Administering claims isn't for the faint of heart. Managers with self-insured companies flirting with the idea face a daunting choice: Continue to manage catastrophe claims in-house or hire a third-party administrator to do it for them.
If that choice is keeping risk managers up at night, here's what they need to think about while they toss and turn in an attempt to go back to sleep, according to consultant Y. John Lee, executive vice president of Hewitt Coleman, a risk management consulting firm.
Think about the culture of your company. Is your company ready for self-administration? Is it the intention of the company to make claims a core competency? If so, then administering claims in-house is a sound strategic choice, says Lee.
When the aluminum-manufacturing company Alcoa years ago decided to make safety a core competency, it imbued its senior executives and managers with the importance of integrating safety into the operational details of the company. It wasn't long before the dividends of that strategic shift showed up in the company's bottom line.
Similarly, companies prepared to make claims administration a core competency should also consider taking claims administration in-house, says Lee.
In the case of Warrenville, Ill.-based International Truck and Engine Corp., which self-administers its claims, the initiative turned into a big success, says David Taylor, the company's manager of workers' comp and disability. He says the company's claims costs are 40 percent below the national average.
But for a young company reporting double-digit growth from year to year, such as Bloomberg was more than a decade ago, it makes more sense to use a third-party administrator, says Lee.
Companies in the throes of growth, which can shift their focus from one day to the next, are better off outsourcing their claims-administration functions. "If you have a dynamic organization that doesn't know where it's going, then you might want to outsource," says Lee.
Municipal governments are usually good candidates for managing their claims in-house, Lee adds, as their payrolls remain stable from one year to the next.
The other issue executives need to consider is whether there is enough talent to hire locally. For many smaller companies in rural parts of the country, it's difficult to hire qualified claims experts to run an in-house operation.
Then there is the added expense of training the staff. "Once you hire them, you have to have ongoing training," says Lee. If the talent pool is that thin, then companies are better off hiring a third-party administrator.
In short, if companies are not prepared to commit themselves to the business of claims administration, then it makes more sense to stay out of the business altogether and let someone else do it for them.
December 1, 2005
Copyright 2005© LRP Publications