By working together, Claims and Procurement for make critical improvements in three areas—the total cost of partnership, integrated technology and consistent practices. Michael Costonis explains.

In my first post in this series, I looked at the reasons why there is a disconnect between Claims and Procurement. This time, I’ll look at how the two groups can cooperate more effectively and efficiently, despite the differences in how they operate and make decisions.

If both Claims and Procurement departments were to look beyond tactical practices to the common goal of increased competitiveness, they could make critical improvements in three areas:

  • Strategic assessment of total cost of partnership.
  • Integrated technology.
  • Globally consistent, locally optimized practices.

Let’s look at each of these areas for improvement in turn.

1. Strategic assessment of total cost of partnership

Many Claims departments struggle to create objective criteria. They are frustrated by their perception that Procurement obsesses over rate cards and volume, even though volume for rates is a small element of procurement negotiations.

To work together more effectively, the two departments must collaborate to translate qualitative Claims criteria into tangible Procurement measures that enable objective selection and contractual terms. Here are some elements to consider for more strategic assessment:

  • Balanced scorecards. Organizations should pick the right vendor based on price, location and qualitative criteria that reflect claims context. Procurement needs to work with Claims to strike the right balance between expertise and location factors.
  • Services that create competitive advantage. Vendors should illustrate they are committed—and able—to create a claims experience and outcome that are a step beyond what other carriers deliver. Commercial arrangements should be aligned to the vendor’s ability to support a claims execution that creates competitive advantage.
  • Vendor risk mitigation. Risk management beyond the specific scope of services is an increasingly critical component of claims procurement. For example, consider the vendor’s track record in managing customers’ private data.

2. Integrated technology

Antiquated processes and a lack of technology/automation hold insurers back from better claims efficiency and customer service—two areas that directly affect profitability. By coming together on the strategic use of technology across Claims and Procurement value chains, insurers can achieve innovation and unlock the value currently lost due to conflicting tactical approaches.

3. Globally consistent, locally optimized practices

In most global insurers, there is an asymmetry between the level of standardization of Procurement practices (typically quite high) and the standardization of Claims practices (typically quite low). This results in Procurement trying to use a one-size-fits-all model in the face of Claims resistance.

Global claims procurement programs need local optimization because regulatory and procurement practices across countries affect strategic priorities and economic realities. Value levers may be different according to the geography, so claims and procurement practices must be customized for each country to bolster competitiveness for the insurer.

In my next and final post in this series, I’ll explore how Claims and Procurement can build a model that coordinates their operating principles from a strategic perspective.

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