Seven Tips for Optimizing Property Placements
Property capacity is abundant for commercial and residential real estate placements. Existing carriers often offer to bolster their capacity, while new carriers enter the marketplace and aggressively compete for business. The response from carriers: Reduced pricing and broadened coverage.
Here are seven tips for risk managers to help navigate a softening marketplace while securing optimal coverage for your placement:
Avoid Complacency: Partner with a retailer who has full market access and market clout, both directly and through your retailers’ wholesale intermediary.
Require a detailed marketing summary from your retailer, inclusive of all carrier responses, and here’s why: This approach generates favorable results for your placement. It also minimizes the chance of being blindsided by other risk managers utilizing markets your program does not utilize or offering more robust coverage than your program includes.
Improve and Streamline Coverage: Request deductible and sublimit improvements, broaden the manuscript form and ensure concurrency within the program. The improvements that are secured may prove to be more valuable than any rate relief that is achieved.
In numerous instances lately, we have seen success with reducing named storm deductibles, thereby providing insureds with balance sheet protection in the event of a future loss.
Reshuffle the Deck: Many carriers impose limitations on the rate decrease they will authorize for an expiring layer, despite a marketplace that may support a larger reduction.
The solution? Focus carriers on a “new” layer to ensure there’s no expiring layer price used for baseline purposes.
Maintain a Diverse Carrier Mix: Sure, your retailer can reduce the number of carriers needed to complete a placement in a softening market; however, they should resist the temptation when possible.
This strategy is both defensive and offensive. Your organization will be less dependent on any one carrier and will be well-positioned when the market tightens.
Facilitate Lasting Underwriter Relationships: For larger layered placements, ask your retailer to schedule face-to-face underwriter meetings.
This approach allows you to showcase your organization to the marketplace, differentiating your business from the vast majority of insureds that do not capitalize on this opportunity.
Risk managers that invest in this important step will realize a more favorable renewal result when the marketplace hardens or after a meaningful loss.
Reap the Rewards of a Detailed, Accurate and Timely Submission: Your retailer can best market your account with a detailed and accurate submission.
Underwriters will aggressively price an account or provide broader coverage when uncertainty is removed or minimized. Also provide your retailer with as much lead time as possible, positioning them for marketing success.
Things to include in your submission: detailed SOVs (inclusive of roof replacement age and other secondary data for wind and hail-exposed accounts), updated loss summaries, mapping or pivot tables to show aggregations, coverage specifications, manuscript form, RMS modeling results and target layering/pricing.
Agent and Broker Profitability Hits Milestone
Major insurance brokers and independent insurance agents reached an earnings milestone during the first quarter of this year, according to Atlanta-based Reagan Consulting.
Profitability, as measured by earnings before interest, taxes, depreciation and amortization (EBITDA), jumped 200 basis points to reach 29.9 percent of revenue during the first quarter of 2014 — up from 27.9 percent during the same period last year, according to producers that were surveyed.
That is the highest margin reported in the six years since Reagan Consulting has been conducting its survey, said Kevin Stipe, president of the firm, which offers management consulting to independent agents and brokers.
The primary driver of the improvement was a 15.2 percent median jump in contingent income, Reagan reported.
The figures reflect the fact that “insurance carriers really made money last year,” which they shared with top producers in the form of contingent commissions, Stipe told Risk & Insurance®.
“Those contingency bonuses are also driven in part by agents and brokers meeting their sales goals as well as providing profitable business for the carriers,” he said.
The survey results are based on the responses of roughly 140 mid-size and large agencies and brokerage firms with median revenue of roughly $15 million. About half of the industry’s 100 largest producers participated, Reagan said.
“The economic climate is markedly better than in the 2008 and 2009 recession years.” — Tim Cunningham, managing director, OPTIS Partners
Agents and brokers surveyed were more optimistic about the future as well, projecting that organic commission and fee growth — excluding the impact of merger and acquisition activity — will be 7 percent during 2014, up from 6.1 percent projected by respondents at year-end 2013.
Commercial property and casualty growth was a major driver of performance for the third year running, Reagan said.
Other significant survey findings included:
- Median organic growth — excluding M&As — was 6.2 percent, nearly identical to the 6.1 percent in Q1 2013.
- Commercial property and casualty growth led the way for the third consecutive year, with a first quarter growth rate of 8.4 percent — up from last year’s 6.8 percent.
- Benefits growth, at 5 percent, was up significantly from a 3.7 percent growth rate during the first quarter of 2013.
- Privately held brokerages continue to grow faster than public brokerages, which reported organic growth of just 3.6 percent, on average.
“Private companies tend to grow a little bit faster organically than the public brokers which are inclined to do more acquisitions,” said Stipe.
Not every firm will necessarily see the reported levels of improvement, said Tim Cunningham, managing director with insurance M&A consulting specialist OPTIS Partners in Chicago.
Still, most agents and brokers are experiencing revenue and profit margin growth, he agreed, noting that P&C rates are “broadly up” and, that insurance broker clients have experienced better sales and increasing payrolls.
“The economic climate is markedly better than in the 2008 and 2009 recession years,” he said.
Workers’ compensation and commercial auto insurance rates are up reflecting deteriorating loss experience, for instance.
“Coastal property capacity and rate continues to be an issue,” he said. The same is true for many property exposures in the heartland states prone to hail and tornadoes,” Cunningham said.
The Next Wave of Workers’ Comp Medical Cost Savings
Managing medical costs for workers’ compensation claims is like pushing on a balloon. As you effectively manage expenses in one area, there are bound to be bulges in another.
Over the last decade, great strides have been made in managing many aspects of workers’ compensation medical costs. Case management, bill review and pharmacy benefits management are just a few categories that produce significant returns.
And yet, according to the National Council on Compensation Insurance (NCCI), medical costs remain the largest percentage of workers’ comp expenses. Worse still, medical costs continue to be the fastest growing expense category.
Many medical services are closely managed through provider negotiations, bill review, utilization review, pharmacy benefits management, to name a few. But a large opportunity for medical cost containment remains largely untouched and therefore represents a significant opportunity for cost savings.
Ancillary medical services is a term used to describe specialty or supplemental health care services such as medical supplies, home health care, durable medical equipment, transportation and physical therapy, etc.
According to Clifford James, Vice President of Strategic Development at Healthesystems in Tampa, Fla., modernizing the process for managing ancillary medical services presents compelling opportunities for cost savings and improved patient care.
Source: 2014 Healthesystems Ancillary Medical Services Survey
“The challenge of managing these types of medical products and services is a cumbersome and extremely disconnected process,” James said. “As a result, it represents a missing link in an overall medical cost management strategy, which means it is costing payers money and patients the most optimal care.”
James singled out three key hurdles:
Lack of transparency
As the adage goes, you can only manage what you can measure.
Yet when it comes to the broad range of products and services that comprise ancillary benefits, comprehensive data and benchmarking metrics by which to gauge success are hard to come by.
The problem begins with an antiquated approach to coding medical services that was developed in the 1970s. The coding system falls short in today’s modern health care environment due to its lack of product and service level detail such as consistent units of measure, quantity and descriptors.
As a result, a meaningful percentage of ancillary benefits spending is coded as “miscellaneous,” which means a payer has little to no visibility into what product or service is being delivered — and no way to determine if the correct price is being applied or if the item is even necessary or appropriate.
Source: 2014 Healthesystems Ancillary Medical Services Survey
“It’s a big challenge. Especially when you consider that for many payers, it’s difficult to determine exactly what they are spending, or identify what the major cost drivers are when it comes to ancillary services,” James said. And when frequently over 20 percent of these types of services are billed as miscellaneous, payers have zero visibility to effectively manage these costs.
Measurement and monitoring
Often, performance that is monitored is given the most attention. Therefore, ancillary programs that are closely monitored and measured against objective benchmarks should be the most successful.
However, benchmarks are hard to determine because multiple vendors are frequently involved using disparate data and processes. There isn’t a consistent focus on continuous quality improvement, because each vendor operates off of their own success criteria.
“Leveraging objective competitive comparisons breeds success in any industry. Yet for ancillary services there is very limited data to clearly measure performance across all vendors,” James said. “And for payers, this is a major area of opportunity to promote service and cost containment excellence.”
Source: 2014 Healthesystems Ancillary Medical Services Survey
If you ask claims executives about their strategies for improving the claims management process, a likely response may be “workload optimization.” The goal for some is to enable claims professionals to handle a maximum case load by minimizing administrative duties so they can leverage their expertise to better manage the outcome of each case.
But the path towards “workload optimization” has many hurdles, especially when you consider what needs to be coordinated and the manual way it frequently is done.
Ancillary benefits are a prime example. For a single case, a claims professional might need to coordinate durable medical equipment, secure translation services, arrange for transportation and confirm the best physical therapy plan. Unfortunately they often don’t have the needed time, or the pertinent information, in order to make quick, yet informed, decisions about the ancillary needs of their claimants.
In addition there is the complexity of managing multiple vendor relationships, juggling various contacts, and accessing multiple platforms and/or making endless phone calls.
“We’ve been called the ‘industry integrator’ by some people, and that’s accurate. We are delivering a proven platform connecting payers with providers and vendors on the ancillary medical benefit front. It’s never been done before.”
– Clifford James, Vice President of Strategic Development, Healthesystems
Modernizing the process
To the benefit of both payers and vendors, Healthesystems offers Ancillary Benefits Management (ABM).
The breakthrough ABM solution consists of three foundational components — a technological platform, proprietary medical coding system and a comprehensive benefits management methodology.
The technological platform integrates payers and vendors with a standardized architecture and processes. Business rules and edits can be easily managed and applied across all contracted vendors. All processes – from referral to billing and payment – are managed on a single platform, empowering the payer with a centralized tool for managing the quality of all ancillary providers.
But when it comes to ancillary products, the critical and unique challenge Healthesystems had to solve is the antiquated coding system. This was completed by developing a highly granular, product-specific coding system including detailed descriptions and units of measure for all products and services. This coding provides payers with the clearest understanding of all products and services delivered including pricing and all the necessary utilization metrics.
“We bring the highest level of transparency and visibility into all ancillary products and services,” James said, adding that the ABM platform uses an extensive preferred product coding system 15 times more detailed than any other existing system or program.
This combination of sophisticated technology, proprietary coding system and benefit management methodology revolutionizes the ancillary category. Some of the benefits include:
- Crystal-clear transparency
- A more detailed and comprehensive view into ancillary products and services
- An automated process that eliminates billing discrepancies or resubmittals
- Integrated and consistent processes
- Strategic program management
Taken together, the system leapfrogs over the existing hurdles while creating entirely new opportunities. It’s a win for vendors and payers, and ultimately for patients, who receive the optimal product or service.
“We’ve been called the ‘industry integrator’ by some people, and that’s accurate,” James said. “We are delivering a proven platform connecting payers with providers and vendors on the ancillary medical benefit front. It’s never been done before.”
To learn more about the Healthesystems Ancillary Benefits Management solution visit: http://www.healthesystems.com/solutions-services/ancillary-benefits