Column: Workers' Comp

Proving Value

By: | June 1, 2015

Roberto Ceniceros is a retired senior editor of Risk & Insurance® and the former chair of the National Workers' Compensation and Disability Conference® & Expo. Read more of his columns and features.

Sellers of workers’ compensation products that fail to grasp shifting marketplace dynamics or help buyers with the pressure they are under will increasingly lose to competitors.

You can see evidence of these changing dynamics in the challenges workers’ comp underwriters face. Their inability to earn adequate investment income is reshaping their view of the vendors they buy from.

Other buyers, including third party administrators and self-insured employers, are also re-evaluating their purchasing arrangements.

Shifts in the way workers’ comp products are purchased and sold have been emerging over time, with buyers seeking measurable proof that the claims services they pay for deliver results, not just empty promises.

And the forces pushing these shifts continue to build.

Smart vendors will focus more on helping buyers meet their unique needs, rather than clinging to the traditional sales approach.

One push comes from the way insurer C-suites must evaluate expenses for their claims services.

Typically, insurance company upper management has left claims departments alone to make purchasing decisions, their operations thought too complex for more oversight, according to Patrick J. Walsh, senior VP and chief claims officer at Accident Fund Holdings Inc.

But the days of allowing claims departments to purchase products and services without documenting value must give way, if they haven’t already, explained Walsh, who is also a board member of the National Workers’ Compensation and Disability Conference® & Expo.

Walsh’s experience includes years of purchasing medical, legal and adjusting services. He has heard countless sales pitches, reviewed numerous RFPs and selected many vendors to partner with.

He also knows that claims departments generate insurers’ largest expenses. Under pressure to satisfy shareholders, the C-suite is taking greater interest in its operational expenses.

Claims department managers, in turn, face increased pressure to develop rigorous practices for selecting vendors and monitoring their performance, Walsh believes.

That means insurer claims department managers, like other workers’ comp product buyers, increasingly need their vendors’ help documenting the value of their purchases. They also need help explaining that value to the C-suite.

“There is this whole dynamic around vendor management and procurement relationships that at many companies have never been a priority,” Walsh said.

Smart vendors will focus more on helping buyers meet their unique needs, rather than clinging to the traditional sales approach.

“The historic approach has been, ‘We are really good. Trust us. We contract with other big companies. That must mean we are good,’ ” Walsh said.

Others are also noticing that buyer/seller dynamics are transitioning, making a traditional approach obsolete.

Aging claims executives are being replaced by those with stronger backgrounds in finance, said Rob Gelb, managing VP at York, a TPA. These newer claims execs, as buyers, increasingly want the impact of their purchased services measured and quantified.

“They are not looking at this as a good ol’ boy network of claims management anymore,” Gelb said. “They are very interested in the financials.”

Sellers who fail to listen to buyers and fail to prove their services’ worth will fall short in this increasingly sophisticated environment.

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