers now handle flood or fire claims, we will see how expertise as
to the best way of handling these claims for all stakeholders has been built up over a number
of years. There may be less choice of suppliers for similar reasons, i.e. the knowledge and
expertise may not be available.
F2 Cyber security
Before studying this section you may find it useful to read UK Cyber Security: The role of
insurance in managing and mitigating the risk.
On the Web
You can find this document at: bit.ly/1DORQR5.
As part of the investigation for this report, it was found that 81% of large organisations and
60% of small to medium enterprises (SMEs) suffered a cyber security breach in 2014. It also
found that the average cost to business of such breaches has nearly doubled since 2013.
Example 8.10
In June 2016, the Bank of England ordered banks to review their cyber security after the
Swift heist, when an unidentified group were able to steal US$81million from Bank
Bangladesh.
Source: Reuters uk.reuters.com/article/uk-cyber-heist-bankofengland/exclusive-uk-
banksordered-to-review-cyber-security-after-swift-heist-idUKKCN0Y92K0.
Insurers now allow experts from forensic consultants access to determine the nature of a
breach and use legal and reputation experts to help insureds respond to an incident.
On some occasions, claims are exceeding the policy limits, which are proving to be
inadequate. Insurers are struggling to offer higher limits as there is insufficient data on cyber
losses. This can add challenges to the claims process as the policyholder becomes self
insured for a part of the loss.
There is increasing pressure on insurers, for example, to offer cyber cover and more players
are entering the market. However, Hans Allnutt, partner and head of DAC Beachcroft’s
technology, media and information risk service line, believes that having a cyber policy is
rapidly becoming a hygiene factor for insurers. He says he has seen some insurers lose
business because they cannot provide cyber cover.
Example 8.11
Here are some of the largest and most high profile data breaches in numbers.
Company name Date Breach details
eBay February/March 2014 Personal data of up to 145m customers
Anthem January 2015 Personal details of 80m customers
Chapter 8
Sony April 2011 Personal data of up to 77m PlayStation users,
including credit card information
Target November/December 2013 Credit card information of 70m customers
The Home Depot September 2014 Credit card information of 56m customers
Source: Post Magazine, 8 October 2015

For a recent example see: www.bbc.co.uk/news/technology-52722626.
Data breaches in 2015

Cause of breach Proportion of all breaches
Unintended disclosure of records, such as misdirected email 24%
Hacking or malware 32%
Loss of non-electronic physical records 16%
Breaches involving third party vendors 18%
(Source: Post Magazine, 17 March 2016)

F2A Cyber risk and the air industry

This is a growing area of interest as the risk profile for aeroplanes and carriers increases.
There have been a number of incidents unrelated to flying, such as the breach of bank
accounts experienced by Ryanair. Modern aircraft are increasingly connected to the internet,
meaning there is a potential opportunity for unauthorised remote access to aircraft avionics
systems.
Remote hacking and Wi-Fi attacks are a risk to the flight control systems, and Wi-Fi
networks offer a new opportunity for hackers to compromise an aircraft’s command centre.
Currently, a cyber policy does not cover the personal injury or property damage that could
occur if a plane is compromised due to a malicious breach. This risk may be more
appropriately dealt with in the aviation market.
Although there is a lack of experience, this presents an opportunity for the brokers and the
underwriters of the aviation and cyber markets to work together.
On the Web
www.ncsc.gov.uk/section/about-ncsc/what-we-do.
F3 Drones
Drones are increasingly used in a personal and commercial capacity. As their use in the
personal market increases, there will be a greater demand for insurance. There have already
been a number of incidents where drones have hit people and buildings, been involved in
near-collisions with airliners and impeded efforts to fight wildfires.
The commercial use of drones is also rapidly increasingly and they are being used in a wide
variety of ways. For example, San Diego State University is exploring the opportunity to use
drone data to quickly detect damage, cracks or instability in buildings and infrastructure. It
compares differences between images taken after an earthquake or hurricane with those
collected prior to the event.
In the UK, there are calls for tighter regulation and clearer definitions around drone activity.
This is likely to create more accountability and an increased demand for insurance products.
The key areas for consideration are:
• security;
• privacy;
• insurance; and
• liability.
Research exercise
Chapter 8
Carry out your own research into drones, investigating:

• How are they currently being used on an international basis?
• What are the risks associated with drones?
• What are the current insurance products available?
• If your own organisation were to offer an insurance product for drones (assuming they
don’t already) what would be the implications for the claims strategy?
F4 Exposure to the sun

Could claims for illness or disease following too much exposure to the sun be the next ‘big
thing’ to hit the insurance industry? The dangers of ultraviolet (UV) radiation exposure are
now well established, and there are a number of occupations where employees are exposed
to higher levels of UV radiation, such as:
• construction workers;
• outdoor cafes and bars;
• delivery drivers; and
• gardening and maintenance staff.
Current guidance from the Health and Safety Executive indicates that UV exposure should
be considered as part of the usual risk assessment.
Between 2000 and 2012 there were 1,970 reported employee claims for sun-related damage
or injury in Australia, at a cost of A$63 million.6 So far, there have been no reported cases in
the UK, but claimant representatives are beginning to advertise occupational skin cancer
claims within their areas of expertise.
It is not yet known how the UK courts will treat claims for sun exposure. In a similar way to
other disease claims it is likely there will always be a number of employers and consideration
may need to be given to non-occupational exposure as a child or during summer holidays
and what length of latency period will be established – if any at all.
Research exercise
You might like to read Skin Cancer and Outdoor Workers and Re-think needed on
workplace cancers, both published by the TUC at www.tuc.org.uk.
Research exercise
If your claims function were to start receiving claims as a result of sun exposure, what
would be the implications for the claims strategy, while these claims are still in the infancy
and have not been tested in the UK courts?
What actions would you take in the short term and the long term? What information would
you be providing to actuaries?
F5 Business interruption cover: non-physical damage

A non-physical damage business interruption (BI) policy has been launched into the market.
This policy is aimed at covering the global risk of terrorism, e.g. when a business suffers a
loss because it is forced to close as a result of bomb threat.
This type of scenario was seen during the terror attacks in Paris in 2015 and Belgium in
2016, where large parts of the city were cordoned off/shut down, whilst the search for the
perpetrators was pursued. As a result, businesses were not able to trade, but had not
suffered physical damage.
F6 Synthetic biology
The risk of potential misuse of synthetic biology, either innocently or deliberately, was
recognised in the Global Risks 20157 report, produced by the World Economic Forum.
Synthetic biology builds on the principles in other forms of biotech, such as genetic
engineering and bioscience. It allows a scientist to build DNA sequences from scratch, using
them to create organisms that did not previously exist.
There are immense potential opportunities for the use of synthetic biology. For example, the Chapter 8
use of modified E.coli bacteria to turn sugar into an oil that is almost identical to diesel, or in
the treatment of cancers and other life threatening illnesses.
Research into public opinion suggests that the public are, in the main, supportive of the
development of this technology, subject to conditions as to how and why it is conducted. It is
clear that reassuring the public is key to its future development and insurance can play a
valuable role. For instance, if a project required liability insurance to go ahead, this would
ensure completion of an assessment of the risks involved.
Research exercise
Research synthetic biology.
What do you think are the risks posed by it?
Which risks do you think the insurance market could handle?
What would be the implications for the claims strategy?
F7 Autonomous cars
As the development in autonomous cars continues, the prospect of them being on our roads
is rapidly becoming a reality. Of course there are several elements of many cars that are
already autonomous, such as:
• cruise control and adaptive cruise control;
• autonomous emergency breaking; and
• parking and lane-keeping assistance.
The question for the insurance industry is: where will liability rest for accidents that arise
when the car is in autonomous mode? Volvo have recently confirmed it would accept full
liability whenever one its vehicles crashes while in autonomous mode and other
manufacturers have followed suit.
Consider this…
What are the implications for the public and product liability insurers of automobile
manufacturers?
The introduction of autonomous cars will change the face of motor and liability insurance.
Motor insurers will need to consider their pricing model: the theory suggests that
autonomous cars are safer as the human element has been removed from the equation.
Liability insurers for motor manufacturers, and the associated software companies, may well
find themselves dealing with a whole range of claims, for which they do not have the
necessary expertise and knowledge, e.g. personal injury claims flowing from manufacturing
errors. Will these claims functions have to consider outsourcing as a strategy to facilitate the
handling of these claims?
Legislation may have to change, as currently motor insurance is compulsory in respect of
third party liabilities, whilst public and product liability insurance is not compulsory.
On the Web
CII Think piece no 118: The road to autonomy: driverless cars and the implications for
insurance:
bit.ly/2hDam7h (search for 'driverless cars').
Note: you will need to be a member of the CII to access this content.
Law reform and automated vehicles

The Law Commission of England and Wales and the Scottish Law Commission have
launched a series of public consultations about the key legal reforms which will be required
Chapter 8
to ensure the country is prepared for the introduction of automated vehicles. The findings will
feed into the transport regulations of the next generation.
The work will be crucial in examining how current driving laws – designed with traditional
motoring in mind – can support the next generation of vehicles.
On the Web
Further information on the Law Commissions' consultation can be found at:
www.lawcom.gov.uk/project/automated-vehicles/.
F8 Artificial intelligence
Artificial intelligence (AI) is changing the way in which the insurance industry operates. It can
also be considered as an emerging risk, and this is what we will focus on here. When
Chinese scientists unveiled Jia Jia, a human like robot, they predicted that within a decade
artificially intelligent robots could be performing menial tasks in restaurants, nursing homes,
hospitals and households.
A consideration for the insurance industry is: if a robot causes harm, who is to blame? There
are a number of different parties involved in creating a robot, such as the algorithm designer,
coders, manufacturers, owner of the data sets and the owner of the robot. When will
manufacturer liability end and user liability begin? This question is made even more complex
by the fact that the robots learn from their environment.
Underwriters will have to try and identify any unseen risks where AI is being used and this
will add an extra level of complexity to underwriting and potentially produce unexpected
claims. There might be a shift of balance from traditional claims, as the following
example shows.
Example 8.12
In a care home a robot hits a patient because it misjudges their behaviour. This creates a
potential claim.
On the other hand, if the number of human workers is reduced, the claims exposure to
certain risks, such as abuse claims, lifting injuries and incorrect administrations, is
reduced.
F9 Climate change
Before studying this section, please read CII Policy Briefing: Paris Climate Change
Conference: Issues for the insurance sector by Dr Andrew Dlugolecki.
On the Web
You will find this Policy Briefing here:
www.cii.co.uk/news-insight/insight/articles/paris-climate-change-conference-and-its-
implications-for-insurance/39538.
Strategic claims management decision: Climate change

What are the long-term implications of this report for the claims function and its strategy?
As a senior manager responsible for the claims function, what strategic steps would you
be taking in respect of climate change issues?
References Chapter 8
1. PWC report: Unlocking the value in run-off (pwc.to/2dCfisZ)
2. Post Magazine 5 November 2015, p.18.
3. Post Magazine 5 November 2015, p.19.
4. Fortune: fortune.com/2014/11/17/top-10-research-development/
5. Post Magazine 19 November 2015
6. Fletcher, L. Post Magazine 2 July 2015
7. Global risks report 2020 The World Economic Forum (www3.weforum.org/docs/
WEF_Global_Risk_Report_2020.pdf)
On the Web
www.accenture.com
www.actuaries.org
Lloyd’s Market Association: www.lmalloyds.com
Additional reading
Amended Run-Off Guidelines Lloyd’s Market Bulletin (bit.ly/2eo6SV4)
Catastrophe Modelling and climate change, Lloyd’s (bit.ly/1HRhtCe)
Emerging Risks Report 2015 – Business Blackout, Lloyd’s report, July 2015 (bit.ly/
1CsmHDr)
CII Publications
Big data and insurance: a conversation – A CII research report
Disruptive Influences: Technology, politics and change in the financial sector CII
publication CICERO, January 2016
One ‘near miss’ too many? Drone safety issues and possible solutions: an airspace user
view: CII Think piece no.119
G Scenario 8: Digital technology

G1 Question
XYZ Broker, which predominantly handles commercial property insurance, has identified that
it has not really embraced the full benefits of digital technology. It only has a website that
provides details of policies which, within certain criteria, it is possible to purchase online.
As the new head of claims, you have been asked to prepare a report outlining the benefits of
a comprehensive digital strategy, both to the organisation and the claims function.

Aim
This scenario aims to test your understanding of how digital technology can support the
achievement of the strategy.
You will find it useful to complete some wider reading in respect of the opportunities for
digital technology and to carry out some research into other organisations.
Your answer should:
• outline the possible 'things/offerings' that digital technology could bring to the
organisation; and
• with specific reference to claims, outline in what ways digital technology could support the
claims strategy.
Chapter 8
Self-test questions
1. What is the definition of business continuity as defined by ISO 223300?
2. What are some of the key risks that could lead to an organisation implementing the
BCP plan?
3. How would you define modelling?
4. What are the key reasons for modelling?
5. How can the outcome of modelling be limited?
6. What benefits can an organisation expect to achieve from having a significant

number of life term customers in its portfolio?
7. A high volume of life term customers will provide stability for the claims strategy by
providing predictability in which two areas?
8. By what other name can a run-off account be called?
9. What reasons are likely to contribute to the continued growth of the run-off market?
10. Provide five reasons an organisation could decide to cease writing a certain line of
business.
11. What options does an organisation have in respect of how it handles a run-off
account?
12. What are the challenges which the handling of a run-off account can present,
compared with an active account?
13. How would you describe the internet of things?
14. What are some of the challenges for insurers embracing technology?
15. What could be the benefits of digital technology?
16. How can big data impact on the claims strategy?
17. Can you name five of the key emerging risks?
18. What are some of the key issues in respect of these emerging risks for the claims Chapter 8
strategy?
19. What autonomous features are currently available in cars?

Appendix 1
Appendix 1
Assessing and developing
your own leadership skills
Leadership skills
Skills Current ability – score 1 to 10 Suggestions for developing those skills

i
Chapter 1
self-test answers
1 A value chain is a sequential chain of the main activities of an organisation.
2 The two uses of a value chain are:
• differentiation analysis: identifying ways of differentiating the product from
competitor's products; and
• cost analysis: identifying opportunities to reduce costs.
3 The formula for calculating margin is: value created and captured - cost of creating the
value = margin.
4 The primary activities in Porter's value chain are:
• inbound logistics;
• operations;
• outbound logistics;
• marketing and sales; and
• service.
5 The primary activities of the claims value chain are:
• notification of loss;
• triage;
• investigation;
• negotiation and settlement; and
• recoveries.
6 For a differentiation to be a benefit it must be something which is of value to the
customer, so they are willing to pay the price for that uniqueness.
7 The factors that influence a customer's view of value are:
• previous experience of an insurance claim;
• how involved they want to be in the claims process;
• the quality of the advice they need; and
• any help they may want if they have a large or complex loss.
8 Suppliers can impact on:
• service;
• quality of claims handling;
• reserving; and
• processes.
9 The range of products will influence the following elements of the claims strategy:
• use and choice of suppliers;
• the number, skills and knowledge of staff;
• the design and implementation of effective processes; and
• organisational structure and design.
10 The top five risks according to Aon are:
• damage to reputation/brand;
• economic slowdown/slow recovery;
• increasing competition;
• regulatory/legislative changes; and
• cyber-crime/hacking/viruses/malicious codes.
ii 996/November 2021 Strategic claims management
11 The potential consequences of not being able to attract and retain talented staff are:
• poor customer service;
• increased levels of leakage;
• reserving inaccuracy;
• reduced ability to innovate;
• limited succession planning.
12 There is likely to be a higher frequency of claims generated by those risks and the
claims could well be more complex, increasing the risk of leakage, higher indemnity
costs or regulatory breaches.
13 It may be necessary to adopt a stricter interpretation of policy wordings and to
negotiation.
14 Operational risk can arise from internal processes, people, systems or from external
events.
iii
Chapter 2
self-test answers
1 Type of Relative knowledge of Risk of harm Strategic considerations to ensure
customer insurance when interacting quality outcomes
with financial
services
Vulnerable Very low Highest Specific training and processes to protect

consumers and assist vulnerable customers.
Refer to FCA Guidance: www.fca.org.uk/
publications/finalised-guidance/guidance-
firms-fair-treatment-vulnerable-
customers.
Consumers Low, could be high if High Specific regulatory requirements to be

receiving professional delivered, e.g. complaint handling rules.
advice from a broker
Specific legal context, e.g. Consumer
Insurance (Disclosure and
Representations) Act 2020.
Need for appropriately skilled and trained
staff, measurement and monitoring of
quality of customer service and
outcomes.
Small to Moderate, high if Moderate Increasing attention of conduct

medium receiving professional regulators.
enterprises advice from a broker
Regulatory expectation of higher levels of
explanation, guidance, and reduction of
the lifecycle.
Enhanced importance of role of loss
adjuster.
Refer to FCA Thematic Review
www.fca.org.uk/publication/thematic-
reviews/tr15-06.pdf.
Commercial High Low Low regulatory impact on claims strategy,

enterprises consider impact of insurers contracting-
out of Insurance Act 2015 provisions.
Reinsurers Very high Lowest As above.
2 Commercial liability claims

• Lower conduct risk presented by this type of business, therefore, fewer conduct
regulatory requirements;
• relevance of prudential regulatory requirements likely to be the same or higher
given the potentially large claims and their financial impact on the organisation;
• process of due diligence, effective contract and monitoring; and
• all three steps likely to focus more on operational, financial risks presented by the
arrangement not conduct risk.
Student contents insurance claims
• The customers are likely to be consumers and therefore there will be enhanced
focus in the strategy on conduct risk;
• process of due diligence, contract and monitoring will still be followed;
iv 996/November 2021 Strategic claims management
• contract, service levels, measures and monitoring will need to include a range of
conduct-related points such as:
– protection of personal data,
– adherence to consumer regulation and law,
– quality of customer outcomes,
– speed, fairness of settlements, quality of communications,
– complaint rate and similar statistics, and
– root cause analysis.
3 High volume of varied business
• Claims strategy likely to need to accommodate the claims agreement practices of
the company market as well as Lloyd's market.
• May require agreement from numerous (re)insurers to get claims finalised. This will
carry an extra resource requirement and take time.
• High volume of claims transactions may mean an out-of-London service centre is
advantageous.
• Outsourcing or offshoring of administration may be considered.
• Greater investment in efficient IT systems may be considered.
• Could include delegated authority business requiring additional effort to comply
with requirements for conduct-related information and due diligence of
coverholders.
• Resource plan may need to account for multiple specialisms amongst the team of
claims brokers and technicians.
Low volume of specialist business
• Claims strategy may be to ensure there is a highly skilled claims team working with
a smaller number of carriers.
• Benefits of scale and consideration of outsourcing and technology options may be
less relevant.
• Strategic decisions may focus on level of claims service to clients and 'value add' in
return for higher commissions.
• If the specialism involves delegated authority, support of coverholders in helping
carriers meet their regulatory requirements may be a priority.
v
4 Requirement Extent to which framework helps managing agents to meet
Due diligence over the • Lloyd's approval of new syndicates includes review and approval of
delegated authority holder the claims function.
• Ongoing claims performance management by Lloyd's could represent
ongoing due diligence.
• Overall this aspect appears well discharged by the framework.
Written contract with the • Could be represented by the Lloyd's Claims Scheme (Combined) as
delegated authority holder referenced in the Market Reform Contract.
• Appears in the Subscription Agreement section which could be
construed as an agreement between the subscribing carriers.
• As a contract, the Claims Scheme does not contain required service
levels, data protection requirements etc. which means there is no
direct contract between the follower and the leader governing key
regulatory expectations.
• Reliance remains on other parts of the framework to ensure these
aspects of the relationship are managed.
Audit of the arrangement • Claims File Review will deliver audit of leaders' claims files and
covers:
– FNOL/triage;
– claims management;
– stakeholder communications;
– case reserve management;
– expert management;
– settlements;
– customer service and outcomes; and
– general file management.
• Essentially a comprehensive audit.
Management information to • Lloyd's Claims Reporting Suite provides managing agents with the
monitor the arrangement, ability to monitor how their follow claims are being handled, filtered by
including conduct related different leaders.
information
• Not all necessary information may be present, for example complaint
frequency.
• Follow managing agents may need to consider if this is a gap area.
vi 996/November 2021 Strategic claims management
Chapter 3
self-test answers
1 One or more of the sayings quoted, such as:
• 'The way things are done around here' (Deal and Kennedy 1982).
• 'Organisational culture is the collection of traditions, values, policies, beliefs and
attitudes that constitute a pervasive context for everything we do and think in an
organisation' (McLean and Marshall 1993).
• 'Shared patterns of behaviour' (Mead 1953).
• 'A set of basic assumptions which have evolved over time and are handed down
from one generation to the next' (Schein, 1985).
2 Schein's four levels of culture are:
• values;
• beliefs;
• behaviours; and
• taken-for-granted assumptions.
3 When searching for a change to strategy the leadership team are more likely to search
for what they can understand and cope with in the existing culture, resulting in an
incremental step change to the strategy when, perhaps, a more definitive change is
required.
4 This is the collective commonly held set of assumptions in an organisation or function.
These assumptions are often very basic and are rarely discussed, which can make
them difficult to identify, particularly from within.
5 Achieving the culture that will deliver a competitive advantage for a claims function
needs to balance the following demands:
• needs of the customer;
• speed of service;
• quality of service; and
• behaviours.
6 If you analyse the cultural web, you will see that leadership can influence all elements
of the web, for instance:
• Power structure: what symbols of power are there? Who makes things happen?
Who stops things happening?
• Control systems: the level of monitoring and control which is in place. Do staff feel
restrained and restricted or is there a degree of freedom and empowerment?
• Routines and rituals: what behaviours are encouraged, both internally and
externally and throughout the hierarchy? What sort of language is used in verbal
and written communication?
7 Corporate strategy is concerned with the overall scope of the organisation and how
value can be added to each part of the business.
8 The business strategy will set out how the business is going to compete within the
given industry or market; how it will deliver a superior performance to its competitors.
9 In strategic fit, Grant is highlighting how strategy provides a link between the
organisation and the external environment.
10 An emergent strategy is a set of actions of behaviour consistent over time: 'a realized
pattern [that] was not expressly intended' in the original planning of strategy.
vii
11 Grant proposes the following key elements in respect of delivering a successful

strategy:
• goals that are clear, consistent and long term;
• profound understanding of the competitive environment;
• objective appraisal of resources; and
• effective implementation.
12 Porter's framework analyses the threats of new entrants, supplier and buyer power,
substitutes and competition between firms, to understand the degree of competition in
the market and the attractiveness of an industry.
13 The key success factors are those factors which an organisation must identify if it is to
achieve competitive advantage in an industry. The factors to be considered are:
• those which influence the customer's choice in respect of the products they will
buy; what elements of the product or service is viewed as a minimum and what
makes them chose one brand over another; and
• the resources and capabilities required by an organisation if it is going to compete
successfully.
14 An organisation has a number of options available to them when considering structure
and these are:
• divisional;
• functional;
• project; and
• matrix.
15 Resources are 'what we have'. Capabilities are 'what we do well'.
16 The pillar approach can be used to map out and develop the strategy.
17 A culture that is no longer appropriate due to changes in the external environment or
changes in the strategy and has therefore become misaligned.
viii 996/November 2021 Strategic claims management
Chapter 4
self-test answers
1 Intangible resources are: reputation, technology, human resources and culture.
2 The claims function can influence the financial performance of the organisation by:
• consistency and accuracy in reserves;
• achievement of loss ratios, such as:
– combined operating ratio,
– claims ratio,
– loss ratio,
– expense ratio;
• budgetary management and control;
• effective use of suppliers;
• cost effective processes and effective use of resources; and
• delivering revenue.
3 Any six from:
• reliability;
• relationships;
• customer focus;
• business awareness;
• efficiency;
• self-organisation;
• initiative;
• compliance;
• judgment;
• self-development;
• team working; and
• technical knowledge.
4 They define them as those competencies that:
• make a disproportionate contribution to ultimate customer value or to the efficiency
with which that value is delivered; and
• provide a basis for entering new markets.
5 Threshold capabilities are those which are at a minimum level and are required for an
organisation to compete in its chosen market.
6 VRIO stands for: V = value, R = rarity, I = inimitability, O = organisational support.
7 To create a plan the following process should be adopted:
• identify resource requirements linked to the strategy;
• assess the current claims resources;
• undertake a gap analysis: identify the gaps between current state and desired
state; and
• develop a plan to fill the gaps.
8 When bridging a resource gap there are a number of options available, including:
• Build: e.g. increase the knowledge and skills of staff through training.
• Buy: buy the required resource from a supplier.
• Strategic alliances/partnership: work with someone who has the resource.
ix
9 The plan should include:

• what actions are to be done;
• why they are being done;
• who will do them;
• when they will be done - key timelines;
• what resources will be needed;
• the success criteria - measures; and
• monitoring mechanics.
10 Success may mean different things for different stakeholders and, therefore, it is
important to obtain a number of views from key stakeholders.
11 Assessment of the human resource will include:
• the numbers required;
• type of skills and expertise; and
• locations.
12 The ratios to include are:
• combined operating ratio;
• claims ratio;
• loss ratio; and
• expense ratio.
13 New teams: agility and energy; blank sheet of paper; lack of history.
Existing: hierarchy and bureaucracy, legacy systems, history - knowing what does and
doesn't work.
14 When designing IT systems some of the areas that need to be considered are:
• the transfer of data and information internally and externally;
• how the systems and processes can support the claims function in achieving
excellence in process design and a customer centric service; and
• the degree of intuitiveness built into the technology, to enhance system delivery
15 Things to consider include:
• the current location of offices;
• the suitability of the facilities for a centre of excellence; and
• whether they have the space and necessary infrastructure.
16 The skills and knowledge of the claims staff contribute as follows:
• the making of correct technical decisions;
• robust negotiation of claims settlements;
• delivery of a customer centric service;
• design of effective processes; and
• innovation.
17 The options available to close the gap include:
• outsourcing;
• partnership with suppliers; and/or
• recruitment.
18 The optimum process is one which ensures straightforward claims are handled as
quickly as appropriate, with the minimum 'touches', and which appears seamless from
the customer's perspective.
x 996/November 2021 Strategic claims management
Chapter 5
self-test answers
1 The key factors from a claims perspective that affect the balance sheet are:
• consistency and accuracy of reserves, including the release of reserves; and
2 The two elements of the recovery process are the accurate identification of potential
recoveries and the speedy recovery of monies due.
3 When they have a clear view of the liabilities, actuaries are able to advise on:
• the capital available for reinvestment in the business, including implementation of
the strategy; and
• reinsurance requirements to ensure that there is no over- or under-insurance.
4 The following are likely to be considered under operating costs:
• premises, including office furniture and equipment;
• staff salaries, including benefits;
• IT equipment; and
• training and development.
5 The claims function interacts with IT, underwriting, actuaries, human resources,
compliance and risk and sales and marketing.
6 There are a number of reasons why an organisation needs to assess its claims
reserves:
• FCA regulation;
• annual report and accounts;
• management control, including budgetary control;
• to determine future underwriting strategy;
• assessing reinsurance requirements; and
• ensuring sufficient funds are available to pay outstanding claims.
7 Actuaries need to know the:
• outstanding claims reserves;
• IBNR and IBNER reserves; and
• claims paid.
8 Actuaries will calculate the:
• capital provisions as required by Solvency II;
• funds required to pay current and anticipated future claims; and
• amount of capital available for further investment.
9 The following should be tracked when reviewing MI:
• inconsistencies;
• trends; and
• variations.
10 Financial management information is likely to include:
• loss ratios;
• reserving statistics;
• leakage results;
• triangulations; and
• regulatory required information.
xi
11 Possible causes of a higher indemnity spend include:

• legislative or case law developments;
• supply chain capability;
• capability issues, e.g. knowledge and skills of staff;
• number of staff relative to workload;
• claims philosophy;
• catastrophe events; and
• processes.
xii 996/November 2021 Strategic claims management
Chapter 6
self-test answers
1 The four processes in Kotter's comparison of leadership with management are:
• vision establishment;
• human development and networking;
• vision execution; and
• vision outcome.
2 Boddy's four tasks are:
• controlling;
• planning;
• leading; and
• organising.
3 A collaborative leader:
• Vision: builds and shares a vision.
• Influence: facilitates.
• Domain: uses informal networks.
• Focus: is on ideas and knowledge.
4 The eight practices followed by effective leaders were that they:
• asked: 'What needs to be done?'
• asked: 'What is right for the enterprise?'
• developed action plans;
• took responsibility for decisions;
• took responsibility for communicating;
• focused on opportunities rather than problems;
• ran productive meetings; and
• thought and said 'we' rather than 'I'.
5 The emotional intelligence skills are:
• self-awareness;
• self-regulation;
• motivation;
• empathy; and
• social skills.
6 The power matrix can be used to analyse:
• Attention: the extent to which stakeholders are likely to attend to each particular
strategic issue.
• Power: the power each stakeholder has to influence strategy.
xiii
Chapter 7
self-test answers
1 The impact of the time dimension means that actions taken in the previous quarter or
year are likely to have contributed to current profitability. Therefore, actions taken now
will impact on the efficiencies and financial results in the forthcoming periods.
2 Senior managers should reflect on the links between the quadrants and the measures
inside the quadrants, in particular:
• the strength of those links;
• the time delays; and
• the reliability of those links in light of external competition and change.
3 Any six from:
• identifies areas for improvement across measured areas;
• validates the implementation of processes;
• identifies the development needs of staff;
• provides a view of the quality of the technical decisions made;
• validates compliance with FCA regulation;
• validates financial measures; and
• identifies opportunities for improvement.
4 It may be appropriate to weight some of the questions to reflect their level of
importance.
5 Internal audits are likely to include the following areas:
• financial integrity of processes;
• leakage;
• reserving; and
• process application.
6 Encouraging creativity and innovation provides:
• competitive advantage;
• increased customer satisfaction;
• improved turnover and profits;
• improvements in staff morale; and
• sustainability.
7 Adair suggests the following:
• management commitment;
• positive strategic change;
• a long-term perspective;
• flexibility to deal with change; and
• accepting the possibility of risk.
8 If teams are to take advantage of being culturally diverse, then they need to be
competent at working together, able to understand differences and to communicate
effectively.
9 Organisations can inhibit creativity through:
• a culture of negativity;
• discouraging risk taking;
• having too many rules and regulations;
• keeping everyone so busy they have no time for quality thinking;
• too much analysis applied to new ideas in the early stages; and
• lack of incentivisation.
xiv 996/November 2021 Strategic claims management
10 Double loop learning involves the challenging of assumptions and mindsets.

11 Scholes suggests target training and development, staffing policies, organisational
learning and developing people's awareness.
12 Senge's five disciplines are:
• personal mastery;
• mental models;
• shared vision;
• team learning; and
• systems thinking.
13 Systems thinking involves the understanding of a system by examining the links and
interactions between the components making up the defined system.
14 Ethical standards are concerned with doing the morally right thing in a set of given
circumstances. They are concerned with behaviour and conduct and the ability of a
professional to step back from issues of self-interest and provide competent,
independent advice in the best interests of the client. It is more than just following the
regulatory rules.
15 The individual factors in Boddy's ethical decision making model are:
• stage of moral development;
• ego strength; and
• locus of control.
16 The contextual factors are:
• work group norms;
• incentives; and
• rules and regulations.
17 Any five from:
• the 'triple bottom line';
• ethical management and leadership;
• Fairtrade;
• globalisation – addressing its negative effects;
• sustainability;
• corporate governance;
• social enterprise;
• mutuals, co-operatives, employee ownership; and
• life/work balance, the psychological contract.
xv
Chapter 8
self-test answers
1 ISO 223300 defines business continuity as: 'capability of the organization to continue
delivery of products or services at acceptable predefined levels following disruptive
incident'.
2 Operational risks such as flood or fire, terrorist threat, e.g. security alerts, IT risks,
such as a cyber-attack, financial or regulatory risk, e.g. the FCA restricting trading.
3 Modelling refers to the prediction of events and exposure to (re)insured and uninsured
events.
4 The key reasons for modelling are:
• risk pricing;
• portfolio management; and
• capital requirements.
5 The data used and the model.
6 Life term customer provide the following benefits:
• reduction in costs;
• stability of portfolio;
• expertise;
• building strong relationships; and
• risk mitigation.
7 The number and type of claims.
8 A run-off account can also be known as discontinued or legacy business.
9 The run-off market is likely to grow because of:
• ongoing world-wide economic pressures;
• regulatory requirements leading to stricter capital requirements;
• an improvement in value and risk based portfolio management techniques, which
allows managers to make quicker decisions with regard to the continuation of an
account; and
• emerging markets, such as BRIC.
10 Any five from the following list:
• choosing to focus on core business;
• mergers and acquisitions;
• focus capital on growth accounts and/or segments which are most promising;
• Solvency II demands make some business segments less attractive, in that there
are more stringent capital requirements;
• insufficient capital to achieve Solvency II;
• insolvency of the organisation; and
• the inability to purchase reinsurance for the class of business or territory.
11 The options an organisation has are to:
• handle the account internally;
• outsource to a specialist provider; or
• sell the run-off book to a specialist organisation.
12 The challenges faced by a run-off account include:
• large number of legal entities;
• many legacy IT systems;
• limited quality of data; and
• the motivation and development of staff.
xvi 996/November 2021 Strategic claims management
13 The internet of things involves communication and interaction between networked

devices that use sensors to relay information across the network.
14 The challenges facing insurers can be summarised as:
• culture;
• budgets;
• low profit margins;
• lack of research and development;
• infrequent customer engagement;
• legacy systems;
• lifestyle choices; and
• protection and sharing of data.
15 The benefits of digital technology include:
• risk improvements;
• improved conversations with customers;
• flexibility of product; and
• sharing of data.
16 Help with the choice of suppliers and partners; more meaningful conversations; can
also help analyse where the investigation should be focused.
17 Any five from the following list:
• cyber-crime, including data breaches;
• exposure to the sun;
• synthetic biology;
• AI;
• autonomous cars;
• business interruption, non-physical damage; and
• climate change.
18 Challenges in respect of the interpretation of the policy wording, less knowledge in
respect of the risk, few claims so it is harder to build up expertise, increased litigations
as policy wordings are tested, less choice in respect of suppliers with the knowledge
and expertise.
19 Cruise control and adaptive cruise control, autonomous emergency braking, parking
and lane-keeping assistance.
xvii
Legislation
B
Bribery Act 2010, 1F8D, 7C
C
Consumer Insurance (Disclosure and
Representations) Act 2012, 2A2A
D
Data Protection Act 2018, 1F8A, 2A2C
E
Enterprise Act 2016, 1F8A
G
General Data Protection Regulation, 1F8A,
2A2C, 8E2A
I
Insurance Act 2015, 2A2A, 5B1C
T
Transfer of Undertakings (Protection of
Employment) Regulations 2014, 2B2C
xviii 996/November 2021 Strategic claims management
xix
Index
A claims resources
(continued)
accepting the possibility of risk, 7B1A assess current, 4D2
actuarial, 5B2 claims strategy, 3I, 3I4A
analysis and results comparison, 7A2C and digital technology, 8E
analysis of resources, 4A and run-off, 8D4
anticipating change, 6D1A general issues from emerging risks, 8F1
artefacts, 3J impact of digital technology, 8E4
artificial intelligence, 8E1D impact of life term customers, 8C2
artificial intelligence (AI), 8F8 impact on enterprise risk management, 1F5
audit, 2B2D risks it can influence, 1F7
or file review, 2B1C claims value chain, 1B1, 7C4
autonomous cars, 8F7 climate change, 8F9
closing the loop, 7A2E
cloud computing, 8E1C
B cognitive restructuring, 3J2
balance sheet, 5A collaborative leadership, 6B4
balanced scorecard, 7A1 common elements in successful strategies, 3F
behaviours, 3A1 communicating, 6C1E
beliefs, 3A1, 3J communication, 7A2D
benchmarking, 7B5 plan, 4D4F
benefits of life term customers, 8C1 skills, 6D4
big data, 8E1D, 8E4C company market, 2C5B
in retail general insurance, 8E4C competence frameworks, 4B2C
budgets, 8E2A competitive advantage
building expertise, 8C2 assessing claims capabilities for, 4C
building strong relationships, 8C1 relationship to resources and capabilities, 4A
business continuity planning (BCP), 8A using VRIO to assess capabilities, 4C1A
benefits of, 8A1B competitive strategy, 3I2
six-step process, 8A1 resources and capabilities as, 3H
what is, 8A1 complaints, root cause analysis, 2A2B
business interruption, 1F8B conduct regulation, 2A, 2A2
non-physical damage, 8F5 and customers, 2A2A
business opportunities, 6D1A conflict of interest, 7C7
business strategy, 3E2B consistency and accuracy of reserves, 5A2
development of, 3G5 continuous business improvement, 7B
relationship with corporate and operational contract, the, 2B2C
strategies, 3I2 control systems, 3B, 3D
buyer power, 3G2 controlling, 6B2E
core competences, 3H, 4C
corporate culture, 3A
C corporate social responsibility, 7C1
corporate strategy, 3E2A
capabilities, 3H
relationship with business and operational
appraising, 4D3A
strategies, 3I2
using VRIO to assess competitive advantage,
cost analysis, value chain, 1E
4C1A
creativity, 6D1A
capital requirements, 8B1A
and innovation, 7B1
case reserving, 2C2D
inhibitors, 7B1C
cash flow and management, 8D4B
cultural web, 3B
cat modelling, 8B
culturally diverse teams, 7B1B
cause and effect analysis, 5C2B
culture, 4B2D, 4C, 4D1B, 4D2B, 4F6, 8E2A
cause and effect assumptions, 7A1C
analysis of, 3B
changing cultures, 3J2
and quality audits, 7A2F
characteristics of an innovative organisation,
and strategy, 3J
7B1A
changing, 3J2
CII Code of Ethics, 7C2
corporate, 3A
claim settlements, 5B1C
defining, 3A1
claims capabilities
influence on the strategy, 3A2
assessing for competitive advantage, 4C
organisational performance and, 3C
claims file reviews, 2C2C
service, 3C1
claims handling, 2C2E
cultures
claims leader
industry, 3B1
day in the life, 6A1
sub, 3B2
role of, 6A
customer engagement, 8E2A
claims resources, 4B
customer service, 7A2B
xx 996/November 2021 Strategic claims management
customer’s industry, 6D1A F

customer’s perspective, 1C1
customers failure to attract or retain talent, 1F8G
benefits of life term, 8C1 failure to innovate, 1F8H
improved conversations with, 8E3 file review, 2B1C
life term value, 8C finance, 5B2
strong relationships and trust, 8C2 financial claims information, 5C
cyber risk and the air industry, 8F2A financial measures, 7A2B
cyber security, 8F2 financial relationship with other internal
functions, 5B
financial resources, 4B1B, 4C, 4D1A, 4D2A
D fishbone diagram, 5C2B
dashboards, 7A2C flexibility of product, 8E3
data limitations, 8B2B flexibility to deal with change, 7B1A
data protection, 2A2C focus, 6B4D
decisions, 6C1D fraud, 1F8D
delegated authority, Lloyd’s rules, 2C3 detection, 8E3
delegating claims authority, 2B2 functional strategy, 3E2C
demand perspective, 1C1
developing a plan to deliver the resources, 4D G
developing action plans, 6C1C
developing the capability of people, 7B4 gap analysis, 4D3
differentiation develop a plan to fill the gaps, 4D4
demand perspective, 1C1 generic considerations, 4F1
supply side, 1C2 Goleman, Daniel, 6C2
differentiation analysis, 1C growth strategy, 1F5A
digital technology
and the claims strategy, 8E
and the insurance industry, 8E2
H
benefits, 8E3 human resource management, 1A3B
impact on claims strategy, 8E4 human resources, 4B2C, 4C, 4D1B, 4D2B,
disconfirmation, 3J2 5B4
discontinued business, See run-off number, skills and expertise, 4F4
distinctive capabilities, 4C1
distinctive competence, 4C
domain, 6B4C I
double loop learning, 7B2
improved conversations with customers, 8E3
challenges of, 7B2A
improvement of risk, 8E3
driving operational efficiencies, 8E1D
inbound logistics, 1A3A
drones, 8F3
increasing competition, 1F7B
Drucker, Peter F., 6C1
indemnity costs, 5A1
due diligence, 2B2B
industry analysis, 3G
dynamics of the industry, 6D1A
industry attractiveness, 3G1
industry cultures, 3B1
E industry rivalry, 3G2
influence, 6B4B
effective executive, what makes an, 6C1 influencing skills, 6D2C
emergent strategy, 3E4B influencing through the task of managing, 6B2
emerging risks, 8F information needed by underwriters, 5B1A
general issues for the claims strategy, 8F1 information technology (IT), 5B5
emotional intelligence (EI), 6C2 infrastructure, 1A3B
empathy, 6C2D infrequent customer engagement, 8E2A
employment practices, 1F8F inimitability, 4C1A
enterprise risk management (ERM), 1F1 innovate, failure to, 1F8H
impact of claims strategy on, 1F5 innovation, 7B1
environment analysis, 3G, 3G3 creating the right climate, 7B1A
equipment, 4B1A innovative organisations, characteristics of,
espoused beliefs and values, 3J 7B1A
ethical claims management, 7C insurance, 1F2
and profit, 7C4E insurance value chain, 1B
benefits of, 7C4D intangible resources, 4B2, 4C, 4D1B, 4D2B
implementing, 7C4C intended strategy, 3E4A
ethical decision making model, 7C5 internal audits, 7A3
ethical management, 7C6, 7C8 international variations in regulation, 2A3
what is, 7C4 internet of things, 8E1A, 8E4B
ethical standards, 7C3 interpreting management information, 5C2
expertise, 8C1 IT and technological systems, 4F2
exposure to the sun, 8F4
external environment, 6B2A
xxi
K meetings, making productive, 6C1G

MGA model, 1B1A
key performance indicators (KPIs), 2B1B milestones, 4D4F
key strengths, 4D3A misalignment, 3J1
key success factors, 3G4 model limitations, 8B2A
key weaknesses, 4D3A modelling, 8B1
knowledge resource, 6D1A and the claims strategy, 8B3
limitations of, 8B2
potential contribution and limits, 8B
L purpose of, 8B1A
large number of legal entities, 8D4 moderation, 7A2B
leader monitoring, 4D4H
claims, 6A motivation, 6C2C
what makes, 6B, 6C2 and development of staff, 8D4
leaders v. managers, 6B1
leadership, 3D N
role in strategy development, 3E5
leadership skills, 6D network
leadership theories, 6C benefits of a strong, 6D1A
leading, 6B2D spread of, 6D1B
learning organisations, 7B6 networking, 6D1
legacy business, See run-off ways of, 6D1C
legacy IT systems, 8D4, 8E2A
legal and compliance, 5B6
life term customers
O
benefits of, 8C1 offshoring, 1F7A
impact on claims strategy, 8C2 operating costs, 5A3
life term value of customers, 8C interaction with claims strategy, 5A4
lifestyle choices, 8E2A operational risks, 1F8
limited quality of data, 8D4 operational strategy, 3E2C
Lloyd’s relationship with corporate and business
Claims Management Principles and Minimum strategies, 3I2
Standards, 2C2B operations, 1A3A
claims performance management framework, opportunities not problems, 6C1F
2C2 organisational design, 3G6
delegated authority rules, 2C3 organisational performance and culture, 3C
Minimum Standards on Conduct Risk, 2C4 organisational structure and design, 4F3
role in claims regulation, 2C1B organisational support (VRIO), 4C1A
Lloyd’s market, 2C5B organising, 6B2C
London Market other internal functions, financial relationship
regulation, 2C with, 5B
regulatory context, 2C1 outbound logistics, 1A3A
London subscription market, See subscription outsourcing, 2A1C
market regulatory risk from, 2B2A
long-term perspective, 7B1A
loss adjusters, 1B1B
loss ratios, 1F5C P
low profit margins, 8E2A
paradigm, 3B
people, developing the capability of, 7B4
M performance management, 5B4C
performance, measure and manage, 7A
making meetings productive, 6C1G personal development, 6D1A, 6D5
management and monitoring, 2B2D personal satisfaction, 6D1A
management commitment, 7B1A PEST, 3G3
management framework, 2B1A physical resources, 4B1A, 4C, 4D1A, 4D2A
management information (MI), 2B2D, 5C1 pillar approach, 3I1
indicators and possible drivers, 5C3 planning, 6B2B
interpreting, 5C2 Porter’s Five Forces, 3G2
types of, 5C1A Porter’s value chain analysis, 1A2
managing regulatory responsibilities, 2B portfolio management, 8B1A
managing, influencing through the task of, positive strategic change, 7B1A
6B2 power, 3B
market bodies, 2C1A power structure, 3D
marketing, 5B3 premises, 4B1A
and sales, 1A3A primary activities, 1A3A
markets, 1F2 process management, 1F8E
choice of, 1F3 processes, 4F5
measure and manage performance, 7A procurement/purchasing, 1A3B
measures, 7A1D producing brokers, 5B7
xxii 996/November 2021 Strategic claims management
protection/sharing of data, 8E2A run-off business

prudential regulation, 2A, 2A1 (continued)
current market, 8D1
Q
S
quality audits and culture, 7A2F
quality programmes, 7A2, 7B3 sales, 5B3
benefits of, 7A2A scenario modelling, 8B3A
developing, 7A2B scores, 7A2B
questions, 7A2B self-awareness, 6B3, 6C2A
self-regulation, 6C2B
Senge’s five learning disciplines, 7B6
R service, 1A3A
range of products, 1F2 service culture, 3C1
rarity, 4C1A sharing of data, 8E3
real issues in an organisation, 6D1A single loop learning, 7B2
realised strategy, 3E4A social skill, 6C2E
recoveries, 5A1A stability, 8C2
recruitment, 5B4A of portfolio, 8C1
red, amber, green (RAG) rankings, 7A2C staff skills and expertise, 8E4D
reduction in costs, 8C1 stakeholder management, 6D2
refreezing, 3J2 stakeholder mapping, 6D2A
regulatory breaches, 1F8A stakeholder plan, 4D4F
regulatory performance, 7A2B stakeholders
regulatory requirements, strategies to meet, sources of, 6D2A
2B1 who are, 6D2A
regulatory responsibilities, 2B statutory breaches, 1F8A
regulatory risk from outsourcing, 2B2A stories, 3B
reputation, 4B2A, 4C, 4D1B, 4D2B strategic challenges, 4F
reputational risk, 1F7A strategic fit, 3E3
research and development, lack of funding strategic opportunities, 4F
for, 8E2A strategies
reserves, 5B1B how the different strategies are interlinked, 3I4
consistency and accuracy of, 5A2 to meet regulatory requirements, 2B1
reserving, 1F5B, 2A1A strategies, common elements in successful,
resource and capabilities as a competitive 3F
strategy, 3H strategy
resources, 3H, 4D4E and culture, 3J
analysis of, 4A business, 3E2B
appraising, 4D3A competitive, 3H
assessing the claims, 4B corporate, 3E2A
developing a plan to deliver, 4D developing, 3E
human, 4B2C, 4D1B developing the claims, 3I
identify requirements linked to strategy, 4D1 emergent, 3E4B
relationship with capabilities and competitive functional, 3E2C
advantage, 4A identify resource requirements, 4D1
risk influence of culture on, 3A2
accepting the possibility of, 7B1A intended, 3E4A
appetite, 1F2 levels of, 3E2
log, 4D4F operational, 3E2C
management, 2A1B realised, 3E4A
mitigation, 8C1 what is, 3E1
pricing, 8B1A strategy development
selection, 1F4 approaches to, 3E4
risks role of leadership in, 3E5
an organisation may face, 8A1A strategy to actively manage the portfolio,
emerging, 8F 8D4A
influenced by claims strategy, 1F7 strong customer relationships and trust, 8C2
organisations face, 1F6 structures, 3B
rituals, 3B sub-cultures, 3B2
root cause analysis, 5C2A sub-groups, 6D2B
complaints, 2A2B subscription market, 2C5
routines, 3B broker claims strategies, 2C5A
and rituals, 3D challenges, 2C5
run-off, 8D insurer claims strategies, 2C5B
and claims strategy, 8D4 success criteria, 4D4G
options for handling an account, 8D3 superfluous strengths, 4D3A
why, 8D2 supplier power, 3G2
run-off business, 8D supplier strategy, 1D
xxiii
suppliers and partners, 7C4B, 8A1C, 8E4E

supply chain, 1F8C, 7A2B
supply side differentiation, 1C2
support activities, 1A3B
SWOT analysis, 3G5
symbols, 3B
synthetic biology, 8F6
systems thinking, 7B7
T
taken-for-granted assumptions, 3A1
talent, failure to attract or retain, 1F8G
tangible assets, 4B1C
tangible resources, 4B1, 4C, 4D1A, 4D2A
technological development, 1A3B
technology, 4B2B, 4C, 4D1B, 4D2B, 8E1
challenges for insurers, 8E2A
telematics, 8E1B, 8E4A
think and say ‘we’, 6C1H
third party claims, 7C4A
threat of new entry, 3G2
threat of substitution, 3G2
threshold capabilities, 4C1
time dimension, 7A1A
timelines, 4D4D
training and development, 5B4B
U
underlying assumptions, 3J
underwriters, information need from claims,
5B1A
underwriting, 5B1
unfreezing, 3J2
V
value, 4C1A
value capture model, 3G2A
value chain, 1A
analysis, 1A2
claims, 1B1
for cost analysis, 1E
insurance, 1B
purpose of, 1A1
value of resources and capabilities, 4C1A
value, how organisations create, 1A2
values, 3A1, 3J
vision, 6B4A
volumes and samples, 7A2B
VRIO, 1C
and assessing competitive advantage of
capabilities, 4C1A
W
what to measure, 7A2B
xxiv 996/November 2021 Strategic claims management
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Strategic Claims Management - 996

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Strategic claims

Updates and amendments

© The Chartered Insurance Institute 2021

Using this study text

Guide to your study text

Consider this: stimulating thought Reinforce: encourages you to revisit a

Critical reflections: challenge you to Research exercises: reinforce learning

Examples: provide practical illustrations Sources/quotations: cast further light

Active learning is experiential, mindful and engaging

Summary of learning outcomes

2. Evaluate the implications of regulation for a claims function

4. Evaluate the financial impact of the claims strategy on the business

5. Analyse the requirements of a leadership role in the claims function

6. Analyse wider issues that affect claims strategy

Published January 2022

2. Evaluate the implications of regulation for

3. Evaluate the claims strategy within the

4. Evaluate the financial impact of the

5. Analyse the requirements of a leadership

6. Analyse wider issues that affect claims

Published January 2022 2 of 4

Reading list Malcolm Clarke, Baris Soyer (eds.).

Published January 2022 3 of 4

Exam technique/study skills

Published January 2022 4 of 4

Syllabus learning outcome Study text chapter

2: Impact of regulation on the claims strategy

3: Developing a claims strategy

4: Analysis of resources and strategic planning

5: Financial impact of the claims strategy on the business

6: Leadership in the claims context

7: Leading to achieve the performance of the plan

8: Wider issues affecting claims strategy

Appendix 1: Assessing and developing your own leadership skills A1/1

Claims value chain Cost analysis Differentiation Enterprise risk

A The value chain

A1 Purpose of value chain

A2 How do organisations create value?

Human resource management

Inbound Outbound Marketing

A3 Primary and support activities

B The insurance value chain

Figure 1.2: Insurance value chain

Risk and compliance

Human resource management

Financial Marketing Underwriting Sales and Claims

B1 Claims value chain

Figure 1.3: Claims value chain

Risk and compliance

Human resource management

B1A The MGA model

Trading capital provided by

MGA income from commission

Insurers Lloyd’s Reinsurers

B1B Loss adjusters

Figure 1.5: Loss adjuster – inputs and outputs

C1 Demand or customer’s perspective

The What needs does it

Strategic claims management decision

C1A Building on previous learning

C2 Supply side differentiation

Strategic claims management decision

Strategic claims management decision

E Value chain for cost analysis