The decision to self-administer claims should not be made lightly nor quickly by any organization. Claims self-administration requires taking full control of the claims handling function in-house versus leveraging the stability and expertise of a third party to handle your claims. Often the decision to self-administer arises from frustration with the insurance market and administration of claims by an insurance company or third party administer. It is not uncommon to hear companies say “I could have gotten a better outcome on the claim” or “the cost to assume the risk is less than purchasing insurance” or “if I had chosen my own legal counsel my interests would have been protected”.
Perhaps these statements are true or perhaps organizations are simply driven by the chance to significantly reduce their total cost of risk by self-administering their claims. Although there are many complexities to transitioning to self-administration, such as overhead costs, hiring the right personnel, and varying jurisdictional laws, there can be many advantages as well. These advantages include:
1. Reducing your total cost of risk – Claims self-administration provides your organization various opportunities to reduce its total cost of risk. Claims can be executed in a defined manner, with your direct oversight, and you are not left trusting a third party will handle them according to your guidelines. Claims can be reserved accurately and in alignment with your organization’s reserving philosophy. Many people believe, since the adjusters are part of your organization, they have a more vested interest in the claim outcome. Additional areas of savings can be realized through the reduction in duplicate claims staff, saving on TPA or carrier contractual costs, insurance premium costs, and various tax benefits.
2. Improving financial oversight – When you administer your own claims you transfer the power back into your hands and assume full control over your claims spend. Establishing your claims handling practices and reserving philosophy allows you to hold your claims adjusters directly accountable to those standards and to management. Administering your claims in-house also means you can choose your own legal counsel rather than the counsel that the TPA or carrier prefers, helping you control costs and yield a better outcome on your claims.
3. Increasing your risk focus – With claims self-administration, your employees as well as the organization can take ownership in the claim process. Typically, in-house claim adjusters would better understand the organization and its operations, allowing them to communicate across functions internally, leading to quicker claims resolution. The organization as a whole can become more risk focused.
The advantages may sound appealing, but moving to claims self-administration is not an easy decision for organizations. In fact, there are many disadvantages and factors that need to be considered in order to determine the merit of taking on the liability. Here are a few questions you should ask yourself as a starting point to understand if the impact to your organization could be significant.
- How much risk am I willing to take on through self-administering my claims?
- Do I want to self-administer all of my lines of insurance coverage or only particular lines of coverage?
- What are the tax implications of self-administering my claims?
- What are the regulatory requirements of self-administering my claims?
- Does my organization have the financial stability to assume the risk of self-administration?
- What are my staffing needs and expenses for starting up a claims organization?
- What type of technology do I need to self-administer claims?
- What business processes do I need to establish?
- Who is going to be my coach or mentor during the implementation and ongoing management of self-administration of my claims?
- What do I do with my open claims that are covered by insurance?
- What other departments within my organization need to be part of this decision and how will they be impacted?
There are many advantages and disadvantages that need to be evaluated before choosing to self-administer your claims. Like any business decision, the benefits need to outweigh the costs and need to provide your organization the opportunity to improve upon its claims handling.