Top claims challenges for MGAs/MGUs and how to overcome them
Are you wanting to stand out from the competition in the MGA/MGU marketplace? The top strategies are revealed in IBA’s latest podcast episode, as we meet with Gallagher Bassett’s carrier practice managing director, Joe Berrios, and GB Specialty’s managing director, Rob Blasio, to discuss the three biggest claims challenges facing MGA/MGU businesses today. Learn how to achieve successful outcomes now - and in the future.
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Narrator: [00:00:06] Welcome to IB Talk the leading podcast for the insurance industry across the United States brought to you by insurance business.
Narrator 2: [00:00:13] This episode is presented in partnership with Gallagher Bassett. In the latest episode of IBA Talk, Joe Berrios and Rob Blasio from Gallagher Bassett join us to discuss the top three claims challenges for MGAs and MGAs and how to overcome them.
Bethan: [00:00:41] Hi everyone and welcome to IBA Talk the Insurance Business America podcast. I'm Bethan Moorcraft, senior editor at Insurance Business, and this episode will focus on the top three claims challenges for MGAs and MGAs and how to overcome them. To tackle this topic, I'm delighted to welcome Joe Berrios, managing director of Gallagher Bassett's Carrier Practice, and Rob Blasio, managing director of Gallagher Bassett Specialty. Together, they will outline key strategies to help MGAs and MGAs stand out from the competition, and they'll provide essential tips on how to achieve successful claims outcomes now and in the future. Joe, Rob, welcome to IBA Talk.
Joe: [00:01:22] Thanks for having us, Bethan.
Rob: [00:01:24] Yes. Thank you for having us.
Bethan: [00:01:26] Well, it's great to have you on board. So the specific functions delegated to MGAs and MGUs can vary. Well, underwriting as their primary function. Joe, how common is it for MGAs and MGUs to handle claims?
Joe: [00:01:39] Well, it's actually very common for an MGA or MGU to handle claims. The needs can vary from business to business, but it's usually not uncommon for an MGA to be charged with underwriting a specific kind of business. Oftentimes, it can be a specialty risk, and they also elect to handle the claims for that risk. Internal claims teams usually associated with with an added level of expertise and knowledge. So specializing, it specializes a certain classes of business risks. So there is some benefit to the MGA or MGU handling the claims that sometimes there's a need for unique understanding of the business that's been written, or there's a closer and there's also a closer oversight between the underwriting department and the claims management team. What I've seen is that the internal claims handling can facilitate closer collaboration on managing the claims and ensuring that the risks needs are being properly met. And then other times there may not be sufficient enough volume to support and outsource solution. So it's more practical to handle the claims with a smaller claims team that's in-house. And I would probably say last but not least, there's there are times where certain category claims or severity types associated with the risks that the MGA prefers to control internally and not have those ensued. They will have a set of internal group handling the claims. Many MGAs have authority to underwrite and, you know, provide the retailers with a rate quote issue function without a lot of referrals. But they also take on the risk control services and claims handling authority, which is advantageous to them.
Rob: [00:03:27] But I would add that we often times see more opportunities on an outsourcing basis for MGAs and MGUs when they're in the specialty lines and when they're in a startup mode, because oftentimes the cost to internalize the claims handling is rather substantial when you consider the costs of a claim system, hiring staff, etc. We also see that oftentimes MGAs and MGUs will look for carrier partners who have specific expertise and that they'll offload the claim handling to the carrier, who is providing the paper and maybe taking a portion of the risk. But in the specialty lines, oftentimes we're getting a call to work with folks that are in kind of a startup mode, if you will, who are looking to really capitalize on the expertise that we might have in a particular. Industry or vertical while they develop their level of underwriting premium and build their portfolio.
Bethan: [00:04:47] Mm hmm. That's very interesting. Thank you both for that. So bearing all of that in mind. What would you say are the three biggest claim challenges facing MGAs and MGUs? Rob, I'll come to you first.
Rob: [00:05:00] Thanks. I think when you're talking about especially in the specialty area, which is my area of expertise, the biggest claim challenge facing MGAs and MGUs today is no different really than that facing specialty liability carriers. And that's the ever increasing severity that exists. You know, when you consider social inflation, nuclear verdicts, the reptile theory, the results that we're seeing as cases are getting tried, especially in this post-COVID world. Severity is the number one issue. And and in the specialty space, in order to combat severity, you need folks who live and breathe the industry that you are underwriting. I mean, having generalists handle specialty liability claims is a recipe for disaster. I would say, second, we're living through the great resignation and the great resignation period of keeping staff in place. So having to not only have folks who who understand and live and breathe the the area that you are underwriting from a claims perspective, but keeping those folks in place when there's truly significant competition for talent coupled with, you know, we are still dealing with a pandemic, people getting sick, being off, having staff and keeping staff is really, really an issue for for everybody in this business. But particularly, you know, for MGAs and MGUs that tend not to have large claim departments. So the loss of one or more individuals can be very unsettling. And and I would say lastly, the challenge is always data. And whether you're talking about using the data for evaluating risk that you want to continue to underwrite, whether you want to use the data and integrate it with risk mitigation efforts, which is oftentimes a calling card of MGAs and MGUs, the ability for them to work with their client insureds to to develop risk mitigation efforts coming out of their claims data. The enhanced regulatory environment also exacerbates this because you need the technology that can deal with that, whether you're talking about MMSCAs or Medicare reporting or and the like. So I think those three areas, severity keeping staff in place and data maintenance, which includes claims system, a remote system are probably the three greatest challenges facing MGAs and MGUs. Joe, anything to add?
Joe: [00:08:14] Rob I think you really you touched on the main parts of where I think are the biggest challenges, certainly the changing regulatory environment. There's probably today more regulatory oversight for both the insurance carrier as well as the MGA, MGU. They've had the ability to to drill down and make it harder, both from a data perspective and from a compliance perspective. And MGA also may not always have broad authority. So that requires them to refer risks to the carrier or TPA. And that sometimes is a challenge for them if it doesn't fall in line with their with their business target and business goals. And then I would last say is you were spot on with the technology. I think keeping pace with tech costs and innovation are very strong challenges in the MGA, MGU market and is the reason why many of them outsource their work. Because just keeping up with the technological development and being able to provide the risk analytics that are necessary to manage the book, it's a very costly endeavor for MGAs and MGUs.
Bethan: [00:09:29] MGAs and MGUs are facing challenges around severity, staffing and this ever changing regulatory environment. Rob, wWhat are some ways that MGAs and MGUs can overcome those challenges?
Rob: [00:09:41] Well, at the risk of sounding like an infomercial, we are in the outsourcing business. I think in the specialty liability area. The simple solution there is to look for experts, external experts who can bring a lot of these issues, can resolve a lot of these issues by coming to the table with a ready made package, whether that's experts in the field, a Remus database, and you shift the staffing obligation to the third party. Now, whether that could be a third party administrator like a Gallagher Bassett, it could also be the carrier on whose paper you are writing if they have competent staff and are willing to dedicate staff to the account. But I mean, the simplest solution simply is to look for external experts who can provide the full panoply of services to the MGA or MGU. Oftentimes, I think there's a reluctance to do that because there's a concern that perhaps control and some of the things Joe touched on earlier, the ability to integrate with underwriting and the ability to develop risk mitigation efforts may be compromised. But I would say that in my experience, manuscripting in a contract or a sort of a list of services goes a long way to eliminating and obviating that concern by an MGA or MGU.
Joe: [00:11:28] If I may come and echo a lot of what you said there, and it's hard not to sound like an infomercial because in my opinion, what my experience has shown, I think you've seen the same thing. You know, the easiest way to overcome, overcome those challenges is through an outsourced platform, because you eliminate the staffing challenges that that you shift that trace upon to the TPA or if it's within the insurance carrier, if you pick a partner that has a state of the art remits with best in class data analytics, you shift the burden of having to keep up with all the technology costs and challenges that they're faced with in the market today. There's always a depth of expertise. I know that, you know, from your group you have a pretty robust group of specialists that, you know, easily adapt to the kinds of risks that MGAs and MGUs are writing today. I totally agreed with your comment earlier that that's not work, that you want to have generalists undermining and then, you know, delivering outstanding service. If you if you partner with a DPA or group that is going to provide, you know, outstanding service with great responsiveness and performance management, you're going to see that that will return in in terms of retention and growth and then being able to have exceptional claims control. What our experience has shown is that it always ties into trending analysis, predictive modeling. And if you've got that TPA that has, you know, a host of other decision making tools as part of their claims management solution that will help them overcome some of the challenges we talked about.
Bethan: [00:13:11] Mm hmm. That's interesting. Thank you. And it all ties into kind of market differentiation. Looking at the big picture, the MGA and MGU market has been very successful in recent years, very busy with a lot of noise in the marketplace. Why might a successful claims operation help these businesses to differentiate themselves? Joe, I'll come to you first.
Joe: [00:13:35] Sure. Thanks, Beth. And so, I mean, we've we've touched a little bit on that. And I think in our last in the last question, we sort of kind of introduced some of that. I believe that a successful claims operation will help differentiate the MGA and MGU in the marketplace. Most likely we've seen this through better outcomes and better risk management, and that ultimately aids in reducing the total cost of claims, but also gives them the ability to support growth and retention. I feel that a strong claims operation helps to provide better underwriting margins and renewal decisions. Some of the things that I've seen recently, you know, on the technology side, is underwriting dashboards that have been able to give better control and analysis of the performance of of the book, especially in the specialty lines. And what I found is that, you know, most of these specialty lines that are written through the MGAs or MGUs do require that specialized, you know, successful claims operation to mitigate their risk. That's where we found that there's greater penetration in the success rate and helps to differentiate from others that will provide standard generalists that just basically are in a claims processing business as opposed to that that degree of specialized focus in reduction of cost where it's true claims management and applying best practices.
Rob: [00:15:06] I also think it's really critical to remember that, you know, not all MGAs and MGUs have been in business for extended periods of time, and oftentimes they're trying to get a toehold in a particular niche market. And when they're looking for carriers to give them the pen to underwrite on their paper, if that carrier doesn't have a particular claims expertise in the specialization. So let's take an example of health care professional liability. One of the key things for the MGA MGU is going to be marketing their claims expertise and getting credibility in the insurance and reinsurance market. So, you know, part of the part we've had many situations where folks who are starting MGAs or MGUs have come to us, partnered with us because of our credibility for competence in a particular specialized specialty area. And that has helped those MGAs and MGUs grow. It's helped them attract reinsurance capacity and insurance capacity for for having the pen. So I think that that's no different than attracting quality underwriting. Attracting quality claims talent is critical as you're building out your portfolio and and your business plan.
Bethan: [00:16:48] Mm hmm. That's interesting. Well, thank you. And it kind of ties in as well with the sort of successful claims operation ties closely to outcomes. And I know that your work, Gallagher Bassett, as a as a third party administrator is heavily dependent upon outcomes. Now, Rob, what tips do you have for ensuring that the insurer, the MGA and the MGU and even the claimant get the best out of the process?
Rob: [00:17:12] I think this there's no real magic to this. You know, one of my personal favorite statements is put the right person on the right claim. And what I mean by that is let's get the right talent, the right experience, the right expertise handling the claim. This is not in today's world is a no time to have a generalist handling a major transportation loss where an adverse verdict can be in the hundreds of millions of dollars or, you know, a professional liability or a side a DNO claim. You have to have people that understand it. So the right person on the right claim. And then I think the other thing is, irrespective of whether you're using the carrier's claim staff, a third party administrator or self administering, the one thing I think that most folks don't appreciate is the need to benchmark their results, not just against national standards, but also, against industry best practices and and the like. And I think that. The most successful MGAs and MGUs are going to appreciate that just because you've been doing things the same way for a number of years and seemingly your loss ratio is good, everybody is happy that you can't get complacent. It's important to go out and perhaps seek independent consultation to do an assessment of your claims organization. Are they using best practices? Are they? Are there other law firms that could be used? Do you have a remote system that is truly state of the art, or are there modifications that need to be made? Are you using every arrow in your quiver? And maybe you are. But it's it's really important to to get that analysis from independent sources to verify that you're compliant with best practices.
Joe: [00:19:23] Yeah, I would agree with all of the items that you highlighted there. I found that our experience has been when it comes to outcomes and making sure that all parties, all key stakeholders are getting the best out of the process is definitely having a best in class remit system that reviews operational performance. I do believe that regular communication on benchmarking results works when you have worked with the MGA MGU in collaborating on building a set of specific KPIs so you know which which outcomes you're looking to target and achieve and leveraging industry best practices and having clear service level instructions, I found that where those don't exist, there's always a struggle and there is probably less impact on the outcomes for both the insurers, for all parties, including the insurer MGA and MGU. We often say, how does the claimant get the best out of the process? I think that if everything is working as it should be, then the claimant should be getting the best outcome out of the process regardless of the line of business. We have found experience wise is that claimants may not always be happy with the outcome because they have different sets of expectations. But I think our goal to getting them back to a place of always getting people back either to work or getting repairing the propert or or addressing an injury that gets them back to the work. Free injury state is key and I think that's where I think we have the most success if we have a focus on that outcome.
Bethan: [00:21:07] Yeah, that's great. Thank you both very much. Lots of great tips there for helping MGAs and MGUs tackle claims challenges and then, you know, differentiate themselves in the marketplace by giving great outcomes. Lots of great information there for our audience. So, Joe, Rob, thank you very much for joining me on the show. It's been an absolute pleasure having you on IBA Talk.
Joe: [00:21:29] It's been a pleasure. Thank you, Beth.
Rob: [00:21:30] Thank you for having us.
Bethan: [00:21:33] And thanks also to our listeners for tuning in. I'm Bethan Moorcraft, senior editor at Insurance Business. And this was IBA Talk, the Insurance Business America podcast. Thanks, everybody.
Narrator 2: [00:21:44] Thank you for listening to this episode of IBA Talk for more from Rob, Joe and the team at Gallagher Bassett visit them at gallagherbassett.com. Thank you for listening to IB talk for the latest episodes. Be sure to follow us on PodBean. You can also tune in on your favorite listening channel. Find us on Spotify, Stitcher and Apple Podcasts.
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