In many insurance companies, Claims and Procurement departments do not work well together, even though a closer alignment could bring many benefits.

In many insurance companies, the Claims and Procurement departments remain disjointed at best, antagonistic at worst. The Claims organizations typically under utilize Procurement disciplines, while Procurement departments misconstrue what matters to Claims—hindering the optimal functioning of both departments.

What’s the benefit of a closer alignment?

Insurance carriers have much to gain from encouraging a closer alignment. At Accenture we’ve seen that insurers can improve loss ratios by 1-3 percentage points, dropping millions of dollars from the bottom line. In the case of one carrier, such measures resulted in a reduction in loss of over $100 million.

Why has there been a turf war?

Before looking at some ideas about how insurers can evolve the relationship between Claims and Procurement, it’s worth looking at why these two functions spend so much time debating their respective areas of responsibility.

The cost of procured products and services from third-party vendors—for example, auto body shops, attorneys and independent adjusters—heavily influences the economics of Claims. Procurement is typically an uncomfortable partner in this process. Claims departments tend to view themselves as specialized, often believing that purchasing decisions are made based on qualitative criteria, requiring unique expertise and judgment. Instead of Claims sharing the reins—and the data—with Procurement, they hold them close, thereby creating a lack of core data.

If this dynamic were to change and data could be augmented with the necessary claims context, and analyzed, it would allow better visibility into categories, vendors and performance.

How can insurers begin to align the departments?

One step toward aligning Claims and Procurement is to recognize that improving the strategic planning, sourcing and management of the billions of dollars spent on products and services can strengthen Claims’ performance. Working together, Claims and Procurement can drive an insurance carrier to greater efficiency, more accurate loss ratios and enhanced customer engagement.

In my next post I’ll explore how to unite Claims and Procurement behind a common goal.

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