This piece is by Phillip McGriskin, Chief Executive Officer, Vitesse PSP. It looks at how insurers can retain control and visibility over their claim funds even when they’re delegated to third-party administrators.
Insurers are playing an increasingly vital role in modern society. According to Deloitte, the escalating frequency and severity of global risks, including everything from climate change to cybercrime, is putting the spotlight on insurers and their capacity and readiness to act. However, the firm also points out that in order for insurers to capitalize on these emerging opportunities, they will need to streamline their services, invest in digital transformation, and tighten their grip on how claims are handled and processed.
The insurance value chain is complex. From underwriting risks and selling insurance products, to directly managing claims funds and handling settlements, transparency and control are key. Some of that transparency and control is lost when insurers outsource claim settlements and give their funds to third-party administrators (TPAs) to manage. Leveraging TPAs in this way is common industry practice, freeing up insurers to work on underwriting policies and other core processes instead of directly handling claims. In fact, The global insurance TPA market was valued at $333 billion in 2022 and is projected to reach more than $560 billion by the end of the decade.
However, while there are cost-saving and efficiency benefits to be had through leveraging TPAs, there is a widening gap when it comes to visibility that makes treasury management particularly difficult. Funding cycles are difficult to manage because insurers can’t be sure whether their claim funds are under or over, and they may lose track of inactive funds altogether as a result of expired policies or binders. These funds can lie dormant with the TPA instead of making their way back to the insurer’s treasury, which can indirectly stifle growth and innovation.
There is also often a noticeable service gap, where claims are processed too slowly, because of operational or financial inefficiencies, and this can reflect badly on the company or professional selling the policy. A recent EY report found that almost 9 in 10 (87%) of customers will consider leaving an insurance provider following a poor claims experience.
The message is clear: to succeed and capitalize on a burgeoning market, insurers must retain control over their treasury and visibility over how their claim funds are managed. Now, thanks to alternative to traditional bank models, these gaps in visibility and control can now be effectively closed without disrupting the overall insurance chain.
The efficiency bottleneck
Efficient claims management can make or break an insurer, and that demands forging positive relationships with claimants, rapid claim settlements, and fast payments – which is why managing claim funds is so pivotal. Funds managed by TPAs can often swing between being overfunded, which ties up unnecessary capital, or underfunded, which risks delayed claim settlements. This is a key efficiency bottleneck. Regular, precise adjustments are crucial to maintaining the balance, ensuring funds are adequately topped up to meet the dynamic needs of claim payouts.
Innovative approaches are now emerging to improve claims treasury management. Vitesse’s solution, for example, can eliminate cash call requests and move data and reconciliation faster than the bordereau, streamlining the process of ensuring funds are always at their optimal level. This system not only mitigates the risk of delays in claim payouts, but also enhances the overall efficiency of claims fund management. By providing a transparent, efficient pathway for fund adjustments, Vitesse empowers insurers to maintain tighter control over their financial operations, ensuring that funds are neither idly overcapitalized nor perilously underfunded.
Staking a claim on technology
The advent of new AI-based capabilities is prompting insurers and TPAs to re-evaluate their processes, gaining greater control and visibility over how claims and claim funds are managed, and improving their relationships with customers. According to a recent report by Accenture, 8 in 10 insurance professionals now believe that AI-based software will bring more value to their business and 65% are already planning to invest more than $10 million in AI technology.
Vitesse is a perfect complement to faster claim handling through AI, leveraging its technology and bank partners network to provide real-time treasury management and payment solutions for both insurance carriers and claim administrators. Policyholders will benefit from fast, full-value payouts while insurers and administrators retain a real-time view of global liquidity, claim fund status and reconciliation. Insurers should now be spending valuable time trying to manually assess the current status of claim funds and the overall health of their treasury, whilst focusing on underwriting policies, taking their products to market, and building relationships with their customers.
With more time and more capital at hand, insurers can focus on generating new revenue streams from freed up capital, taking new products to market and building relationships with customers.
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