A third party administrator (TPA) is an organization that processes insurance claims. This can be viewed as “outsourcing” the administration of the claims process, since the TPA is performing a task traditionally handled by the insurance company or the organization itself.
It is important to understand the role and obligations of a TPA as it relates to your own claims. Does the TPA work for the insurance company or did your firm select them independently, who is paying for their services and how do they ensure the accuracy of your claims data?
If the TPA was chosen by the insurer, their primary concern may be only tracking costs and your insurance company’s priorities (not necessarily your own). This isn’t unusual but how can you effectively monitor your own claims trends and costs if you are relying on their systems?
If you’ve selected the TPA, are they party to any claim handling agreements you may be subject to? There are usually specific requirements between your company and your insurance providers that dictate how claims are to be reported - factors such as loss severity, type of loss and SIR status can all be part of this. How is your TPA ensuring your obligations to the insurer are being met? This is critical - if you don’t meet these requirements, your policy may not respond to the claim.
When an incident is reported/logged, your company may begin incurring expenses as you investigate and attempt to rectify the issue. If the matter escalates to a claim in the future, your TPA won’t have those previously incurred expenses in their system. This can create circumstances where you overpay on a claim (the historical expenses may qualify towards satisfying your deductible/SIR portion but without a concise overview, this may be missed).
A Risk Management Information System (RMIS) tracks and reports on all expenses incurred in the event of a claim - this means you are able to monitor the status of all claims to ensure the corporation is fully compliant with any reporting obligations it may be subject to. This ensures the corporation maximizes any available coverages in the event of a loss.
Typically, a TPA’s outward facing system is geared to provide a financial status report on your claims. It may not provide you with analytics that allow you to manage your risk. You need to be able to analyze your own loss history and trends to understand how you’re performing and look for opportunities to improve. When you understand your loss history, you are able to look at trends involving locations, employees, outside claimants, specific types/pieces of equipment and vehicles. This can lead to improved training, and process improvements. Another key point is timing - how long does it take you to obtain reports when you need them?
When you look at your loss ratios, reserving is part of the calculation - this is done by the TPA. If you don’t have a way of recording, tracking and analyzing this information you aren’t able to verify the data on your own. Accurate claim expense tracking and reserving is important when it’s time to discuss policy renewal terms. You need to be able to verify the data for accuracy, and also speak to the circumstances as part of the negotiating process. Without your own systems in place, you are relying on claim and loss data that has been recorded only by the insurer and the TPA. When losses are reported to a TPA, the reserves are typically set high to ensure adequate resources have been earmarked for individual claims. As the situation advances and more information becomes available, those numbers should be reviewed and adjusted as industry standards dictate. A TPA’s system may not be current regarding the status of individual claims - this can result in a claim as being “open” when in fact it has been resolved and should be “closed”. Overstated reserves and incorrect claim status can contribute to an overstated loss ratio.
When the process of negotiating with insurers begins, an RMIS provides you with the most current view of your claims data. The risk management platform can also be used to house asset schedules (buildings, equipment, vehicles) and driver lists.
Having your claims and underwriting data stored, tracked and vetted in an RMIS’s centralized database allows you to review the information and ensure the accuracy of all records. This puts you in the best possible position during the renewal process, or while tendering your insurance program to market.
Circumstances may change in the future as far as your insurance provider or the TPA who is involved in your claims process. What happens to your historical data in that case? Will you be able to analyze your historical claim data if you are no longer using the same firm? Using an RMIS makes this a non-issue, as you have full ownership of your records and full control over when and how you use them.
To learn more about ClearRisk’s RMIS and how it replaces client-facing TPA systems, book a demo at ClearRisk.com. With ClearRisk you control your data and thereby, you control your risk.