Many property/casualty insurers struggle to comply with changes in rates and rules promulgated by insurance bureaus. Insurance Services Office Inc. (ISO), the American Association of Insurance Services (AAIS), National Council on Compensation Insurance (NCCI), National Association of Independent Insurers (NAII) and state workers' compensation bureaus together send insurers thousands of notices each year changing loss costs, rates, rules and forms in the 50 states.Each company must interpret and code these changes-an expensive, never-ending effort. Insurers also must report policy, premium and claims data back to the same bureaus, another time-consuming task.
What's wrong with this picture? Carriers with proprietary policy administration systems are reinventing the wheel, thousands of times over. Industrywide, the duplication of work is enormous, costly and inefficient.
Insurers should be able to rely on vendors to provide impactful technology solutions and product support-as well as handle compliance grunt work-so they can focus on functions that create customers and profits.
Vendors of policy-management systems must do more to relieve carriers of this unnecessary burden and offer the industry a more efficient solution.
Compliance is complex
Bureau compliance is more complex than it may seem at first glance. When an insurer receives a circular from a bureau it must first determine exactly what it means. If it's an annual rate adjustment in one state, implementation may be relatively simple.
But some circulars, such as those changing rating rules, are more complex, and it takes an experienced insurance professional to conduct a detailed review and translate the circular into clear instructions that a programmer can implement.
Often, the company must create new forms associated with the change. Multiply this times 50 states, times the hundreds of companies affected, and you get an idea of the magnitude of redundant effort expended by the industry.
The outsourcing option
Carriers that outsource such policy administration services to a vendor that supplies both the technology solution and compliance expertise can quickly implement changes and benefit from the vendor's ability to spread the costs among multiple clients.
Vendors need to take a proactive role in compliance support, completing their analysis and initiating programming prior to the first request for system support. They need to offer their clients a credible do-it-all-for-you service-a rare commodity today.
Here's how it can work: The vendor monitors daily publications from the bureaus, and manages the key information published in the notification via a Web-based database accessible to clients. It builds a dedicated staff of specialists, including line-of-business experts, who interpret and code the updates, distributing them to clients for incorporation into their policy-management systems.
Insurers can then choose to automatically adopt all updates, streamlining the maintenance process, or select specific changes from those published in the database.
Insurance executives may view such an arrangement as reducing their control. Some believe they must have complete control over their workflow.
Vendors, however, can provide solutions that give insurers a significant amount of control while simultaneously reducing costs.
For instance, a vendor could implement bureau updates while allowing clients to maintain their own client-specific tables. This might represent a best-of-both-worlds approach-combining economies of scale while allowing the option of maintaining some specific proprietary tables.
By also helping insurers manage the back-end of the process (bureau and statistical reporting), vendors can offer a true beginning-to-end path through the compliance maze.
Insurers must report policy, premium and claims data to the bureaus so they can monitor trends and promulgate rates. The vendor should be able to produce its client's data files, run them through bureau edits to validate the information, and then electronically submit reports to the bureaus.
Additionally, many state departments of motor vehicles have their own separate, stringent and widely varying reporting requirements.
Credible vendors providing compliance solutions will offer clients the option of outsourcing their DMV reporting, which can be a source of innumerable headaches and embarrassing fines for noncompliance.
As insurers look for ways to better manage their technology budgets and improve their business processes, the traditional approach of each company managing both the business process and the IT support required for bureau compliance and reporting is becoming less workable.
Outsourcing can be a more desirable solution. The situation cries out for industrywide solutions, and policy management vendors are in the best position to provide them.
Bonnie Roberts is a senior business consultant with Insurity, based in the company's headquarters in Hartford, Conn.
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