Presenters: Pam Bishop, Mutual of Omaha Insurance Companies Kurt Swan, Connecticut Insurance Department Cynthia Wood, Risk & Regulatory Consulting,

Transcription

1 Presenters: Pam Bishop, Mutual of Omaha Insurance Companies Kurt Swan, Connecticut Insurance Department Cynthia Wood, Risk & Regulatory Consulting, LLC Moderator: Barry L Wells, Risk & Regulatory Consulting, LLC

2 Pamela Bishop, Manager Market Conduct Mutual of Omaha Insurance Companies Pam manages the team responsible for coordinating market conduct examinations, regulatory related issues, regulatory complaints and regulatory surveys. In 2009, Pam earned the Insurance Regulatory Examiner Society (IRES) Market Conduct Management (MCM) Professional designation. Currently serves on the Insurance Regulatory Examiner Foundation Board. Pam has 29 of experience in the insurance industry and has held multiple compliance and regulatory related positions with Mutual of Omaha. 2

3 Kurt Swan, Director Market Conduct Division Connecticut Insurance Department Kurt joined the Department in 1997 and has held a number of positions with current responsibility for all property & casualty, life & health h and utilization i review examinations. Before joining the Department, Kurt held various positions in the insurance industry, including a large consulting practice and major insurance carrier. Kurt received a Bachelor of Science degree in finance from Bryant University in

4 Cynthia Wood, Director Risk & Regulatory Consulting LLC Over 30 years multiline technical and executive level experience in both industry and consulting. Background includes managing and evaluating insurance operations and controls in claim management, policy administration, underwriting and TPA management and oversight. Former VP with a global multiline insurance carrier. Responsible for national third party vendor relationships (selection, contracting and management) Expert third party relationship negotiator and trouble shooter. 4

5 Barry Wells, Senior Director Risk & Regulatory Consulting, LLC Over 25 years extensive technical and executive level experience in both industry and consulting. Background includes evaluating insurance operations and controls with a focus in claim management, regulatory compliance, litigation support and TPA management and oversight. Former VP with a global P&C insurance carrier managing branch claim operations in various locations. Managed insurance company captive TPA. 5

6 To provide an enhanced understanding di of Third Party Administrators (TPAs) and their utilization, the regulatory framework regarding TPAs and an overview of the TPA oversight process. 6

7 Introductions TPA Definition and Classifications NAIC TPA Model Law Overview Deciding to Use a TPA Benefits/Challenges of Regulating a TPA TPA Selection Process Administrative Agreement Potential Risks TPA Management and Monitoring Effective TPA Controls The Exam Process 7

8 General Definition: Third Party Administrator is an entity which directly or indirectly solicits or effects coverage or, underwrites, collects charges or premiums, or adjusts or settles claims on behalf of another entity NAIC Guideline Definition: Third party administrator" or "TPA" means a person who directly or indirectly underwrites, collects charges, collateral or premiums from, or adjusts or settles claims on residents of this state, t in connection with life, annuity, health, stop, loss or workers' compensation coverage, except that a person shall not be considered a TPA if that person's only actions.. 8

9 Insurers and organizations must consider if outsourcing to a TPA will support their business strategy and whether internal capabilities can support the initiative. Specialized experience and skills. Various types of TPAs can and do provide a variety of services that are often tailored to the particular needs of the carrier, including: Full Service Premium Collection Claims Underwriting Managing General Underwriter Administration Managing General Agency 9

10 Group Benefits Health Short Term Disability Long Term Disability FSA, MSA, HSA Dental Vision Long-Term Care Pension Plans, 401Ks, Profit Sharing Plans Life Insurance Annuities Property & Casualty Workers Compensation General Liability and Medical Malpractice Property Auto Surety 10

11 1. Managing General Agency (MGA), is an individual or business entity appointed by an insurer to solicit applications from agents for insurance contracts or to negotiate insurance contracts on behalf of an insurer and, if authorized to do so by an insurer, to effectuate and countersign insurance contracts. 2. Managing General Underwriter (MGU) - designs, administers and markets highly-specialized programs of insurance. 3. There are increased potential risks associated with MGAs and MGUs as compared to typical TPAs because of the role they have in accepting and/or underwriting business on behalf of an insurer and in some instances also handling associated claims. 11

12 Insurers and organizations enter into Third Party arrangements to create additional value, primarily by seeking to: Reduce operating, development, sales, or other costs Focus more on core competencies Tap vendors best practices and innovations Increase flexibility and scalability of operations Gain access to human capital Fuel global growth by gaining a foothold in a growing economy 12

13 Outsourcing initiatives usually deliver a combination of the benefits on the previous slide, but rarely to their full potential and often with increased risk to the organization. If not managed well, the risks both internal and external to a company or insurer can adversely affect the performance of an organization. Outsourcing may increase risks as the vendor becomes an extension of the enterprise, but the insurer does not have direct control over processes. 13

14 For the purpose of our discussion i please note that we are using the term Guideline when reference is made to the NAIC Model Law. Originally adopted in 1977 as the Third Party Administrators Statute Amended in 1990, 2000, 2002 Update published in states provide regulatory oversight of TPA requiring licensing and/or registration in one form or another Not all states have adopted the suggested Model Law in its entirety t Source: Model Regulation Service Oct 11 14

15 The Model Law is offered in two versions: A. Version 1 of the Guideline expands the scope of the prior Model by adding workers compensation. B. Version 2 of the Guideline omits workers compensation, similar in scope to the prior Model, with the difference being in those states t where stop-loss insurance was defined as liability insurance and not as health insurance. A states selection of which version of the Guideline to use is dependent on whether the state currently has a TPA law and/or whether the state wants to have the TPA law extended to workers compensation. Source: Model Regulation Service Oct 11 15

16 The 2011 update of the 2001 Guideline contained various editorial i changes as well a number of substantive changes, including the following: Clarified it was not the intent of the Model to implement a licensure requirement for employees ees of TPAs or insurers adjusting life and health claims. The 2011 update maintained the 2001 Model exemption for licensed insurers operating as TPAs from all requirements of the Act, for lines of business other that workers compensation. Version 1 referenced in the previous slide exempts insurers from licensure requirements and from audit and reporting requirements when they handle workers compensation claims for an employer that is not their policyholder; however, it does require an insurer/tpa to comply with many other operational requirements for workers compensation. Source: Model Regulation Service Oct 11 16

17 The Model Law extends the Life and Health scope as outlined in the 2001 model to so-called stop-loss insurance. This may be viewed as a clarification for those states where stop-loss is already considered to be health insurance and cannot be written as liability insurance. However, for other states this revision would represent an expansion. The afore-referenced Version 1 does not allow a TPA to agree with an employer to have the employer adjudicate di its own workers compensation claims. An employer cannot avoid this restriction simply by seeking licensure as a TPA under an affiliated business entity. Source: Model Regulation Service Oct 11 17

18 The afore-referenced Version 1 exempts payments made by employers to a TPA who is managing workers compensation claims under a large deductible contract from premium taxes requirement that accounts administered by a TPA must be in the name of the insurance company, as long as claims trust funds are held by the TPA and are not commingled with premium trust funds. Cease and desist orders have been added to those actions available to an insurance commissioner. The addition was included because the 2001 update did not fully address the issue of due process. Source: Model Regulation Service Oct 11 18

19 Benefits of regulating a TPA Coordination o of records, claims adjudication, premium processing, administration, compliance or other areas Insurer group administration/multiple lines of business Fiduciary responsibility Insurer is responsible for the acts of the TPA 19

20 Challenges of regulating a TPA: Additional layer of communication between insurer and regulator Resource availability, lack of dedicated staff Geographic separation from insurer 20

21 Insurers and organizations will develop vendor selection criteria focused on objectives and risks. Develop and execute a thorough due diligence program. An effective vendor assessment includes the vendor s operational readiness to begin delivering services and its ability to comply with contract terms and regulatory requirements. 21

22 Considerations in the due diligence in selection process: Financial condition and solvency Experience Reputation Regulatory infractions Qualifications Staffing Strategies and goals Complaints or litigation 22

23 Due diligence in selecting a TPA (Continued): Use of subcontractors by TPA Internal control environment (business and IT) Business continuity it plans Knowledge of relevant laws and regulations SSAE 16 reviews (formerly SAS 70) Adequacy of information systems Insurance coverage 23

24 An effective administrative agreement or contract is one of the most important aspects of the TPA relationship and should include the following components: Performance criteria and Service Level Agreement (SLA) metrics linked to business value Mechanisms to manage variations in volume as well as cost increases, decreases, ceilings, and floors Defined payment terms, currency and exchange rates Checklists of legal, regulatory, contract, and insurance requirements and clearly stated implications of non-compliance Right to validate the performance of the vendor in relation to the contract provisions (right to audit) Contract termination and transition rights in the event either party wishes to end the relationship (term and termination) 24

25 As with any other business decision, i inherent risks are associated with an insurer or organization using a TPA and include the following: The use of a TPA isn t well thought out and doesn t align with an insurers overall business strategy Incorrect outsourcing assumptions, for instance regarding projected cost savings, payback period, or investment needed to build governance and management capabilities Failure to develop vendor selection criteria that contemplates outsourcing objectives and risks, and failure to exercise thorough due diligence 25

26 Contract provisions covering service levels, incentives, contingencies, staffing, security, privacy, right to audit and termination are missing or inadequate Inadequate transition planning causes suboptimal knowledge transfer and poor change management, and, perhaps, risk of loosing key personnel, regulatory concerns, etc. The lack of formal governance oversight practices and controls results in poor service, cost overruns, and other outcomes that erode value Consumer complaints Solvency related issues 26

27 TPA relationships are generally long term and adversarial relationships are ineffective. Evaluate the risks associated with the insurer-tpa relationship from a corporate governance perspective ideally p the relationship should embody the following: Each organization understands the other s core competencies, operating model, market, business objectives and strategic plans Each organization understands and shares the others core values The roles and responsibilities of each organization are clear, measurable and in writing Both parties are focused on common goals, objectives and outcomes Communication channels and protocols are understood and followed Communications are direct and frequent (verbal, written and face to face) An issue resolution process is defined, communicated 27

28 Techniques and tools include: Establishment of base line measures using the Service Instructions (SIs) and Key Performance Measurements (KPIs) Establishment of meeting schedule to discuss issue resolution efforts Regular on-site visits Development and review of standard monthly reports Quarterly trend analysis Root cause analysis Audits Specific Risks and Potential ti Landmines Credit Risk Business Continuation Planning Distinguishing Between TPA and MGA Reputational Risk 28

29 The following are examples of controls an insurer may establish to monitor and manage the TPA relationship: Audits Desk Top Field (On-Site) Reliance on SSAE 16 reviews Monthly/Quarterly Reporting 29

30 Financial Condition Examiners Handbook Chapter 26 of the Market Regulation Handbook Guidelines for conducting the TPA examination TPA Operations and Management Complaint Handling (Reference Chapter 16 for Standards) Contracts and Written Agreements Focus includes financial security of the TPA Emphasis on the contractual agreement between the insurer and TPA The fiduciary capacity of the TPA Timely and accurate processing of transactions 30

31 Thank you for your interest and participation today Pam Bishop Manager om Kurt Swan Director Cindy Wood Director (908) Barry L. Wells Senior Director (908)