When it comes to claims sourcing, getting the right balance between price and quality is a key challenge for insurance companies and requires a sourcing approach based on innovation and supplier performance, rather than focusing solely on rates.

A four-step approach

Maximising value from claims sourcing requires a fact-based approach with four key elements:

  1. Build a granular ‘Total cost of claim’ view — which can go well beyond supplier spend — by integrating internal claims data with vendor systems. This allows a much broader value assessment including lead times, historical indemnity performance and customer satisfaction.

  2. Establish new performance benchmarks and best practice standards using a ‘Voice of the supplier’ approach, which identifies market innovators and leading performers. This sends a clear message to the supplier market that performance and innovation are key competition parameters and helps change pre-existing perceptions that strategic sourcing is equal to aggressive rate-based negotiations.
  3. Close collaboration with the business-to-model supplier integration and the impact of practices that affect factors such as lead times, performance and purchasing decisions. This helps to create a transparent framework for suppliers to bid on and propose new solutions.
  4. Rigorous strategic sourcing execution and supplier negotiations focusing on establishing hard performance commitments. Key to this is ensuring that hard savings will be delivered without affecting the total cost of claims and associated ‘soft’ benefits.

Negotiation-driven restructuring

The importance of early or pre-tender supplier engagement should not be underestimated. Market structures rapidly change and sounding out the market is key to creating a clear view of the top performers and gauging appetite for performance-based commercial models with hard commitments.

In subsequent negotiations, leveraging a competitive to high-pressure environment ensures you get the most from the best suppliers in the market — despite their competitive advantage.

Process should drive ambitious target-setting, but ensure that these commitments have a positive impact on total cost of claims and are contractually locked in. Key to success is following a rigorous and fact-based competitive process leveraging the totality of available negotiation parameters, including the total cost baseline.

For example, outlining multi-year historical performance helps to segment suppliers and reinforces your negotiation approach and supplier selection. Your negotiation position is much stronger and forces non-performing incumbents to move on.

The vendor management approach needs to establish a clear link between recent supplier performance and volume allocation...

Performance management

Getting the most out of the new performance regime requires building and embedding a process to drive constant supplier engagement powered by insights. Performance management needs to be integrated into core business processes, with clear governance and roles and responsibilities for driving supplier volume reallocation and sustaining best performance.

Achieving this requires a strong loop of internal and external communication and supporting tools that help to identify gaps in the preferred supplier network, localise performance, and address supply capacity constraints and quality issues. This not only helps improve preferred utilisation, but also increases predictability around customer experience.

The vendor management approach needs to establish a clear link between recent supplier performance and volume allocation, which can only be enabled by strong buy-in from the front line and specific directions and allocation targets underlined by clear supplier performance and customer satisfaction rationale.

For help with developing a total cost of claims approach, please contact Thor Olsen using the links below

[Jose Oliveira, principal at Efficio, also contributed to the development of this article]