A seasoned adjuster could be just as good as, or better, than “predictive analytics”
In an effort to streamline costs and promote efficiencies, more and more companies are turning to Third Party Administrators (TPAs) to handle insurance matters or manage certain aspects of employee benefit plans. However, the savings in time and money are only as good as the TPA itself. For that reason, it is hugely important that appropriate due diligence be exercised not only in the selection of the TPA, but also in subsequent management and oversight. With that in mind, Safety National, an alternative market insurance provider, recently hosted a webinar, Optimizing TPA Selection and Oversight of Your Claims, designed to provide some practical guidance in navigating this process.
The Role of a TPA
The panelists (Tim Stanger, VP Claims, Safety National; Joe Picone, Claims Consulting Practice Leader, Willis; Kevin Moss, Director of Casualty Insurance and Risk, Michelin North America) began by noting that carriers, insureds and brokers may have somewhat different perspectives on the challenges and benefits of retaining a TPA. For a carrier, the TPA is generally charged with handling claims on its behalf. Oversight is therefore critical. Improper claims handling could lead to a host of problems ranging from renewal issues, to underwriting authority issues to potential bad faith litigation. An insured’s perspective is slightly different as they are typically concerned with impacts to the bottom line and reputational risks should a TPA mishandle a claim. As for a broker, it typically regards the TPA as an extension of the client’s risk management team. The panel noted that in the wake of the “Great Recession”, corporations have cut back on risk management personnel and are now often looking to the TPA to assume this responsibility. Thus, in the interests of client retention, a broker wants to ensure that the TPA selected is effectively fulfilling this role.
Selection of a TPA
Although each may view the role of a TPA somewhat differently, all regard it as part of the “team” in some way. The key considerations in the selection of a TPA are therefore basically the same. The panel noted both general and administrative considerations including:
> Can the TPA handle all claims (including Workers’ Compensation, identified by one panelist as being one of the largest areas of exposure)? This streamlines the process and obviates the need for more than one TPA.
> Can the TPA handle requirements for benchmarking and other analytical needs?
> Is the TPA “admitted” by the requisite carriers?
> Can the TPA handle worldwide exposure?
> Does the TPA have an effective “claims system” to ensure effective and efficient claims management?
> Does the TPA have an effective quality assurance process?
> Does the TPA actively follow “best practices.”
> Does the TPA have jurisdictional expertise (requirements for claims handling may vary from state to state).
> Does the TPA have appropriate staffing levels? The panel stressed the importance of having a good, proactive accounts manager and well-trained adjusters. They recommended looking to see what the adjusters’ caseloads are (noting that most jurisdictions apparently are in agreement that 120 open claims is reasonable). Also look to see whether the team working on the claims is “dedicated”, i.e., working on only the client’s account and at its location, or “designated”, i.e., handling multiple accounts.
> Does the TPA use “predictive analytics”? This is a relatively new term and refers to the practice of using such information as claims data, psychosocial indicators and comorbidities to assess what direction a claim is likely to take. The panel did note the importance of experience, however, and pointed out that a seasoned adjuster could be just as good as, or better, than “predictive analytics.”
> TPAs should have adequate systems in place to protect confidentiality.
Management of the TPA
According to the panel, most breakdowns in a TPA relationship are driven by unmet expectations. To avoid this scenario, effective management, including good communication, is key. Oversight should be ongoing, and not be left to renewal time. The panel provided a few pointers:
> Special handling instructions should be realistic, clear and concise. Fifteen page guidelines are not at all helpful.
> Get the reserves established early to avoid miscommunication later.
> Authority levels should be reasonable.
> The account manager is a key figure who should have a clear understanding of the client’s business and be “proactive” rather than “reactive” in handling the claim.
Another key issue is that of fees, which the panel estimated usually constitute about 8% of the total claim costs. This is often the determinative factor in decisions on whether to retain a certain TPA, although the panel noted there are equally important factors that should be considered. Among these is a record of proven results. According to the panel, a TPA charging on the high-end of fees generally provides more experienced adjusters with lower caseloads—factors that can influence the reduction of overall risk, which in turn reduces overall costs.
Claims Costs Handling and Oversight
Some time was spent discussing the remaining 92% of claims costs, and how these costs could be mitigated. Again some pointers were provided:
> Look for effective medical management (including nurse care management), timely disposition of claims issues and successful return to work and/or settlements.
> Avoid “leakage”, i.e., avoidable expenses such as penalties from regulators etc. This goes hand-in-hand with ensuring that the TPA is fully compliant with all applicable regulations.
> Scrutinize use of vendors by TPAs.
> Hold the TPA accountable and ensure that it is “results-oriented.”
> Use a “common platform” to measure a TPA’s success (for example an actuarial report or state forms). As one panelist noted, quoting Vince Lombardi, “If you are not keeping score, you are practicing.”
> In short, a highly-functioning TPA can be a valuable asset to a company’s risk management team. To ensure a productive relationship, the panel recommended careful selection, open communication and ongoing monitoring.
We’ve asked Rebecca Shafer, JD, President of Amaxx Risk Solutions, Inc. and author of Your Ultimate Guide to Mastering Workers’ Comp Costs, what companies should look for in selecting a TPA. According to Shafer, “Companies should look for a TPA that provides the most ‘value’, not the lowest cost TPA.” Specifically, companies should select a TPA that has medical doctors available for file reviews and discussion with treating physicians. “Having medical management services that are URAC-certified is important to maintain high standards,” explains Shafer. “A good claims handling operation has a solid internal audit program to determine problems with claims handling before they affect your claims, often grading their adjusters with numeric scores and providing bonuses for adjusters with scores over 90.”
Shafer recommends that companies take an active role by participating on the TPA’s client advisory board. “Do a ‘chairside visit’ to learn about basic claim handling practices by sitting next to the adjuster and observing how your company’s claims are handled,” suggests Shafer. Likewise, the adjusters should visit client facilities “to understand employee tasks and learn about employee communications, medical treatment forms and transitional duty program,” says Shafer.
Shafer also recommends that companies consider conducting a “weekly claim roundtable” where the employer, TPA and broker discuss 5 to 10 claims. “This should not take more than 30-40 minutes each week; roundtabling each week ensures that all claim issues are up to date and activities are proactive, not reactive,” explains Shafer. “Although there may be an extra charge for this, it is an excellent way to make sure claim issues are handled quickly and all parties are in agreement about how claim issues should be handled.”
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