Outsourcing Commercial Claims

Commercial brokerages are in basic agreement that their ability to walk clients through the claims process is what “separates the boys from the men.” But in Canada, a new twist on the claimshandling process has commercial brokers talking about the best way for the country’s Tier 2 commercial brokers to come of age.

That new twist involves a Tier 2 commercial brokerage outsourcing some or all of its claims-handling process to a thirdparty specialist (a claims adjuster, for example). The phenomenon has been seen in the United States, but its occurrence in Canada appears to be novel and, for the most part, relatively unknown.

In the U. S., The Insurance Brokers’ Monthly and Insurance Adviser (IBMIA) in late 2006 issued its “guide to outsourcing claims,” in which it noted “placing part or all of a claims function with a specialist provider can be rewarding and can ease the administrative pressure which many brokers now find themselves under.”

Rick Messier, the vice president of the Toronto Insurance Conference and a commercial broker with Pearson Dunn Insurance, concurs with this line of reasoning. He notes his brokerage is a “test case” for using this model in Canada to help commercial clients navigate their way through the claims process. At Pearson Dunn, clients with a claim are directed to a third party, a claims adjuster, which then informs the client what to expect when it comes to the claims process.

A third-party adjuster would not comment on policy coverage, which would go against a commercial broker’s errors and omissions (E&O) coverage. Nor would it necessarily adjust the claim itself, although the possibility of doing so would remain open. [If the third-party provider was an adjuster, for example, the insurer might opt to go with the brokerage’s third-party adjuster to handle the claim, or the carrier instead might choose to work with its own adjusting firm.]

WALKING CLIENTS THROUGH THE CLAIMS PROCESS

The essential purpose of the brokerage’s third-party adjuster would be to walk an A-list commercial client through the claims process, giving the client an outline of what to expect. For example, the thirdparty adjuster might tell a client with a claim to expect a call from an adjuster within 24 hours. It might then follow up with the client to make sure an adjuster has called within the expected time period. The third-party adjuster would collect the contact information from the client, and discuss the need to have to fill out business income loss sheets. It would then help clients fill out those sheets.

In other words, the third-party adjuster would do all of the things a brokerage firm’s in-house claims team would do with a client, but at a fraction of the cost. “I think it will become the norm [in Canada] in a year or two from now, only because hiring an in-house claims manager is going to cost you, with all of the overhead, about $100,000/year, and [the third-party service provider] can do that for $20,000,”says Messier.

“And if [the third-party provider] can help us retain a large account, it will pay for itself. If they help us win a new prospect, again, it will pay for itself. If they do that once every year, it will pay for itself. It was a no-brainer when it got presented to me.”

Messier notes outsourcing claims service is not for all brokerages. “It’s more based on that commercial brokerage targeting A-clients of Cdn$100,000 of premium or above,” he says. “It’s not for your Cdn$15,000 restaurant account, that’s for sure…”

Messier says outsourcing a brokerage’s claims-handling service allows Tier 2 brokerages to better compete with “the alpha houses” such as Marsh, Willis or Aon in bids for large business contracts. This is especially important in a very competitive environment such as the Canadian market, he notes. “I go in against alpha homes and I come in with my claims team and they go in with their claims team, but I might have a better relationship or rapport with the guy,”Messier says. “We get the account, and that has happened.”

Not everyone is sold on the concept, however. Even the IBMIA’s guide to outsourcing cautions brokers not to focus solely on the cost-savings. “The decision to outsource should not be governed by pure financial reasons, as is often the case,” the guide notes. “The best approach is to take a more strategic view to outsourcing, using the process to initiate change and drive innovation.”

Paul Martin, president of KRG Insurance Group, notes his Tier 2 commercial brokerage does contract an adjustment firm, Shumka Craig (now SCM Adjusters Canada Ltd.), to facilitate 24-hour, after-hours claims service. Clients calling the 24- hour hotline are routed to SCM Adjusters, which answers the call, and may dispatch an adjuster after-hours. SCM Adjusters may later retain the claim at the discretion of the insurance carrier. But the 24-hour service is a value-added, notes Martin. It does not obviate the need to have an inhouse claims team at the brokerage.

“As for KRG ever relinquishing [its claims-handling service to a third-party provider], if a call came into me or one of my account managers, to be honest, I would never say: ‘I’m sending you to a third party to tell you how to do it.’ I would never do that because to me, that’s what a broker’s role is. That’s what a broker’s job is. This is where you separate yourself from other brokers by offering this service.”

Helping a client through the claims process, Martin adds, “should be offered by the person who put the insurance program together.”

The IBMIA guide notes “outsourcing relationships need to be well managed in order to succeed, as a lack of integration between the parties often has a negative impact on customer service.”

Brenda Rose, vice president of Firstbrook Cassie & Anderson Ltd., makes this same point in expressing her initial reservations about outsourcing the claims function in whole or in part. She notes Firstbrook Cassie, a Tier 2 brokerage firm, has had at least one dedicated, in-house claims person on staff since the days when the company had only 15 staff members. “We have always had dedicated claims staff here,” she says. “It’s not something we see as a luxury add-on.”

KEEPING IT UNDER ONE ROOF

Like Martin, Rose sees walking a client through the claims process as a fundamental part of what a broker does, and therefore should not be contracted out to a third party except in exceptional circumstances. For example, she could see outsourcing being an advantage in circumstances in which a third-party provider might be able to provide a more specialized knowledge than in-house claims staff at a brokerage.

Having said this, the value of having inhouse claims staff is that they will know the culture of the brokerage and have instant access to the group of people that might be required to coordinate the resolution of a claim, Rose notes. This is particularly helpful in situations in which the client’s commercial policy wording has been customized.

“When there is a claim, if there are any discrepancies at all, you need to go back, rehash what was said, what wasn’t said and who was involved,” says Rose. “It’s not just the claims departments [involved with a claim]. Quite often the underwriting departments have to get involved. If it’s any custom wordings or any customization of the coverage at all, sometime a few different people have to be part of the conversation. The more individuals [at the brokerage] who were there at the outset [of policy creation], the more easily the claim is going to be resolved.”