Tag Archives: Self Insured

Commentary – Expect Gulf Oil Slick Claims To Be Extensive And Impact Multiple Lines Of Business

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As the losses in the gulf continue to rise, the true claims impact has yet to unfold

I don’t think the insurance industry has felt the true brunt of the horrific events of the April 20 blast on the Deepwater Horizon rig in the Gulf of Mexico. While losses have continued to come in, if some of the predictions about oil flowing up the Eastern Seaboard ring true, there will be significant claims and issues to follow.

Having been involved in a few claims involving lost oil platforms following the gulf hurricanes of several years ago, I remember the sheer costs involved in the loss of just one of these wells. From the business interruption, to the retrieval of the damaged well from the ocean floor, to the replacement of the rig itself, hundreds of millions of dollars will be spent. Operator Transocean has said the rig alone is insured for $560 million including total loss and wreck removal (see Deepwater Horizon oil rig continues leaking oil as claims rise). When the environmental and economic losses are added in, much of which cannot even be calculated yet, the numbers are sure to be astronomical.

What will the impact be?

What the impact will be is still largely unknown.  News reports of June 3, 2010 had a model showing the oil slick reaching around Florida, up the East Coast and out into the Atlantic (see Computer models show Gulf oil reaching East Coast). Oil, under this scenario, could be washing up on beaches in Virginia or New York by the middle of the summer. Add in the fact that hurricane season has just begun, which will only compound the potential damage and loss.

How much wildlife will be affected? How many fishing grounds will be shut down? Will the slick require booms and pontoons to drape the entire East Coast of the United States? No one really knows what will occur in the coming months, especially if efforts to contain the slick continue to fail.

With losses continuing to rise, does BP really have sufficient funds to pay for all the damages? There are estimates setting the cost between $30-$40 billion with all but a fraction of that covered by insurance (see Insurance Journal  – Oil Rig Tragedies Shock Insurers, Destabilize Market, Says Willis). Despite these high numbers being the responsibility of the self-insured BP, there will certainly be additional claims to impact the insurance industry as well.

Rising costs to the industry

Not surprisingly, the impact on insurance premiums is already being felt in the Reinsurance market – especially in the Energy sectors. Insurance Journal reported in BP Oil Spill Losses Hit Reinsurers; Premiums Jump that:

Reinsures have bumped up prices for offshore energy-related insurance premiums by 50 percent following insurance industry losses of up to $3.5 billion from the BP plc oil spill in the Gulf of Mexico, Moody’s Investor Service said in a report on Thursday.

Total insured losses from the worst oil spill in U.S. history are expected to be between $1.4 billion and $3.5 billion, although losses would be significantly higher if BP had purchased liability insurance instead of self-insuring its risks through its captive insurance program, said Moody’s.

As the true claims impact unfolds, it is likely that pricing could be affected in other parts of the industry, and across multiple lines of business, as well.

So what about the claims?

It is more than likely that claims for losses will extend beyond property and business interruption damages. Recently, the D&O Diary wrote Of Oil Slicks and D&O Claims and the soon to be expanding wave of D&O suits that will follow. Professional liability, property loss, business interruption, clean up costs, bodily injury claims, will probably follow affecting all manner of third parties yet to be impacted.

As losses develop, claim resources will be needed to manage a host of potential losses that, as noted, could spread up and down the US Coastline. Coverage disputes will likely be on the rise as homeowners, towns and businesses seek to recover for losses occurring hundreds of miles from the impact area. Pollution exclusions will almost certainly be debated again in the courts as claims are presented and challenged. And, like many massive disasters, the industry will deal with potential fraudulent claims and those set on taking advantage of a bad situation.

The problems and issues, from a claims perspective, are still being developed and only time will tell the true impact to the industry.

Let’s not forget the loss of life

As insurance people we are always dealing with tragedy and placing an economic impact on terrible situations. Let us not forget or diminish the personal tragedy for the loss of 11 well workers who were just trying to make a living and provide for their families like so many of us do.

As I have told family members in meditations – understand that as Insurance claims professionals we have to assess dollar values on things that truly can’t be valued such as the life of a loved one. It is easy to lose sight of the personal impact when dealing with a massive tragedy such as this.

Medicare Secondary Payer Allows Direct Data Entry For Small Reporters Of Claims

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Good news: CMS allows reporting without the need to submit electronic files

In an alert posted to the Centers for Medicare & Medicaid Services (CMS) website, the government announced a new Direct Data Entry option for Liability Insurers, Self Insureds, No-Fault and Workers’ Compensation carriers. This should be welcome news to those companies struggling to meet data feed requirements mandated by the Medicare Secondary Payer Mandatory Reporting Provisions in Section 111 of the Medicare, Medicaid and SCHIP Extension Act of 2007.

With this new option, a carrier or self-insured need not develop, test and manage claim reports through a data feed. While not without its limitations, the ability to enter single reports will be an applauded method for those entities with minimal reporting.

As I previously wrote about in Important Update: Medicare Secondary Payer changes production date to January 1, 2011, CMS changed the production date for reporting to January 1, 2011.  Given the complex nature of the new reporting guidelines there has also been a recent bill submitted in congress to amend the statute (see Medicare Secondary Payer Enhancement Act). It seems clear that as the new reporting requirements have been put to the test, the government is making an effort to improve the process.

Who can use the Direct Data Entry

Those Responsible Reporting Entities (RRE) that are considered “Small Reporters” may utilize the Direct Data Entry method for compliance with the Section 111 requirements. The CMS Alert defines a Small Reporter as one who would submit 500 or fewer Non Group Health Plan (NGHP) claim reports per year. It is important to note that claim reports resulting in a “no beneficiary” match will still count against the 500 claim limit.

Direct Data Entry Option Considerations

  • Those Small Reporters wishing to use this method for reporting will be able to register for the new option beginning on October 1, 2010
  • Reports can begin to be filled using the Direct Data Entry method beginning January 3, 2011
  • Injured party information will be matched in real-time as entered. Once the basic injured party information is entered if a match is not found then no further data elements will be required (this will however still count toward the 500 limit)
  • There are no changes to the number of data elements required to be reported
  • All RRE responsibility and accountability to report remains the same when using the Direct Data Entry option

Eliminating the need to create and submit electronic reports should alleviate issues for the Small Reporters and make compliance easier.

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Some background on the Medicare Secondary Payer Act and New Reporting Requirements

The Medicare Secondary Payer Act has been in place since the early 1980’s. The act allowed Medicare to seek reimbursement for money an insurance company or self insured pays on behalf of a Medicare beneficiary. MSP covers all carriers, self-insureds, no fault insurance, and workers’ compensation insurance.  In the past, Medicare’s ability to track and enforce these claims was limited. With the passage of the SCHIP Extension Act of 2007, Medicare was given new tools to track payments. The passage alone marked the start of new steps to increase enforcement by the Federal Government to collect on the Secondary Payer provisions.

As part of the Act, the Responsible Reporting Entity (carrier or self-insured) must advise Medicare when a claim is received involving a Medicare beneficiary recipient. Responsible Reporting Entities now have an ongoing requirement to determine from time to time whether a claimant is a Medicare eligible recipient.

For more extensive information about the Medicare Secondary Payer Act and the new reporting requirements, please look to these valuable links:

How Do You Effectively Manage A TPA? Speak Up And Be Active!

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Become The Squeaky Wheel To Actively Manage TPA Outcomes

As claim practitioners, most of us are familiar with what to look for when we shop for a third-party claim administrator (“TPA”).  One recent discussion on this blog cited such elements as claims systems, data reporting capabilities, and quality control (6 Essential Elements When To Explore When Choosing A Third Party Administrator).  While such things are important, we often overlook one basic factor that is key to the success of our outsourcing venture: ownership of the TPA relationship. Here I’m not speaking in financial terms, but, rather, about a fully-dedicated partnering approach by the insurer or self-insured corporation to managing TPA performance.

During my career where I have managed and audited hundreds of unbundled claim programs, I have been frequently struck by the dearth of oversight exercised by insurers and corporation over TPAs.  Too often the attitude of the buyer of claims services is that it is the TPA’s problem if claims are not handled appropriately or losses are under-reserved. While such an arms-length approach may appeal from a contractual perspective, it does not fully consider the potential impact of TPA performance (or non-performance) on program profitability and relations with reinsurers, regulators, and other stakeholders for which the buyer remains responsible and ultimately bears the brunt for better or worse.

In my experience, the risk of sub-optimal TPA performance, and the resulting ills, declines with buyer oversight of the TPA.  Moreover, TPAs generally prefer to work with an insurer or self-insured that wants to work with them and remain involved in the claims process.  This enables the TPA to better understand and respond to client needs and requirements and is less likely to lead to unacceptable outcomes for the client and conflicts between the parties.

How to stay squeaky

With respect to individual claims, insurers and self-insureds should pro-actively provide feedback on the claim actions undertaken by the TPA, propose strategies for future claims handling, review case reserve adequacy, and ensure the TPA remains focused on claim disposal.  At a “big picture” level, TPA performance data should be periodically reviewed for consistency with claims service requirements, claims best practices, and financial goals.  Performance issues should be surfaced, and solutions identified and quickly put into action.

Getting the most from TPA relationships is just as much up to the buyer as it is the TPA. We can avoid the situations that lead to finger-pointing if we take responsibility and become an active business partner with our claim service providers.  This is just another example of the squeaky wheel getting the grease.

6 Essential Elements To Explore When Choosing A Third Party Administrator

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Don’t Roll The Dice To Choose A Good TPA Just Do A More Complete Due Diligence

A Third Party Administrator (TPA) is often the best way to handle claims for an organization. Many self-insured and captives choose to outsource their claims instead of creating their own internal operation (see my prior post of A checklist of the 8 critical issues to be concerned about when self-managing claims). Whether to get expertise in a particular areas, or not wanting to invest in the infrastructure to build a claims department, using a TPA can be a smart business decision. In fact, many insurance companies will outsource some, or all, of their claims for the same reason. Regardless of what type of company you are, choosing the right TPA is imperative. The TPA will become the face of your company for claims and, how well or poorly, they handle claims will be a reflection on your organization.

So what make a good TPA and what should you look for? In order to find out you must conduct a comprehensive due diligence of the TPA you are about to hire. This is especially the case when that TPA will be holding and managing your claim dollars. Besides understanding the financial strength and capabilities of the TPA, it is also important to know whether they will be able to meet your data needs, provide consistent claims handling, and work to lower costs where they can.

While not an exhaustive list by any means, below I address 6 essential elements, and questions, that should be explored as part of any due diligence when selecting a TPA:

  1. Claims Systems – A strong claims system is an essential tool for any claims organization. Take time to understand the capabilities and limitations of a TPA claims system. Can they provide remote access so you can review your claims online? Do they have a paperless file system? Can they capture information that would be critical to your organization such as specialized loss codes or basic policy information? Do they use any other systems to help lower costs such as litigation management billing software or some unique estimating program?
  2. Reporting Capabilities – With a good system loss reporting should be easy. Regardless, it is important to understand the types of loss runs and reports that can be provided. How frequent can they be provided? What format will they be provided in? Can you easily request specialized reports, or do they have a system that you can customize reports on your own?
  3. Litigation Management Program – Litigation management is one of those things that seem to be less emphasized in a lot of organizations. Nonetheless, this is an area that if ignored could result in higher legal costs. Ask if the TPA trains their staff on litigation management cost reduction techniques. How are legal bills reviewed and what kind of program is in place to review counsel performance? Do they have a panel of law firms, and if so how are those firms selected?
  4. Quality Control and Internal Audit – Consistent handling across multiple claim offices is difficult to accomplish without clear handling best practices and internal controls. Does the TPA internally review their claim handler’s performance? How often are claim files reviewed for good practice compliance internally? What kind of metrics do they use to ensure files are proactively managed and consistent across the board? If they produce an annual internal audit report, ask if you can review it and see how they deal with deficiencies. No operation is perfect, but how well they recognize and address problems can be very telling.
  5. Subrogation/Salvage Capabilities – Many claims organizations fail to actively push subrogation and salvage opportunities. These areas, when done correctly, can lower claim loss dollars and return money to the coffers. How aggressive is the TPA in driving these key cost savings initiatives? Do they have a separate unit, or are the handlers expected to manage subrogation and salvage? How are they tracking returns? Are their results within industry expectations for a particular line of business?
  6. Special Investigation Unit and Anti Fraud Initiatives – All TPA’s will tell you they train their staff and actively pursue fraud when identified. This information should be readily available and reviewable. Ask the TPA how many fraud referrals they made to the states for a given line of business. Is the number consistent with the industry expectations on fraud reports? Do they have an SIU onsite or do they use and outside vendor to manage fraud? Have the TPA’s claim handlers received their annual fraud training as required by certain states?

A few other items worth considering would also include:

  • Management structure
  • Reserve philosophy
  • File loads per adjuster
  • Turnover
  • Financial stability
  • Banking arrangements

Hiring a TPA is a critical process that must be reviewed carefully. Take the time to perform a thorough due diligence, or hire an expert to do it for you. Getting a comprehensive analysis will ensure you are choosing the best TPA for your organization.

A little extra effort in the selection process will pay dividends in the future with a better customer experience and lower costs.

Warning – Medicare Secondary Payer (MSP): Government sends strong message and goes after non-compliance

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The Feds get serious about seeking Medicare recoveries

If you are an insurance company or self-insured, and make payments on liability or workers’ compensation claims, be aware that the Federal Government has filed a lawsuit signaling their intent to be aggressive in seeking reimbursement. As reported in Business Insurance, this “case breaks new ground because CMS simultaneously named insurers, settlement beneficiaries and plaintiffs attorneys all in one lawsuit.”  This case should alert all that if you make a payment on an injury claim, and fail to let the Government know about money they should be collecting, they will come after you.

Implications abound for attorneys and insurance companies in this first of its kind lawsuit

The lawsuit, brought in U.S. District Court for the Northern District of Alabama (U.S. v. Stricker, et al), seeks money and injunctive relief as result of a $300 million 2003 settlement of case involving injuries caused by PCB exposure (Abernathy v. Monsanto Co., et al.). The complaint names the defendants in the underlying case, the insurance companies (Travelers and AIG), the actual plaintiffs who received the settlement, and their various attorneys. The government alleged that over 900 of the plaintiffs that received compensation for medical expenses were also Medicare beneficiaries that had received medical payments. As part of the damages, the Government is seeking double the amount of Medicare payments plus interest (see Medicare Lien and Set-Aside Blog).

The crux of the government’s damage claim is to seek double the amount of payments made by Medicare as well as an injunction to force the defendants to reimburse Medicare prior to making any future settlement dollars to the claimants. As required by the Medicare Secondary Payer Act, the government’s complaint also alleges that the insurance providers failed to determine whether any of the settling plaintiffs were Medicare beneficiaries nor did they reimburse Medicare for payments that had been made to those beneficiaries. In addition to the insurance companies, the suit alleges plaintiff’s attorneys received $129 million of the settlement funds for claimants that they knew or should have known were Medicare eligible.

Implications and issues to be concerned about

  • Attorneys (and their Professional E&O Carriers) beware: By naming the attorneys, the Government is clearly signaling that they will be seeking recovery and fines from those that fail to follow the law. A plaintiff’s attorney that fails to make payments to Medicare on behalf of their clients, or fails to properly provide information to the defense, could be significantly exposed.
  • Costs to insurers will go up: The process to establish and update the reporting information will be costly. Those carriers with good claims systems will be ahead of the game and can lower their expenses, however, resources will need to be allocated to maintain the requirements.
  • Older cases may need to be revisited: While many believed that Medicare would only be going after future liability settlements, this case involves a claim that was settled in 2003. It is not clear how this aspect of the case will be resolved, however, it could be exceptionally expensive if carriers or self-insureds have to review closed matters from 7 years back.
  • Indemnity reserves may need to be adjusted: It is possible that plaintiff’s attorneys will be seeking higher amounts in cases where Medicare liens would significantly impact settlement amounts. If this trend takes hold then reserves on existing claims involving bodily injury may need to be adjusted to deal with increased claim exposures.
  • It’s time to get those systems in order: Given the potential risks, it is important to fully understand the rules and requirements established by the recent SCHIP Extension Act of 2007. There has been a push by insurance companies to ensure they are in compliance with these new notification rules, including new procedures and claims system modifications.  Failing to comply could be a costly mistake.

Clearly this case is a warning of things to come!

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Some background on the Medicare Secondary Payer Act and New Reporting Requirements

The Medicare Secondary Payer Act has been in place since the early 1980’s. The act allowed Medicare to seek reimbursement for money an insurance company or self insured pays on behalf of a Medicare beneficiary. MSP covers all carriers, self-insureds, no fault insurance, and workers’ compensation insurance.  In the past, Medicare’s ability to track and enforce these claims was limited. With the passage of the SCHIP Extension Act of 2007, Medicare was given new tools to track payments. The passage alone marked the start of new steps to increase enforcement by the Federal Government to collect on the Secondary Payer provisions. As part of the Act, the Responsible Reporting Entity (carrier or self-insured) must advise Medicare when a claim is received involving a Medicare beneficiary recipient. Responsible Reporting Entities now have an ongoing requirement to determine from time to time whether a claimant is a Medicare eligible recipient.

For more extensive information about the Medicare Secondary Payer Act and the new reporting requirements, please look to these valuable links:

What do you think? Join in the conversation. Post your comments, questions, observations, thoughts, suggestions, musings, ideas for future topics, or other feedback. Or email me directly.

A checklist of the 8 critical issues to be concerned about when self-managing claims

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You self-insure, but how well do you manage claims?

Companies make decisions to self-insure their risks for a variety of reasons from financing to claims control. Regardless of the reason, when handling claims in-house it is important to manage those claims in an organized manner to protect company assets. Insurance and reinsurance companies use loss experience to determine what to charge for coverage as well as how much coverage is needed. If claims data is not easily obtainable, or there is limited or no process for managing claims, you cannot get an accurate view of your losses or financials. Failing to manage claims correctly will increase your insurance costs and create a significant risk for being dangerously under-insured.

Act like an insurance company claims department

If you are going to handle your own claims then make sure you address the following issues:

  1. Set up an organized file system and process for managing claim files, from first notices to check payments. A claim file is a shared resource. Know exactly where it goes, and how to find it when you need it.
  2. Claim reporting is a required tool and a claims system is needed to track everything.  Monthly, quarterly and annual snapshot reports of essential claims data are fundamental to an efficient self-managed claims operation.
  3. Reserve files and be consistent about it. Under or over-reserving a file can result in poor financial reporting and more costly insurance. A consistent reserving practice can be used to predict current and future loss exposure. Adequate reserves will will more appropriately inform your reinsurance and excess insurance providers, and make your CFO happy.
  4. Actively manage claim vendors such as attorneys and investigators. Put guidelines in place with vendors to establish a clear understanding of your specific claim handling expectations. The squeaky wheel gets the grease, so check in with them frequently to ensure your files are not ignored.
  5. Review your vendor bills regularly. Mistakes are made and the only way to check for them is through regular reviews of invoices. Set a fee arrangement and make sure they stick with it. Unilateral rate increases, double billing, and someone else’s work that inadvertently ended up on a bill are common errors that can increase costs as much as 10%.
  6. Using a Third Party Administrator? Set up handling guidelines and audit the TPA regularly. Take a cue from insurance companies who review their TPAs for compliance, minimally once a year and as often as quarterly. You went self-insured for a reason so make sure the TPA is protecting your company assets as you would.
  7. Look for fraud. Insurance companies have in-house Special Investigation Units (SIU) and regularly look for fraudulent claims. While you may not need to create your own SIU, don’t overlook the risk for potential fraud and train your staff to identify red flags. When needed, you can hire a reputable firm to investigate suspicious claims.
  8. Don’t forget to self-audit your group to make sure files are being managed correctly. Claim files need to be investigated, reserved and resolved. It is important to make certain that claim files are properly worked up to prevent potentially expensive slip-ups.

Underwriters of reinsurance, and excess carriers, will find value in an organized in-house claims department. If you are self-insured, a structured and consistent approach to self managing your claims is imperative. Following this checklist will decrease your financial risk and notably improve your claim results, regardless of your organization’s size or how many claims you process.

Have I missed any critical issues to be concerned about? Please subscribe and post any comments or suggestions.