Brokers think they are offering clients the types of value-added services they want, but many employers apparently don’t agree.
Slightly more than half (53 percent) of 3,275 employers surveyed earlier this year by Zywave, a Milwaukee-based software vendor, said they are not satisfied with the information their broker provides them on regulatory and legislative updates.
Nearly all (92 percent) of employers said they wanted those updates, according to the Zywave 2014 Broker Services Survey.
Additionally, 88 percent said they wanted assistance with workplace wellness programs, but 56 percent said their broker was “not delivering to their expectations.” And, while 65 percent of employers want brokers to help them develop employee handbooks, 85 percent said their broker is not doing a satisfactory job.
There is a disconnect between how the brokers believe service distinguishes them and the way that employers feel they are being serviced, said Dave O’Brien, Zywave’s chief executive officer.
“That speaks to the discovery process many brokers have when they are courting prospective clients,” O’Brien said. “They tell them about the history of the firm and about their people, but in reality, they should be asking employers about their own histories, problems, and what they may need from the broker.”
The brokers that ask these kinds of questions up-front, and then periodically check with clients to see if they are meeting their needs, stand to beat out competitors as employers increasingly seek greater guidance, he said.
Smaller brokers may not be able to provide these additional services on their own, but they can leverage technology to offer services similar to those of larger brokers, he said.
Kelly Hagan, director of operations, employee benefits at Assured Neace Lukens in Louisville, Ky., said that brokers “should be making a concerted effort to get information” to employers.
“For smaller employers, the person handling benefits is often wearing multiple hats and has limited time to work on benefits on a day-to-day basis,” Hagan said. “So I do think it’s incumbent upon us to make sure that clients understand that we can provide resources to them, though sometimes with time constraints or business priorities, they may not always avail themselves to those services.”
Some clients don’t know how to ask for what they need, said Denise Ashford, vice president at Sweet & Baker Insurance Brokers in San Francisco.
“Sometimes brokers have the best intentions, but in fact, we don’t take the time to actually speak with the clients to diagnose what they are lacking, and that can send us down that rabbit hole of offering services they don’t need or care about,” said Ashford, who has surveyed clients to better target their needs.
Other survey results include:
• Nearly six in 10 (59 percent) employers are unsatisfied with the information they receive that could help reduce the frequency and expense of claims.
• Nearly two-thirds (63 percent) of employers are unsatisfied with their current broker’s assistance in creating benefit statements.
According to the survey, employers listed their top three risk management challenges as keeping up-to-date on regulatory changes, controlling workers’ compensation costs and educating employees about safety.
They ranked their top three employee benefit challenges as managing health care costs; keeping in compliance and up-to-date on changing legislation, including health care reform; and benefits administration and employee benefits education.
Best Practices a Moving Target
Although modern claims management technology can capture all manner of information to identify where employers and carriers spend — and misspend — their insurance money, a third-party administrator’s (TPA) success in managing an insurance program depends on the underlying human intelligence and a disciplined application of its own best practices.
However, universally applicable “best practices” resist codification because too many variables contribute to how a claim should be handled, including local laws, industry, line of insurance, and the size of the client company, said Randy Jouben, risk manager, Five Guys Enterprises, LLC in Virginia and a member of the Risk Management & Insurance Society (RIMS) Standards & Practices Committee.
Instead, companies develop internal best practices based on their own closely observed and analyzed experience, and some share their findings with each other, said Janet Warren, managing director, Beecher Carlson.
These best practices are customized to the client’s sophistication, needs, industry and internal staffing.
The principles underlying all modern best practices emerged from the financial stewardship and speedy communications principles codified in the Unfair Claims Settlement Practices Act of 1997, Jouben said. Created by the National Association of Insurance Commissioners, the act provides guidance to states wishing to protect consumers and regulate insurance carriers. These best practices include timely communications, responsible stewardship of the client’s money, and fair and speedy settlement.
Philosophies Must Align
Jouben regards openness and honesty as qualitative best practices. “Things go wrong in claims. Don’t cover up those mistakes.” Instead, he said, “work together to seek resolution instead of crucifying the person who made the error.”
The relationship breaks down when the TPA and client don’t have equal expectations. “You need specific, realistic expectations on both sides for it to work,” he said.
Consistent engagement in and monitoring of a TPA is a client’s chief best practice, said Frank Ramsay, Towers Watson senior consultant and head of its claims management practice.
He recalled a client with a bafflingly high legal spend. “We visited the TPA, and within a few minutes of walking in the door, we learned that this TPA’s claims philosophy was to litigate everything.”
His client hadn’t been aware of this approach, which differed sharply from its own.
“First, there was a basic breakdown in communication,” Ramsay said, “and second, nobody at the client’s organization monitored and oversaw the TPA.”
Critical Judgment is Vital
Settlement authority requires complete accord between TPA and client. The threshold depends on the level of trust in the relationship, Warren said. “After the TPA establishes credibility, the client raises settlement authority as the relationship matures.”
Even then, appropriate authority is nuanced, subject to the types of claim and other factors. A TPA administering product liability claims might have lower settlement authority than, say, workers’ compensation, because the client’s brand is at stake, Warren said. In workers’ compensation claims, where the jurisdiction defines rules and regulations more clearly, the TPA might have higher settlement authority.
And still the claims adjuster makes judgment calls. “Administering the claims properly requires critical thinking skills and all the knowledge and experience the adjuster brings to the relationship,” Warren said. “One little piece of fact can change the complexion of the case and the adjuster’s decision about its disposition.”
Rob Blasio, president and chief executive officer of Western Litigation Inc., a professional liability claims and risk management company, agreed that appropriate settlement authority practices depend on the TPA’s relationship with the client and especially their line of business.
In workers’ compensation cases, he said, a TPA’s settlement authority is “prudent” for the sake of expedience, but his company generally has no settlement authority at all, which is appropriate for the health care professional liability claims he handles. Instead, he recommends settlement amounts to his sophisticated, high-end clients, who give settlement authority accordingly. In the final reckoning, he said, “collaboration and communication are the best practices.”
Tom Doney, president, Cypress Benefit Administrators, said his role as TPA shifted from the traditional claims payment to medical risk management as health care costs soared.
“When it’s our job to pay a claim, we ask, ‘Does this claim make sense? Is the billing appropriate?’ There’s a lot of fraud out there.” — Tom Doney, president, Cypress Benefit Administrators
His assignment is clear: Save money for the self-funded benefit plans his company administers. “As the cost of doing nothing continues to rise,” he said, he focuses on cost savings such as employee wellness programs that reduce total health care expenses, and identifying claims that shouldn’t be paid.
“If the inevitable happens and employees need care, we give them tools to make decisions about who they see, what type of procedures they may undergo and why,” Doney said. “When it’s our job to pay a claim, we ask, ‘Does this claim make sense? Is the billing appropriate?’ There’s a lot of fraud out there.”
Doney credits the industry’s attention to cost controls with the success of the TPA business and the reason self-funding is now the dominant method of administering employee benefits. The Henry J. Kaiser Family Foundation study, “2013 Employer Health Benefits Survey,” reported 16 percent of covered workers at small firms and 83 percent at larger firms are enrolled in plans that are either partially or completely self-funded.
Cost savings is not always her clients’ primary goal, said Michele Tucker, vice president, claims, for CorVel, a national risk management provider for workers’ comp, health care liability and auto claims. One client’s goal could be service-related results, while another may focus on something completely different.
For example, best practices for a transportation company’s claims-management program would look very different from that of a retailer.
The transportation company has staff in the field, not in shopping malls, and it needs immediate access to a claims -eporting mechanism in its unpredictable, fluid work environments.
“That means a mobile application from which they can call in a claim and get access to immediate care,” Tucker said.
After an accident, the TPA would arrange immediate medical care to address the injury component and the liability insurance claims team to take care of property damage and any subrogation or recovery.
In the retail environment, on the other hand, injuries are fewer and less severe, but customer-related claims — which back into product and general liability cases, which themselves may by derived from chain-of-production issues — are more frequent.
Both involve multi-line claims management, which blurs both insurance and responsibility lines. These blurred lines demand informed, experienced humans.
“At implementation, the client and TPA need to decide how they’ll partner when workers’ compensation and liability lines run into each other,” Tucker said. “You need subject experts in these completely different subjects to get the best results.”
Analytics are not just a powerful reporting tool, said Tucker, but a powerful diagnostic and prescriptive tool as well. Her company has a simple best practice regarding analytics: Use them.
“Things go wrong in claims. Don’t cover up those mistakes. … Work together to seek resolution instead of crucifying the person who made the error.”
— Randy Jouben, risk manager, Five Guys Enterprises LLC
When CorVel saw a spike in claims for one of its retail clients, Tucker said, it analyzed data and found that the claims originated with employees who had been injured while handling a new clothing rack. The client phased out the rack. CorVel also uses analytics as a predictor of “creeping catastrophic” claims — the kinds that can go nuclear unless managed swiftly — with its pharma clients.
“TPAs and their clients can gain insights from data and predictive modeling to drive better decisions and actions,” said Kirsten Hernan, director, Deloitte Consulting LLP. “For example, when you see a potentially troublesome claim, you can escalate it to a more experienced adjuster,” who may be able to snuff out the fire before it starts.
TPAs can capture and report all kinds of data, said Kevin Grady, managing director of Beecher Carlson’s “ZOOM,” a data disaggregation process that allows a company to focus on strategies to reduce costs.
But data alone doesn’t solve problems, he said. “How you use it creates value.”
Grady described the process of turning a practical problem into a statistical problem, then turning a statistical solution — a goal — into a practical solution.
For example, he said, say the TPA traces a cost increase to injured workers bringing suit, which are expensive because of attorney and court costs. “That’s the practical problem,” he said.
Next, he’d convert the data to a rate. If 30 percent of claims were litigated last year, say, the company would target only 20 percent this year. “That’s the statistical solution.”
To achieve that, he’d ask, Where were the lawsuits coming from? The Northeast? Southeast? Midwest? “The location becomes the statistical problem.”
Then Grady sets the goal — the statistical solution. “If suits were clustered in the Southeast, we’d ask, ‘How effective is our response to claims in the Southeast? Are we reporting late?’ ”
When claims are reported late, injured workers get nervous, he said. “They worry about how they’ll feed their kids, so they get attorneys,” whereas they tend not to if the company approaches them promptly with a robust injury response process that responds in a timely manner, informs workers of their rights, establishes a path to recovery and maintains communications.
Thus armed with information, the TPA can help the client reduce injuries, claims and litigation. But not every problem is equally worth solving, Grady said. By analyzing claims data, employers and TPAs can prioritize the problems. “You know which to go after first.” The same applies to claims. “You go after the 20 percent of conditions that drive 80 percent of claims.”
Aim for Avoidance
Avoiding litigation is the best practice to manage litigation, said Beecher Carlson’s Warren. “Better yet, avoid the claim in the first place and you avoid the litigation too.”
In fact, said CorVel’s Tucker, workplaces are becoming safer, thanks in part to analytics that inform employers where to apply fixes.
When accidents occur anyway, Warren said, the decision whether or not to litigate depends on the facts of case, and every case must adhere to the Fair Claims Practice Act.
Closing cases proactively is the best policy for cost control, said Blasio of Western Litigation.
“Evaluate cases quickly, make decisions about whether they need to be resolved and close them expeditiously to reduce allocated losses and adjustment expenses on your files.”
Short of that, have vetted litigation guidelines that outline and control relationships with outside attorneys and experts called in to defend cases.
“It’s about managing expectations at the outset,” said Blasio. This could mean demanding a budget from attorneys and “holding their feet to the fire” about sticking to it.
Cyber security breaches among retailers, health care companies and governments have become the stuff of tabloids and courtrooms. To a large extent, they’re also avoidable.
“The organizations that succeed are those that take cyber security seriously.” — Marty Frappolli, senior director of knowledge resources, The Institutes
“Companies can hire experts to make their data securely available to those who need it and inaccessible to everyone else,” said Marty Frappolli, senior director of knowledge resources for The Institutes, a nonprofit provider of insurance education.
“The organizations that succeed are those that take cyber security seriously. The value of the data far exceeds the cost of protecting it, so take preventive steps first and buy cyber security insurance as a backup plan.”
Clients and TPAs also should be willing to bring in outside help, especially on complex, high-exposure cases, Blasio said. These could include jury consultants and structured settlement specialists. “If there are other experts in the industry who can help strategize how to get the case in the best position for resolution, an existing relationship with a TPA or counsel shouldn’t preclude another.”
This best practice applies most to self-administered plans. “They spend hundreds of thousands of dollars retaining medical experts, but they rarely think about calling an expert who might have resolved 20 cases with the plaintiff’s attorney and can cut through the noise.”
The Embedded Risk Engineer
Not long ago, concepts such as solar panels, nanotechnology, battery-powered electric vehicles and “green” buildings were more pipe dream than reality. Today, with those trends a growing part of the global marketplace, insurers need ongoing, in-depth, real-time data for optimal underwriting in order to give buyers proper coverage and accurate pricing.
As one leader of Aspen Insurance’s loss control risk engineering team, Troy Bickerstaff knows better than most the value of staying ahead of the curve when it comes to emerging trends and their potential impact on insurance buyers.
“Our underwriters at Aspen Insurance are plugged into what’s happening with today’s exciting technology developments,” Bickerstaff said. “By using specialized, dedicated risk engineers to deliver unparalleled support to our underwriting teams, we can meet emerging marketplace needs. For insureds in these areas, the result is the best possible approach to risk management, insurance programs and pricing.”
“We evaluate all possible hazards, including the insured’s quality management system, their safety and quality standards, their recall process – anything and everything that goes into their product. Then, we advise the underwriters during the application process.”
– Troy Bickerstaff, Assistant Vice President and Loss Control Manager, Aspen Insurance
Aspen Insurance utilizes a concept by which an underwriting team includes an embedded engineer who works closely with the team’s underwriters and clients. This dedicated professional focuses on supporting the team in meeting the specific needs of a client and continually advises on the evolution of emerging risks associated within the team’s industry vertical.
Bickerstaff explained that Aspen Insurance’s risk engineering approach differs from other carriers that typically offer a centralized loss control/engineering department, primarily because they provide a general approach to support of underwriting.
“The difference in the various approaches to risk engineering is similar to specialization in medicine. If you need open-heart surgery, would you want a general surgeon or a cardiothoracic surgeon?” he asked. “Similarly, if your business faces specialized risks, you need the deep expertise of underwriters and engineers well-versed in the nuances of your industry.”
Bickerstaff and his colleagues support the underwriting teams across Aspen Insurance in four key ways:
Evaluating individual risk
To best understand a potential insured’s risk portfolio, the Aspen Insurance team reviews each new submission along with an applicant’s website, history of product recall and compliance with industry standards, in addition to certifications to assess what types of exposures may emerge. Bickerstaff noted that Aspen Insurance’s claims team is also involved in this process, including in respect of all risk engineering communications with the underwriting team. This tight collaboration between underwriting, engineering and claims is a key differentiator for Aspen US Insurance in the market.
If a new technology is part of a coverage application submission, Bickerstaff will also launch an engineering review of the risk, delivering valuable information to the underwriters, who in turn can utilize the data to help insureds find ways to improve their products and potentially reduce expensive product liability exposures, and possibly even claims.
When a company looking to import foreign-made tires applied for coverage, Bickerstaff created a document outlining all the major “key points for casualty,” including factors such as improper curing, use of over-aged rubber and contaminants in the tire itself. Underwriters then used that report with the potential insured, helping them avoid any potential pitfalls in importing foreign-made tires.
“We evaluate all possible hazards, including the insured’s quality management system, their safety and quality standards, their recall process – anything and everything that goes into their product,” he said. “Then, we advise the underwriters during the application process.”
Conducting a class of risk consultation
Based on underwriting submission trends or individual risks, the risk engineering team often identifies red flags with certain exposures and prepare detailed “guide sheets” outlining key information about the overall risk to support the analysis of underwriting teams.
Bickerstaff created two such guide sheets related to electric vehicles, an emerging, popular alternative to gas-powered vehicles. One guide sheet detailed specific fire hazards associated with electric vehicles (higher voltage, weight distribution and battery blockage), while the other focused on specific fire hazards associated with the lithium ion (Li-Ion) batteries used to power electric vehicles, including ways to mitigate associated risks. Both guide sheets proved helpful to companies looking for coverage who manufactured both Li-Ion batteries and electric cars.
“We undertake a very detailed analysis for insureds in which we typically outline the kinds of claims that could happen, the severity, and what measures an insured would need to have in place to proactively minimize claims scenarios. This additional level of risk analysis is something insureds really value and appreciate.”
Evaluating long-term exposures
As a natural extension of the risk consultation effort, Bickerstaff also conducts long-term research and keeps abreast of different types of exposures through monitoring various media and publications, attending lectures and maintaining research contacts on the academic level. Insureds use Bickerstaff’s research to strengthen their loss control efforts, thereby potentially reducing claims and, as a result, keep overall costs down.
“For areas such as nanotechnology or ‘green’ buildings, we conduct research and create guide sheets,” he said. “But we also constantly stay abreast of the long-term aspects of the risks in those areas, keeping up with industry changes and the evolution of specific technologies”.
Providing added risk management expertise directly to insureds
Finally, the risk engineering group provides additional support for insureds via a face-to-face policyholder consultation at the insured’s location, if necessary.
Bickerstaff visited a commercial lawnmower manufacturer and identified several cost-saving enhancement opportunities: guidance on contractual wordings, recommendations for strengthening the weldment inspection program and education on managing increased liability exposures due to the use of temporary workers during the company’s peak manufacturing season. As a result, with that added data, the insured was able to reduce costs and potential claims.
“Among the many advantages we offer to insureds, a key benefit we offer is to ensure that our underwriting is based on the underwriters’ full knowledge of the risk, including access to the best available, most accurate data about the unique exposures relevant to the industry, technology, or niche,” Bickerstaff said, adding that the engineering team’s expertise helps underwriters deliver the best possible outcome, but even more importantly, Aspen Insurance’s specialized, integrated risk engineering strategy ultimately benefits the insured.
“The difference in the various approaches to risk engineering is similar to specialization in medicine. If you need open-heart surgery, would you want a general surgeon or a cardiothoracic surgeon? Similarly, if your business faces specialized risks, you need the deep expertise of underwriters and engineers well-versed in the nuances of your industry.”
“Insureds can feel comfortable and confident they are buying a high-quality, value-added, fairly priced product to meet their specific needs,” he said. “With many of these new, emerging risks, that is a critical benefit to them and a competitive advantage for us.”
To learn more about how Aspen Insurance’s loss control risk engineering and underwriting teams can support your organization, contact your broker.
Troy Bickerstaff, Assistant Vice President and Loss Control Manager at Aspen Insurance, can be reached at email@example.com.
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Aspen Insurance. The editorial staff of Risk & Insurance had no role in its preparation.
This article is provided for news and information purposes only and does not necessarily represent Aspen’s views and does constitute legal advice. This article reflects the opinion of the author at the time it was written taking into account market, regulatory and other conditions at the time of writing which may change over time. Aspen does not undertake a duty to update the article.