The Pros and Cons of Outsourcing Policy Filings for an Insurance Company
by Sean Cox, Assistance Vice President - First Consulting & Administration, Inc.
The Rate and Form Filing Process
The filing of forms and rate/rules is one step in the product development and maintenance cycle. Product filing is a highly specialized function with relatively low utilization. In the typical insurance company operation, less than one per cent of the work force is devoted to this function. Yet a myriad of details must be known and considered for efficient, effective and timely handling. For example, a person doing filings must have:
- A resource that identifies the proper address for each filing.
- A resource that identifies the filing requirements for the product line in each jurisdiction including any filing fee and required information.
- A resource that contains the state specific transmittals, certifications, and checklists required for the filing.
- A system for follow up to secure approval of the submission. This follow-up system must address items that are pending Company resources as well as pending the Department.
- A method to communicate objections and inquiries in a timely fashion to the appropriate person(s).
- A method to communicate approvals in a timely fashion to the appropriate person(s).
- A system that documents what forms have been approved for use and when the approval was effective.
Even with the new Speed to Market initiatives of the NAIC each state still has unique filing requirements. However, with these systems, it is much easier to stay current on the requirements since it is the state's responsibility to publish them within the system.
Another consideration for effective handling is quick and easy communications between the filer and their primary contacts: the product development actuary, the contract analysts, check writing, mail services, copy services and technology support services.
The Regulatory Environment: Speed to Market
A new focus has arisen within the insurance regulatory community, speed to market. The NAIC (National Association of Insurance Commissioners) has fostered an initiative not only to reduce the time frame required for regulatory review but also to bring commonality among the states in both method of regulatory review and the regulations themselves.
Weekly, if not daily, announcements are made about the changes in the manner in which contracts can and/or should be submitted to the various state insurance departments. The filing requirements and the method of submission and communication with the insurance regulatory bodies are more dynamic now than at any other time in the past 25 years.
As part of these changes, there is an increased focus on checklists and other similar tools that require the insurance company to demonstrate that their forms are in compliance at the time of submission. The thought, of course, is that this will reduce the time needed for regulatory approval.
Additionally, states have begun the final implementation of a system that allows electronic submission of forms and the associated filing requirements. This system, known as SERFF (System for Electronic Rate and Form Filings), eliminates previous delays of mail time and, to some extent, the initial handling time at the departments.
At the same time that these initiatives are going on, other forces continue to recommend a federal charter with a national review of forms.
In short, the product filing process is changing. During this transition both the old paper system and a new electronic system of filing need to be developed and maintained.
Reasons to Outsource Policy Filings
Commitment to Staying Current
In order to retain business, the outside resource is more likely to adapt its processes and procedures to stay current. It will be able to make the needed time commitment as part of the advantage under the economies of scale.
Economies of Scale
The outside resource is more likely to have developed streamlined methods of doing the work because it does it more frequently, say, daily or weekly instead of monthly. Additionally, manuals and other resources needed are maintained once for many clients instead of once for each Company.
In addition, because of the volume of filings processed, the insurance department contacts are more likely better honed.
Availability of Specialized Expertise
There is not an abundance of people trained to perform the product filings function. The outside firm that has made a commitment to providing these services will also have devised methods to train and retain these experts. A Company that relies on a staff of one or two for filings is virtually immobilized if one person leaves the area. The effect of one person leaving the outside firm will not be as devastating.
Flexibility of Resources to Meet the Demands
The nature of the filings process itself is one of the best reasons to outsource this function. Frequently, a Company finds that its filing volume is erratic with many peaks (new filings waiting in line for attention or objections or approvals waiting for new filings to be completed) and valleys (little or nothing to do).
The outside firm will, most likely, have a greater number of resources available for each step of the function as well as a wider spread of responsibilities. For example, the notifications regarding approvals might be a primary responsibility of someone other than a person doing the initial filings.
With a larger size, the outside resource will also be able to staff in such a way that the work is reviewed before it leaves the office thus reducing the possibility of error and delays in the overall product development process.
Although each insurance company is unique, they each have similar, if not identical, needs in the filing area. For example, the outside firm is likely to know the ins and outs of filing a revised page because it has done so for more than one client. For the Company, this may be a rare enough instance that research is required or the more time consuming trial and error method is utilized.
The outside resource likely receives requests from its clients about how the interaction and documentation can be improved to meet their needs. The Company then can be the recipient of such improvements without expending any money to secure them. For example, a new report requested by one client is likely to make the list of available reports for all clients.
Disadvantages to Outsourcing Policy Filings
Higher Identifiable (Hard Dollar) Costs
The fees paid to outside resources includes the costs of their overhead, management and support services. Readily identifiable costs of the Company might be salary plus some general overhead factor. Storage space (for paper files) and telephone costs are typically higher than average for this function.
How to Establish Control Over the Outsourced Service
The most easily addressed goals involve agreed upon standards for both timeliness and quality in the handling of the filings, the handling of objections, the handling of responses and resubmissions and the handling of the notification of approvals.
Reports to ensure that the goals are being met should be required and reviewed. These reports might address the following items.
- The number of and type of filings made.
- The time it took to make the filing from the time that forms were provided.
- The number of objections received.
- The nature of the objection.
- The time it took to process the objection.
- The time it took to receive a response from the Company
- The time it took to send the response or the resubmission.
- The time it took to notify the Company of an approval.
With selection of a firm that can meet the Company's objectives, work well with the Company's personnel, and provide the basis for effective monitoring, outsourcing the product filing functions will enhance a Company's operations.