Cash flow management is a common challenge among service providers, including contractors and independent adjusting firms. Following the latest active hurricane season, many firms are experiencing difficulties in their accounts receivables while still struggling to perform at top service levels on a consistent basis. Without predictable cash flow, vendor firms must find alternative methods to maintain their operations and pay their own workers until they receive compensation for their services.
|The vendor-carrier exchange: Revenue management vs. cost control
Most insurance carriers that have timeliness issues in paying their vendors are aware of it and are very concerned with keeping their accounts payables current. Insurance carriers have a fiduciary responsibility to provide adequate review and oversight of all claims, and must provide controls on every loss and expense check that goes out the door.
Many carriers admit certainty that there is some degree of expense leakage in an effort to pay vendors timely. Unfortunately, carriers do not have the data nor the technology to validate or quantify the amounts of overspend.
The challenge facing carriers in timely invoice payment is usually based on scalability, especially following a catastrophic event. They do not have adequate resources to handle the claims volume, particularly the task of reviewing every vendor invoice for accuracy. The problem is compounded when claims volume surges, and in some cases, it can take carriers months to remit payment to the service providers who took care of their policyholders and upheld the carrier's reputation in the face of agents and customers.
|Throwing people at the problem
One factor that further drives today's accounts payable and accounts receivable challenges is the addition of personnel resources by both parties to handle manual tasks. For vendors, the manual task of creating and submitting invoices to clients can take days during normal claims volume. In times of volume surge, the challenge amplifies and firms allocate additional human resources or hire temporary staff to assist with this function.
Consider the need to train additional staff on how to process invoices to the multiple carriers who have different fee schedules and requirements, and you can imagine the undertaking and the subsequent delay. Concurrently, firms are manually reconciling all invoice details with their accounting software, while their field staff are incurring time and expenses, and are awaiting payment so they can pay their own bills and take care of their families.
Vendor firms may opt to finance the capital to maintain operations and pay staff, thus incurring financing charges and missing out on interest-bearing opportunities. When payments are eventually remitted from clients, they cover only the original bill and do not reimburse for the finance charges or lost interest incurred by the vendor. Firms are frequently forced to raise their rates during a catastrophic event in order to recover the expenses incurred to finance the capital they need while awaiting compensation.
On the carrier side, reviewing and reconciling invoices is similarly a manual, labor-intensive task. Carrier staff must compare the invoice against the damages estimate as well as the corresponding fee schedule for the respective vendor firm and for the assignment type to validate the correct charges. Next, they must upload the approved invoice along with documentation to each individual claim file and manually enter a check into the claim management system to make payment.
This is a typical process across many carriers and can require days before payment is made. Compound this process with added volume from a catastrophe, and the carrier responds by allocating human resources or hiring temporary employees to review, reconcile and process invoices. In this event, it can take months to process payments while the service providers are incurring costs without receiving any stream of revenue.
|Automated invoicing redefines the carrier-vendor relationship
Technology resources can and should be utilized to create the optimal exchange of payment between carriers and service providers by automating transactions and adding business value beyond the transaction. For instance, fees charged by independent adjusters and contractors are largely based on activities around the inspection and estimation of the loss. With more than 85% of the P&C claims industry using a standard estimating software tool, there are integrated solutions that can extract the necessary claim information from these common industry estimating platforms and eliminate the need for vendors to spend their time on manual invoice creation.
There is monumental time and cost savings associated with this type of automation, where contracted rules and conditions between the carrier and the vendor are automated during both invoice creation and reconciliation. Technology can help to guarantee that invoices comply with the respective fee schedules with little to no need for manual review on the carrier side; expediting payment from carrier to service provider within minutes. This can solve the challenges of cost control for carriers and revenue management for vendors.
By using technology to automate the end-to-end invoicing process, data can now be captured for each and every invoice transaction, supplying valuable information to both the vendor and the carrier. (Photo: Shutterstock)
|Breaking down the data
For the most part, neither carriers nor vendors have access to data that provides insight into their mutual business relationships. Many vendors submit bulk invoices to their clients at the end of the financial month by way of a PDF or spreadsheet. The bulk bill lacks any data intelligence as to the itemized cost of the relationship. As a result, claims adjusting has become a commoditized service, which prevents vendor firms from competing outside of price and capacity.
Similarly, carriers lack the data intelligence to understand what they are spending on vendor firms. They lack detailed data as to what drives costs, the correlation of costs to performance and how to negotiate fee schedules in terms of price points and price allowances. For example, why should a carrier separate tiers of a fee schedule by $5,000 rather than $2,500; or why charge $350 for one tier and $500 for the next? How much is being spent on supplemental inspections in terms of indemnity and additional adjuster fees, and which firms perform optimally in this metric?
By using technology to automate the end-to-end invoicing process, data can now be captured for each and every invoice transaction, supplying valuable information to both the vendor and the carrier.
Carriers can gain a detailed understanding of their service provider spend to ultimately better control costs. Vendors can use the data to demonstrate their business value to clients and to set themselves apart in a market that has become largely commoditized, while counting on a predictable revenue stream. These productivity gains can serve to reintroduce the notion of loyalty into the carrier-vendor relationship.
Carriers largely depend on their vendors to offer such technological efficiencies, as carriers themselves are not as easily malleable to process changes due to the nature of their business, impacts to multiple core systems across their enterprise and regulatory constraints. Vendors can finally stop lowering their prices to compete and attract more business with the ability to educate their carrier clients on the benefits of the relationship by using clean data derived from technology.
Firms that can solve their own cash management issues while providing efficiency gains and data insight on cost drivers to their carrier clients will be more successful than those that continue to embrace the status quo.
John Langowski, AIC, AIM ([email protected]) is the chief strategy officer for VIP Software. He has more than 26 years of experience in the P&C claims industry and is a former national claims executive.
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