Gallagher leader says carriers’ and brokers’ service to risk managers today ‘stinks’

June 4, 2007

When it comes to the service carriers and brokers provide to today’s risk managers, the quality of that service “stinks,” according to J. Patrick Gallagher Jr., chairman, president and CEO of broker Arthur J. Gallagher & Co. Speaking on a CEO panel at the recent Risk & Insurance Management Society annual conference in New Orleans, Gallagher said “it’s amazing to me when we step back from an industry like ours and really realize that the quality stinks. … Many of you that know me know that I’ve kind of railed on this subject for years.”

Little improvement

At last year’s conference, the RIMS leadership challenged carriers and brokers to make quality improvements a top priority in their business practices, noting it was often taking too long to transact business. One year later, all the speakers on the 2007 panel — Gallagher, Evan G. Greenberg, president and CEO of Ace Ltd.; Gregory C. Case, president and CEO of Aon Corp.; John J. Amore, CEO of General Insurance, Zurich Financial Services; Shivan Subramaniam, chairman and CEO of FM Global; Brian M. Storms, CEO of Marsh; Martin J. Sullivan, president and CEO of American International Group Inc.; and Myron M. Picoult, an independent insurance consultant — generally agreed that there is still much room for improvement.

Aon’s Case called the topic a “recurring theme” and noted that technology and turnaround time are big factors in the quality of service companies can provide risk managers. He recalled that last year he noted it took 100 to 120 days to issue a policy.

“We all recognize that this is devastating to us from the standpoint of value and price,” he said. Streamlining the admission process using new technologies to make the process more electronic instead of pushing paper could help, he indicated.

Since last year, he said his company has tested electronic trading in Lloyd’s in a couple of places and has about 70 percent of its claims being handled electronically, with about 10 percent to 20 percent of its reinsurance and retail being handled electronically. “But it’s only the beginning,” Case said. In the drive for efficiency, Case said his company has reduced policy issuance at its processing centers by 49 percent to 50 percent.

The issue of quality service is centered on value and price, he emphasized, which is judged by how long a customer must wait for his or her policy. At times, it seems insurers and brokers are lucky to have business, given their sometimes antiquated processes, he indicated. Much more efficiency is needed, Case stated.

Technology lacking

Marsh’s Storms argued that technology could improve service. Part of the problem, he said, was that technology and processes have not yet been streamlined at companies that have grown through mergers and acquisitions. “I think we as an industry, it’s certainly been my experience, whether you’re defined as a broker or an insurance company, have not led general industries in this regard, from the service standard or the technology standard. … But there’s something more challenging that’s at hand here that, certainly we, and I’m sure others, are focusing on. Many of us grew up through acquisitions and mergers, creating a lot of operating autonomy and variability in our systems around the world. That’s true with many of the insurance companies as well.”

He told the RIMS audience that the insurance industry has been “slow” to find ways to integrate its acquisitions and slow “to create sort of the seamless infrastructure that leads to the high level of standards that you’re asking about.”

FM Global’s Subramaniam agreed that rework and redundancies plague the insurance industry. “If we can focus on the rework and the redundant effort, we’ll have great quality. That’s all there is to it,” he said.

Sullivan said AIG is striving to reduce the amount of rework at its company, and noted measures of improvement. “I’m pleased to say at the end of January 2007, we’re now getting 82 percent of new or renewal policies out within 30 days. Eighty-eight percent of endorsements have gone out within 30 days. And more importantly, 94 percent are being done right now,” he said.

Despite the panel’s doom and gloom about its slow processes, Marsh’s Storms said the problem of quality and turnaround time may not be as bad as he and his colleagues described. “If you sit with individual clients and talk about this subject, you’ll find that a lot of progress has been made,” he said.

Improvements are achievable, Ace’s Greenberg said. He said American companies could look to the United Kingdom, which recently legislated quality service improvements. “The regulator enforced that there be better service and that policies be issued within a very short period of time, and be done accurately, at the time you’re buying your risk,” he said. “There’s no reason, therefore, that it can’t be done in the United States.”

Regulation to force improvements may not be necessary, the panelists said, as long as carriers and brokers take it upon themselves to continue striving for improvement.

“Maybe we don’t need a regulator to do it, if we can really get the strong leadership, along all parts of this process, from the customer, through the broker, to the company,” Zurich’s Amore said.

“We’re heading in the right direction. If we can eliminate the amount of rework that has to be done — policies coming back and forth between the broker, the client and the insurer — then we can start hitting more realistic targets,” AIG’s Sullivan added.

“We’re not declaring victory by a long way yet,” he concluded, “because we’re going for perfection.”

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Insurance Journal West June 4, 2007
June 4, 2007
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