Allstate Claims

The Law Offices of Charles D. Scott only represents the victims of auto accidents – we never represent the insurance companies, but we do like to know what they’re up to.  Here is a link to a recent article about Allstate and their claims process, and below are some highlights:

"In 2007, Allstate generated $27 billion in property casualty premiums and $3 billion in underwriting income. So here to tell us more about Allstate’s prospect is George Ruebenson:"

"What about claims? One of the reasons that I want to talk a little bit more about claims is that economically, as you know, 70%, 75% of all the money spent by an insurance company is spent by their claim organization, and fundamentally what a claim organization does is they set the price. Regulated industry, if you do a better job, your prices can be lower. The other thing is, is some of this is self-serving.   Before I got this job, I was in charge of our claim operation for six years, but I’ll go back ten years to claim core process redesign. Some of the infamous McKenzie documents that you’ve been reading about that people want to see and talk about how we changed the claims settlement process. We started doing segmentation, better consistency throughout the country, but if you look again at any Fast Track data, our severity rate of increase has been better than the industry, all lines, all coverages." … "So what we’re looking for is an improvement to loss cost management, expense of running the operation, and at the same time, enhancing the customer experience. I think there’s a lot of value in this. I think we mentioned that over the last year, this year, and next year, about $100 million incremental to the claim operation, but that our claim expense ratio would not deteriorate during that period, and that after it is fully implemented, we expect to see even additional improvements in the claim expense ratio, which by the way, is now lower than many of our competitors already."

And here’s a bit from the Q&A portion:

"Q: What is the current trend in bodily– I guess what are the biggest components of bodily injury severity and what are the current trends (inaudible)?  GEORGE RUEBENSON: Right, we mentioned the bodily injury trends in the last couple analyst calls, and I know Progressive just talked a lot about it, and they said they were looking at like a 7% inflation in bodily injury. Let me quickly go through medical inflation. Clinical inflation is probably 25% to 30% medical costs, 25% to 30% of a bodily injury claim. There’s a lot of other things like lost wages, the infamous specials, pain and suffering, legal fees, that kind of stuff. Now, we are seeing a rapid escalation in medical costs. We’re seeing emergency rooms providing all kinds of tests that they didn’t used to do. So we do have that as an underlying pressure. On the other hand, bodily injury is about 25% of the overall cost of an auto product. Property damage collision is about another 60%. Comprehensive and some of the things is the rest of it. So you are seeing medical inflation as a percentage of bodily injury, which is causing an issue. We have mentioned, we have already reported that we were looking at a 6%, 7%, 9% increase in our paid costs in the last three quarters. I mentioned in the analyst call that the fourth quarter was somewhat distorted by a few really large ones, but we’re still running at a 6% or 7%.  So I think that there’s some reasons for it, but I also think based on our ability in claims that we’re going to be able to control it. What we’re looking at is low to mid single digits."

"GEORGE RUEBENSON: Yes, it probably started more at the end of ’06. We started to see it more prevalently in ’07. I’m not saying these are unnecessary costs. I didn’t go to medical school. I can’t comment on that, but the underlying pressure is there.  And so what we’re trying to do is make sure that the costs are reasonable and customary, but the real thing in claims it to make sure that you maintain contact with an injured party early on. And we have contact rules, so if somebody’s injured, we have to talk to them in 24 hours. Not call them, leave them a message, talk to them. And the idea is, is that if you can establish rapport with the claimants, because bodily injury are all claimants, they’re not customers, with a claimant, than the chances of them becoming represented by an attorney drops considerably.  That was the genesis, the basis, really, of the first part of claim core process redesign that we started in 1994, 1995 and we’re still refining that process. So I think that there is some upward pressure and I think it’s going to stay with us for a while, but I don’t think that it’s a big spike, that it’s going to cause us to have to take rapid increases in price. I don’t think so."

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