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CASE STUDY

Moderating our excesses

Introduction

Excesses have always been a challenge for the insurance industry, especially for those managing claims. The rationale for excesses is sensible – discouraging small claims and dealing with the “moral hazard” (the  lack of incentive to guard against risk where one is protected from its consequences) that arises when someone takes out insurance.

Since the cost-of-living crisis started in early 2022, the discussions around excesses have increased and insurers are being expected to identify financially vulnerable customers and support them in their claim by waiving fees and excesses. And at MA Group increasingly we have experienced challenges with our supply chains in collecting excesses, suggesting that customers are finding it harder to pay them. This has caused delays in claims, an increase in complaints due to delays and much time and administration for us all in trying to chase small payments.

In response to these issues, and with the aim of making life easier for our suppliers and customers, in April 2023 MA Group took over the collection of excesses from its supply chains by introducing an integrated digital solution for the collection of excesses (see below). We have also analysed our many years of data to see what the trends are in relation to excesses, whether the challenges that the industry is talking about are real and what impact our new digital excess collection is having on the claims process.

The problem

Excesses are fiddly and annoying, let’s be honest! The challenges we have always faced include:

An awful lot of time and resource is expended in managing excesses. As mentioned above, the rationale for excesses is sound and understandable, they just need to be managed better.

In July 2023 the FCA reviewed how home and motor insurers are supporting customers in financial difficulty and handling claims. It found that average total excess levels were broadly static but rejected claims are increasing for home insurance (up 57%) over the four-month period from August to November 2022. This suggests that customers are making claims that they probably wouldn’t have considered before the cost-of-living crisis hit. Insurers explained this was largely a result of customers making claims for things they are not covered for e.g. accidental damage when they have not purchased extended cover.

In Q1 2023, ABI data showed that home insurance premiums are up 6%. These increases impact consumers already struggling with the cost of living. The ABI data also shows volumes are down 6% for home insurance policies year on year. A possible explanation for this is there were fewer houses purchased in 2022 (due to a slowdown in Q4 around market turmoil) vs 2021 (when there was a rebound in volumes post covid). But it could also suggest that more people are self-insuring or simply can’t afford insurance.

There is also a consensus that insurers are covering increased indemnity costs by increasing the excess on a policy to enable them to stay at the top of an aggregator’s table and to shift more of the claims cost to the customer.

Excess trends in our data

The industry certainly seems to believe that there is a problem with excesses and the financial challenges many people are facing. So we have had a look at our data to see if it supports this general view.

We are certainly seeing an increase in excesses over time. Over the last 12 years we have seen a 128% increase in the average we are required to collect before we proceed with the works. The graph below demonstrates the incremental change that has happened over the last decade. We saw drops in average excesses in 2021 and 2022, but 2023 is indicating it is on the rise again.

The below chart demonstrates year by year the minimum and maximum excess amounts. While the minimum excess has stayed stable there are some very big changes in the maximum excess – from £1,000 in 2011 to £10,000 in 2023 (mainly on fire and flood claims).

However, excesses greater than £1,000 make up a very small percentage of the overall, but the profile of excesses has changed:

The above graph demonstrates that:

We have also found that there is no correlation between increasing excesses and the time to start works, overall claim durations and values. This contradicts the industry view that customers are starting to struggle to pay excesses as they have risen.

Difference between perils

Our two most common perils within MA Group are claims for Escape of Water (EOW) and Storm, so we have analysed our data for these two main perils.

EOW claims follow a similar trend to the overall trend. While the excess increase for EOW claims is not as high as the 128% seen for all claims, with EOW, there has still been a 118% increase over the last 12 years. In 2023 we are seeing an average of over £400 for the first time.

Storm claims paint a more interesting picture – they stayed relatively stable through 2011 to 2018 but have increased significantly since 2019. In the last 12 years there has been a 147% increase.

Dealing with the challenges

Whilst overall our data doesn’t support the feedback we have heard from our suppliers and the industry regarding the financial challenges customers are facing, we still recognise that excesses are a challenge. Claims have been delayed due to slow excess payments, leading to increased complaints and inefficiencies.

Historically we have relied on our supply chains to collect excesses, this is standard practice in our industry. Excess collections were a combination of cash, cheque, bank transfer, payments over the phone or just not collected. Also, the requirements for high levels of security and data management have increased, leading to more bureaucracy and risk for our supply chains. So we decided to take on excess collection for all of our supply chains.

MA Group decided to implement a strategic change programme at the start of 2023 to change the method of excess collection and move to a centralised collection service. The aim of this change was to standardise a PCI/DSS compliant service that would remove the risk for all parties and provide a better customer service. We introduced “Click To Pay” and “Agent Assist” excess collection.

Click To Pay (self serve)

An SMS or email is sent to a customer asking for payment with a unique web link taking the customer straight through to a web page to enter their

card details, bypassing any need to enter order information or customer references. It is integrated with our claims management system, Pulse, so the claim information and excess amount is auto populated for ease.

Agent Assist (guided payments)

For those that would rather make the payment over the phone we can call the customer using Agent Assist software. This allows the claim technician to call the customer, take a payment over the phone whilst automatically masking all tones, card details and any other sensitive information. Again, this is integrated with Pulse.

 

Both Click to Pay and Agent Assist are fully PCI/DSS V4.0 compliant, secure methods of payment, giving customers confidence and peace of mind.

If circumstances around the claim change and we are required to refund the excess to the customer, then we can easily and quickly do this through the secure portal, refunding the amount paid by the customer onto the card that was used for payment in a digitally secure manner.

Also, we can monitor and track each pending, completed and failed payment through the portal.

The benefits

Through Click to Pay and Agent Assist we have already taken over 1,300 excess payments on MA Assist and Revival claims since its launch in April. We are seeing that customers are preferring (around 80%) to have a link sent to them via email or SMS (Click to Pay). Click to Pay has the advantage of requiring no interaction by our claim technicians, freeing them up to do more added-value tasks, and the customer can choose to pay at any time of the day or night.

With our Click to Pay method, we send the link to the customer on the first day and wait seven days and if no payment is received then we will send a new link to the customer. In total we will make three attempts. As the table below demonstrates, the first link is successful in collecting the excess payment 66% of the time, with an average payment time of 3.1 days.

All payments taken through Click to Pay and Agent Assist are automatically recorded in our Pulse system. We record the time and date along with a reference so we have full traceability of the payment from the customer.

The benefits we are seeing include:

Our historic data suggested that overall excess payments did not have any correlation with claim durations or days to start works. However, since we introduced our automated excess collection system we have seen a significant reduction in the time taken for our suppliers to start works.

Claim durations have already fallen by at least ten days in MA Assist, with almost all of this reduction occurring in the time to start works, suggesting that suppliers were having to delay starting works while they collected the excess.

We are also seeing less administration as any excess errors (such as incorrect information from clients or cancelled claims) are quickly corrected by MA Group staff without having to liaise with the supplier.

And finally, the speed with which customers are paying their excesses suggests that the industry’s concerns over financial challenges are perhaps exaggerated – when you provide customers with a quick and easy method of card payment customers pay quickly. Although perhaps the credit card companies are picking up the challenges now rather than us!

Conclusions

We recognise that we only receive a very small proportion of the industry’s claims however, whilst our data supports the belief that excess values have been increasing over the last few years it does not support the consensus that customers are struggling to pay their excesses and that insurers need to make accommodations for struggling customers.

Mitigating complaints is a high priority for all insurers, and we believe better excess management is one of the quickest and simplest ways to achieve this aim. It’s too early to see the impact the digital excess collection process is having on our complaints data, but we certainly hope to see a reduction in complaints due to delays caused by excess payments.

Our digital solution to excess collection has been a success. Not only has it made life easier for our suppliers and MA Group it has also made the process transparent and clear, so we know in real time when an excess has been paid. As a result, we can proactively push claims along and are seeing an reduction in claim durations.

We are also seeing a very high take up amongst customers which demonstrates that we have found a simple and convenient method for customers to pay their excesses – 86% of customers pay their excess via Click to Pay within a week.

It is interesting that the term excess, meaning extra payment, derives from the term for lack of moderation or exceeding a prescribed or desirable amount. We have certainly learnt how to moderate our excesses, but insurers still need to work on their moderation. They still need to improve the management of excesses – with so many parties involved it’s no wonder confusion arises over who has received the excess and when. But that brings us back to our previously stated opinions about commercial models and the need for integrated supply solutions! To read more about that please click on the links below:

https://www.magroup-property-claims.com/case-study/escape-of-water-claims/

https://www.magroup-property-claims.com/case-study/ma-group-new-products-and-services/

If you would like to reduce your complaint levels and benefit from MA Group’s innovative solutions to enhance your customers’ journeys, please get in touch, we would love to talk to you