Virginia Farm Bureau Mutual Insurance (VFB), no stranger to the world of outsourcing, was facing a challenge when it came to auditing its policyholders in 2003.
For several years the provider of commercial liability and workman’s compensation coverage had outsourced this function. But Farm Bureau Mutual’s provider was “using 20th century methods to deal with a 21st century need,” according to VFB’s Underwriting Manager Sam Rooks.
“In deciding whether or not to renew policyholders, we must have accurate information on them in order to decide if we first wish to renew the policy, and then assess the risk-value in computing their rates. Cutting down on the paper was also an objective. We were getting buried in the stuff.”
Once current insured terms expire, VFB requires policy audits while renewing at the approximate previous rate. But renewal rates are conditional and based on the results of the anticipated audit. VFB must receive each audit back as quickly as possible, at which time VFB can make adjustments (either up or down) to reflect the correct premium for the risk.
But the company’s outsourced auditing provider relied solely on “boots on the ground” physical auditors and was lagging behind. This had a negative impact on the renewal process and collected premiums.
“Sometimes, if we didn’t have the correct information in time, we would adjust in haste and repent in leisure,” confesses Rooks. “We sometimes charged lower rates when they really needed to be higher, or vice-versa. We simply had to do this faster and hopefully, better, or begin the audit process sooner, which meant a less-than-accurate picture of the insured.”
Fortunately for Rooks and VFB, the company discovered ARO of Kansas City and its subsidiary, VTAudit. In a short time this “new breed” outsourcing provider shrank the entire auditing process to about two weeks through its proprietary data management service X-DoxTM suite and its licensed home-based auditors. The changes allowed the new supplier to deliver actionable data in plenty of time for VFB to realize policy renewal efficiency.
“Outsourcing the external auditing function isn’t all that new,” says Kimberly Harris-Ferrante, Research Vice President at Gartner. “However, we have begun to see the advent of streamlined technological capabilities and distributed human capital advantages, which can significantly impact this mission-critical process.”
Distributed At-Home Professionals for the Insurance Industry
ARO COO Michael Amigoni began developing a service model for the insurance industry in 1998 that would transfer not only critical auditing, but also rating and underwriting tasks out of a carrier’s facility and into the hands of ARO’s growing number of licensed professionals. But the initial road was ambiguous for Amigoni, whose expertise was originally offering remote customer agents to retail organizations
“Outsourcing insurance processes may sound attractive,” observes Gartner’s Harris-Ferrante, “but it is a high-risk task. Auditing, policy and claims processing, the areas of promise today, are still mission-critical to an insurer.” So initially, outsourcing such a core task produced a bit of initial skepticism from insurers that soon proved to be unwarranted.
“The premium audit industry is known for having large backlogs,” says Ric Decker, Marketing Director at VTAudit. “Companies have waited on auditors for as long as six months. So if we can offer a killer data management application and combine it with licensed at-home professional auditors immediately, it’s of tremendous benefit to the carriers. We have no shortage of qualified professionals since they all like the freedom and independence of working on their own. Not every firm that provides outsourced insurance auditing services can say that.” VTAudit’s professionals supply physical “on site” or telephone-only audits after the insured provides necessary documents to ARO’s nationwide distributed remote workers.
Lightning Speed to Market: Collateral Benefits
Rooks is greatly impressed by VTA’s speed and improved audit quality.
He says the level of information provided is so complete that X-Dox is, in many cases, better than what he got from his physical audit outsourcer but at a fraction of the cost and in much less time. Rooks adds that the audit quality is so refined that internal follow-ups are rarely necessary. However, when an insured questions the audit, his unit not only has better information to counter those disputes, but can quickly provide a copy of the document electronically via e-mail.
“On average, VTAudit takes between half and a third of the time than it did before,” beams Rooks. “Ideally, we want to audit just as the term ends because if we have to do it sooner, typically that’s money we’re missing out on.”
But Rooks is equally impressed with the customization features that VTAudit offers. “They helped us build a tailored formula unique to our needs. Now we’re not that special relative to other carriers. But being able to frame our audits that would get exactly the information we need certainly helps when we reach the policy renewal or replacement stage of a relationship.”
This process is not only shortening the audit turnaround for VFB, it is also giving company executives greater insight into its processes.
Virginia Farm Bureau Mutual will shortly begin a dramatic digitalization and archival program with all its documents. “That VTAudit already gives us documents in electronic form means they’re already compatible with this digitization program we’re about to begin. So that saves us a big step.”
But Rooks also notes the very refined audit data is enabling his unit to “audit its own audit process” and make it better. “We’re using legacy information to tell us how we can do our jobs better.”
“The bottom-line is not the process, it’s the results,” says Rooks.
ARO Audit Beachhead Provides Entry to Other Services
Rating and underwriting is as critical a part of the insurance industry, but more sophisticated. Today’s market environment–with premium growth slowing, a competitive landscape on product offerings, and market consolidation–is driving an increased emphasis on accuracy, consistency, and value.
Outsourcing the underwriting process involves accurately gathering the required information to make intelligent decisions, especially in determining insured business classes and risk factors leading up to an insurer’s decision to write a policy. These types of services are still somewhat embryonic, but growing given each insurer’s unique actuarial parameters.
“Underwriting is one of the major initiatives that we expect strategic insurers will focus on,” observes Harris-Ferrante. “Companies are looking at ways to strengthen underwriting and be more stringent in how they price out and assess risk. We are beginning to see outsourcing-based initiatives targeted on building an electronic workforce that will lead to greater movement of underwriting to third-party information managers.”
To that end, ARO has modified its remote workforce of insurance professionals to offer improved accuracy, consistency, and efficiency of the outsourced underwriting and rating processes through this same cadre of licensed work-at-home professionals.
“With increasing pressures to reduce operating costs and launch new products, many insurers are finding those objectives difficult to meet,” says Harris-Ferrante. “They have inadequate internal human capital resources, or they are so overwhelmed with other priorities that they simply cannot complete all the requirements in the necessary timeframe.”
Though not as mature as VTAudit’s offering, ARO’s insurance underwriting and rating services are beginning to impact the industry. Current carriers such as Ameriprise (American Express), American General/AIG, and North American Life and Health are converting to ARO’s more sophisticated offering that utilizes its remote distributed workforce
“We’re seeing more and broader competencies being outsourced through this model,” observes Lisa Rowan, Program Manager at IDC. “Past services performed by telephone agents or document transcribers, the benefit of a growing number of targeted, professional services through the distributed, primarily ‘at home’ workforce shows a great deal of promise for these providers and their buyers.”
Lessons From The Outsourcing Journal:
- The combination of outsourced, licensed remote auditors and highly responsive data management systems can cut both turnaround time and the cost of insurance policy audits by at least half, while yielding much more accurate information.
- By using an outsourced, data-centric auditing provider, insurers can perform due diligence at the end of term; thereby not only saving money and receiving the most reflective premiums, but avoiding costly errors through misidentified risk on individual policyholders.
- Outsourced auditing services are inspiring insurance firms to consider similar solutions surrounding more sophisticated core BPO services such as underwriting and rating.