Does how you pay your contractors impact customer service? Absolutely.

I’ve had many discussions with service providers that revolve around cash flow and the frustration with the inefficient turnaround by carriers to pay for their services. In times of claims volume surge, service providers, such as emergency services and water mitigation firms are expected to deploy their resources efficiently, whether or not there are outstanding payments due to them from prior losses and events.

Service providers leave lasting impressions on policyholders

From the perspective of an insurance carrier, customer service experiences are one of the principal components of a successful claims department — expectations which are passed down to service providers themselves. Customer service experiences from claims handling are what builds or hurts an insurer’s brand. The experience a customer has with an insurer will influence whether they will be retained and refer the company to friends and family. In a government-regulated industry, it is usually customer service — not rate or product — that differentiates insurance companies from one another.

During the life of a claim, the contract for services exists between the policyholder and the service provider. The provider is usually sent to the policyholder’s property by the carrier to provide a scope and estimate of loss to the carrier while offering emergency and mitigation services to the policyholder.

However, the payment for these types of services is typically the responsibility of the insurance carrier, who is billed directly. The deductible portion of the loss is applied to other repairs in the claim.  Additionally, these services are usually performed and completed within 72 hours from when the loss occurred. This means that the invoice submitted to the carrier by the service provider is typically for work completed.

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Service providers seek work where payments are timely

When service provider invoices are not paid in a timely fashion, it can negatively impact the carrier’s customer service delivery. During Hurricane Matthew in Florida, the owner of a large franchise with a national restoration company was proactive in securing tree removal service providers prior to the storm impacting the area. This allowed them to supply services faster than anyone else in the area. The idea was to retain these services so when carriers enlisted the franchise to help with the storm damage it could effectively assist policyholders in recovering from the storm quickly. Once the storm hit, the plan was a success. One particular carrier received positive feedback from a policyholder, stating how quickly their trees were removed and that repairs were underway while their neighbors were still waiting for their damage to be assessed. Unfortunately, the carrier failed to pay the franchise for those services for more than six months. In those six months, the franchise had to pay over $200,000 in out-of-pocket expenses for the tree removal service fees.

A year later, Hurricane Irma impacted the same area. Needless to say, that franchise did not provide tree removal services for that carrier’s policyholders. Now, the policyholders who previously had an excellent customer service experience during Hurricane Matthew stood beside their neighbors, waiting for someone to come assess their trees and damage. The customer experience feedback to the carrier was undoubtedly different following Hurricane Irma than after Hurricane Matthew.

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The need for automated invoicing

As many insurers and service providers experience in times of demand for resources, contractors and emergency service providers will seek work where they can count on timely payment. It is often the timeliness factor that drives engagement of the service provider, rather than the amount of money paid per job. If a carrier has a history of paying promptly, they can more easily secure the resources needed during times of increased claim volume.

Having served as a carrier claim executive for over 20 years, I’ve received feedback from numerous claim executives across the country as to the chief reason why carriers frequently do not pay their adjusting firms promptly: They do not have the technology or the capacity to accurately review the invoices in a timely manner. Workflow automation is in everyday use for insurance carriers, whether it’s calculating premium rates for an insurance policy based on inputs and rules, fraud detection using rules and scoring, or setting reserves for a claim at the time the loss is reported based on rules and data experience.

These types of automated workflows are standard practices in the industry, yet carriers are too slow in adopting technology that will enhance the claim process and experience. When it comes to automating the creation and payment of invoices to service providers, the current standard is a lack of technology and resources coupled with a lack of accountability, which causes these services to go unpaid for far too long. Poor cash flow can be the demise of many service providers. Companies who are struggling with cash flow aren’t eager to deploy additional resources into the field. If we want to see a provider jump to provide service, promise to pay them a bonus or, better yet — promise to pay them on time.

In 2018, there is no longer an excuse for insurance carriers not to pay invoices in a timely manner. Technology exists for carriers to guarantee accurate and nearly instant payment of invoices, with solutions that are scalable in times of increased claims volume. Further, service providers are forced to deal with different software solutions to cater to their carriers. The solution for contractors should be a “hub” that ties all of their systems, data and documents together and integrates with any third-party system like their own financial records, the carrier’s claim management system or the administration system of a contractor network.

The efficiency savings—especially in terms of scalability—are enormous. Off-the-shelf software should already be integrated with leading industry estimating and claim management software so that onboarding is timely. Getting these applications into production should be a matter of weeks, not months or years. The plug-and-play integration of payment solutions with current systems will allow users to garner the data needed to answer fundamental questions regarding the carrier-service provider relationship.

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Accounting for claim invoicing software

Finance executives and actuaries prefer claim costs to be allocated rather than unallocated. The costs for these software applications should be allocated by claim file, rather than lumped into an annual software fee that is unallocated and paid against the operating budget. This allows for better accuracy of forecasting loss costs with every possible variable in the outcome. Software expenses incurred as a result of claims handling are more feasible to submit to reinsurers for payment under a reinsurance treaty for a catastrophe event.

When insurance carriers pay fairly and timely with the help of automation, there is less cost associated with human resources being involved in the billing and payment process. It’s a win for the organization, with less work on the desks and more time spent resolving claims with policyholders. Carriers are able to attract and retain better talent to handle claims and be less likely to have to adjust fee schedules during a catastrophe since they already pay fair rates faster than the competition. Also, policyholders have the benefit of interacting with the most professional independent adjusters in the industry.

Happy customers improve retention rates, keep loss costs low, and encourage positive feedback around brand reputation. The opportunity and the tools are available—companies just need to flip the switch.

John Langowski (jlangowski@vipsoftware.com) is the chief strategy officer for VIP Software and has 28 years of P&C claims industry experience.