Can you name a coverage that represents $25B-$30B in annualclaim payouts, represents more than 90 percent of an averagenine-month claim cycle time, yet has seen little-to-no investmentin technology and innovation? You might not be surprised to findthat this spend is on property claims. What may surprise you,though, is that this spend is not on structure, but rather onproperty contents. The long-neglected coverage for propertycontents is getting a great deal of attention lately from seniorclaim executives. Most argue that given 20-30 percent leakage incontent (Coverage C) claims, it's long overdue.

Average cycle times for medium- and large-sized contents lossesare between three and nine months, and the typical claim solutionis to have an insured fill out a paper form for the items they'velost. In some areas of the country, this practice equates toinviting a public adjuster to define the rules of engagement on aloss — not the best business practice.

Forward-thinking claim executives have attempted to stem thetide by deploying adjusters or content specialists — armed with penand paper — to proactively create the inventory list, and thenvalue some or all items using a spreadsheet and the web. Mostadjusters cite this as a tedious, unforgiving, and thankless task …one of the least favorite aspects of their job. Given all of thetechnology and innovation happening in the past decade, there hasto be a better way.

Challenging Terrain

The property contents claim space has seen little-to-noinvestment as insurers have deployed investment dollars into theauto and property structural areas. This is surprising consideringthat the claim spend on both commercial and personal propertycontents rivals the amount spent on auto physical damage ($25B-$30Bannually according to recent market research). The amount ofattention and investment in these two areas of claims couldn't bemore different.

The auto property segment of the industry has approximately500,000 parts, each with unique and individual prices to track inreadily available databases. No carrier would ever considerassigning adjusters to spend time looking up 23 items on the webfor a typical auto claim. Why? Because accepted databases exist tohandle this task.

The difference between auto and property claims becomesmagnified when you consider the multitude of items inside insureds'homes and businesses. These contents represent hundred of millionsof possible items. To consolidate all of this data in one placewhere it is current and accessible from a software application isan impossible and cost-prohibitive task. More importantly, theability to find a true “like kind and quality” match has proven tobe a very difficult problem for the industry to solve. A lack ofdata, overly aggressive adjuster workloads, and a process that isdriven by public adjusters and insureds, also means that staff andindependent adjusters don't have the time to check hundreds ofprices that are submitted on things from sofas to DVDs toindustrial machines.

The bottom-line impact of contents-related inefficiencies andleakage results in millions of dollars lost in the form ofadditional indemnity spend, increased LAE, and sub-optimalinvestment income due to over-reserving and reserves just sittingfor several extra months.

Finding Your Way

An ever-increasing number of carriers have recognized thisconundrum and are moving to improve their contents-handlingapproach. Service providers and software companies are flocking tothe space, too, in an effort to help the industry conquer thecontents frontier.

There are several different approaches being taken by carriers,and associated vendors:

• Leave-it-to-the-Insured
• Adjuster Do-It-Yourself (DIY)
• Internal Contents Units (ICU)
• Software Solutions
• Replacement Services
• Total Managed Solution
• Leave It to the Insured

Pass the paper form … or the ruled sheet and a pencil. “Keep apad and paper on your nightstand in case you think of things whileyou can't sleep.” We've all heard that one! A paragon of customerservice, isn't it? True enough, the policy states that the insuredmust provide proof of loss. But carriers and adjusters taking the“it's not our problem” approach are inviting problems ranging fromextended file close times, inflated values, frustrated insureds,and difficult public adjusters.

Do It Yourself (DIY)

This method usually is driven by management who feels thatadjusters should be intimately familiar with each and every pieceof a claim, and that adjusters should be experts in every productcategory — or can at least find the expert in every category. Theyreason that adjusters have plenty of time to spend on tediouscontents research, and that this research is an effectivedeployment of valuable adjuster resources. “This is what I pay myadjusters or my independent adjusters to do,” they say, “and that'show I did it back in the day, so that's how they'll do it today.”It is certainly true that adjusters are intelligent and talentedpeople, but this is a tall order — especially considering all ofthe other aspects of multiple claims that they are managing.

The flaw in this approach is that finding the correct value istotally dependent on where the adjuster looks for the price. Youmay favor Froogle, I may favor Shopping.com, and yet a thirdadjuster may favor Amazon. In a recent study of core items, wefound that for the exact same product, values at those threesources differed by more than 78 percent.

Internal Contents Units (ICU)

Internal contents units are a step in the right direction. Whenresources are dedicated to contents, there is an allowance for moreconcentrated knowledge, consistency, and process optimization.However, very few carriers are able to deliver on the promise ofthis approach due to a lack of appropriate tools, inadequate data,and an inability to retain knowledge when faced with high turnoverrates among content specialists.

Internal pricing units are extremely vulnerable to adjusterpreferences. Similar to the adjuster DIY approach, if one adjusterprefers Best Buy for electronics while another adjuster prefersJ&R, the payout difference on the same item averages more than30 percent. Multiply that effect over thousands of item categoriesand you have a recipe for significant overpayment. This kind ofless-than-best-practice approach also exposes a carrier to futurelitigation risk.

In many cases, internal content specialists are only providedwith forms, spreadsheets, and a web browser. This is an improvementover the old “catalogs and yellow pages” technique, but not bymuch. Some carriers have tried software-based solutions eitherlicensed from niche players or built by in-house carrier ITorganizations. Most of these are still trying to identify asolution that really works from a practical standpoint.

Software Solutions

Many companies have tried to address the contents challenge withcomputer software. In recent years, structural software companieshave developed content modules. Restoration and pack-out softwareproviders have followed suit. Replacement services companies haveaugmented their income streams for years by licensing desktopsoftware to adjusters.

Software programs for contents have improved over the last fewyears, but they still require a great deal of time and effort onthe part of the adjuster. Putting finger-to-keyboard for item afteritem — and sometimes having to resort to “guidance pricing” insteadof an actual like-kind-and-quality match — still leaves a lot to bedesired. The licensing pricing may look enticing, but it can be alot to pay if the software ends up only being used lightly orsporadically.

Replacement Services

Back when there were no other reasonable alternatives,replacement services companies stepped into the contents breach tooffer at least a partial solution. Replacement services typicallyspecialize in a dozen or so product categories in which they canmake sizable margins reselling products to carriers and insuredsafter garnering discounts from manufacturers, wholesalers, orretailers. Unfortunately for many adjusters, these selectedcategories cover only 20-30 percent of a typical large loss, so theadjuster is faced with tackling the remaining items on theirown.

Some replacement companies will evaluate an entire claim for atno cost if an insured replaces at least one item. Sounds like agreat deal for adjusters, but be sure to heed the old adage, “Youget what you pay for.” Items outside of their selected categoriesare not their forte. Also, there's a demonstrated tendency to“match” to a product that is in stock or has deeper margins asopposed to a true, feature-function-based like-kind-and-quality(LKQ) match. This can lead to dissatisfied insureds who are pushedto replace their lost Sony television with a Hitachi.

True LKQ -Total Solution

Clearly, there is a need for a solution that provides accurate,real-time LKQ matches across the broad demographic range ofbusiness that carriers serve. Over the past few years, a newcontent solution segment has emerged, one that focuses solely onthe needs of the industry, the carrier, and the adjuster to fulfilltheir mission to find an accurate LKQ match with a real-time,easily agreed-upon price.

The true LKQ service providers have developed their ownspecialized technology platform and developed skilled teams ofknowledgeable contents professionals to provide a comprehensivecontents treatment across all categories with documented, per-claimaverage match rates of 95 percent.

Identifying goods with a detailed description of the item (e.g.brand and model number) is relatively easy. Finding a LKQ match forambiguously defined items like “blanket” or “sofa” is moredifficult. True LKQ service providers are leading the effort towrestle this technological challenge to the ground. Adjusters areable to submit inventories and quickly receive a detaileditem-by-item report showing the item, its value, depreciation, tax,policy limits, even web links to substantiate the value to thepolicyholder.

The results are powerful — a 75 percent reduction in cycle timeand a 20-30 percent reduction in indemnity payments.

The Frontier — Tamed

Content claims success extends far beyond researching or lookingup a handful of items in brochures or product catalogs. To achievesuccessful ROI, indemnity savings, and customer satisfaction whilefulfilling your organization's policyholder requirements involvescommerce information, like-kind-and-quality problem resolution, andfair-but-fast claim settlements.

The goal of a good contents claim process is to provide an LKQmatch, reduced time-to-file-close-ratios while reducing the leakageand expense — all in an effort to increase customer satisfactionand build customer loyalty.

Content claim management can be implemented in a repeatable,predictable, and easily managed process by utilizing “leanprocesses” with an intelligent pricing engine, targeting the rightfeatures with the right price while providing a high level ofcustomer satisfaction and increasing indemnity savings for thecarrier.

The more carriers and their focus on customer satisfaction andclaim expenses evolve, the more apparent it is that businessescannot continue to manage their expenses and their claim payouts asseparate functions without the key connection of the ROI on theirtotal process. Ultimately, the success of indemnity savings dependson an effective content management valuation system and servicecombination. It can help companies achieve sophisticated levels ofcontent claim services that are highly relevant to theirconstituents, resulting in improved customer retention, highermargins, and increased sales. When true LKQ is combined witheffective inventory creation, a total solution emerges thatprovides a strategic edge for carriers. The next key toprofitability enhancement in the Property line is what's inside thebuilding, not the building itself.

Jon McNeill is CEO of Enservio, a contents inventory andvaluation company. He may be reached at www.enservio.com.