This is the second installment in a series of blogs that address the three key challenges facing insurance carriers today. This installment will focus on premium leakage.
As outlined in my previous blog about cost, there are three challenges that, if addressed, can bring profitability, scalability, and better client retention:
- Cost
- Premium Leakage
- Administrative Complexity
“Premium Leakage”: This might sound more like a medical condition to most reading this. However, I describe leakage as money lost due to inefficiencies or inaccuracies in the overall processes. If you signed a new client expecting $5M in premiums with margins of 5%, but you ended up on average earning 4%, where did the 1% go?
The chance that it spontaneously combusted is low and it’s even less likely the actuaries forecast was incorrect. The most likely scenario is that you spent that 1% paying for manual errors, higher overhead, or refunds. That’s premium leakage.
Bringing the insurance working dynamics into context, Self Administration (Self Admin) brings one of the biggest juxtapositions in the insurance space. An insurance carrier invests heavily across all aspects of the organization. However, when it comes to new business acquisition and client retention, there is no bigger area of focus and resource (both capital and resources) investment. Starting with actuarial review of rating, underwriting positioning, sales negotiations, etc… much work is performed to agree to the correct plan design, appropriate rate, and the administrative requirement. However, in the case of Self Admin, after the business is won and implemented, we leave it to the employer to make sure the complex business of eligibility, enrollment and ongoing changes are handled accurately and timely. Loose integrations, validation and some data integration are brought to bare to improve this space and make it less risky, but it has limited effectiveness at best. In general, 85% of the large market business, employers with 2K employees or more, are self administered. This creates a massive amount of benefit administration being done outside of the carrier’s walls with a variety of services, vendors, and technology being leveraged to support it. This is where you are very likely find areas of premium leakage.
As stated earlier, there are many examples of premium leakage across claim operations, implementation and operations, but one of the biggest areas where premium leakage occurs is in the billing area, specifically Variance Management in support of Self Admin clients. In its simplest state, the variance management process is the process of tying the total premium paid by the employer for each line of coverage to the amount expected by the carrier. If the total is within a specified acceptable deviation, the carrier accepts the premium as ‘paid in full’ and moves to the next month. Seems simple, however, when you complicate matters with a highly tailored plan, multiple eligibility classes and various technology vendors, things get complicated quickly. In addition, in most cases the total being compared is not one number, but multiple totals based upon age groups, products, and any other product specific attribute. Due to these complexities and vendor dynamics, the variance reconciliation process for a Carrier is littered with excel, access and paper processing. It frequently requires manual rework, rebilling, adjustments to accounts. This can result in missed premium and ultimately lower profit margins. In other words, premium leakage driven by inefficiency and inaccuracies. This is where you lost that 1%.
The Self Admin practice is not going away. So how do you fix this process? Modern insurance focused technology, built for this business practice. Be careful though… many vendors claim they have a robust billing solution that can support all aspects of the process. Unless they built it from the ground up to support Employee Benefits (not PnC or Pension Administration), it’s likely you’ll be left with good looking technology that can only automate a small fraction of your business… another legacy platform addition. How do you take the risky billing process from heavy manual, ripe for leakage, to simple digital and highly accurate?
By leveraging strong digital infrastructure, logical data structures built for Employee Benefits, and industry experience led innovation, FINEOS AdminSuite solves this problem. FINEOS Billing allows you to provide your self-reported amount via a portal facilitated via FINEOS API’s. The key is that the portal pulls directly from FINEOS Policy, which houses the current plan design, so when a variance is reported it’s verified immediately against the expected premium amount. If it is outside the risk parameters or if a change is reported, a task can be created immediately to alert a billing specialist. In this case, you go from multiple billing specialists looking at every bill sent in and comparing totals to an automated comparison with the billing specialist only reviewing issues. Accuracy increases, overhead decreases and the risk of premium leakage is significantly limited.
In the next blog, I will go in to more detail on the last challenge: administrative complexity. In the meantime, I would invite you to explore our website at www.FINEOS.com.
If you have policy and billing challenges, feel free to reach out to me and we can chat through them.
