July 31, 2014 by Jeremy Bowler, Senior Director, Insurance Practice, J.D. Power.
Each year, approximately 17 per cent of Canadian auto physical damage claims result in a vehicle being deemed a total loss. Total-loss claims can be a protracted and emotional experience for the consumer. These are often more disruptive to the lives of the vehicle owners, who not only have to file a claim but also start thinking about hastily finding a new vehicle.
In some cases, a claimant may find their outstanding lien on the wrecked vehicle exceeds its fair market value. If they lack gap insurance, these “upside-down” customers not only have to go shopping for a new vehicle, they will have to either pay off their old loan balance, or roll it into the new vehicle deal. This further challenges any insurer seeking to settle fairly, and pay what they legitimately owe on a claim.
Insurers are challenged on several fronts as they handle total-loss situations – they must provide a satisfactory level of service, maintain proper scrutiny over their loss adjustment and related expenses and manage claimant expectations that often include an inflated perception of the value of their vehicle. The processes and touch points in handling total-loss claims are fundamentally different than those in handling repairable claims. By focusing on the key drivers of satisfaction and service best practices, insurers can still strive to deliver an exceptional total-loss experience.
Pathways to Claims Handling
One of the major differences J.D. Power observes in analyzing customer data from its 2014 Canadian Auto Claims Satisfaction StudySM regarding the claims process is how different the claimant experience is for total-loss claims compared with repairable claims.
As one might expect, whereas the repair facility is often a key contributor to a repairable claim customers’ overall experience, once the decision is made not to repair a vehicle, the shop drops out of the picture, and the emphasis shifts to the appraiser and adjuster, or “claim professional.” Often then, the claims-handling model shifts the focus of claimant interactions more squarely onto the insurance company personnel. (See Slide 1)
Irrespective of whether the vehicle is deemed repairable or not, all claims start with the first notice of loss (FNOL) interaction. Study findings reveal that both repairable and total loss claims have a similar level of appraisers acting as the primary contact point following first notice. In a total-loss claim, 26 per cent of claimants say their primary point of contact is a claim professional other than their agent or the appraiser – for a majority of insurers this is the claim adjuster. Because of the higher prevalence of claim professionals acting as the primary handler in total-loss claims, these individuals tend to have more direct impact on the customer’s overall impression of their insurer.
It is important to note that satisfaction is typically lower among claimants when a claim professional is involved in the process. Evaluating both repairable and total-loss claims, claim professionals engage the customer directly on 26 per cent of all automotive physical damage claims. Claimant satisfaction when no claim professional is involved is 817 (on a 1,000-point scale), compared with 751 when a claim professional interacts with the customer-a 66-point drop. The adjuster or claim professional is involved 44 per cent of the time in a total-loss claim compared with only 25 per cent of the time in repairable claims.
Total Loss Claim Satisfaction
Overall, there are six factors that comprise the auto claims experience – FNOL, service interaction, appraisal, repair process, rental experience and settlement. The importance of weight in each of these factors is impacted by the severity of the claim.
The more prominent role claim professionals and appraisers play in the total-loss process is apparent when examining the drivers of satisfaction that contribute to overall satisfaction. The primary difference between the total loss and repairable models is that the 13 per cent importance weight of the repair process is redistributed in the total-loss process to appraisal (+8 points) and service interaction (+4). The importance of FNOL and settlement remain relatively similar across both types of claims. (see Slide 2)
Regardless of whether a claim results in a vehicle being repaired or totaled, the settlement factor is vital to overall satisfaction with insurers, driving a majority of overall satisfaction. The variations in the index model reflect the differences in the way total-loss claims are typically handled and the individuals involved in the claims process, compared with repairable claims.
Overall satisfaction tends to be lower among total-loss claimants than among repairable claimants (744 vs. 809, respectively). The most significant difference is in the settlement factor, which accounts for the highest percentage in the overall customer satisfaction index model, where satisfaction is 87 points lower among total-loss claimants than among repairable claimants (723 vs. 810, respectively). While the satisfaction gaps for the remaining factors between total loss and repairable claims are smaller, they are all statistically significant. The sole exception is rental experience, in which scores are relatively consistent across both claim types with only a three-point gap.
Claims Process Timing
Total claim cycle time is an important metric in total-loss satisfaction. Total-loss claims not only take longer to settle, but every aspect of the claim also takes longer. Vehicle appraisals take more than 1.5 days longer for total-loss claims than for repairable claims. On average, total-loss claimants are not informed of the terms of their settlement until 10 days after the total-loss claim is reported, while claimants with repairable damage are notified after five days. In addition, total-loss claims take nearly a week longer to pay than repairable claims.
Because claimants with a totaled vehicle wait longer to receive payment, they also use a rental car longer than those who have a repairable vehicle (13.8 days for totaled vehicles vs. 8.7 days for repairable vehicles), likely leading to the increased importance of rental experience in overall satisfaction.
The extended time for processing total-loss claims allows more opportunities for things to go wrong. For example, 27 per cent of repairable-loss claimants indicate having to repeat information they already provided, compared with 39 percent of total-loss claimants. Because of the nearly 20-day time frame before a claim is paid, providing an accurate estimate of the amount of time becomes even more important; however, this is achieved among only 49 percent of total loss claimants compared with 65 percent of repairable claimants.
Variation in cycle time is not the only issue impacting the gap in satisfaction between total-loss and repairable claims. There is also a large disparity in meeting key performance indicators (KPIs) between these two claim types. For example, 94 per cent of claimants with repairable damage indicate their insurer met their settlement expectations, while only 77 per cent of total-loss claimants indicate the same. This is not surprising considering that 48 per cent of all total-loss claimants indicate that the settlement was not enough to cover the cost of replacing the vehicle.
Another critical area of focus in settlement satisfaction is limiting out-of-pocket expenses (other than the deductible). Claimants are more likely to incur some out-of-pocket expenses for a total-loss claim, and typically spend nearly $70 more than claimants with repairable damage. Settlement satisfaction is significantly lower among claimants when there is some sort of out-of-pocket expense, regardless of whether it is a repairable or total loss claim. (see slide 3)
A more in-depth understanding of how claim severity impacts the overall claims experience can he
lp insurers focus their efforts on improving those elements of the claims process unique to each claim type. Auto claims resulting in a total loss are far more complex and protracted, compared with vehicle-repair claims. Yet, this added complexity should not deter insurers from striving to deliver a satisfying experience for their customers.
Focusing on key processes, especially those involving interaction with representatives or the settlement process, can have a tremendous impact on customer satisfaction. Insurers should seek to simplify the claims experience by limiting the number of representatives who play a role in the claims process and to alleviate periods of claimant uncertainty. Ongoing communication and management of expectations are key not only during the FNOL, but also throughout the entire claims process, as claimants should never be left with unanswered questions or uncertainty about the next steps in the claims process.
Jeremy Bowler is Senior Director of the Insurance Practice at J.D. Power.