Good as New.

Insurers have found that restoring insured property instead of cashing out a claim improves their image, helps retention and saves money.

Some property/casualty insurance companies are changing the way they settle claims for personal lines and some commercial. For decades, insurers followed the claims-handling routine of asking policyholders to get repair estimates or sending adjusters to inspect damages and then mailing out a check for the settled amount. Today, many insurers are trying a new approach to claims resolution. They are taking responsibility for restoring a loss to its original condition. Large insurers, including State Farm Group and Farmers Insurance Group, have programs that forgo estimates and instead deliver contractors to fix a homeowners claim or, in Farmers' case, send a rental car to the accident scene, pick up the damaged car for repair and deliver the repaired vehicle to the policyholder.

"The industry realized the claim-settlement process needs to be customer-centric. The claims process is our product," said Joseph Zubretsky, president and chief executive officer of GAB Robins. Insurers also are discovering that many policyholders judge an insurance company by how it handles a customer's claim and are trying to improve that experience.

"A lot of people don't trust insurance companies, so a first impression sets the tone for the rest of the claim. It should be a 'wow' experience," said Gerald Wilson, president and CEO of Palisades Insurance Co., an auto insurer in Hoboken, N.J.

But economic and sociological issues, as well as the influence of technology, also come into play in the switch from claims-paying to restoration. Taking control of a claim's cost from beginning to end, instead of cashing out, may mean less fraud and sometimes cost savings. This is important, since it is estimated that property/casualty insurance fraud costs insurers $10 billion annually, according to Deutsche Bank. Americans also are increasingly demanding and impatient because of the instant gratification that high-tech tools like Palm Pilots and the Internet bring to their lives, according to industry observers.

"We live in a fast-food society; consumers expect things to be hassle-free," said Bob Kenseth, senior claims consultant, State Farm Fire & Casualty, Bloomington, Ill.

Zubretsky thinks policyholders are used to getting an instantaneous reply in other areas of their lives and are beginning to expect it in their claims experience. "Because a consumer can now trade stocks at three o'clock in the morning, there is a shift in the definition of customer satisfaction. When you picture what a customer wants and map a claims experience against it, it's misaligned. Insurance is about restoring loss to its original condition, not just about issuing a check to pay for the damage," Zubretsky said.

Technology Needed

Claim restoration wouldn't work, however, without high-tech software that can store the names and qualifications of vendors as well as home and auto repair-pricing data, so insurers can pinpoint the true cost of a claim.

As a claims administrator and loss adjuster, GAB Robins had to have the same ability as the large carriers to handle claims so it could compete in the property/casualty industry and, therefore, the company began offering a claims-restoration program. "My product can't be less robust than the leading insurance companies," Zubretsky said. The Parsippany, N.J.-based company said credentialing sources of supply and managing networks of suppliers were challenges to setting up its claims-restoration program. To overcome these shortcomings, GAB Robins formed a strategic alliance with Project Time & Cost Inc. of Atlanta. The alliance, which includes GAB Robins' taking an equity position in the company, gives GAB Robins the exclusive rights as an independent loss-adjusting firm to PT&C's Internet-based, direct-repair technology and managed contractor network, ptc-NET.

The program jump-starts homeowner and commercial property/casualty claims by gathering information about the claim in less time. In a typical claim, a GAB Robins-approved contractor handles the claim by preparing an estimate of the damage, including taking a digital photograph. GAB Robins then approves the estimate and releases a work order to the contractor. This new way of managing claims can reduce the time it takes for an average claim-filing and -repair process from three months to 14 days.

Marshall & Swift's AccuPro software program is touted as saving as much as 15% of restoration costs in indemnity dollars, said Peter Wells, senior vice president of the Princeton, N.J.-based consulting and building-cost data company. AccuPro--which can be accessed by insurance adjusters via PCs or laptops--contains a building-cost database for the entire United States. Data, such as composition of the crew, productivity, wage and cost of material, are supplied for construction projects. Insurers can use AccuPro's estimated cost in their region of the United States to determine a preferred rate to allow a chain of contractors, Wells said. "This is a way insurers can get control of costs," Wells said.

Good Timing

The time is right for these innovations. As insurers are dealing with more expensive claims and issues like customer satisfaction, there is a need for tools to rapidly calculate correct claims costs and store names of vendors to provide goods and services to the policyholders. Claims costs are increasing for U.S. insurers. A.M. Best Co. reports that auto physical damage claim costs are estimated to rise 3.75% in 2000, compared with 2.75% in 1999. The same story is told in homeowners claims with a 3.87% rise estimated for 2000, compared with 3.67% in 1999. Claims costs also take a big bite out of every premium dollar. The U.S. property/casualty industry spends 80% of every premium dollar--or $232 billion--on claims loss and claims-processing costs, reports ClaimsDesk.com, an online claims-management company.

Insurers also know that consumers are becoming more demanding and have higher expectations for service. And they are tying in their feelings of disappointment from a repair experience with the insurer, even if all the insurer did was pay for the service. "In the past, we thought the claim ended with the check, but now we know that the consumer identifies the insurer with the whole claims process," said Doug Theiss, vice president of claims operations for Nationwide Mutual Insurance Co., Columbus, Ohio. Bad experiences with claims also affect the reputation of the brand and impact retention. Claims operations and service level have become differentiators in the property/casualty market's competitive environment, said Ted Devine, a partner at McKinsey & Co., Chicago. Today, the battle to retain customers is as fierce as that to acquire new customers. "Growth in the P/C business today means retention, which in turn drives premium," Devine said.

To the Rescue

Insurers are answering the demands from customers for prompt claim repair by turning to technology or forming alliances with home center megastores and groups of auto body shops, or consolidators. At a recent Marshall & Swift conference, David H. Warren, a senior engagement manager of McKinsey & Co., a global management consulting company, recommended that insurers initiate supply-chain management programs that would create savings in construction costs, reduce home repair/replacement time and generate fewer customer complaints.

Insurers are using their ability to provide an unending stream of auto repair and homeowner losses to negotiate favorable terms with providers. In State Farm's case, major auto body consolidators offered their networks of shops and their philosophy to repair damaged cars properly as quickly as possible to the No. 1 auto and homeowners insurer. These groups of auto repair shops boast repair turnaround times of 7.3 days on average, vs. a typical wait of 12 to 14 days, according to AutoInc. magazine.

Consolidators purchase independent body shops and introduce a streamlined, standard way to handle car repairs. Consolidators offer advantages to insurers, such as consistent quality and faster turnaround time on repairs. John Kent, a senior claims consultant for State Farm, likes the corporate-driven philosophy when dealing with the consolidators. "Through economies of scale and their brand names, the consolidators have improved their purchasing power for materials and parts, allowing them to have the ability to reduce 'their' cost," he said. With the supply chain in place, State Farm began a pilot program called Select Service in 1999. To date, there are about 15 consolidators, such as ABRA Auto Body & Glass shops, servicing State Farm's Select Service program in five metropolitan areas.

In State Farm's Select Service plan, a policyholder can choose to have the car picked up by the consolidator from the accident scene and a rental car delivered. The car is repaired at the consolidator's shop and assigned a guaranteed completion date. This is a continuing challenge in the program, Kent said, but he sees the open dialogue that's established between auto repair shops and State Farm as an added benefit.

"We're gaining a better understanding of what needs are in the collision-repair industry," he said.

For the next year, State Farm intends to keep monitoring Select Service's success, but doesn't expect much growth, because it's driven by the number of consolidators. The auto body trade papers are projecting that over the next several years the consolidators may achieve only 30% of the sales, Kent said.

Business Alliances

Another example of claims restoration is the business alliance between Allstate and megastore chain Home Depot. What began as a pilot program two years ago is now available through Home Depot's 977 stores in 46 states. The program allows Allstate homeowners policyholders who need flooring replaced due to a loss to use Home Depot for materials and installation. "The program grew from customers asking advice on where to go to get their loss repaired," said Douglas Raucy, senior claims manager for Allstate.

Allstate has experience running this type of program. The Northbrook, Ill.-based insurer had a similar agreement for five years with Sears in the early 1990s. In the near future, Allstate plans to test market using Home Depot to service roof and garage-door claims.

The Allstate/Home Depot claims process goes like this: After policyholders report a claim involving flooring, a claims representative visits the home to ascertain if the flooring needs replacement. If it does, the Allstate claims rep asks the policyholders if they know where they will go for the flooring. If they don't know, the rep suggests Home Depot. "It's entirely the customer's choice to use Home Depot," Raucy said. A sample of the carpet is then sent to an independent testing laboratory to match for quality and color. Within 24 hours, Home Depot gets the results and in most cases can schedule an appointment for the installation immediately.

Home Depot's size and reputation for good customer service were the main reasons Allstate decided to form an alliance with the megastore. It also can mean a competitive price. "It's not a big cost savings for us--maybe a small amount due to volume--but hardly worth talking about," Raucy said. Currently 40% to 45% of Allstate's carpeting claims are sent through Home Depot.

Hometown Suppliers

State Farm prefers alliances with local building suppliers "that are found on every street corner in the country" for its new Premier Service homeowners restoration project, said Kenseth of State Farm. The program has been piloted for the last three years in Atlanta; Tulsa, Okla.; and St. Paul, Minn. Under the Premier Service program, policyholders who have a homeowners claim contact State Farm and choose a Premier Service contractor in their area. State Farm buys the building materials directly from the preferred suppliers, and the contractor uses them to repair the damage.

"The contractors give a five-year warranty on the work. It's a one-step process; no one is left in the lurch," Kenseth said. State Farm gleans its contractors from its local claims offices, who have the best knowledge of the best contractors in their area. But the challenge is in changing the mindset from receiving an estimate and sending out a check to providing a more customer-oriented approach. "No file is stamped closed until the customer is satisfied," Kenseth said.

Los Angeles-based Farmers Insurance Group's Operation Restore initiative illustrates how restoring a claim couldn't be accomplished without today's level of technology. Farmers' $100 million Operation Restore grew out of the No. 3 homeowners and auto writer's brand promise to restore people's lives to order.

"We're focusing our change in claims management from one of estimation and payment to restoration," said Frank Soldano, vice president of Farmers claims strategic initiatives. "We are changing the adjuster's relationship with the customer from one of being an arm's-length auditor to embracing the customer and being their advocate."

The technology to operate the project took about a year to create, Soldano said. The vendor program, the centerpiece of the project, includes lists and contacts of rental car agencies, contractors, emergency lodging, medical services and companies that provide property replacement.

"Operation Restore has components to provide a supply chain of business partners that we link our customers with if they have damage. It can range from having a tow truck sent to an accident scene to having rooms at a hotel available if something makes a policyholder's home unlivable," Soldano said. Farmers' vendor network can handle almost any detail of a claim, including agreements with water-removal companies that bring in vacuums and fans to a home within an hour of a claim being reported.

The technology allows Farmers Customer Care Centers to immediately dispatch vendors to assist the customers. The Care Centers are staffed with claims associates trained to take claims over the phone, to communicate with claims reps in the field, agents or vendors, without touching a piece of paper. The customer care claims reps can contact an approved vendor to send a carpenter or plumber to a policyholder's home immediately to fix a homeowners claim, or to send a tow truck to an accident to retrieve a damaged car and order a rental car. "The first person the customer talks to begins to advance their claim by either linking to a vendor partner or settling a claim on the spot," Soldano said.

First Steps

Use of preferred body shops for car repair and on-site remediation of auto glass that sprang up in the '90s were the first steps insurers took toward restoration. The late '80s even saw Palisades Group's initiation of immediate response to an auto claim in the form of a Crashbusters van. The Hoboken, N.J.-based company's parent company, Plymouth Rock, established the van as a rolling claims office in 1989. Today, Palisades, which is the 17th-largest auto insurer in New Jersey, uses four Crashbusters vans to settle claims and issue checks either at the scene of an accident or, more commonly, at the client's worksite or repair facility. Palisades also has an approved repair shop option, which allows a policyholder to get a car repaired without first submitting an estimate and includes the use of a rental car. The repairs also are guaranteed as long as the policyholder owns the car.

Zurich, a large global insurer, introduced a restoration program in the mid-1990s. Zurich created its version, called Help Point, to cut through bureaucracy and to simplify the claims process. Under Zurich's plan, policyholders who have an accident call a Help Point toll-free number. Their car is then either driven or towed to the Help Point center, where it is repaired, and a rental car or taxi is provided for the consumers.

The early forms of restoration also materialized in plans like Nationwide's Blue Ribbon Repair Service facilities that were offered to auto insurance customers as an option beginning in 1990, Farmers' Circle of Dependability Program that was introduced in 1992 and State Farm's Service First that debuted in 1995. State Farm's program, which offers auto policyholders the option of using a Service First shop, now includes 15,000 body shops, and 35% of State Farm's policyholders use this option annually. Farmers' Circle of Dependability Program has grown to about 1,800 shops, each of which meet strict qualification criteria and now handle 37% of Farmers' auto claims.

Nationwide's Blue Ribbon program is a network of more than 1,800 collision repair shops in the United States that are rigorously screened before being included in the Nationwide program. Theiss said about 31% of repairable claims are run through the Blue Ribbon program. The No. 5 insurer is so pleased with its auto restoration plan that it's planning to pilot a preferred contractors program for its homeowners coverage next year.

Tomorrow's Claims

Restoration isn't a good fit for every market in the industry. Todd Bault, a property/casualty analyst for Sanford C. Bernstein & Co., sees Chubb's high-end homeowners coverage, marketed as the Masterpiece policy, as an exception to the restoration program, because its policyholders expect and are willing to pay for total options and aren't interested in using Home Depot for their repairs. But in terms of the overall market, Bault sees the opposite happening, with insurers continuing to establish programs with approved contractors and body shops for claims restoration. As this option becomes more common, "you might even see a surcharge added to a policy if the policyholders want to use their own contractor or garage," Bault said.

GAB Robins' Zubretsky takes a broader vision of the future of restoration by assigning case managers to specific claims and offering concierge-like options to policyholders, such as making reservations at a hotel if their house is uninhabitable due to a loss and ordering and delivering commodity-type items such as refrigerators and washing machines to replace ones that have been damaged. Insurers can leverage their need to buy large quantities of appliances and save money by setting up business-to-business arrangements with wholesale suppliers.

"Carriers with purchasing power will be able to differentiate themselves by creating business-to-business procurement models," he said.

Finding New Ways to Serve

Some property/casualty insurers are responding to customers' claims in ways other than handing out checks. Three are doing it as follows:

Allstate: Homeowners policyholders with flooring claims can get repair done through one of Home Depot's 977 stores, bypassing estimates and searches for installers.

State Farm: The Select Service program picks up the damaged car from the crash site, delivers it to a network of approved auto body shops and even assigns it a guaranteed completion date.

Farmers: Its Operation Restore network of vendors helps customers rent a car, replaces damaged personal property overnight and can get tanks of water to a homeowner within hours after a pipe bursts.