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4 Keys to Managing a Successful Outsourced Claims Operation

GettyImages_174670671To be Successful One Must Have Strong Oversight and Controls From the Beginning

So you have decided to hire a Third Party Administrator to handle your claims and it seems like a reasonable decision at the time. You either have some new specialized business you are writing and don’t have the expertise in-house, or you don’t want to set up a new regional claim office or you are a new company and want to have an experienced claim department in place. Yes – the TPA is the answer to all your concerns.

All things being equal there are many fine TPAs in the market that will provide wonderful service to your insureds in a cost effective and comprehensive manner. Initially you think you have chosen a good one. However, as time goes on you realize you are not exactly getting what you expected from your TPA. So what happened?

It matters little what your reasons for outsourcing were. Bottom line is if you didn’t take certain steps to properly select and manage a TPA you are likely to end up with problems. The partnership you form with your TPA will be fruitful if you take these key steps to select and manage them in a way designed to foster long term success.

  1. TPA Selection – Do your due diligence.  If you are handling claims over to a Third Party Administrator remember they will be the face of your company to your customers. Take their selection seriously. Form a multidisciplinary selection team and engage IT, Finance and Operations in the selection process. Besides the basic questions, look at their staffing and turnover rates. Ask to speak to references and understand how they manage their accounts internally.  Do they have dedicated claim units? How strong is their technology? How flexible are they in producing reports? When was the last time they had an independent audit? There are many more questions to be asked but this is not the time to be shy. Dig deep and understand who they are and what they can do.
  2. Oversight – General Guidelines. Don’t rely on the TPA’s claims guidelines. You should develop, and expect the TPA to adhere to, a very specific set of best practices to suit your company’s requirements. Tell the TPA what you expect and hold them to it. When drafting guidelines pay attention to sections involving the retention of counsel, vendors and experts. Make sure they seek approval where appropriate and drive the selection to vendors that have been vetted by you or better make them use your own panel.  Be specific about what claims you want to know about and when. Make sure you review these guidelines regularly and adjust them where appropriate. Remind the TPA will be using these guidelines to measure their compliance.
  3. Strong Internal Formal Claims Program.  Just because you have outsourced your claims management to a TPA does not mean you do not need to maintain a strong internal claims program. The successfully managed programs work with a combination of oversight and strong in-house claims account managers watching the TPA’s activities.  It is important that internal claims staff be well versed in the expected handling practices and the ability to spot issues before they become problems. Internal claims professionals should have skills similar to a department manager that can handle trend analysis as well as being able to have difficult performance discussions with the TPA.  No successful program works without skilled in-house claims resources.
  4.  Audit – Review and Re-review. Unless you are reviewing the TPA’s work for compliance through regular claim audits you are setting your program up to fail. Reacting to individual claim issues will not create a balanced efficient program and will cause the TPA to react to whatever the issue of the month is.  Regular audits identify problems and force solutions to be addressed by the TPA. Some of the best run programs audit their TPA’s 3-4 times per year.  In addition to regular best practice compliance reviews conducting specific targeted reviews can strengthen a program’s effectiveness (i.e. reserve review, vendor management  or financial controls).

Working with TPAs can be a very rewarding and cost effective method for handling claims. Many are experts at what they do and have well run efficient operations. Regardless, the old adage about the squeaky wheel getting the grease is never truer than in the oversight of a TPA.  Get squeaky!

What are other things needed when selecting and managing a TPA?

Posted in Best Practices, Compliance, Due Diligence, SPOT on Issues.

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