There appears to be a “trend” among many work comp insurers to shift more and more claims handling responsibilities to third party administrators (TPAs).
I (and I’m sure many others) have been somewhat aware of this for a few years, but like the proverbial frog in the pot, the temperature has been increasing rather slowly, and the consequences have been barely visible.
Currently, the big TPAs – Sedgwick, GB, York and Broadspire are all doing a lot of claims handling for big work comp insurers. AIG has outsourced a big chunk of its claims for decades, but other insurers are slowly following suit.
The drivers are many:
- decreasing claim frequency is now a structural trend; insurers have to work to stay ahead of the declining volume and off-loading claims to a third party makes managing a shrinking business a lot easier
- total administrative expense, long a bugaboo for insurers, rating agencies, and regulators, has to shrink as well. Stripping out the upper management, IT, compliance, and related functions slashes unallocated loss adjustment expense, or perhaps more accurately shifts it into allocated expense.
- some more “self-aware” insurers have realized that their company’s claims handling just isn’t that good.
- technology, IT/systems changes and improvements, training requirements and the like are becoming increasingly expensive. As carriers look to move from their existing green-screen-based technology to SaaS or other cloud-based technology, some are finding the switch incredibly expensive, very risky, and potentially career-threatening (this last is perhaps the biggest driver). Better to just get out of the business then screw up a tech migration.
I’d expect the big TPAs to assume more and more responsibility for claims functions over the next few years.
There are implications aplenty for all parties involved; they have different revenue models, different service expectations and definitions, and different priorities.
What does this mean for you?
Good stuff if you’re a TPA. And perhaps fewer headaches if you’re a carrier…unless you pick the wrong TPA.
Joe-
I would contend that carriers have been handing off core claims responsibilities to their “strategic partners” vendors for quiet some time now and in some instances, has had a negative impact on claim outcomes. I would strongly encourage all to proceed with caution. This hand off can lead to more friction and frustration with the injured worker and reduce any hope of developing a trusting relationship with the claims handler to get them through the process. This is especially true when the strategic partner may have misaligned financial incentives to handle a claim a certain way to increase profits. In an era where our industry says we need to get back to basics and promote Claim Advocacy, I would again caution all on what you are handing off to others in dealing with your injured workers!
When the hand off is to a qualified, experienced and engaged claims partner, the level of worker recovery, SAW/RTW, employer and worker satisfaction can improve remarkably…and in some of the tougher jurisdictions, a massive reduction in overall claim costs (including TPA and ancillary services expenses). Vet the partner and know the questions to ask. Simply getting a lower TPA service cost per claim has proven to be the less effective solution.