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  • The claims department is at the core of every insurance company. In fact, research has shown that it is normal for up to 80% of total premiums collected to be spent on claims payments and the costs associated with settling these claims.
  • Hence, profitability for any insurance company, be it property & casualty, life insurance, health insurance or any other specialty insurance is dependent on the ability of its claims department to handle claims efficiently. Interestingly, however, an insurance company’s claims department has been historically undermanaged from a procurement perspective, leaving significant value on the table. Now, as insurance companies are facing increased pressure from investors to demonstrate their ability to digitalize business processes and keep the costs under control as the business grows, its claims department must collaborate with procurement to drive value for the organization.

Typical costs for insurance companies


  • Over the past few years, US insurance companies are increasingly relying on third party vendors to outsource critical activities like claim investigation, claims adjusting, claims litigation, fraud investigation and subrogation, amongst others. When on-boarded, these third parties interact directly with policyholders and are an integral part of a policyholder’s customer experience. To be able to offer a consistently positive customer experience, insurance carriers must always keep in mind the fine line between reducing costs and maintaining quality of services.
  • Procurement in insurance industry has traditionally been considered as a back-office function, limited to rubberstamping contracts and pushing POs. However, an effective approach to reduce claims’ expenses should be a collaborative effort between an insurance company’s claims department and its procurement function. Further, strategic benefits can be realized if procurement is embedded in the claims management process from the start.

A combination of best in class procurement principles and claims expertise can enable insurance carriers to reap the following benefits

  • Procurement in insurance companies should collaborate with the claims department to design a comprehensive strategy to realize all of the benefits. Through a combination of initiating strategic cost reduction program, streamlining supplier relationship management and establishing industry leading contract management tools and processes tailored for the claims department, Procurement can ensure that the claims department is always prepared for any business challenge, be it growth, digital transformation or cost control.

Strategic Cost Reduction for the Claims Department

  • The claims department works with a lot of third-party suppliers most of which are legacy relationships that can go back up to multiple decades. While the claims department focuses on providing the best claims experience to policyholders, costs can take a back seat and keep increasing at a fixed annual rate every year. Over time this can make the pricing inflated and sometimes if the suppliers don’t keep up, even the offerings can become obsolete. Procurement can work with the claims department to introduce best in class procurement process for insurance and always ensure competitive pricings and latest supplier offerings. Procurement can leverage spend and contracts data, market intelligence and pricing benchmarks to identify potential areas for cost reduction.
  • By following a Total Cost of Ownership (TCO) approach for vendor selection, followed by rigorous negotiations, Procurement can eliminate pricing inefficiencies while maintaining the quality of service. For best results, the claims department and Procurement should jointly develop a detailed plan covering negotiation strategy, vendor risk assessment, terms of engagement etc.

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  • Download full PDF report to know more about how the claims department can leverage procurement to reduce third party costs, optimize payouts and increase customer satisfaction


Interested in learning more about how Valorant can help your organization strategically reduce your 3rd party spend, as well as manage vendor-related risk? Reach out to us now


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