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Let's be clear: Outsourcing claims, OK. Offshoring claims, no way, José. Keeping the claims management process right here at home has served the workers' comp industry just fine over the years. Critics of the comp industry have derided its "provincialism." Well, long live the provincialism that has pervaded the back rooms of the workers' comp system.

Yes, it's true: Those who hold the keys to the claims process belong to a tight little crowd, one that even deserves a slap or two in the face here and there for dragging their feet, committing a clerical decimal point error, putting you on hold for just a little too long or even at times being just plain rude.

Be that as it may, the claims get processed, the claims get paid, the checks get cut. And everyone speaks English. In the end, the workers' comp claims system works just fine, as it's done for 30 years.

Outsourcing claims is confusing enough. Here's an example: Right now, a claimant located in Delaware, let's call it the Do Mont Co., files a claim with a workers' comp insurance company in, say, Massachusetts. The insurance carrier outsources parts of its claims operation so that the first-notice-of-loss functions are handled by a vendor in Iowa, the return-to-work management functions are handled by a third-party administrator in Arizona, and the claim's document management and scanning functions are the responsibility of a vendor in Montana.

Well, at least matters remain stateside.

But not with the offshoring model. That's enough to drive you batty. Now your Massachusetts carrier, cited in the example above, has got the claim's first-notice-of-loss functions managed by a call center in India, the return-to-work management functions handed by a call center in China, document and scanning procedures carried out by a call center in Pakistan, and surveillance and investigation services done by some outfit in Kazakhstan.

This is a flat world you want no part of, trust me. It's the kind of world invented by insurers with newly minted MBAs and unadulterated zeal to lower fixed costs. Instead of doing a service to the carrier's clients, they're just leaving veteran claims managers and their clients with fixed headaches.

Just wait till the vendor decides that paying 25-year-olds in Bangalore, India, $4 an hour is too much, and decides to move the operation to Bangladesh, where they can pay 19-year-olds $1.50 an hour. What then?

Rumor had it that Dell Inc. a while back outsourced its call-center services for small business clients offshore. The service was so bad that Michael Dell did an about-face and brought the call-center functions back to the United States pronto. So much for service.

Let's face it. Claims is ultimately the execution of paperwork and, increasingly, electronic paperwork. Paying paper-pushers $1.50 an hour instead of $20.00 makes a lot of economic sense. But it doesn't make much sense if your claims operation is going to make mistakes, or if your service is so bad that it's more trouble than its worth.

You'd better be careful, too, because Sarbanes-Oxley has suddenly made pushing paper a serious exercise. Folks who don't cross their T's or dot their I's on electronic forms submitted to regulators are going to find themselves in hot water. Yes, running afoul of Sox can stink up your whole day, even sink your company.

Thankfully, the workers' comp industry has only experimented with sending noncore claims functions offshore. But how long do you think it's going to be before the core functions follow? In the group health market, several large health-care organizations are already using professional staff in offshore locales. You've been warned!

CYRIL TUOHY is managing editor of Risk & Insurance®.

November 1, 2006

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