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Thought Leadership from Insurance Industry Experts.

Technology, Insurance and TPAs

Andrew Barile Andrew Barile , 2/28/2018
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As the insurance industry grapples with how to survive in a changing business, the third party administrators and/or claims administrators need to consider the expansion of their services to meet the needs of their clients, the Insureds. They need to find the insurance solutions that meet the needs of their clients' expectations. All third party administrators are focused on the mission to be the insurance industry's service provider of choice. Whereas their original responsibilities typically included claims administration, loss control, risk management information systems, and risk management consulting, we expect to see the expansion of their services to include designing and implementing alternative risk insurance products for their clients. This comes at a time in the insurance industry when the corporate insured's buying habits are dramatically being altered by technology and economics. The big tech firms, Facebook, Amazon, and Google, are already pushing into other sectors of the economy, i.e. their cash flow creates corporate venture capital for acquisitions.

The middle market corporate buyer of insurance will compel the insurance industry to offer more alternative risk insurance products which lower insurance costs and enable the buyer to capture underwriting and investment income. Alternative risk program development and administration will include such unique products and services as pure and group captives, deductible reimbursement policies, manuscripted policies and certificates, fronting and new insurance product coverages, segregated cell and rent a captive programs, agency captive feasibility studies, and group captive and risk retention groups. All of these unique insurance products continue to grow regardless of the underwriting cycle, soft or hard, currently in the insurance marketplace.

So vital to the success of identifying and implementing alternative risk insurance products is having access to historical adequate and accurate claims data. Independent and accurate assessment of individual claims plays an important part in determining the price of an insurance product, ask an Insured with a high deductible insurance program. Claims administration and loss reserving philosophies differ by insurance carrier. Corporate Insureds that will participate in capturing underwriting income now will come to understand how insurance loss costs play a significant role in pricing an alternative risk insurance product. New technology will be created to identify those corporate insureds that will be potential candidates for alternative risk insurance products. No longer will an insurance broker be able to secure commissions for six straight years of renewals of an Insured that is loss free. The financially successful Insured will be identified by new technology of the lnsured's certified public accountant, third party claims administration company, and aggressive insurance carrier. The holding insurance broker will need to recognize that the Insured is being educated by these other entities and that perhaps it is time for the insured to consider more than just a guaranteed cost insurance policy. As financialperformance increases, the corporate insured _yyill be educated upon deductible buy back policies, captive feasibility studies, micro captive alternatives, and segregated cell captives.

The private equity/hedge fund owned claims administration firm, seeking additional revenues will increase the competitive landscape for the holding broker, offering the corporate insured, who has been successfully financially, to the new world of alternative risk insurance products. Having been an active participant of the captive insurance industry for 40 years, Ihave watched how the three large global brokers have monopolized the Fortune 500 Corporation owned captive insurance companies. Recognizing this, the insured's certified public accountant has created their opportunity using the micro captive insurance product. We expect to see more of this in the future as accountant's technology for micro captives continues to improve.

Analytical technology for insurance companies continues to improve and underwriters will be trained to offer alternative risk insurance products to lnsured's that the carrier identifies. This too will be a game-changing development because the custom and practice of the insurance industry is that the broker always suggests and recommends insurance coverages and insurance products. Carriers, such as Lemonade, have demonstrated that the insurance carrier can perform insurance product development when management considers this to be their core competency.

We come to the "sleeping giant," the claims administration firm or as it needs to be called the third party administrator. Pursuing the new technology being created by high tech insurance startups will provide the third party administrator access to all of the accurate underwriting historical information for the ''TPA" to provide an independent, objective quote for an alternative risk insurance product. Now that is game-changing for the corporate insured!

And finally, we recognize that the tech giants Google, Facebook, and Amazon live off the credo that the more data you have, the better your product. Will the Tech Giants acquire the third party administrator who has the historical accurate loss information data to offer a superior Alternative Risk Insurance Product?

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