There are three types of workers compensation claim offices. They are:
- The insurance company claims office
- The third party administrators claims office
- The in-house claims office of the self insured employer.
[While their approach to handling the work comp claims may be very similar and all three types of claim offices must abide by the same regulations in their state, the organizational structure of the claims office will differ, sometimes significantly.]
What most people think of when they think about a workers compensation claims office is the claims handling by the insurance company. In the insurance company claims office, you have the typical structure – claims manager, claim supervisors, claims adjusters and support staff. All of the staff are employees of the insurance company who sold the work comp insurance policy to the employer. The insurance company claims office will often have contact with the sales department and the underwriting department, as well as other departments of the insurance company.
Where the insurance company has enough volume of claims to support having its own staff to handle the claims, they will utilize their own claims offices. However, in the areas where the insurance company has some volume of claims, but not enough to justify the cost of operating their own claims office, they will enter into a contract with a third party administrator (TPA) to handle their claims for them.
The TPA claims office will be set up basically the same as the insurance company claims office. The primary difference between the claims office of the insurance company and the TPA is in the ownership of the claims office. The TPA is a separate company from the insurance company. The TPA claims office will have very limited, if any, contact with underwriting, sales and the other departments of the insurer.
While the claims handling activities are transferred to the TPA, the insurer or the self-insured employer who contracted with the TPA for claim service remains financially liable/obligated to pay the cost of the claims. The insurance company can not contract away its responsibility to its policyholders.
The TPA will handle claims for several different insurance companies and/or self-insured employers at the same time. Through combining the claim volume of claims of several companies, there are enough claims to justify the cost of the claims office.
The reason large employers self-insure their claims are to reduce the cost of workers compensation. Since the self-insured employer does not have an insurance company to handle their claims, they have two choices, utilize a TPA claims office or create their own claims office. The self-insured employer can create an “in-house claims office”. The claim manager, claim supervisors, claims adjusters and support staff are all employees of the self-insured employer. By utilizing their own employees to handle the work comp claims, the employer reduces the operational cost of insurance. The primary drawback of an in-house claims office is the employer usually does not have the expertise necessary to adjust claims and must hire employees with the necessary skills. The in-house claims office is usually unrelated to the primary business field of the self-insured employer.
The states vary in the licensing requirements for insurance company adjusters, TPA adjusters and the self-insured employer’s adjusters. Some states require all adjusters to have an adjuster license, while other states will require only the adjusters of TPAs to have a license, while the adjusters who are employees of the insurance company or the self-insured employer will not be required to have an adjusters license.
The primary reason there are three types of claims offices is the cost of administration of claims. The insurance company claims office is the most cost efficient way for it to handle a large volume of claims. The TPA claims office provides smaller insurers, self-insured employers and large insurers with limited volume in an area, with a lower cost way of administering claims than having their own claims office. The in-house administration of claims is also tied to the ability of the large self-insured employer to handle work comp claims more cost effectively than contracting the claims handling to a TPA.
Author Rebecca Shafer, JD, President of Amaxx Risks Solutions, Inc. is a national expert in the field of workers compensation. She is a writer, speaker, and website publisher. Her expertise is working with employers to reduce workers compensation costs, and her clients include airlines, healthcare, printing/publishing, pharmaceuticals, retail, hospitality, and manufacturing. See www.LowerWC.com for more information. Contact:RShafer@ReduceYourWorkersComp.com.
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Do not use this information without independent verification. All state laws vary. You should consult with your insurance broker or agent about workers comp issues.
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