Look Before You Leap Into Data Outsourcing

A bad vendor can cause regulatory problems, end up costing insurers more

Data management organizations can relieve insurers of the complex, resource-intensive and time-consuming burden of reporting an array of information in different formats and at different times to a host of organizations, including statistical agents, rating organizations, regulators and industrial accident boards.

Outsourcing data administration to a quality company can be a good option for many insurers faced with runaway data collection and processing costs. But before committing to an outside solution, be sure the data management company you choose can and will deliver exactly what you need, when you need it.

A poor-performing data service that is prone to error or delays or lacks state-of-the-art technology or a depth of insurance knowledge can cause its clients significant regulatory problems leading to fines. Worse, poor-quality data service from an outsourced entity can lead to costly business decisions. Instead of saving on data-related costs, your outsourcing decision will end up costing even more when measured in overpricing or underpricing product, writing too many bad risks, reporting errors, paying regulatory fines, or losing business from disgruntled customers.

Look before you leap into a strategic alliance with a vendor that will collect, process, store and report your data the raw material from which you produce your product.

First, and perhaps most important, find a data service with recognized expertise in both data management and systems and insurance business. Choose a vendor that follows best data management practices, ensuring data is accurate, valid, consistent with prior information, complete and timely.

Since your objective is not only to cut costs but also to reduce the time it takes to manage operations, find a service that allows you to transmit data once, in a simple format that can be used in a variety of ways. Your solution vendor should compile and report unit statistical reports; collect data for specialized claims reports, such as detailed claim information and individual case reports; and create and report aggregate financial data submissions.

Seek a service that simplifies reporting, allowing you to integrate all comp premium and loss information directly from front-end policy and claims-processing systems. From that information, you should be able to develop and compile corresponding unit statistical reports and submit them to regulatory agencies.

The process you choose should allow data integration directly from your front-end policy and claims-processing systems even if you have multiple sources of data from disparate systems.

A service allowing data quality enhancement with front-end transactional editing will boost your data quality accuracy and lower the risk of fines or surcharges from bureaus your company reports to. Front-end transactional editing systems allow the data-servicing vendor to correct mistakes as it receives data, rather than later in the data-management process when the incorrect information may be far removed from its original source. (For example, if an insurer were to transmit a report of a transaction containing a ZIP code that didn't match up with the right state, a front-end system would catch the error right away so it could be corrected.)

An outsourced data service should fully relieve you of the resource-intensive task of reporting workers' comp premium and loss data to jurisdictions where you do business. It should be cost-effective, accurate, timely and fully able to keep up with each jurisdiction's changing requirements.

An important objective in outsourcing your workers' comp data management function is freeing your company to reallocate limited resources to other critical operations, focus on core business opportunities and reduce expenses.

You may find greater long-term return from a vendor offering a full range of data-support solutions. Besides bureau reporting, some services collect, process and store workers' comp data and enable you to use that same data to create analytic and decision management tools helping you improve key facets of your business especially in the underwriting, pricing and claims-adjudication functions.

Data management services are providing insurance companies better ways of identifying specific characteristics of claims, fraud and methodologies for calculating benefits.

It pays to be aware of the state of the art in data management. Some services, for instance, have harnessed the power of the Internet to provide state-mandated injury reporting services.

Workers' comp carriers can take advantage of Internet-enabled electronic filing. Insurers are using Web-enabled software to submit first reports of injury, subsequent reports of injury and medical bills directly to state accident boards that accept electronic filing of workers' comp information.

Finally, in selecting a vendor, consider that an outsourcing arrangement is a business partnership in many ways. The company you select should be willing to work with you to determine the proper setup that fits your company's needs. A good vendor will manage preproduction testing and perform data analysis, as well as provide system setup, training and technical support and help you set up interfaces with your field offices and call centers.

To succeed in today's unforgiving workers' comp environment, insurers must overcome a host of uncertainties. Successful workers' comp insurers are gaining competitive advantage with high-end analytical and decision-making solutions and support to relieve them of the burdens of back-office operations.

In workers' comp, the largest individual line of commercial insurance, the state of the art for information services is advancing. Your challenge is to keep up.

Carole J. Banfield is executive vice president of information services at the Insurance Services Office Inc. in Jersey City, N.J..

Reproduced from National Underwriter Edition, August 19, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.