How to Be Effective at Loss Cost Management
What is loss cost?
Simply put, it is the amount of money an insurer pays to cover a claim, including the money it pays to vendors that assist in the handling and investigation of the claim. These vendor costs, or otherwise known as Loss Adjustment Expenses, are a significant part of the total loss cost in a claim.
What is an effective vendor management strategy?
No matter the industry, businesses need to have a sound strategy of best practices on how to attract, manage, and retain vendors that help drive the production and profitability of their company. Some of these best practices are:
- Select vendors that are right for your business.
- Proactively manage and nurture vendor relationships.
- Monitor, track, and expedite vendor spend.
- Measure vendor performance.
Vendors should also deploy the same practices as it applies to clients: selecting and attracting the right clients, managing, and nurturing client relationships, and measuring how their performance impacts their clients and how various clients impact their business.
How to promote intelligence in your vendor strategy.
Using data for better loss cost and relationship insights allows the insurer and the vendor to measure performance. Analytics identifies key trends of performance as well as using to compare spend between vendors internally as well as how your vendors stack up against the industry average.
Why is vendor management important for the insurer-reinsurer relationship?
Questions typically asked of the senior claim leader of an insurer is:
“Do you have enough resources to respond to a catastrophe?”
“Do you have dependable field resources that write accurate loss estimates?”
“How will you avoid loss cost creep in a catastrophic event?”
Reinsurers know that in a catastrophe, insurers will pass on much of the loss cost to the reinsurers. The reinsurers want to make sure they are not left “holding the bag” when it comes to financing a major loss event. An insurer can win their confidence if they can show the analytics of their vendor management strategy and how it attracts and retains top industry resources, guarantees vendor fee schedule and billing accuracy, and pays vendors overnight to promote loyal and capable support.
How to be risk ready.
Insurers can use BAP to automate the vendor management process which dramatically improves efficiency while garnering the data through Mimia to better understand their business. This allows them to select and retain the right vendors for their business that gives them the “best bang for their buck”. Automating the process allows tremendous operational capacity, guaranteed accuracy of invoicing and payments, a proactive look into the future on loss costs projection, and keeps vendors paid timely which deepens the vendor-insurer relationship. In times of need, insurers and reinsurers can rely on the tools that VIP provides to achieve a higher level of financial credibility.
Vendors can use Invision to automate their back-office operations. Automating this function within their organization prevents bottlenecks that slow down operations and delay their insurer clients from understanding an accurate loss cost projection of a catastrophic event. Data insights through Mimia provide the ability to create metrics and scorecards that provide the intelligence needed to steer and turn their business through the supply chain to increase the confidence of their insurer clients.
