Utility Week - authoritative, impartial and essential reading for senior people within utilities, regulators and government
Issue link: https://fhpublishing.uberflip.com/i/541481
UTILITY WEEK | 17TH - 23RD JULY 2015 | 17 Finance & Investment Market view C ompanies involved in the utility sector face heightened complexity, a more challenging financial environment and a growing regulatory burden. As a result, businesses are also experienc- ing a change in their risk profile and having to answer a number of questions. Which risks need to be covered and to what limits? Can we afford to "self-insure" in some areas, such as cyber risk? If so, what are the poten- tial downside risks to reputation or from business interruption? And what levels of deductibles can the business carry? Pity the poor risk manager who has to provide the answers. For most businesses, it is not cost-effective to insure up to the hilt; they have to seek a balance between full cover and self-insurance. Furthermore, there has been a shake-up in the way claims are managed and processed through the system. The landscape for claims has been affected by the Jackson reforms. The Employ- ers Liability/Public Liability portal and the associated new claims protocol are now just over a year old. From a practical point of view, the portal appears to be fit for purpose but there is increasing evidence that, viewed nationally, an excessive number of claims are exiting the system, oen unnecessarily. So, in my view, the new claims landscape is not being shaped by the faster resolutions and lower costs promised, but by the grow- ing complexity of insurance, by new risks and by changing attitudes to risk manage- ment. In the utility sector, increasing regula- tory demands coupled with a dynamic shi towards more commercial approaches to ownership and acquisition are also shaping what a utility risk manager is looking for. Faced by a major claim, the first port of call for many utility firms is their solicitor. This was the case before the advent of the portal and, for some, nothing has changed, because many believe a law firm offers them a one-stop shop solution, with access to liti- gation. But this is not always the best way forward and it can lead to spiralling and unnecessary costs. A major claim against a utility firm can affect cashflow, corporate reputation and shareholder value. It can also have regula- tory repercussions. If a utility business is hit by a large claim, it can oen have little con- trol over how the process is managed by the insurer and if the risk is self-insured, it could well down this path. They know that the suc- cess of these programmes is based on a com- bination of committed account management, expertise, advanced technology and a crea- tive approach to claims. A partnership with a claims manage- ment specialist who knows and understands your business risks will add value. With day-to-day, attritional claims, the words you want to hear are: don't worry; we'll handle the process, nego- tiate, protect and keep you informed. Major losses, mean- while, call for more specific solutions – whether to fight a claim, when to engage counsel, which legal firm to choose. And with each step, there is a cost implication and a saving that a claims part- ner can make for you. In this rapidly changing arena, utility firms need a focus on costs and quality of outcome to derive a strategic approach to losses. If you do not have these resources in- house, it may be time to consider alternatives that are more commercially astute and lead to enhanced shareholder value. Darren Coombes, chief commercial officer, Davies Group Cost of claims on the rise With the cost of legal claims growing, both in terms of money and reputational damage, utilities should consider ways of rationalising and streamlining the claims process, says Darren Coombes. Case study: water company claims portal The claims spend for a large water utility company was spread across three departments: finance, legal, and insurance. Each had differing approaches to claims handling. This resulted in a claims history that was expensive, fractured and oen unclear. What is more, this approach had an impact on shareholder value and increased frictional claims costs. It also caused regulator intervention and negative media interest. To combat its growing claims cost, the water company worked with a third party administrator to set up a claims portal designed to handle claims from notification through to investigation and settlement. This approach meant that all claims were now handled through a single point along with consistent procedures and objectives. The portal was also supported by technology that could capture precise market intelligence throughout across all claims and which could be shared with the board. Over a five-year period the claims portal helped reduce spend by 22 per cent while helping to enhance the brand reputation and steer away press interest. "The new claims landscape is not being shaped by the faster resolutions and lower costs promised, but by the growing complexity of insurance." face an expensive legal process. For the busi- ness, this is an uncomfortable place to be. Uncertainty over timing, settlement amounts and legal costs puts a burden on cashflow and business planning. Flexibility is the key to claims manage- ment responses. Standardised solutions do not work. Instead, processes must be tailored to suit specific insurance arrangements, nature of activities and achievement of cor- porate goals. Several utility firms are already