However we got here, it should be possible to move to a more efficient and transparent model wherein insurers have total visibility and control across such earmarked payments. At that point, an often-flawed claims process can become much faster and more efficient for all parties concerned. To begin with, insurers would want to know where funds are located without the need to go actively looking for them. A new level of transparency would enable speedier payments of claims, improving customer satisfaction, and from the insurer's side, would also go a good way toward accounting for those overprovisioned dollars.

TPAs play a crucial role in claims processing.

Most large insurance companies use TPAs to handle their claims. They act as intermediaries between the insurer and the claimant or policyholder, delivering the benefits that have been promised faster and more efficiently than the carrier could do. Types of claims TPAs can administer include general liability, water damage, restoration, construction defect, automobile, property and casualty, product liability, professional liability and employment practices. Their ubiquity relieves labor-strapped carriers. But while their role is key in the insurance value chain, its very nature adds a layer of complexity to the claims process.

The funding element

In our current discussion of provisioning claims funds to cover forecasted disasters, TPAs figure prominently because they are the party actively sending off the checks that satisfy the claims — and in a sense are responsible for the funds to be in place so those checks are honored. As noted above, in the current model, insurance companies send a certain amount to the TPA in anticipation of an event; the TPA then has to hold that money in a separate account from which the claims checks will be drawn, known as an imprest account.

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How insurers can address disaster-fund overprovisioning

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