How Can Procurement Help an Insurance Company’s Claims

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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 in insurance 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 insurance to drive value for the organization.

10% - 15%


10% - 15%


70% - 80%


What Procurement Can Do for the Claims Department

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 operations 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 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 management 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 in insurance can work with the claims department to introduce best in class procurement procedures and always ensure competitive pricings and latest supplier offerings. Procurement optimization 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 strategy 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.

Supplier Relationship Management (SRM) for the Claims Department

In addition to delivering direct cost benefit which would eventually flow into the bottom line, procurement can also help strengthen relationships and identify strategic partnerships which could positively impact the business’s top line in the long run. An SRM approach can also offer incremental long-term value and competitive advantage by gaining early or exclusive access to innovative supplier technologies, developing innovative features/offerings jointly with the supplier and managing risk.

A comprehensive SRM approach for the claims department can also lead to more satisfied customers as suppliers’ goals are aligned with overall corporate-wide objectives.

A best-in-class SRM strategy segments the supply base based on criticality and the size of the relationship. A customized SRM approach is then outlined for each bucket of suppliers i.e. strategic and non-strategic. Supplier partners are then managed continually based on the SRM engagement plan. This includes data-driven performance monitoring in order to improve the claims handling process efficiency and reduce the total cost per claim.

Here are some of the key factors which are critical for a successful supplier relationship management program.

Contract Management for the Claims Department

Suppliers in the claims department can be deeply embedded in the organization and in many cases have long standing relationships with the stakeholders in the claims department. This means that insurers often continue to use and renew legacy contracts with these suppliers,

which leads to suboptimal pricing and other terms and conditions biased towards the supplier. Procurement teams can work with the claims department and legal stakeholders to optimize contracts through:

Case Study


We assisted a US based insurance carrier save $25M over 3 years with $10M coming from claims

Engagement Summary & Background

Client was an insurance carrier facing increased cost pressures across categories. The claims department had seen increased vendor spend and higher than average payouts over the last 2 years. The Client partnered with us to increase enterprise spend under management and optimize their third-party spend. We proposed a 3-year strategic cost reduction program along with setting up a best in class Supplier Relationship Management (SRM) program for sustainable value creation with suppliers.

Spend Categories in Scope

Claims, Underwriting, IT/Telecom, Marketing, Professional Services, General Services

Spend with Third Party Vendors

$200MM Total; $50MM in Claims

Key Claims Projects

Independent Adjusters, Third Party Administrators, Claims Services, Information Services, Estimatics, Auto Glass Repair, Car Rental, Claims Litigation Services, Medical Bill Review.

Project Details by Spend Area

Spend Area
Savings Achieved
Our Approach/ Procurement Strategies Implemented

Independent Adjusters


  • Analyzed historical claims’ volumes to identify optimized volume tiered pricing. Adjusting the volume tiers delivered significant savings.
  • Bundled various services provided by Independent Adjusters to all BUS and established an enterprise wide services contract with competitive rates due to increased spend leverage

Third Party Administrators (TPA)


  • Identified suppliers providing TPA services for both group and Individual healthcare policies through extensive market research and conducted a comprehensive bidding exercise (RFP)
  • Negotiated with incumbent suppliers based on inputs from the claims department which pointed to an increase in projected volumes

Claims Services Auto glass


  • Developed a comprehensive cost model to compare TCO and benefits for in network and out-of-network shops.
  • Estimated target cost based on cost models to further negotiate with supplier and sign a multi-year contract.

Claims Services Car Rentals


  • Engaged Incumbent suppliers using our industry leading SRM approach implemented an annual spend based rebate model to secure incremental savings

Information Services


  • Re-emphasized the importance of Supplier Relationship Management to client’s leadership to directly engage supplers” leadership team, thereby reinforcing the value of the relationship and highlighting the need for cost control
  • Received suppliers’ inputs and collaborated with them on creating a customized cost reduction strategy for each of the product offerings based on volumes and total spend. Strategies included a combination of annual rebates, price restructuring and a one-time sign on bonus.


Procurement management can bring massive savings and optimization of a claims’ ecosystem. It is equally important for them to understand that procurement and the claims management teams need to commit to a close collaboration to unlock this value. A strategic procurement approach will remove a burden from the claims department and enable it to focus more on what it does best.

Many insurance carriers have overlooked this huge potential to unlock value through a comprehensive and collaborative procurement program for their claims spend. Companies willing to address their claims spend can realize substantial cost savings of up to 10% on their third-party spend, a reduction in their expense ratio by 1% – 2% and a faster, more streamlined claims management process coupled with more satisfied customers.


Supply Chain SME (US)

Chris has extensive experience across the supply chain (plan, source, make, deliver and aftersales) in multiple industries at the forefront of disruption, both in consulting and managed services (BPO).
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