Insurance carriers are increasingly choosing to outsource their claims handling. For independent adjusting firms and third-party administrators, this is a massive opportunity to capture additional business and revenue. To seize this opportunity, though, you’ll need to show you can provide value and help carriers achieve their goals.
Carriers Increase Outsourcing to Reduce Labor Costs
The U.S. property and casualty insurance sector has been dealing with significant underwriting losses. According to AM Best, the sector recorded a net underwriting loss of $21.2 billion in 2023. That’s slightly better than the loss of $24.9 billion recorded in 2022, but it’s still a troubling number.
Insurers have used many approaches in their attempt to contain losses – from pulling out of high-loss states to raising insurance rates. Another strategy is to reduce overhead costs. If insurers spend less on administrative costs, they increase their profits, even if claims remain high. According to InsuranceNewsNet, many insurers have been looking at layoffs and structural changes to control costs.
In many cases, outsourcing helps businesses reduce costs by increasing efficiency and reducing labor costs. According to the International Organization for Standardization (ISO), outsourcing reduces costs for organizations by an average of 15%.
WGLT says State Farm has announced plans to outsource some IT services. Claims handling is another promising area for outsourcing. Speaking to The Insurer TV, NARS CEO Robert Ruryk said outsourced claims handling is becoming more useful due to the increasingly specialized nature of claims. In another report from The Insurer TV, Stephen Beene, President of Engle Martin, said the TPA industry is “booming” thanks to MGA and E&S growth.
Claims Handlers Still Face Stiff Competition
A boom in outsourced claims handling is good news for IAs and TPAs, but don’t expect opportunities to fall into your lap – competition is fierce.
In the 2022 Claims Salary Survey, 41% of independent adjusters said their income had dropped due to limited claims assignments. This decrease is significant: the median salary for independent adjusters in 2021 was $163,000, whereas it was only $80,000 in 2022. In the 2023 Claims Salary Survey, 19.5% of independent adjusters said their income had decreased due to limited or partial claim assignments.
IBISWorld says there were 44,132 claims adjusting businesses in the U.S. in 2023. If you want to seize new business opportunities with the current outsourcing trend, you need to stand out from these competitors.
How Can Claims Professionals Stand Out?
To gain an edge over your competitors, focus on what insurance carriers want from the claims handling process:
- Cost Containment. Carriers are trying to reduce their costs to get their combined ratios under control. If you deliver an affordable claims handling service, carriers will be interested.
- Positive Claimant Experience. When carriers cut costs, they need to be careful not to drive away their best customers. When policyholders are unhappy with the claims process, they are more likely to switch insurers. Accenture found that insurers could lose $170 billion in premiums over a five-year period as a result of poor claims experiences. To keep carriers happy, you need to keep their policyholders happy.
- Speed. A fast claims process helps with both of the previous issues. By speeding up the claims process, you reduce the overall cost. A fast close is also likely to please insurance customers.
- Specialty and Surplus Market Expertise. Specialty and surplus lines are a big part of the current outsourcing trend. To capitalize on the trend, you need to show you can handle these markets. Being able to handle Lloyd’s of London – the largest E&S underwriter in the U.S., according to Carrier Management – could give you a big advantage.
Discover Your Secret Weapon
VCA Claims Management Software is the secret weapon you need to take advantage of the outsourcing trend. VCA simplifies and automates claim workflows to create a faster, more efficient claims process that supports good communication and policyholder satisfaction. It’s a highly intuitive, easy-to-learn system that shaves hours off your workload each day. Plus, the Lloyd’s of London module simplifies Lloyd’s reporting, meaning you stay compliant without having to carry out complex calculations.
Will you come out ahead in the claims outsourcing trend? With the right claims software, you will. See what’s possible.
