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Kathy Kukor, the senior consultant for Risk International Services Inc. who is serving as the senior manager for workers' compensation for aviation/defense industry service provider Goodrich Corp., spoke with Managing Editor Cyril Tuohy about how large corporations are turning away from past models of handling claims and looking for lower prices and better partnerships with independent TPAs.

The following is part of a transcript of Kukor's responses.

Particularly as it relates to workers' comp. If you are self-administered, there is a tendency for claims to become embroiled in company politics and that rarely has a good outcome. There are payroll issues, there are medical issues, and dealing with all the deadlines and the rules of differing jurisdictions puts an enormous burden on companies. It's very cumbersome for organizations to do it in-house so the question is: Do you have the carrier or the third-party administrator take on those responsibilities?

The larger you are as a company, the more control you want to have, but the insurance carrier mentality is often, "Don't call us, we'll call you."

WELL-DEFINED LOYALTIES

Even if the carrier has a third-party administrator for large national accounts with large self-insured retentions, those same carrier-owned claims services are also dealing with smaller policies and small deductibles. In the view of the claims operations, the insurance carrier is the client.

In the third-party administrator world, there is a set of more well-defined services and alliances and loyalties, and they understand who's paying the freight. With the third-party administrator, that's their core function and expertise, and the claims-handler is very valuable to them, and they are going to put resources to that and manage that effectively.

In addition, third-party administrators tend to be a little more innovative and understand the business impact of claims on their clients. They tend to be more sensitive to companion HR and operational issues that may impact the handling of the claim.

Businesses need to protect their relationships with customers and employers and their reputation as a benevolent, upstanding citizen in the community. TPAs are typically more flexible because the contract for services is often between the corporation and the TPA.

Even in cases where there is an insured program with a large deductible or SIR, the TPA adjuster seems to have more sensitivity to the company and the business impact from their claims.

THE CARRIERS' VIEW

Having worked in the carrier environment, their view of workers' comp, for example, amounts to claims and bill review and doing as much loss control as the insured will let them. Really getting your arms around the cost issues takes a lot more innovation and effort and a team approach.

Carrier-owned TPAs or claims operations are well-trained to protect the carrier and know who sets the rules. The old adage of "Ye who holds the gold rules" is very applicable in this environment.

SRS (Specialty Risk Services) seems to be a bit more unique since The Hartford has treated SRS as an independent subsidiary. SRS seems to be aligned with Hartford for financial accounting, and SRS may utilize some Hartford systems and resources, but SRS management is very focused on delivery of services to their clientele (national accounts). Their offices are generally in a separate space, and many of their clients are insured or reinsured by carriers other than Hartford.

Ultimately, it's all about the team of people touching the claim. Any given third-party administrator has good offices and not-so-good offices around the country. The bigger the third-party administrator, the harder it is to maintain consistency of service.

There seems to be an understanding among third-party administrators of who's paying the freight. The adjusters trained by the third-party administrator tend to have more of a risk management outlook on claims management as opposed to a carrier-trained adjuster.

There's no doubt that big companies are using more third-party administrators, and it's interesting because you could say that the carrier model has stumbled in recent years. The carrier model works better with smaller clients, but even the middle market is starting to come aboard with the third-party administrator mindset, particularly in workers' comp, which is taking a fairly sizeable bite out of shrinking budgets and there's a greater degree of interest in providing more control and oversight

DISPUTES

There are not a lot of disputes between the third-party administrator and the insured. but when I've heard about it, it seems to arise out of bad-faith actions where everybody comes under the microscope or where there is a relationship issue arising over one or more claims that just completely breaks down.

Take the issue of claims denial, for example. This is an extremely and potentially volatile area and how that is handled can create all sorts of ripples in customer relations, and that causes friction between the third-party administrator and the insurer. And there's also potential for union issues to get into the mix there. That's part of the reason it's so important that the claims adjuster understand the culture and the personality and the style of clients they are working with.

Adjusters sometimes aren't very sensitive to that, and they want to protect the insurer's pocketbook. These lawsuits and disputes oftentimes come over a painful disconnect between what the client needs in terms of outcome and the process used to get there.

There are disagreements over things like: What is the protocol for denying a claim? For reserve notification? For settlement? These are all areas for acute sensitivity.

Other areas where there are issues are in the area of occupational disease and exposure-type claims, and they have high sensitivity to that. So in some instances you have some conflicting interest, and it takes delicacy to manage competing interests so that it doesn't evolve into a lawsuit.

Most of the conflicts come up when issues are not dealt with in advance, or when you have a misfit.

THE RIGHT FIT

Third-party administrators are all pretty decent at handling claims, but it's really about finding the right fit and the structure in which they handle these sticky issues.

With the frequency of claims going way down and third-party administrators can't keep staff, there's a lot of turmoil in the third-party administrator industry right now, and a lot of nervousness in holding on to market share. Now clients are price-shopping instead of focusing on quality to respond to budget pressures from within their own organizations.

I think corporate America is looking for ways to gain more control over their claims and make sure things don't blow up on them. They are highly valuing the relationship aspect with their third-party administrators and carriers.

Goodrich had a model that involved the use of an insurance carrier, third-party administrators and internal administration to handle their claims. In 2004, they combined these services into one third-party administrator. They went to SRS initially, and last year left SRS for Broadspire, which is now handling their claims. The managed care piece and the bill review have also been unbundled and are also being outsourced as well.

March 1, 2010

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