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Insurance Industry Challenges

Insurance Asset Growth Lags

Insurance company assets-under-management growth is weak compared to other global asset management.
By: | July 23, 2014 • 3 min read
Assets

Global insurance assets under management are growing — but not nearly as much as they could be, according to the Boston Consulting Group.

One key problem, though not the only one, is that insurers tend to under-invest in information technology, securities processing and other operations integral to asset management, according to BCG.

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Insurance company assets comprise nearly 20 percent of the $68.7 trillion in total global assets under management, as recorded by BCG last year.

Insurers’ total assets under management (AUM) reached $13 trillion in 2013. Yet, their AUM growth of 7 percent in 2013 was far lower than the overall average 13 percent increase in global AUM.

The fact that global insurers have lagged behind their asset-management peers in operations and information technology capabilities is something of a Catch-22, said Achim Schwetlick, a BCG partner and managing director in New York.

“The lower growth has likely contributed to the under-investment, not the other way around,” he said.

But clearly, this is an area that needs to be addressed, he said.

Between 2012 and 2013, insurance asset managers reduced their operations and IT spending by 4 percent per unit of AUM, said Schwetlick, who is a member of BCG’s insurance practice. In contrast, the broader asset-management industry increased that spending by 3 percent.

The serious expense reductions required by the “meager years” during and after the financial crisis prevented increased investments, he said.

“Now that we’re getting into growth territory again and expense pressure has mitigated, we think this is a good time to break that pattern,” Schwetlick said.

In addition, whereas most insurers have outsourced asset management in alternative asset classes, the vast majority of insurers still manage most of their assets in-house, he said.

The newly released BCG report, entitled “Steering the Course To Growth,”also pointed to the “large proportion of fixed-income assets” held in insurance company portfolios as a reason they “did not benefit as much from the global surge in equity markets.”

Insurers’ “exposure to high-growth specialties was similarly limited,” it said.

Regulatory and Organizational Inefficiencies

That may be difficult to overcome, said Schwetlick, given regulatory constraints preventing insurance companies from investing more aggressively.

This is particularly true in the United States, he said, although even European insurers tend to have no more than 10 percent of their assets invested in equities. In the U.S., equity investment is closer to 1 percent, said Schwetlick.

Organizational impediments have helped to sustain inefficiencies related to asset management, according to the BCG report.

The inefficiencies include regional fragmentation of assets, so that the asset managers of most insurers operate in regional silos as well as asset class silos, exacerbating fragmentation and complexity.

Insurers should move to a more global model to address those issues, said Schwetlick.

“You really want to have processes that are similar across the globe,” he said, that are related to both investment management and access to information about insurance company loss exposure.

Third-Party Management Benefits

The good news, finally, is that many insurers have benefited from third-party asset management over the past several years.

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“While insurers’ asset managers have not historically focused on profitability and growth, they are tempted by the high returns on equity of third-party management,” according to the BCG report.

“Some managers have built this business to more than a third of their activity, and, in doing so, have invested and grown stronger commercially,” the report stated.

“As a result, they have achieved higher revenue margins and profits — averaging 25 basis points of revenues and 39 percent profitability, compared with 12 basis points and 26 percent, respectively, for mostly captive managers that focus predominantly on the insurer’s general account.

Leaders in this area include Allianz, AXA, and Prudential, said Schwetlick.

Janet Aschkenasy is a freelance financial writer based in New York. She can be reached at riskletters@lrp.com.
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Infographic: The Risk List

7 Emerging Technology Risks

Innovative technology presents unforeseen risk exposures. Presented by Travelers.
By: | August 15, 2014 • 1 min read
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The Risk List is presented by:


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The R&I Editorial Team may be reached at riskletters@lrp.com.
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Sponsored: Healthesystems

The Next Wave of Workers’ Comp Medical Cost Savings

Reducing WC claims costs in one area often inflates them in another.
By: | August 4, 2014 • 6 min read

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

Inefficiency

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.

SponsoredContent_HES“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

This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Healthesystems. The editorial staff of Risk & Insurance had no role in its preparation.


Healthesystems is a leading provider of Pharmacy Benefit Management (PBM) & Ancillary Benefits Management programs for the workers' compensation industry.
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