The claim department rarely has an opportunity to add to an insurer's bottom line. However, uncollected third-party deductibles (TPDs) can offer an opportunity to significantly contribute to a company's profits.
By current estimates, the U.S. property and casualty industry generates between $500 million and $1 billion dollars in TPDs each year. While most TPDs originate on the sales and underwriting side, administering them falls to the claim function. Individually, TPDs may not warrant attention. Yet when combined as a whole, they have the potential to make a positive impact.
In order for insurance companies to benefit from TPDs, they must be collected. TPDs remain uncollected for a variety of reasons including:
- Claim closing standards. Industry norms encourage adjusters to close claims quickly. When "claims closed" is the measuring stick used to evaluate performance and assign compensation, TPDs can be overlooked.
- Complex processes. Keeping track of and ultimately collecting TPDs require that the underwriting, policy, claim, and recovery systems consistently communicate to identify and bill deductibles. According to the survey, 38 percent of companies cited a lack of IT resources as a major reason for missing TPDs.
- "Creative" underwriting. Underwriters are willing to modify or customize contract language because of competition and the insurance cycle. These standard policy language deviations -- per claim or occurrence, expense inclusion, and variable deductibles -- are not always communicated to the claim department. With no clear mandate or evidence of existence, TPDs often remain uncollected.
In recent years, companies have become more aware of TPDs because of improved corporate governance, the adoption of enterprise risk management (ERM), more competent middle management, and a greater awareness of best practices. To identify and collect these missing funds, insurers have two options: improve their internal systems, or use outside resources.
Frequently, outstanding TPDs become overwhelming. Companies may seek external consultants, but methodologies and success rates vary. One traditional method is to assign these consultants to review uncollected TPDs, although many organizations find this process labor-intensive, lengthy, and highly intrusive.
In recent years, another option has surfaced: Automated data mining systems with custom algorithms have been developed to search insurers' computers for missed TPDs. This is typically performed from a remote location without disrupting day-to-day business operations.