Selecting the Right Claims Handling Solution for Your Program: Some Tips & Considerations By Todd De Stefano, Managing Vice President, Sales, York Insurance Services Group, Inc. When you’re setting up a new program, a number of questions must be asked and answered, and many decisions made. One of the most basic and most important decisions you’ll make is: Who should handle the program’s claims? This decision can make or break any program. Choose the right claims handling partner, and you’ll enjoy a program that operates smoothly, earns high marks for customer service, and creates a positive return on investment (ROI). Make the wrong choice, and your program can end up causing you headaches, costing you money and possibly even causing the program to fail all together. Independent TPA, In-House MGA or Carrier Claims Operation? When evaluating who should handle the claims on your program, you first have to decide between an independent TPA, establishing your own claims operation or to use the program carrier’s claims operation. There are advantages and disadvantages to each option, but most agree, an independent TPA gives the program the greatest degree of flexibility while helping to minimize fixed costs. An independent TPA, by definition, tailors its operations to suit the needs of many different types of clients. The independent TPA has to work hard to retain each program knowing that failure of service will likely result in the loss of the program – and the revenue that the program generates. Independent TPAs exist to handle claims. It is their core business. Many carriers have excellent claims departments; and in some cases can be technically superior to certain TPAs. However, while some carriers pride themselves on their claims department, even the most highly rated carriers can’t put 100 percent of their focus on their claims operation like an independent TPA does. While carriers worry about the performance of their investments, the quality of their underwriting, the success of their sales efforts, and the increasingly burdensome nature of state regulations, independent TPAs focus on their core business, pleasing clients through effective claims handling. Some MGAs, in order to gain control will choose to create their own in-house claims departments. This approach creates a great deal of fixed cost that can weigh heavily during market shifts and often creates gaps in regard to license compliance, RIMS capabilities and venue experience. Certain carriers do not endorse this solution as it creates potential conflict in regard to reserve adequacy. Although some carriers prefer not to outsource, in most instances, they do permit the use of Independent TPAs. In some cases it takes the insistence of the Program
Administrator/MGA to convince the carrier that the program would be better served through the use of a specific TPA. Finally, when choosing a claim partner, independent TPAs frequently have a more versatile Risk Management Information System (RMIS). Again, this is a matter of focus. Although carriers often have larger IT departments they typically apply their resources to internal needs to satisfy their internal audience – underwriting and claim departments. Independent TPAs, by contrast, understand that their RMIS needs to satisfy a variety of external client’s requirements. It has to be user friendly, customizable and robust enough to track and trend history in an ever changing environment. Program Specialization? Yes, It Matters Whether or not you select an independent TPA, keep the claims in-house or utilize a carrier-affiliated claims operation, you should make sure that your choice has experience in and specializes in program business. Why? Because as all parties to a program know that programs are a different kind of insurance animal. Doing it right, means that each party to the program – the MGA, the program administrator, the carrier, the reinsurer, the wholesaler, retail agent and yes, the claims handler – understands its role and how programs work. If any one of those parties drop the ball, is slow to catch on to the program model, or fails to communicate with the other parties, the program may very well fail. That’s not a chance you can afford to take; do yourself a big favor and always ensure that your claims handling selection has an infrastructure dedicated to the program segment. Can Claims Make a Difference to the Bottom Line? Once you’ve decided on the type of claims handling partner you prefer and are ensured that it has sufficient programs experience, you can turn your attention to how claims can influence overall program profitability. Make no mistake about it, the way claims are handled for a program can have a significant impact on the program’s bottom line. To keep claims costs down, your claims partner should do the following: • Aggressive claims handling: This includes timeliness, quick and easy reporting, thorough initial investigations, proper reserving, and negotiated settlements at the low end of the acceptable range. Make sure to discuss best practices with your TPA. Vigorous, reliable RMIS: Let technology do what it does best – facilitate recordkeeping, file maintenance and communications – and free up adjusters to use their expertise where it most impacts the bottom line. Does the RMIS provide customizable data fields that enable you to analyze claims history to help implement loss control measures? Can the RMIS generate electronic
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notifications on key claim identifiers? These as well as other features should be a must. Close supervision: Mistakes and “do-over’s” are costly. Ensure that adjusters have adequate managerial oversight and that files are reviewed frequently. Make sure that supervisors are not handling claims but are focused on quality control of their claims teams. Claims triage: It’s a best practice for the claims operation to have several levels of expertise. Complicated claims should be routed to specialists when warranted. Getting the right adjuster on the right file is a key driver to the best possible claim outcome. Other expense management programs: Be sure the claims operation has litigation management, special investigations, and recovery and subrogation capabilities – money lost to inadequate deployment of these resources can really add up. Client Relationships: Does the TPA have an experienced client service professional dedicated to your business relationship? This is a must to ensure effective communication among all parties Operational Service Model: When determining an appropriate service model there are some questions you will want to ask. Is your TPA running at appropriate case loads? Different types of claims warrant different types of case loads. There should be a mechanism to weigh adjuster pending based on both adjuster expertise in the business class and claim severity. Again an established program infrastructure is a must.
Usually claim servicing costs accounts for less than 5-10% of the overall claim costs (with indemnity & legal accounting for more than 80 percent.) That said, a TPA that employs best practices consistently specific to your program will reduce the indemnity and expense spent and have a more specific impact on your programs profitability. In addition, proper reserving is critical. Reserve too high, and the MGA and carrier will not be competitive and may lose renewals. Reserve too low and insufficient premium will be collected to pay future claims. Don’t Make Claims an Afterthought All too often, the claims handler is the last party to be brought into a program, and when it is, insufficient attention is paid to making the right claims choice. After all, if you’ve seen one claims operation, you’ve seen them all … right? Don’t bet on it. Selecting the right claims handling partner for a program – either a quality TPA or a carrier that emphasizes claims service - should be one of the first decisions you make. A smart decision early on will help provide proactive recommendations and ensure that your entire program gets off to a strong – and profitable – start.