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Industry Insights

Paduda: Claims, They Are A-Shifting

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There appears to be a trend among many work comp insurers to shift more and more claims-handling responsibilities to third party administrators (TPAs).

Joe Paduda

Joe Paduda

I (and I’m sure many others) have been somewhat aware of this for a few years, but like the proverbial frog in the pot, the temperature has been increasing rather slowly, and the consequences have been barely visible.

Currently, the big TPAs — Sedgwick, GB, York and Broadspire — are all doing a lot of claims handling for big work comp insurers. AIG has outsourced a big chunk of its claims for decades, but other insurers are slowly following suit.

The drivers are many:

  • Decreasing claim frequency is now a structural trend; insurers have to work to stay ahead of the declining volume, and off-loading claims to a third party makes managing a shrinking business a lot easier.
  • Total administrative expense, long a bugaboo for insurers, rating agencies and regulators, has to shrink as well. Stripping out the upper management, information technology, compliance and related functions slash unallocated loss adjustment expenses, or perhaps more accurately, shift it into allocated expense.
  • Some more “self-aware” insurers have realized that their companies' claims handling just isn’t that good.
  • Technology, IT/systems changes and improvements, training requirements and the like are becoming increasingly expensive. As carriers look to move from their green-screen-based technology to SaaS or other cloud-based technology, some are finding the switch incredibly expensive, very risky and potentially career-threatening (this last is perhaps the biggest driver). Better to just get out of the business than screw up a tech migration.
  • I’d expect the big TPAs to assume more and more responsibility for claims functions over the next few years.

There are implications aplenty for all parties involved. They have different revenue models, different service expectations and definitions, and different priorities.

What does this mean for you?

Good stuff if you’re a TPA. And perhaps fewer headaches if you’re a carrier — unless you pick the wrong TPA.

Joe Paduda is co-owner of CompPharma, a consortium of pharmacy benefit managers. This column is republished with his permission from his Managed Care Matters blog.

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