Look Before You Leap Into Data Outsourcing

A bad vendor can cause regulatory problems,end up costing insurers more

Data management organizations can relieve insurers of thecomplex, resource-intensive and time-consuming burden of reportingan array of information in different formats and at different timesto a host of organizations, including statistical agents, ratingorganizations, regulators and industrial accident boards.

Outsourcing data administration to a quality company can be a goodoption for many insurers faced with runaway data collection andprocessing costs. But before committing to an outside solution, besure the data management company you choose can and will deliverexactly what you need, when you need it.

A poor-performing data service that is prone to error or delays orlacks state-of-the-art technology or a depth of insurance knowledgecan cause its clients significant regulatory problems leading tofines. Worse, poor-quality data service from an outsourced entitycan lead to costly business decisions. Instead of saving ondata-related costs, your outsourcing decision will end up costingeven more when measured in overpricing or underpricing product,writing too many bad risks, reporting errors, paying regulatoryfines, or losing business from disgruntled customers.

Look before you leap into a strategic alliance with a vendor thatwill collect, process, store and report your data the raw materialfrom which you produce your product.

First, and perhaps most important, find a data service withrecognized expertise in both data management and systems andinsurance business. Choose a vendor that follows best datamanagement practices, ensuring data is accurate, valid, consistentwith prior information, complete and timely.

Since your objective is not only to cut costs but also to reducethe time it takes to manage operations, find a service that allowsyou to transmit data once, in a simple format that can be used in avariety of ways. Your solution vendor should compile and reportunit statistical reports; collect data for specialized claimsreports, such as detailed claim information and individual casereports; and create and report aggregate financial datasubmissions.

Seek a service that simplifies reporting, allowing you to integrateall comp premium and loss information directly from front-endpolicy and claims-processing systems. From that information, youshould be able to develop and compile corresponding unitstatistical reports and submit them to regulatory agencies.

The process you choose should allow data integration directly fromyour front-end policy and claims-processing systems even if youhave multiple sources of data from disparate systems.

A service allowing data quality enhancement with front-endtransactional editing will boost your data quality accuracy andlower the risk of fines or surcharges from bureaus your companyreports to. Front-end transactional editing systems allow thedata-servicing vendor to correct mistakes as it receives data,rather than later in the data-management process when the incorrectinformation may be far removed from its original source. (Forexample, if an insurer were to transmit a report of a transactioncontaining a ZIP code that didn't match up with the right state, afront-end system would catch the error right away so it could becorrected.)

An outsourced data service should fully relieve you of theresource-intensive task of reporting workers' comp premium and lossdata to jurisdictions where you do business. It should becost-effective, accurate, timely and fully able to keep up witheach jurisdiction's changing requirements.

An important objective in outsourcing your workers' comp datamanagement function is freeing your company to reallocate limitedresources to other critical operations, focus on core businessopportunities and reduce expenses.

You may find greater long-term return from a vendor offering a fullrange of data-support solutions. Besides bureau reporting, someservices collect, process and store workers' comp data and enableyou to use that same data to create analytic and decisionmanagement tools helping you improve key facets of your businessespecially in the underwriting, pricing and claims-adjudicationfunctions.

Data management services are providing insurance companies betterways of identifying specific characteristics of claims, fraud andmethodologies for calculating benefits.

It pays to be aware of the state of the art in data management.Some services, for instance, have harnessed the power of theInternet to provide state-mandated injury reporting services.

Workers' comp carriers can take advantage of Internet-enabledelectronic filing. Insurers are using Web-enabled software tosubmit first reports of injury, subsequent reports of injury andmedical bills directly to state accident boards that acceptelectronic filing of workers' comp information.

Finally, in selecting a vendor, consider that an outsourcingarrangement is a business partnership in many ways. The company youselect should be willing to work with you to determine the propersetup that fits your company's needs. A good vendor will managepreproduction testing and perform data analysis, as well as providesystem setup, training and technical support and help you set upinterfaces with your field offices and call centers.

To succeed in today's unforgiving workers' comp environment,insurers must overcome a host of uncertainties. Successful workers'comp insurers are gaining competitive advantage with high-endanalytical and decision-making solutions and support to relievethem of the burdens of back-office operations.

In workers' comp, the largest individual line of commercialinsurance, the state of the art for information services isadvancing. Your challenge is to keep up.

Carole J. Banfield is executive vice president of informationservices at the Insurance Services Office Inc. in Jersey City,N.J..

Reproduced from National Underwriter Edition, August 19, 2004.Copyright 2004 by The National Underwriter Company in the serialpublication. All rights reserved.Copyright in this article as anindependent work may be held by the author.