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In-House Claims Management or Outsourcing to a TPA?
April Risk Management Tip of the Month
By Kevin Quinley, CPCU, ARM AIC, AIM, ARe © 2009

Claims Software

Risk managers often face the decision of whether to handle claims in-house or outsource to a TPA. Much of the decision may rest on the risk manager’s assessment of the following six factors:

1. Geographic dispersion of claims. For example, is your workers' compensation concentrated in one state or many? It's tough for adjusters to know the laws of a distant state.

2. Adjuster licensing and employee relations. Maintaining adjuster licensing may also be difficult. Also with workers' comp, some people like having a TPA in case you must deny a sensitive claim. Using a TPA creates a buffer where someone outside the risk manager’s organization is the "bad guy."

3. Need for specialized expertise. Generally, liability is easier to manage and outsource from a central point, but claims volume and type of claims may also be driving factors. If you have lots of slip and fall claims, the risk manager may not need specialized expertise. If you have other exposures, though, you may not be able to find that person easily. By contrast, a TPA may have someone on board who could readily handle those claims. If your claims are in-house, who will do your fieldwork if those types of investigations are necessary, especially if you have an auto liability exposure?

4. Ensuring adequate staffing. Depending on the size of the in-house staff, you could also have a problem if you had only one or two adjusters and one leaves, gets sick, etc. If you have a TPA, it is accountable for adequate staffing.

5. Receptivity of excess insurers. Check carefully with your excess insurers before implementing a plan to self-handle claims. Many excess carriers are cool to in house adjusting. Two reasons for this: they think in-house adjusters often under-reserve claims files and -- when audited – excess carriers often get nasty surprises. I know of one insurance claim exec who, “burned” by underlying self-insureds who bungled claims would often quip, “For moist companies that engage in DIY claims adjusting, self-handling is tantamount to self-abuse!”

6. Consider a dedicated unit. Another approach is to consider a TPA that will give you a dedicated unit. The TPA puts its employees in your business and they work alongside your folks, yet have additional bench strength and outside resources if needed.

None of this is to suggest that internalizing claims is inherently superior or inferior to outsourcing them. In fact, the two approaches can be blended, depending on the type of claim, severity, geographic location and a host of other factors. It need not be an either/or decision. In the end, the decision as to whether to go in-house or to go “out-house” (so to speak) with a TPA is not only a financial issue, but also one relating to a company’s culture and philosophy. Use these six factors to decide which option is best to maximize value (and minimize costs, through the claims management process.

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