Plugging Reinsurance Claims Leakage: Today’s Essentials
Claims leakage remains an ongoing challenge in reinsurance, representing the financial impact of inaccurate or incomplete claims processing. As the industry continues to grapple with its many root causes, insurers are looking to technology and more streamlined processes to detect and prevent loss. This week’s podcast features host Mark Sidlauskas, Sapiens’ Director of Marketing and guest Craig Robinson, Sapiens’ Vice President of Reinsurance Business Development, in a discussion on how automation, data and analytics, and other management innovations can bill and recover claims more effectively for a healthier bottom line.
Mark Sidlauskas|Craig Robinson
Mark Sidlauskas: Hello! Welcome to the Sapiens Insurance 360 podcast. I’m your host, Mark Sidlauskas, Director of Marketing at Sapiens, and I’m so glad that you’re out there listening; this is where we discuss the latest news, trends, and issues from across the insurance solutions and technology spectrum.
Well, for better or worse, you can’t discuss reinsurance without mentioning claims leakage. And we define it as the difference between what an insurer actually settles on and what it should have paid out on a claim, including reinsurance recoveries. Often claims leakage occurs due to an inability to get to the granular level of detail that’s necessary to assess individual claims.
So how does claims leakage occur and what kind of bottom-line financial impact does it have? More importantly, how can claims leakage be avoided? To help answer these questions for us, today’s guest is Sapiens’ own Craig Robinson, Vice President, Reinsurance Business Development. Craig is an industry veteran with years of experience in reinsurance software and sales. Craig, thanks for joining us on today’s program, “Plugging Reinsurance Claims Leakage: Today’s Essentials.” Welcome!
Craig Robinson: Thank you so much, Mark. Happy to be here.
Mark Sidlauskas: So let’s get right to it. Craig, as we said, reinsurance claims leakage has been an ongoing issue for insurers, although insurers don’t really want to talk about it, it can have a significant impact on their bottom line. So, what are the primary sources of reinsurance claims leakage?
Craig Robinson: Sure, Mark. So there are actually many different types of claim leakage. Of course, I’ll start off by saying any type of manual management use of spreadsheets to handle claims allocations of the reinsurance is prone to human error and can cause claim allocation process without effective controls. There are several types of claim leakage, as I mentioned, the claim leakage when something not allocated to a reinsurance contract, for example. So not recovered at all, just does not get allocated to any part of your program. There’s also partial recoveries, where a claim might get allocated to part of your reinsurance programs, but not all of them. Maybe there’s enduring relationships that aren’t set up properly, so it might attach to one layer, but not the next when it’s supposed to.
There’s also issues around wrongly recovered or placed claims, which would be claims that are allocated incorrectly altogether to a reinsurance contract. It can actually go both ways. It could be billed build out, or the recovery itself. There’s ironic erroneous recoveries as well, which is claims recoveries as calculated, totally incorrectly, not set up right, calculations that are improper, which cause erroneous billings, and just improper handling of claims billing in general, late billings, mis-billings, recoveries that come in late. So those are a lot of examples. There’s also examples when it comes to different types of terms and conditions that are set up so for example, mishandling of loss, adjustment expenses. There’s lots of different types of loss-adjustment expenses. You can have pro-rata, you can have included, and there’s many other methods that all create different calculation results of your loss adjustment expenses. And of course, if you bill that incorrectly, that can be a loss of some claims recovery. It can also affect how the loss-adjustment expense flows through from one layer to the next, creating inaccurate claims recoveries as well. So those are many different types of leakage, and there’s others as well. But just to give you an idea of how many ways claims can be billed and recovered incorrectly.
Mark Sidlauskas: Yeah, that sounds pretty complicated and really open to a lot of mistakes and errors if it’s not done correctly. So switching gears, how do data and analytics come into play when detecting or preventing claims leakage?
Craig Robinson: Sure. So of course, any type of insufficient or inaccurate data can lead to claims leakage. And also data and analytics playing a role in that, if in fact your data is inaccurate. So any type of claim detail, the law states and ideas coverages, all the amounts, reserves, payors etc. are incorrect, it results in the claim allocation processes with limited controls which can lead to claim leakage. So some examples of that would be the data itself coming through from the front-end data sources and you’re trying to figure out the reinsurance. If it’s a class cover, for example, you could have property and casualty claims that need to come together into one occurrence. So of course, the better data that you have, better analysis of that data that you can do, can assist you in bringing that together. There are event management-type tools for occurrences out in the market space that can actually automatically based on terms and conditions that you set up, create occurrences. So without reliance on the front-end data sources to create an occurrence, you can do it on the reinsurance side, bringing those claims together into one occurrence. You never know if an event or an occurrence was coded incorrectly on the front-end data source for claims, and that could occur in this session to the reinsurance side, which can lead to claims leakage.
Mark Sidlauskas: So as a follow-up question here, how can carriers improve the accuracy of claims and prevent leakage?
Craig Robinson: Well of course, as I’ve been discussing, it’s proper management administration of the reinsurance program itself. So all the terms and conditions, of course, as I mentioned, the inuring relationships, if you set up the inuring wrong between your reinsurance arrangements in the program, that will throw off all the calculations, which obviously will throw off the bills, recoveries, and everything else. So maintaining those inuring relationships, along with the rules for claims attachment as I mentioned, all the terms and conditions all have to be set up properly to manage that reinsurance program and have the claims flow through properly. So it’s also beneficial to have flexibility required for your ongoing programs, right? So not just have things set up for the way your programs work today, but at renewal season. They need to be quickly, need to be able to quickly change your programs so you can administer them and have everything lined up properly for the claims transactions to come through. They should all contain sufficient information needed to do the attachment of the reinsurance, such as policy claims and transaction details. Of course, basic accounting controls are necessary as well to improve the accuracy of leakage, auditing those claim transactions, making sure everything’s coming through correctly. If you are automating in any way the attachment identification of the sessions. So looking at the claims, doing the automated identification attachment, being able to audit that, make sure that’s set up correctly, that will all lead to the improvement of the accuracy. Also, of course, automating the billing and collection process is a huge part of it as well.
Mark Sidlauskas: So there’s a technology angle, there’s a process angle, and also the skills of the folks there. So, how does the automation of the billing and collection process improve overall accuracy and control?
Craig Robinson: Yeah, so if you can automate the billing process itself, have bills predefined, you can customize bills the way you want them, but have them predefined and attached to your reinsurance arrangements. So you know that the proper bill is coming off of each part of your reinsurance program and it’ll be accurate and be able to be recreated over and over. And this allows you to have accuracy and control over each bill. It also creates the ability to have receipt of your recoverables from the brokers and reinsurers, because the statements are being created automatically, you can send them right out and then you can do any type of cash application support you need. Meaning if you send out a bill, you get a recovery, you can take that recovery and match it against the sessions that were calculated and build on. So that creates a better audit trail and a final check and balance of all the bills sent out and the collections of those bills. And of course, any type of credit control reports always help, enabling follow-up of late recoveries and things like that, and getting your money back on time.
Mark Sidlauskas: So the automation really helps with my cash flow and with my regulatory and compliance do auditing.
Craig Robinson: Yes, yes, yes.
Mark Sidlauskas: So one final question for you, Craig. Other than cost savings and increased efficiencies, how do insurers stand to benefit from decreased claims leakage?
Craig Robinson: Of course, it’s just the improvement of the quality of data. You know, as I mentioned, if you’re doing the identification and attachment of your reinsurance sessions, it’s all reliant on the quality of the data. If any of that data is inaccurate, if any of the terms and conditions are inaccurate, it’s all going to result in claims leakage because of the accuracy. So all that plays into the benefit of climatic decreasing your claims leakage. Also, as I mentioned, when you’re dealing with the brokers and reinsurers, it’s very important to have accurate, precise bills, making sure there is no leakage, reputation and relationships is huge within our business between the carriers, the brokers, and reinsurers. So reputational issues are always ranked very high when it comes to reinsurance relationships.
Mark Sidlauskas: Yeah, and I know reputation is worth so much. That was one of the top concerns in a recent Deloitte survey I saw sometimes coming out ahead of claims leakage, it was their reputational, reputational risk. So thanks, Craig! Claims leakage in the global insurance market is no small issue, and you’ve given us a lot of food for thought here, a lot of things to think about through your perspective on the topic. You’ve given us the root causes and possible solutions. So thanks so much for joining us today.
Craig Robinson: It was a pleasure, Mark. Thank you so much.
Mark Sidlauskas: And to our listeners, as always, thank you so much for spending your time with us today. We love hearing from you, so if you have comments, or would like to follow us on social media, please reach out to us on our channels and don’t forget to subscribe to the podcast. And thanks once again for listening. We’ve got more coming, so be sure to tune in next time to Sapiens Insurance 360.
