Tag Archives: Third Party Administrators

4 Keys to Managing a Successful Outsourced Claims Operation

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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?

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.