How Insurers Can Combat the Rising Cost of Third Party Auto Claims

By Norman Tyrrell, director of product management, Mitchell Casualty Solutions Group | December 27, 2016

Insurance carriers today are struggling to keep up with the rising cost of third party auto claims. While there are multiple factors driving up costs, there are three primary problems that stand out – complex industry trends, inconsistent evaluation and claims settlements and a new generation of adjusters. In a competitive auto casualty market, insurance companies cannot afford to leave these problems unaddressed.

Challenge 1: Complex industry trends

The average bodily injury claim cost for third party medical specials has increased roughly 12 percent since 2011, according to ISO Fast Track data. While it would be easy to point to inflation as the root cause of rising costs, the sources are actually much more complex. Medical specials on third party auto claims are rising due to trends that fall into three categories: new provider-related patterns, fraud and adjuster struggles.

New provider-related patterns are directly impacting third party claims costs. Claimants are visiting providers more frequently, and the total length of time taken to treat injuries is also increasing. In addition, providers have been diagnosing more serious injuries, and frequently using more costly procedures to treat injuries. When these patterns are viewed holistically, it’s clear to see why injuries are now more expensive to diagnose and treat than ever before.

Fraud is also driving up the cost of third party claims. It comes in all different shapes and forms, but the most common instances of fraud fall into two categories. First, there is the trend of providers not only treating pre-existing conditions that are unrelated to the third-party claim, but also using more expensive than necessary procedures. The second category of fraud is commonly referred to as “the build-up model,” a term that describes what happens when attorneys direct treatment in a particular, self-serving fashion. This instance of fraud occurs when an attorney directs treatment in a self-serving fashion. While instances of “the build-up model” are rare, when they do occur, the results can be extremely costly for insurance companies.

The claims process itself is also becoming more complex due to an increase in the number of attorney-represented claims. Claims with attorney representation are much more complex for an adjuster to tackle than an unrepresented claim, as adjusters often have to deal with intricate demand packages. These demands are often presented in a disorganized fashion and accompanied by poor-quality images and duplicated billings. While the disorganization of demand packages alone complicates the negotiation process for adjusters, negotiation training has also fallen by the wayside at many insurance companies. When you couple an undertrained adjuster with a complex demand package, the likelihood the insurance provider will overpay on third party claims increases.

Combating trend-related costs

To combat rising costs based on new provider-related charges, insurance companies should ensure their bill review process includes benchmarking. Comparing provider charges on auto casualty claims to other provider charges for the same treatment – in areas like workers’ compensation or group health, for example – helps insurance companies ensure they are paying the fairest price on claims.

Another critical tool for insurance companies to have in their arsenal is medical review services. Medical reviewers help to combat fraud by verifying insurers are only paying for injuries related to the accident in question and are not overpaying for treatments. However, to get the most out of the medical review process it should be linked directly with the rest of the insurance company’s solutions. This helps ensure no recommendations are lost or diminished.

Lastly, insurance companies should provide adjusters with the tools needed to expertly negotiate with attorneys. Negotiating with attorneys can be complicated, which enhances the value of solutions that provide an organized set of facts to help adjusters with the negotiation process. Liability and general assessment tools are helpful for adjusters to have access to in the negotiations process. Ultimately, providing access to these types of solutions should result in more consistent, accurate results on third-party claims.

Challenge 2: Claim evaluation inconsistency

First party claims have defined standards of payment, which makes it easier to ensure adjuster consistency across claims. Not only do third party claims not have as many defined standards of payments, they’re also typically settled in chunks instead of as individual medical bills. Inconsistent payment standards, coupled with a lack of fee schedules in the third-party auto market, make it difficult for every adjuster within an insurance company to consistently come up with accurate values across similar claims.

Consistency problems can plague adjusters when they attempt to assess liability – even adjusters with years of training and practice. The root cause of the problem is typically because a company’s methods and liability assessment techniques might be well documented but not integrated within the claim system or adjuster computing workspace. When adjusting requirements and workflows are not integrated into the third-party claims adjusting process, it’s easy for an adjuster to forget to make certain changes or interpret guidelines in a different way than other adjusters.

Claim inconsistency can also result when adjusters are evaluating injuries without tools to support the process. For example, often the threshold of how much money an adjuster can spend on a claim, which is at the discretion of a supervisor, influences the way an adjuster looks at a claim. In this instance, adjusters might fall into the trap of focusing only on keeping the settlement under a specific threshold, cutting or allowing medical treatments accordingly. Given that there are often multiple supervisors at one organization, there can be a wide gap between the lowest and highest payouts – leading to increased risk of litigation.

Operationalize knowledgebase to improve consistency

One of the best ways to enhance settlement consistency throughout the claims process is to build the company strategy into an easy-to-operate knowledgebase. Deploying a liability assessment and injury evaluation tool into an adjuster’s workflow can assist an insurance carrier in their quest to improve consistency and manage costs. Adopting a tool that also comes with reporting capabilities helps organizations address any issues around inconsistency or overpayment promptly, and also assists insurers in liability assessment. Without a robust solution, insurance companies run the risk of missing opportunities for cost containment in situations where liability is shared.

Challenge 3: The next era of adjusters

Approximately 25 percent of the industry’s most senior adjusters – virtually thousands of insurance professionals – are set to retire by 2018, according to a study by McKinsey and Co. These adjusters will take with them a wealth of industry knowledge and expertise. While this will impact the entire insurance industry, it will take a particularly hard toll on third party claims departments, where in-depth knowledge and expertise is critical to ensure fair outcomes. The departure of senior employees means insurance organizations will need to rapidly onboard and train new talent.

Millennials entering the workforce are much more tech-driven than their senior counterparts. In fact, millennials are 2.5 times more likely to try new technologies as early adopters, according to the U.S. Chamber Foundation. This younger generation craves technology to get their jobs done efficiently, which is in contrast to the older generation of workers who generally prefer to continue to conduct work in a manner they are familiar with.

Deploy technology to drive results

For the insurance industry, a key to easing the human resource transition from an older generation of workers to a new era of millennial employees lies in a liability and assessment tool that incorporates the best practices and knowledge of the retiring adjusters. Equipping millennial workers with a solution that captures the company’s knowledge and culture within its workflow ensures that expertise will remain intact even after experienced adjusters have retired.

The good news is the millennial generation currently entering the workforce is passionate about technology. To ensure a smooth transition, however, organizations should start deploying the latest technology in the claims process today. For example, if a new adjuster is assessing a third-party claim, it’s critical they learn the best practices for negotiating with attorneys. By equipping these new adjusters with a technology solution that is integrated with the investigation and liability process, organizations can simplify the most important negotiation points and help train the employee on best practices. User-friendly, effective software solutions can help insurance companies streamline tedious or inefficient processes and attract top new talent.

Third party claims: A new way forward

Insurance carriers today can’t afford to ignore the drivers behind the rising cost of third party claims: complex industry trends, inconsistent evaluation and claims settlements and a new generation of adjusters. The good news is they don’t have to address these challenges alone. Expert decision support tools can help insurance companies and their adjusters make the very best decisions when evaluating third party demands and negotiating settlements. It’s not too late to get ahead of rising costs before they become unmanageable. When adjusters are empowered to make great decisions and have a full suite of integrated tools at their disposal, the insurer can start to more consistently pay the most accurate price on claims.

tyrrell_normanNorman Tyrrell directs the product management and strategic planning activities for Mitchell’s Auto Casualty Solutions division, leading a team of product professionals in delivering smarter technology solutions.

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