Outsourcing Can Bolster Fraud Fighting

Investigation companies will find new revenue opportunities if their client has a formal process to measure and evaluate the overall benefits of the outsource relationship.

For a considerable number of insurance companies, the most attractive solution to problems of cost, diversity of services, and geographic coverage is to outsource the entire surveillance and claims investigation process.

Using this technique has a number of advantages. When a large amount of work is outsourced, a company gains efficiencies and expense savings beyond those of just the salaries and benefits of the positions that were outsourced. There can be a domino effect with lower needs for other positions within the organization. Workload requirements in other supporting functions decrease.

Companies that outsource the surveillance, field claim investigation, and/or special investigation unit functions may realize many other advantages, among them:

A strategic alliance with a national investigations company that specializes in insurance investigations and surveillance, and has technology it keeps current with the latest advances.

Predictable service level agreements guaranteeing a particular quality and timeliness of service. Fixed flat-rate prices for standard services and variable hourly pricing for services beyond the agreed fixed-rate services, and more.

The relationship between insurer and outsource service provider is more than just a conventional customer and service supplier arrangement. It is a continuously evolving partnership that must be proactively managed on both sides.

An insurer must provide continuous oversight and guidance for the outsourced service, and continually monitor service and quality.

The very good surveillance and claim investigation outsource providers have processes in place and have advanced technology that can provide the necessary management information required for analysis and evaluation of the program.

In addition to regular client information reports, there are customer satisfaction surveys of the claims examiners and special investigation unit assignments, as well as internal assessments of the quality of service provided.

As a strategic partner and outsource provider, everything should be measured and reported. The accountability is on the partner for maintaining service standards and quality, as well as cost efficiencies.

One of the keys to a successful outsource arrangement is the service provider promptly reporting results and achievements from the external and internal measurements taken.

There has to be a head-on approach to both successes and failures, and rational explanations of why objectives or standards have not been met. In an outsource partnership, when one side or the other identifies an issue or problem that needs to be addressed, they actively solicit the help from their partner to obtain a mutually beneficial solution.

With a typical outsourcing arrangement there are four areas that pose the greatest risk of disappointment: scope of outsourcing, flexibility, human resource planning, and management.

Scope of the outsourcing requires analysis by the insurer or third-party administrator as to the tasks to be outsourced and their ability to manage the process after the contract is signed. Outsourcing of the SIU is successful when the customer understands not only the scope of the work to be performed by the investigation service provider but also the continuing duties and responsibilities of the insurer.

Flexibility requires a mutual understanding of each partys ability to deal with change. Flexibility cannot be achieved through outsourcing where too much unpredictable change occurs, since this can make a vast impact on pricing and service deliverables.

Human resource planning requires a careful analysis of the intricate process of managing and deploying personnel for the customers benefit. An indirect benefit of a successful outsourcing relationship is the ability of the investigations provider to adapt to industry changes, fraud scheme trends, volume of referrals, and efficient geographical coverage.

Management of the outsource process requires a joint understanding of the expectations from the relationship with the change in roles once the outsourcing has begun. After a formal contract is signed, the investigations vendor will be responsible for providing the contractually agreed upon services. The insurer or TPA must now measure, analyze and evaluate the work performed by the investigations company under the mutually agreed performance standards and metrics.

In selecting an outsource partner, it is important for a company to select their provider with care. A company must determine the services and capabilities of the outsource provider; physically inspect and visit their facilities to establish procedures, view the operations, see a demonstration of their technological, reporting and measurement capabilities, and quality control; and ensure they can deliver the service requested and required.

Having large panels of vendors to manage leads to increased internal costs simply for oversight and may hinder an insurer from effectively negotiating on cost and best value.

Insurers have been cutting their panels of vendors in recent years, and this trend will continue. Some insurers and third-party administrators have recognized the value proposition gained from outsourcing their entire surveillance management program and either all or part of their SIU function.

Some large national insurers and TPAs have found tremendous cost savings, better coverage, and other important benefits of outsourcing to an exclusive or preferred provider who may also now manage a very select list of approved investigative service providers. Centralizing all assignments through one outsource provider and still maintaining some degree of choice for the claim examiners is a viable option.

Also, an insurer or TPA handling commercial accounts can provide their customers with increased access and information, and therefore greater flexibility and control over their claims expense dollars. Its a winning formula for all parties.

To summarize, while reducing costs is less often the main reason why insurers outsource, it is still a very important benefit. Outsourcing will turn what are now fixed costs–salaries, benefits and overhead–into variable costs.

Michael J. Malone is chairman and chief executive officer of Raleigh, N.C.-based MJM Investigations.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, October 28, 2002. Copyright 2002 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.