MARKET PERFORMANCE

As ever, we start with a high-level view of the trend we have seen through our claims performance reviews across Motor, Casualty and Property claims operations. From the performance reviews we have carried out in 2025 so far, overall, we have seen an increase in performance levels, albeit the worst are getting worse, and the best are getting slightly better:

AI IN CLAIM OPERATIONS – THE ZEITGEIST OF 2025

The stock market is booming on expectations of the improvements AI will bring to businesses, but the Chief Executive of Alphabet is saying, “Don’t blindly trust what AI tells you.” So, what’s the reality for the claim world?

A year ago, conversations about AI in claims handling were cautious, exploratory and even sceptical. Today, they’re unavoidable. The question around AI has shifted from “should we?” to “how fast and how safely?”

I’m very much in the positive camp when it comes to AI in claims operations. We’ve all had to do our fair share of grunt work in the past, and many will argue that this is essential, foundational training, but it can also be mind-numbingly dull and inefficient, which isn’t hugely attractive for customers or those seeking a career in claims. So, if AI can take on the routine tasks, freeing people to focus on cases that genuinely need human judgment and empathy, that feels like progress worth pursuing.

What strikes me from our work across different firms is the variability in AI maturity and appetite. Some insurers and law firms have moved beyond pilots into operational deployment – automated triage, document processing, initial assessments, customer communication etc. Others are still wrestling with foundational questions about accuracy thresholds, regulatory risk and what responsible deployment actually looks like. I hear the same tension repeatedly: nobody wants to be left behind, but equally nobody wants to be the cautionary tale.

The practical challenges clients raise with us are less about the technology itself and more about deployment realities. What accuracy rate is acceptable when making decisions affecting someone’s claim? How do you balance efficiency gains with customer experience? Can you improve both simultaneously, or does faster inevitably mean compromising on quality? I think the answer depends heavily on design and measurement, not just the technology itself.

Then there’s what I believe is the most critical question: what happens to people when AI takes on their routine work? The conversations we’re having suggest firms are grappling with this in very different ways. Some are investing significantly in retraining and upskilling, recognising that the role is changing, not disappearing. Others haven’t quite worked out what that transition looks like yet. It’s not just about learning new tools; it’s about fundamentally different skills when humans focus on the complex and exceptional rather than the routine.

AI technology is moving quickly, but the harder questions about accuracy, oversight, culture and future skills are the ones that will ultimately determine whether AI delivers on its potential or becomes another expensive disappointment. Both the optimism and the caution have equal measures of merit.

DELEGATED AUTHORITY

In 2025, the Financial Conduct Authority (FCA) intensified its scrutiny of delegated authority (DA) arrangements, placing a spotlight on how insurers, MGAs, and TPAs manage outsourced claims.

The regulator’s expectations are clear: firms must ensure robust oversight, fair treatment of customers, effective use of management information (MI), and full alignment with the Consumer Duty — regardless of who handles the claim.

In the past 12 months we’ve reviewed 57 DA arrangements, helping clients across the insurance value chain meet these evolving standards. Our engagements this year have included:

1. 1. • Conducting multi-phase strategic reviews of delegated claims handling across UK and European portfolios, with a focus on Consumer Duty compliance, MI accuracy, and governance consistency.
      • Supporting insurers and MGAs in developing and implementing Balanced Business Scorecards to monitor TPA performance across key metrics such as claim lifecycle, complaint handling, and customer outcomes.
      • Advising on the redesign of oversight frameworks, including the introduction of monthly operational meetings, annual strategic reviews, and real-time dashboard reporting.
      • Providing independent file audits and technical reviews to assess the quality of claims handling and identify areas for remediation.

Drawing on our experience, we recommend the following best practices for auditing delegated claims handling:

1. 1. 1. Adopt a risk-based audit plan, prioritising high-risk portfolios and partners.
      2. Use structured audit templates aligned with FCA expectations and Consumer Duty outcomes.
      3. Sample a representative mix of open, closed, and vulnerable customer claims.
      4. Validate MI accuracy and ensure data integrity across all delegated partners.
      5. Engage delegates in transparent feedback loops and track remediation actions.
      6. Escalate material findings to governance forums and integrate audit results into board-level reporting.

As the regulatory bar continues to rise, firms must treat delegated claims as an extension of their own operations. At SX3, we’re proud to support our clients in building resilient, compliant, and customer-centric claims ecosystems.

You might enjoy…

1. 1. • SX3 Case Study: Driving Better Customer Outcomes in Travel Claims

COMPULSORY MEDIATION IN MOTOR CLAIMS

The MoJ’s mediation pilot for claims under £10,000 (excluding personal injury) is narrow by design, but its ambitions are broader.

Testing whether early dialogue can divert disputes away from the courts and into faster, more proportionate settlement routes, this feels less like a contained experiment and more like groundwork for a wider shift in civil dispute resolution.

Recent CPR changes reinforce that trajectory. Judges can now pause proceedings and direct parties to ADR where settlement looks achievable, moving mediation from a voluntary option.

The Mazur ruling, by tightening the rules on who can conduct litigation, adds a further nudge. As law firms reassess their operating models and authorisation requirements, mediation becomes a more attractive, and perhaps necessary, route to resolution.

Together, these developments signal a move towards mediation becoming, in practice, compulsory across many motor claims pathways.

FCA REVIEW OF TRAVEL & HOME MARKET

The FCA launched a broad review of home and travel insurance claims handling in 2025 after rising concerns about poor consumer outcomes, including a formal super-complaint from Which? highlighting serious failings.

These two insurance markets were targeted because they have among the lowest claim acceptance rates (around 73% for home, 79% for travel) and can cause consumer harm when claims go wrong.

The review uncovered widespread problems in claims handling, summarised in the table below.

Regulatory Response

The FCA is providing individual feedback to reviewed firms and expects all insurers to self-assess against these findings. However, with no public enforcement action announced, Which? deemed the response insufficient – incorporating these findings into their super-complaint demanding concrete intervention by December 22nd. The review revealed an industry struggling with fundamental obligations under Consumer Duty. Whether December’s deadline brings enforcement or merely more review cycles remains the critical question for 2026.

Over the past 12 months SX3 have performed 11 insurer audits of home and travel claims practises as part of a wider program of 26 audits covering broader consumer claims practises.

You might enjoy…

1. 1. • SX3 Case Study: Assessing Fairness & Consistency in Repudiated Home Claims
      • SX3 Article: What Which? Missed About Home & Travel Insurance Claims

FRAUD & THE ECCTA

The Economic Crime and Corporate Transparency Act 2023 (ECCTA) is now in force and it’s changing the way insurance businesses must think about fraud, governance, and compliance.

At its core is the new offence of “Failure to Prevent Fraud”, which applies to large organisations and came into effect in September 2025. If an employee, agent or third party commits fraud for the company’s benefit, the organisation ​can be prosecuted, unless it can demonstrate that reasonable fraud prevention procedures were in place. The extent of these procedures will also influence the prosecuting agency, the Serious Fraud Office and whether to investigate or pursue a Deferred Prosecution Agreement in the event of a breach.

The failure to prevent corporate criminal offence in ECCTA poses specific risks for insurance businesses and Claims in particular, due to the broad ecosystem of businesses servicing insurers and the nature of commercial relationships. For claims managers, this means a shift from reactive to proactive fraud management. Anti-fraud controls must be embedded in daily operations with fit-for-purpose risk assessment, clear documentation, regular training and robust oversight of third-party suppliers and adjusters. Claims teams should also leverage enhanced Companies House data to verify claimant and supplier identities.

The ECCTA also strengthens Companies House’s powers, requiring identity verification for directors and beneficial owners and offering new tools to validate commercial claimants and spot red flags.

At SX3, we’re helping insurers navigate this new landscape. From operational reviews to fraud risk assessments and testing of fraud response plans, we support Claims teams in building resilient, compliant processes that meet the ECCTA’s high bar.

MAZUR V CHARLES RUSSELL SPEECHLYS

September’s Mazur ruling raised a question that probably should have been straightforward: who can actually conduct litigation? The High Court’s answer was that individuals must be personally authorised, not just supervised or employed by an authorised firm, which has created major ripples that are still spreading through the sector.

What makes this particularly unsettling isn’t just the ruling itself, but what it revealed about regulatory clarity. Law firms had built operating models in good faith based on guidance they’d been given, only to find that guidance reversed in court. The SRA had assured firms their supervision arrangements were compliant before changing position. It’s left many wondering whether the judgment’s interpretation of the 2007 Act is even correct, a question CILEX is now taking to the Court of Appeal, though any hearing may not happen until early 2027.

For insurers, the practical impact is more contained than headlines suggest. Pre-litigation claims continue unaffected and given most RTA claims settle through portals without reaching court, operational disruption is limited. But within that smaller litigation space, there are real considerations. Law firms now require greater qualified solicitor involvement, which will likely increase costs. This creates questions on both sides of the fence: claimant firms may point to supervision requirements when defending their costs, while insurers want assurance from defendant panels about compliance.

Then there’s the question of scrutiny – both retrospective and going forward. For cases already in litigation, insurers may demand evidence of appropriate supervision, particularly where costs are being challenged. But this also creates a new pressure point for future litigated claims, with the potential for more frequent challenges to claimant firms around team composition and qualified oversight. Independent review of case files offers a way to satisfy compliance concerns without relying solely on panel self-assessment.

The sector is adapting while awaiting Court of Appeal clarity. For insurers and claimant firms alike, this could strengthen the case for earlier settlement strategies and greater use of ADR – approaches that sidestep litigation complications entirely.

You can download a full version of our 2025 Claims Sector review here

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Client Challenge:

A leading UK personal lines insurer sought independent assurance around the fairness and consistency of its home claims repudiation decisions. With a focus on compliance with Consumer Duty and control of indemnity spend, the client wanted to understand whether claims were being rejected appropriately, if customer communication met required standards, and whether third-party administrators (TPAs) aligned with internal handling philosophies. Particular attention was placed on ensuring vulnerable customers were being identified and appropriately supported throughout the process.

Our Approach:

SX3 audited 100 declined home insurance claims closed between September and November 2024, spanning in-house claims and those handled by two TPAs. The focus was on decision accuracy, communication, vulnerability handling and adherence to the client’s claims handling philosophy. Claims were assessed against clear technical and customer-handling criteria.

Targeted Sampling: We selected claims based on rejection volumes across key perils and suppliers, with a focus on storm, AD, EOW and theft claims.

Tailored Audit Framework: A bespoke audit methodology was applied to test decisions, communication, process adherence and policy alignment.

Remote Audit Execution: Our team worked remotely, using system access and shared documents and liaised with claims teams to clarify and confirm observations.

Daily Engagement: Findings were shared regularly with the client and TPAs to ensure transparency, validate insights and drive mutual understanding.

Findings:

The audit found that 95% of claims were correctly declined. However, variations in execution, documentation, and communication standards highlighted areas for improvement across both internal and outsourced teams.

Key themes included:

Decision-Making Accuracy: The technical basis for declinature was generally strong, with minimal high-risk concerns.

Customer Communication: Only 33% of rejections were confirmed in writing, with verbal decisions not always backed by sufficient file documentation or confirmation of customer understanding.

File Note Quality: Across all handlers, a number of cases showed limited rationale or explanation behind the declinature recorded on file.

Referrals and Escalation: Opportunities to refer complex or repeat cases to internal specialist teams (e.g. underwriting or fraud) were occasionally missed

Vulnerability Handling: Vulnerable customers were generally well supported, though automation via self-service channels meant counter-fraud and vulnerability prompts were sometimes bypassed

Solution Delivered

SX3 delivered a comprehensive audit report summarising quantitative results and qualitative insights. We highlighted performance by claims function and TPA, provided evidence-led recommendations, and supported the client in ensuring findings were agreed and accepted by each party.

Recommendations included:

• Clarifying when written communication of rejections is mandatory
• Reinforcing repudiation protocols and documentation standards
• Reviewing the customer communication script and declinature letter templates
• Strengthening internal oversight of self-service and automated claims journeys

Results:

• Repudiation Confidence: The audit provided evidence that the vast majority of declined claims were technically valid, giving internal and regulatory assurance.
• Improved Governance: Findings will support better consistency of handling across TPAs and in-house teams through clearer guidance and MI monitoring.
• Fairer Customer Experience: The focus on communication and vulnerability will drive improved outcomes, better alignment to Consumer Duty expectations and stronger customer trust.

Conclusion

This review demonstrates how independent, insight-driven auditing can validate good practice while uncovering improvement opportunities. By focusing on a complex and sensitive part of the home claims journey, SX£ helped ensure that policy terms were applied fairly, customers were treated consistently and the insurer could move forward with both assurance and clear actions.

Contact SX3 to explore how independent auditing can improve claims fairness and operational alignment in your business

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Client Challenge:

A motor insurer sought to assess the quality of settled claims handled by an outsourced claims partner. Specifically, the audit aimed to identify any missed recovery opportunities and quantify the cost of those missed opportunities. With a focus on settled own damage (AD) claims involving an at fault third party, the objective was to ensure closure protocols were being followed and opportunities for recovery had not been overlooked.

Our Approach:

SX3 conducted an in-depth file audit using a structured methodology tailored to the client’s requirements:

Targeted File Selection:We reviewed a sample of AD claims closed in the last 6-9 months, where no recovery had been made despite third-party fault. The cohort was designed to identify the most likely cases for missed recoveries.

Remote Audit Execution: Our auditors accessed the claims management system directly, conducting a comprehensive review of claim activity, recovery pursuit, and file closure rationale e.g. whether the decision to abandon a recovery was accurate.

Performance Benchmarking: We developed a streamlined version of SX3’s audit framework for this engagement, enabling a focused deep dive into recovery and closure. This tailored approach delivered greater audit efficiency, while still enabling our market benchmarking.

Daily Collaboration: Findings were shared with the claims partner each day during the audit process, ensuring clarity, accountability, and opportunity for immediate feedback.

Findings:

The audit uncovered both strengths and improvement areas across recovery and closure handling:

File Closure Accuracy: 88% of files were found to be closed in line with the claims partner’s closure rules. Of the files closed not in line with the rules, common failures were either a recovery attempt was not pursued or was abandoned without documented rationale or clear justification.

Recovery Accuracy: 84.6% of files demonstrated appropriate recovery activity. In the remainder, missed opportunities were often linked to inaction, poor follow-through, or insufficient review of historical file notes.

Claim Leakage: The leakage rate identified was 9.92%, across both soft and hard leakage. Key contributors included:

• Delayed action resulting in loss of evidence (e.g. CCTV wiped/lost)
• Supplier decisions not being challenged
• Gaps in documentation when abandoning recovery efforts

Solution Delivered

Report and recommendations were delivered within 2 weeks of completing the fieldwork, and included:

• Case-by-case analysis of identified leakage
• Quantification of missed recoveries
• Root cause assessment and recommendations which included:
  • Missed or unrecorded system actions and diary notes
  • Lack of review of historical file notes
  • Unclear abandonment and closure sign-off processes
  • Closures without appropriate explanation or rationale
  • Dormant files closed in bulk
  • Resourcing constraints impacting claims progression
  • Handler inexperience in recognising or pursuing recovery
• Benchmarking insights against market standards

As part of the audit service, we ensured the findings were agreed and accepted by the outsourced claims partner, securing their buy-in to the recommendations. They committed to proactive internal review and process improvement in light of our findings.

Results:

The new approach delivered measurable improvements:

• Tangible Insight: The audit highlighted improvement areas in recovery pursuit and closure discipline that, when addressed, could reduce leakage and support better cost outcomes.
• Process Alignment: The claims partner acknowledged the findings and committed to implementing new documentation standards and internal protocols.
• Collaborative Improvement: The outcome supports further collaboration between insurer and handler to continuously improve recovery outcomes and operational governance.
• Recoveries: Claims re-opened and recommended recovery practises implemented – leading to six-figure (and counting)  saving on indemnity spend.

Conclusion

This audit illustrates the value of independent insight in driving claims performance. By targeting a specific cohort where missed recoveries were most likely, SX3 helped the insurer and their partner identify tangible opportunities to reduce leakage, strengthen closure discipline, and improve recovery practices. The outcome underlines the importance of robust independent file quality assurance and demonstrates how a collaborative auditing approach can support better commercial and customer outcomes alike.

Contact SX3 today to explore how we can help your business

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Client Challenge:

A global insurer sought independent assurance around customer outcomes delivered by a third-party administrator (TPA) for a large-scale travel insurance scheme. With policies primarily sold through non-insurance skilled retailers, and a 24/7 distributed claims model operating both remotely and across multiple continents, concerns had emerged around consistency of claims decisions, the fair treatment of vulnerable customers, and adherence to regulatory expectations including the FCA’s Consumer Duty.

The client commissioned SX3 to conduct a detailed audit across paid, declined and abandoned travel claims, alongside complaints and appeals, to evaluate whether policyholders were receiving fair, timely, and accurate claims outcomes.

Our Approach:

SX3 conducted a structured and comprehensive review designed to assess both technical accuracy and customer experience:

Targeted Sampling Across Claim Types: We reviewed 195 closed claims, including a balanced mix of paid and declined claims.

Outcome-Focused Audit Trail: Our audit tested performance across six core areas:

• Indemnity
• Customer Handling
• Complaints
• Walkaways
• Appeals
• Quantum

Each was measured against documented processes and FCA principles on fair outcomes.

Remote Audit Execution: Working with remote system access, secure file downloads and time zone differences, we conducted the audit remotely with daily contact with the TPA’s  client management team across Europe for queries and clarifications.

Case-Level Insight: Detailed feedback and examples were provided for each area of concern, alongside a thematic analysis.

Findings:

The audit revealed a mixed performance, with key strengths in certain areas and notable gaps in others:

Overall Handling Performance Score: 88.9% across all areas audited, but with significant variation by category.

Technical Decision-Making (Indemnity): 87.9% pass rate. Errors in applying policy terms led to inconsistent decisions – some claims paid when not covered and others declined incorrectly.

Customer Experience: 91.5% score, driven by good communication on most files. However, failures in recognising vulnerability and inconsistent messaging impacted some outcomes.

Complaints Handling: Scored just 47.2%, with missed expressions of dissatisfaction and delays in escalation. Some Final Decision Letters lacked appropriate tone or explanation.

Walkaways: 66.7% score, reflecting inconsistent reminder activity when customers failed to provide key documents.

Claim Repudiation Appeals: 91.7% performance, but some appeals avoidable with better initial assessments.

Quantum: 93.8% accuracy in assessing value, though isolated errors in benefit application and excess calculation were identified.

Solution Delivered

SX3 delivered a full written audit report including:

• Audit scores and pass/fail data across six key areas
• Specific examples of customer detriment and potential leakage
• Case studies to highlight learning opportunities
• Recommendations to improve complaints handling, system flexibility, handler training, and vulnerability identification

The report was used by the insurer and TPA to identify root causes and initiate targeted operational improvements.

Results:

Customer Duty Assurance: The audit helped evidence whether the TPA’s operating model aligned with the FCA’s expectations on fair value and fair treatment.

Process Improvements Initiated: Steps were taken to improve handler training, complaints escalation, and recognition of vulnerability, with further system changes under consideration.

Insight-Driven Collaboration: The findings created a shared understanding between insurer and TPA, enabling a more aligned approach to delivering consistent customer outcomes

Conclusion

This audit underscores the importance of aligning remote & overseas claims models with regulatory expectations and customer needs. By providing impartial, detailed analysis across a representative claims sample, SX3 helped drive improvements in both technical quality and the overall customer experience — reinforcing the insurer’s commitment to transparency, fairness, and compliance.

Contact SX3 today to discover how we can help your business deliver fair, consistent and compliant claims handling

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We founded SX3 on a clear vision – to provide independent, expert support to our peers in the insurance industry. We committed to a set of simple but essential principles that have guided us every step of the way:

1. Deliver Genuine Expertise: Every project is staffed by seasoned insurance practitioners, people who have walked in our clients’ shoes and understand the challenges they face firsthand.
2. Ensure True Value: We only take on projects where we’re confident we can deliver measurable value, ensuring our clients always see a return on their investment.
3. Maintain Independence: Our independence is non-negotiable. We don’t accept commissions for supplier recommendations or introductions, keeping our advice impartial and focused solely on our clients’ best interests.

A decade on, I’m proud to say that we’ve upheld these standards in every engagement, working with over 60 organisations across the insurance market. The feedback we’ve received from our clients reaffirms that our approach continues to make a meaningful difference.

As we enter another year, here are some insights into the ways we’ve been supporting our clients during 2024.

Market Performance

As ever, we start with a high-level view of the trend we have seen through our claims performance reviews across Motor, Casualty and Property claims operations. From the reviews we have carried out in 2024 so far, overall, handling performance has dropped slightly in 2024 compared to 2023, and leakage rates have increased:

Drilling down into the data by specific handling areas, audit performance on recoveries handling has widened between those who have focused on their processes, systems and suppliers, compared to those who have not. The handling audit performance range for recoveries handling in 2024 was 55.17% to 100%, whereas in 2023 the range was 64.29% to 100%.

Total Loss Claims

Following the release of the FCA’s thematic review in March 2024, we responded by providing a bespoke audit/review solution for our clients to test their performance against the FCA’s findings and recommendations of good practice. We also provided validation for data submission requests, and support during Skilled Person audits, helping our clients better understand and explain their situation. The best performers remain those who are able to demonstrate and evidence effective governance and performance oversight of their claims handling and supply chain, whether that is in-house or outsourced.

Consumer Duty

We have seen in practice, with the FCA’s Total Loss review being a prime example, that those who have the consumer at the heart of their claims processes inevitably deliver better audit outcomes. With strong focus already in place by our clients on their in house claims operations, SX3 have been increasingly called upon to look at clients’ external TPA / Delegated Authority claims handling arrangements across a number of classes of business, including Motor, Travel, Household, Warranty, Gadget and Pet. Particular focus has been the practices, governance and performance recording of the identification of Vulnerable Customers, the adaptation of services where required, complaints, and delivery of fair outcomes.

Subrogated Recoveries

This year, through our audit programme, we have identified a deterioration in motor claims subrogated recoveries performance – a key area for hard and soft leakage. There is clear evidence of payment delaying tactics forcing an increase in litigation, adding unwelcome extra cost and delays to claims.  We are supporting clients both with case handling audits and also reviewing practices and procedures to help shorten case lifecycle, reduce leakage and increase returns.

Run Off Oversight

There are many reasons why a capacity provider may choose or need to put a scheme into run off, but those schemes all still require oversight. We have seen more clients asking SX3 to support that work – not to handle the claims themselves – but to help our clients oversee the performance of the entity handling the claims in run off. That support takes the form of data modelling, performance tracking, troubleshooting and auditing. With so many of our team having managed run off schemes in their former roles, it’s a service where we have been able to add significant value to our clients. Read our case study for the outcome.

Complex Case Support

We have seen an increasing requirement of clients seeking advisory support on individual cases. Examples:

• FOS Complaint – Storm damage claim for buildings was rejected by the insurer due to lack of evidence of storm damage. The insurer’s customer had complained to FOS. FOS requested the insurer arrange an independent survey of the property. The insurer asked SX3 to find and instruct the surveyor, so they could demonstrate to their customer that the result of the survey would be truly independent. Read our case study for the outcome.
• Fire Claim – Our insurer client had received an initial estimate from the loss adjuster of a property fire loss that seemed excessive. As SX3 have a number of ex Loss Adjusters within their Associate network, they asked SX3 to attend the fire damaged property and audit the opinion of the loss adjuster. The result was that it did appear that the loss adjuster had been pessimistic in their assessment, but also that the loss adjuster had failed to organise scaffolding to stop rainwater coming in through the fire damaged roof of the property.
• Building Warranty – Our insurer client was in dispute with their policyholders(who were represented by solicitors) over the extent and cost of remediation work required to two barn conversions that could be attributed to the renovation work covered by the building warranty policy. Our client also had legal advisors. With the case heading to litigation and imminent mediation, they wanted a fresh perspective on the claims to include views on available options for bringing the case to a satisfactory / cost effective conclusion. Following discussions with our client and consideration of key documents, we provided a report examining the timing, prudence and rationale for the proposed mediation. In our report we included a series of questions for the client’s own legal team to consider, as well as a cost benefit analysis of the mediation process. Additionally, we suggested possible alternative approaches to resolving the claims to include having the policyholders refer their dispute to the Financial Ombudsman Service. Our outcome focused analysis provided the client with alternative dispute resolution strategies facilitating an enhanced strategic understanding of how an optimal claims outcome might be achieved.

Ukraine Aid Missions

Our Laura Phillips took over the SX3 driver slot for the latest aid mission (number 7), in Nov 24. John Green, John Gibson and the team have managed to procure 7 ambulances and 4x4s for this mission from the generous donations received already, and provided them to medical rescuers on the front line, as well as to two orphanages.

Laura’s personal journal of the mission can be read here

SX3 People

Our team has grown this past year, with the following additions:

• Richard Pilkington – Head of Audit Services
• Kelly Williamson – Operations Administrator

There was also a warm return for Lorraine Bussey as Client Services Manager and we’ll be appointing 2 further Client Services Managers in January 25. Watch this space.

One final milestone worth celebrating – our Associate network has now also expanded to over 50 members and you can see the full range of our services and coverage we offer here

As we look forward to the next 10 years, SX3 remains steadfastly committed to supporting the insurance industry through those principles of independent expertise and unwavering dedication to delivering value and trust in an ever-evolving landscape.

The post SX3 2024 Review appeared first on SX3 (Re)Insurance Claims Consultants.

MARKET PERFORMANCE 

As ever, we start with a high-level view of the trend we have seen through our claims performance reviews across Motor, Casualty and Property claims operations. From the performance reviews we have carried out in 2023 so far, overall, we have seen an increase in performance levels: 

As we predicted last year, leakage rates in 2023 have reduced (after increasing in 2022). One outlier this year has been claims handling performance around reserving, which dropped from 86.86% in 2022 to 85.91% in 2023. 

CLAIMS INFLATION  

Pressure on bottom line is driving claims operations to review every aspect of claims processing to identify opportunities for improved effectiveness and efficiency.  We have supported many clients this year with just that.  

Commonly, the client will perform much of this work in house, comparing their average cost per claim data to a benchmarking service from the likes of Finalta or WTW.  We can then work with clients to get under the skin of that data. 

We also help to identify why existing practices result in the current level of performance, then providing an outside perspective as to how those practices compare with the rest of the market.  

Claims Consultancy – Working with a High Performing Client 

CONSUMER DUTY 

Consumer Duty came into full effect on 31st July 23 and set high expectations for the standard of care firms give to consumers in retail financial markets. Claims Management has had to look at every aspect of the customer claims journey, and the performance of everyone who forms part of that journey to ensure we are fully compliance with these enhanced standards.  

SX3 Associate James Tye provided a clear and concise outline of the basic principles and effects on claims handling: 

https://sx3.co.uk/consumer-duty-are-your-claims-handling-processes-compliant/ 

Our audit and review processes have been enhanced to include measures on Consumer Duty compliance and performance.  We will have more to report on that in the coming months as the changes in claims processes bed in. 

COORDINATED AUDITS

Having been accepted by Lloyd’s as an approved audit service provider, we have already conducted our first coordinated audits. These are a great concept by Lloyds. When we audit a TPA for operational/governance performance and control, we are often covering similar ground to that for other clients. Lloyd’s gather their member’s audit requirements and create a coordinated audit where possible, where one audit firm reviews the same TPA for a number of clients in one process. Of course, there will be additional aspects that need reviewing and reporting separately  for each client – as is the case when looking at their files – but the process is less onerous for the TPA and cheaper for the clients as it avoids duplication of effort.  

There’s no reason a similar approach couldn’t be taken outside of Lloyds. Given SX3 audit most of the UK claims handling TPAs, we would certainly encourage non-Lloyd’s insurers to get in touch with us to explore how we could deliver similar efficiencies to them.  

ESG 

It has been quite a year on the ESG front. In our newsletter last year, we highlighted John Green’s fundraising efforts to help the people in Ukraine. This year, we were actually part of the team driving through Europe to deliver 5 ambulances to Ukraine loaded with aid for an orphanage and their front line.  

Such a worthwhile journey supporting an orphanage and aid workers alike. Here’s a lovely description of how the mission went and short video made by another member of the crew – Nick Hilton of Markerstudy – NICK’S UKRAINE REPORT 

We also continued our usual support of the excellent work done by Insurance United Against Dementia.    

PEOPLE 

Work-Life balance remains one of the most important parts of the way we operate as a team.  Morgan O’Connor is a great example of an SX3 Associate living that dream: 

https://sx3.co.uk/morgan-oconnor-finding-work-life-balance-as-an-independent-consultant/ 

If you, or you know someone who is looking for a change, we are always interested in talented claims professionals to join our team, just get in touch. 

SX3 NEWS 

That going the extra mile with our clients has taken us deep into some of their claims operations, and expanded the range of business classes our experts cover, leading to growth and wider capability:

• Service – This month, SX3 celebrated completing its 9th year of trading, and an unprecedent year of growth for the business. With over 60% growth in a single year, our team’s key priority has been ensuring the continuing quality of the service that our clients rightfully expect. We would like to thank all our clients for their support and understanding this year.  
• Increased Capability – Part of that growth has been achieved through an expansion of capability within our consultancy team – ranging from reviews on Financial Crime, Marine, Aviation, Litigation Funding, Latent Defect, Financial Lines, as well as our usual Property, Casualty and Motor business classes. 
• ISO accreditations – As part of our internal investment, SX3 has now achieved the ISO 9001 and ISO27001 accreditation for our processes and information security. 
• Increased Geographical reach – We continue to support clients who are regulated overseas, such as insurers in Gibraltar, Malta, Bermuda and the Isle of Man, as well as providing training and insights to the regulator teams themselves. 

This next year will be our tenth year in business, that’s some milestone to go for – bring it on!

Seasonal best wishes to you all. See you in 2024.

Adrian

MD SX3

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The intention of the new Duty is to set a higher standard in consumer protection across all financial institutions, including insurance, so it’s vitally important that insurers are able to demonstrate adherence to the regulations.  It’s much more than simply a tick-box exercise; it requires real change.

We will do a short refresher of the purpose and nature of the regulations, their implications for claims functions, illustrate potential failure points and review actions that have proven efficacy in this area.

Basic principles of Consumer Duty

Consumer Duty sets high expectations for the standard of care firms give to consumers in retail financial markets.  It came into full effect on 31^st July 2023.

The Duty has introduced a new Consumer Principle (Principle 12). Its purpose is to elevate the existing Treating Customers Fairly (TCF) framework by requiring firms to act to deliver good outcomes for their retail customers ensuring existing best practice is applied consistently across the industry.

A firm’s existing processes should be delivering on the majority of what the Consumer Duty aims to achieve, but there are likely to be additional steps that need to be taken, and your approach to claims handling will impact on how you deliver those aims.

The implementation process will focus, among other things, on:

• identifying the key controls the financial business has in place
• who manages these controls
• where they are reported
• evidencing how they are monitored
• identifying any gaps in process or controls
• agreeing the actions required to resolve.

Consumer duty key outcomes – the impact on claims

The Consumer Duty outlines four key outcomes which provide a framework with practical guidance. These set out, in some detail, the regulator’s expectations of a firm’s behaviour in relation to:

• Consumer understanding
• Products and services
• Customer support
• Price and value

The areas in which claims will most often interact or influence the customers understanding and outcomes are:

• Consumer Understanding – should ensure that we communicate with clients in a way that equips them to make effective, timely and informed decisions.
• Consumer Support – we should enable customers to act on those decisions without facing unreasonable barriers, whether that’s face-to-face, on the phone or online.

How and why this could affect claims handling

Consumer Duty covers every aspect of the customer claims journey, and it covers everyone who forms part of that journey. Consumer Understanding and Customer Support are the foundation of what we and everyone in the claims supply chain does.

Customer Service covers a range of different areas – from how our teams interact with customers on the telephone, on-line or in person, to how we deal with complaints or conflict. But one area which is often overlooked yet is important to our ability to meet the expectations of Consumer Duty is that of suppliers. But it’s not restricted to an internal focus. Consumer Duty impacts externally too – any suppliers that manage any aspect of the customer journey are expected to adhere to these new regulations.  And whilst that can vary from product to product, insurers will use a wide variety of suppliers, whether it be FNOL services, repair shops, TPAs or loss adjusters.

Consumer Duty – involves everyone, including suppliers          

The key understanding of Consumer Duty is that everyone has a responsibility in the process, including the suppliers, and they too need to have an awareness of Consumer Duty even if they are not regulated or required to adhere to it directly. Their behaviours and performance can impact or influence your ability to deliver the outcomes, so it is critical that they are aware of where they fit into the process.

In future, it will not be sufficient to adopt an approach of ‘well, they’re not regulated’ or ‘they’re just a supplier’.  There will be an expectation by the regulator that your processes acknowledge the role they play.

Customer Understanding – communicating the what and the why

If we look at Consumer Understanding, the FCA make it clear that ‘the right customer outcome’ does not mean that ‘the customer is always right’ or that the customer should receive a better settlement than the policy normally affords. What the Duty is looking to achieve is that the customer understands why the outcome has been reached and how their insurer got to that position. Fundamentally it’s about clear communication and transparency.

This means that it is important that claims teams are aware of how they communicate with customers and by what means.  Claims teams must ask themselves if they are certain that they understand their customers and their needs or vulnerabilities and is the claims team using the best methods of communication and language to ask questions and give answers.

Whether you are a broker, insurer, TPA or other provider, if you communicate directly with customers then the Consumer Duty really does require you to look at how customers are managed and – just as importantly – that the outcomes of those customers processes can be demonstrated (ideally through data).

Illustrations of potential issues

All of the following examples are real life and have been seen over recent months through audits, performance reviews or complaint monitoring.

• Unanswered calls – this is particularly pertinent for those who work in a high-volume claims organisation. How do you deal with unanswered calls at the end of the day before they are switched over to the out of hours service? Do they get answered? Do you have to pick up each call and explain that the caller needs to try again in the morning, or do you allow the calls to just drop off?

Whatever your organisation’s solution is, the question must be asked – is it meeting the outcome set out by the new Consumer Duty?

• Poor supplier performance (loss adjusters, repairers, FNOL providers) – The performance of a supplier can have a negative impact on the overall handling of a claim. Often, it’s not the supplier’s fault, it may be circumstance or a situation beyond their control. Equally it could be an actual failure, poor process or organisation.  It may be the result of a lack of communication or clear instruction, or it could just be that the supplier is not doing their job properly.

These things can happen, but what you do to prevent them from happening and how you deal with it after it has happened, all contribute to demonstrating how you are meeting the outcomes set by the regulator.  The actions of suppliers, the SLAs or contracts with them and the ability to monitor all of this, are under the spotlight.

• Vulnerable customers – many claimants, especially personal lines customers, may have some vulnerability which might require the insurer to make adaptations. A claim is unlikely to be a familiar process to most customers but it’s potentially even more complex for those who might be vulnerable in any way.
• Supply chain issues –The supply chain can present a variety of challenges in its management of customers and whilst some of these will be difficult to overcome, the Consumer Duty places an expectation on all parts of the supply chain to recognise the challenges and communicate effectively to show they’re managing the process.

Hopefully, these situations are the exception rather than the norm and most organisations have great training and monitoring processes in place.  But consistent failures will have the potential to hit the regulators desk a lot more quickly now.

This is a good time for claims managers to test their assumptions about their processes – that it’s a clear process, that it is the right process and that it works.

Some Actions to Consider:

Reviewing contracts and SLA’s – it’s important to take a step back and review your contracts and SLAs to ensure that they are fit for purpose, that they have not crept organically into a place where they cannot realistically deliver and to make sure that they are not a barrier to you delivering on the required outcomes.

Helping partners understand the part they play in meeting the duty – linked to what we’ve just said about contracts and SLAs but just as important because Consumer Duty puts an expectation on you to ensure that you are helping your partners and suppliers understand the duty, what it means and what part they play, even if they, themselves, are not regulated.

It’s about fostering positive behaviours across the entire delivery chain.  If you, as an organisation and as an individual, are proactive about this, it will be a massive step to meeting the outcomes.

Straightforward explanations – know your audience and keep things simple.  Don’t hide behind jargon and buzzwords. This will not be seen as meeting the Consumer Understanding outcome!

Ensuring that outcomes can be evidenced – there is an old saying ‘If it’s not written down, it didn’t happen’.  The same applies for Consumer Duty.  It’s critical that you can evidence your processes, or decisions and outcomes with data. In high pressure or high volume environments or in partner and supplier organisations which don’t operate in the way you do, things don’t always get written down.

Remember – the actions or inactions of your internal Claims team and external suppliers will impact on your ability to evidence that you’ve achieved the outcome.

Outcomes are reviewed and monitored on an ongoing basis – don’t assume the process is right and that that it works.  Processes and relationships with customers and suppliers, evolve, creep, and develop.  Take time to step back and review them, do they work? Are they still fit for purpose?  Are you keeping track on how things are progressing?

Any issues identified are remedied or mitigated – If you find a problem or you make a mistake – spot it and fix it.   Achieving perfection 100% of the time is nearly impossible, mistakes will happen but if you can show that you are able to identify, remedy or mitigate the issue then the regulator will acknowledge this.

Conclusion

Ultimately then, it is incumbent on you to ensure the regulations are met and that all the constituent parts of the claims journey work towards that goal. Companies are accountable to the regulator for what they have done but, just as importantly, they are accountable to their customer.  The regulator will be responsive to the individual consumer, and we know how easy it is for companies to feel they are acting appropriately but still fall foul of the regulator.  Establishing the facts and being able to demonstrate verified processes are a claims leader’s sword and shield in this new world.

At SX3, we take an independent view of your current processes and delivery to provide an objective assessment. We can help you build and implement a structured programme of monitoring and review to help demonstrate your ongoing improvement and understanding of Consumer Duty.

James Tye

SX3 Associate

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SX3’s auditing teams always consist of experienced claims practitioners, people who have first-hand experience of working in claims operations or claims service providers. This deep understanding of the subject matter they are auditing leads to audit results that provide independent and reliable insight.

Nonetheless, assessing and quantifying performance on claims handling is always likely to involve a degree of opinion. When it comes to acting as an expert witness, things are more challenging – to quote Kimberly Owen from Stewarts Law in a recent blog Potential pitfalls when providing expert evidence in personal injury cases :

“The primary duty of an expert witness is to the court, and this duty overrides any obligation to the party instructing or paying the expert. Expert evidence must be objective, independent, unbiased and based on all material facts.”

The blog goes on to specify common pitfalls for the inexperienced expert witness.

SX3 uses proven, robust procedures for ensuring independent assessment in its audits but we still had to go further to meet the needs of the court.

The Brief

The SX3 client had provided capacity to an MGA. That MGA outsourced their claims handling to a TPA with delegated authority to handle and settle the claims. The insurance account was loss making and the arrangement had ceased.

The capacity provider blamed the losses primarily on poor claims handling by the TPA, so it commenced a Commercial Court action in the High Court seeking millions of pounds in damages.

Audits carried out prior to the legal action were considered by the court to be inadequate and indeed provided conflicting results. SX3 were instructed by the court, on behalf of the Claimant, to provide an independent, objective and detailed assessment of the claims handling performance by the TPA and to quantify any losses arising from failures of the claims handling.

How can the Court be Helped to Accept the Audit Results?

SX3’s claims audit methodology is designed to minimise subjectivity, so that we deliver objective and transparent results.

The challenge when acting as expert witness, is to ensure all stakeholders in the process, especially those who were less familiar with assessing claims performance, could appreciate how we had come to our results.

SX3 created an assessment manual which documented the pre-defined assessment criteria to be used to evaluate the audit results.  38 separate tests were developed to assess the claims handling performance. If any failure was identified in these tests, the auditor then would consider if any losses (leakage) arose from that failure.

Given the fundamental allegations in the legal case, the assessment of claims handling performance was set against the following criteria in descending order:

1. Was there a relevant process or service standard contractually agreed by the TPA?
2. If not, was there an industry practice / legal precedent / FOS decision in place to use as a benchmark?
3. If not, apply an SX3 assessment, based on the detailed assessment manual produced.

To support the assessment process further, average market settlement data was obtained from Verisk to create benchmarks for some of the more common negotiated settlement areas. Any other areas, the auditors provided clear calculations and rationale for each failure and any leakage arising from that failure.

One added complication was that the book of claims was transferred from the defendant to a TPA chosen by the claimant. The auditors therefore had to determine if any errors by the handling of the claimants TPA impacted adversely the outcome of the claim.

Working closely with the Client to Ensure most effective outcome

During the auditing, daily query sessions were conducted with the TPA to ensure data and handling methods were understood – nothing was left to interpretation. Weekly updates were provided to the claimant’s legal representatives.

Recognising the implications of the results being produced by this review, every effort was taken to avoid overstating any failures or losses, whilst still ensuring all performance areas were fully assessed and quantified to help ensure parties had a clear understanding of the extent of potential failures and losses.

Outcome

The audit identified a substantial number of quantifiable failures. SX3 had quantified the extent and financial amount of those failures, providing written and verbal opinions on the degree of tolerance to be allowed within the results and citing key examples to bring the data to life.

The evidence produced by SX3 convinced the claimant to continue to pursue their claim. Within 3 months, the Claimant and Defendants reached a negotiated settlement bringing early closure of what was likely to be a costly and protracted legal process.

SX3 Case Studies – are published to help prospective clients understand how value opportunities for the use of our services may be found and to give an insight as to how SX3 works with clients. All projects are unique and have more detail than can be expressed here.

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SX3 has now reached its 7th year anniversary, representing 20% of my working life (see final paragraph for the maths), and it’s been a busy few months for the company. Its also been a busy period for a Claims Sector still feeling the effects the pandemic’s short and long term societal impact, Civil Procedure changes, and Brexit legacies. Claim volumes are increasing, new working patterns settling in, new claims processes bedding down, supply chain materials and resources being outstripped by demand, exacerbated by increased energy costs and new Covid variants. Following are some of our observations from our sector that I think reflect these impacts, and that we expect to continue to develop into next year. 

SX3 Audits – Claims Handling Performance Trend 

We have seen a slight dip in claims handling performance from all audits performed in the past 6 months, with the headline claims performance average score now at 90.52% compared to 91.94% for the previous 6 months. We are not surprised by this trend given the factors mentioned above, but exacerbating matters seems to be an increase some claims organisations are experiencing in staff turnover. With many claims people having embraced a homeworking lifestyle to a lessor or greater degree, some are seeking roles elsewhere in the country or outside the claims sector altogether. Coupling this with the factors mentioned in our introduction, this certainly a challanging time for resourcing claims operations just as we move into the usually busier winter months.

Whiplash Reforms Update 

The first two Official Injury Claim (OIC) quarterly reports were issued on 21st Oct and 8th Dec. It is important to remember that this data does not encompass all PI claims registered during those quarters. It represents claims arising from accidents from 31st May 2021 to 31st August, and only those where the value of the claim is realistically expected to be below £5000, and excluding vulnerable road users. By way of example, a further 52,349 Claim Notification Forms (CNFs) were submitted to the MoJ Portal during June to August; therefore, we should take any long-term volume trend predictions at this stage with a pinch of salt.  

What we do know from the OIC data is that in the first 6 months: 

• 114,077 claims were started via the OIC Portal 
• 103,513 were represented claims. That’s 90.74%, which is in line with most industry predictions. 
• Only 209 claimants were represented by a CMC. 

Some commentators pointed to the lower-than-expected percentage of claims (25.1%) requesting an uplift due to an exceptional injury, exceptional circumstances or both. However, perhaps more telling is the types of injuries being claimed for. Whilst 92.8% of the total claims submitted in the OIC Portal included a whiplash tariff element, 66.24% of those whiplash claims also cited additional injuries that will require some of the General Damages to be assessed outside the whiplash tariff. 

A “Mixed Injury Working Group”, with representatives from both claimant and compensator organisations, has been set up to work collaboratively to fast track test cases through the Court of Appeal to establish Court guidance for valuing General Damages for cases with a mixture of tariff and non-tariff general damages. In the meantime, compensators and claimants are faced with the task of trying to establish and agree sensible, pragmatic valuations of these claims or face testing the dispute resolution processes. These claims will take time to mature and be ready to settle, and we will be watching this space closely over the coming months as this issue progresses. 

Claims Technology – Data 

Managers of claims operations are constantly looking for innovations and technology to help improve their customer experience, reduce operating costs, improve decision making and empower their teams. One of the silver linings of the pandemic restrictions seems to be the appetite it created for the adoption of new technology. But, you can’t just layer new tech onto old tech, the underlying data has to be sound for technology solutions to be truly effective. That was the message we heard time and time again this year from industry commentators. Here are some excerpts:   

Sustainable solutions need to be built on solid foundations – quality data is the “Holy Grail” 

SX3 News – 7th Heaven 

SX3 has now completed its 7th full year supporting the insurance claims industry. Highlights of the year include: 

• Increasing our base of audit clients, including a significant reserves due diligence assignment from a leading reinsurer. Read about it here: Delivering a Rapid Response to Due Diligence Need
• SX3 acted as an expert witness for a commercial dispute between an insurance capacity provider and TPA, independently assessing and quantifying failures of the claims handling 
• Validating an insurer’s in house Quality Assurance by performing a peer review of their in-house audit processes. Read the story here: Peer Review of In-House Audit Processes
• Delivering analytical and strategic decision support to an insurer through a significant change in their claims operating model. The full story is here: Keeping the client in control throughout the change process.

Our team continues to grow, and with now increased geographical coverage with the inclusion of 2 Ireland based consultants.

On a personal note, a small career milestone was passed recently as I marked 35 years working in our industry. I wouldn’t quite say the time has flown by, but it has certainly been interesting. More – Adrian Gilbert – Lessons from 35 Years in Claims

On behalf of all of us at SX3, I thank you for your continued engagement and we wish you the very best for the seasonal festivities. We look forward to seeing you in person in the next year and indeed, the next 7 years. 

Adrian
Tel +44 (0)1702 567 501

PS

We have a few SX3: 7 years (copper) commemorative insulated/reusable drink cups available. I want them to go to good homes in our Claims community. If you would like one, just get in touch.

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Insights from senior figures across both the General Insurance and London Markets, demonstrated where the cutting edge is, and the challenges involved in making progress.  

Intelligent Insurer bought together senior claims practitioners such as: 

• John Bailey, International Solutions Consulting Manager, Blue Prism
• Gijsbert Cox – Industry Leader, Insurance, Appain 
• Peter Edgar, Head of Motor Claims Operations, RSA
• David Fineberg – Head of Claims, Generali UK  
• Martin Kroos – Head of Claims, Achmea 
• Andrew Pedler, Head of Claims Client Relationships and Innovation, Liberty Special Markets
• Corinne Southarewsky – Head of Claims AXA XL APAC and EMEA 
• Kirsten Westly – Head of Financial and Professional Lines Claims, HDI Gerling 

The full webinars are a valuable watch, but for those who are pushed for time, we have created some short extracts from those webinars with some of those key insights: 

• Extract – ‘the holy grail’  
• Extract – Data and Claims Technology 

Links to the full versions of the webinars are here 

• Integrate claims to transform decision-making, information sharing and CX 
• Leverage technology and expedite claims to enhance CX and employee experience 

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