For Best Results, Choose Your TPA Wisely

You are a risk manager for a mid-sized corporation. You decide that in order to keep your premiums low you will self-insure a portion of your insurance program and purchase excess coverage for additional protection. To manage your program you hire a third party administrator.

Think you are safe now? Think again.

There are many TPAs out there; some are reputable, while others can be outright dangerous.

A self-insurance program can function well and produce savings to the company, provided it is well managed. In order to effectively manage the program where a TPA is involved, the risk manager or a qualified consulting firm must perform periodic audits. This is for your own protection. Do not automatically assume that just because a TPA is involved that your claims are now being handled correctly.

Initially, a Claims Management Agreement should be written out in detail. Spell out what you require and have both parties sign off on it. Inquire as to who their other clients are. It may be worthwhile to check with some of the risk managers who use the TPA. You need to confirm that the larger clients are not receiving all the attention.

There are many areas to review when entering into a claims handling agreement with a TPA. While not all inclusive, here are some areas to consider.

Inquire as to the turnover of personnel at the TPA.

How many individuals have been there for more than five years? What is the average length of time people stay with the TPA? If there is high turnover, the seasoned adjusters may have to take up the excess workload until a new replacement can be located.

These seasoned adjusters may be unable to handle the additional workload, resulting in your companys claims being placed on the back burner until a new adjuster is hired. In this scenario the new adjuster is now inundated with claims and will require some time to manage his caseload before getting up to speed.

Attempt to determine the adjuster workload at the TPA.

If the adjusters workloads are too overbearing, your claims may not receive the attention they deserve. Determine how many adjusters will be working on your account, and will they need to be exclusive to your company? Depending on the type, complexity of the claims and how they are set up in the system, workloads in excess of 200 claims can be detrimental to a good claims-handling program. Complex claims involving litigation and declaratory judgment actions require more time, and as such the adjusters complex claim count should be kept to a reasonable amount.

Companies involved in long-tailed claims such as asbestos, lead and environmental may have a claim number attached to each policy. In that instance, one site or loss may have multiple claim numbers associated with each claim.

In this scenario look to the number of losses and policies involved to determine a proper workload. I have seen instances where an environmental claims adjuster would handle more than 800 claims for 40 different insureds.

While this may seem reasonable, it can become a time consuming problem when payments are made across the policies and reinsurance allocations are required. In scenarios like this, the only files that really get addressed are those with “fires burning.”

Determine experience levels of the adjusters by requesting resumes or some type of TPA experience brochure.

Inquire as to the type of ongoing training the adjusters receive. How often are the files reviewed by the supervisor? What type of diary system is in place? Can your office have access to the adjusters automated files? This is preferable as you will be able to review the activity of your claims at any given moment.

If your company has countrywide claim activity, you may want to consider a TPA with national offices.

This will help reduce your costs as the adjuster working in a local office will expend less time, efforts and travel costs to attend cost sharing and settlement meetings. Also make sure to confirm that the adjusters have the proper state adjuster license, if required.

Consider how attorney and vendors are selected.

Does the TPA have any guidelines in place? You should request the TPA to contact you before hiring any counsel. Make sure that you have the best counsel where applicable, depending on the type of claims involved. Attorney handling agreements should be developed and sent to those law firms you are involved with.

Review the TPAs claims management guidelines and overall procedures.

Require updated reports and perform an audit to confirm that their financial records are accurate. Additional items to consider include determining the average time from first notice of a loss to establishment of a claim file.

When reservation of rights letters are received from an excess carrier, a copy should be immediately sent to the risk manager to take the appropriate action.

Questions to ask are: When is notification to the excess carrier provided? How are payments made? What level of authority is required per adjuster, and are check payments requests reviewed and signed off by a supervisor before a check is issued? Does the TPA have any guidelines in place to prevent fraud? Are subrogation issues being addressed? In workers compensation cases are the medical bills being reviewed?

There are special firms that can assist the TPA in reducing medical cost dollars. Check if the TPA is utilizing this type of service.

One overlooked area in many TPA audits is the organization (or lack thereof) of the file room. A poorly organized file room may be disastrous to your claim files since files can be misplaced or outright lost.

One major carrier that I assisted had no real tracking system. I once located several files because I observed a box under a desk and decided to investigate. It seems that someone had previously reviewed the account and had removed the files, but never bothered to return them to the file room.

A proper file room should have a sign- out sheet at a minimum. I would recommend a computerized tracking system in which all files are bar-coded and must be passed through a scanner before being removed. A hand-held scanner should be used each week by file room personnel to scan which files are at the adjusters desk. The file room personnel should be able to determine where any file is at any given time. Imaging of files is ideal and can also be used for backing up all information and storing it off-site.

In summation, a reputable TPA firm can be a valuable and cost-effective way to handle your claims program. However, be aware that periodic audits should be a necessary part of your claims management program.

Kevin Gallagher, ARM, CPCU, is a vice resident at Chiltington International Inc. in Holmdel, NJ. He can be reached at kgallagher@nj.chiltingtonusa.com

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, September 1, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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For Best Results, Choose Your TPA Wisely

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