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TUCSON, Ariz.-A captive owner often is better off using a third-party administrator to handle claims, though in-house claims handling can be effective at times, according to a panel.

The key to effective claims management, though, is focusing on settling claims, not just handling them, said panel moderator C. Michael Mattix, an assistant vp with Employers Reinsurance Corp. in Tampa, Fla.

"Some focus a lot on the process rather than the goal," Mr. Mattix told attendees at the 24th Annual Captive Insurance Cos. Assn. conference, held in Tucson, Ariz., March 16-19.

"Does good claims handling make a difference to the bottom line? Clearly, it does," he said. And, he said, it is not that tough to achieve.

Mr. Mattix referred to a news story a few years ago that pointed out that new law school graduates were having much greater difficulty than medical school graduates in finding the types of jobs they wanted. One law school graduate who had wanted to begin his practice with a Wall Street law firm instead ended up handling workers compensation claims for an automaker. He was quoted as saying "a trained monkey" could do his job.

While that is not true, good claims management "is not rocket science," Mr. Mattix said.

The panel of two risk managers and a fronting insurer executive largely focused on whether in-house claims handling or retaining a TPA would help captive owners achieve that end.

At least one fronting insurer, Old Republic International, is not anxious to enter into arrangements with policyholders' in-house claims departments unless they agree to abide by the same dozen requirements to which the insurer holds TPAs, said Michael J. O'Connell, vp-claims at Brookfield, Wis.-based subsidiary Old Republic Risk Management Inc.

Under those criteria, the in-house claims department must:

Receive, review, investigate and adjust all reported claims during the policy term.

Maintain claim files and make them available to the insurer during normal business hours. Closed files must be maintained for a minimum of eight years.

Furnish monthly reports to the insurer.

Agree to abide by each state's fair claims practices acts and comply with all applicable adjuster licensing laws.

Indemnify the insurer for damages resulting from negligence or bad-faith claims handling, unless the department had acted under the insurer's specific orders.

Even given those guidelines, a captive owner should not handle automobile or workers compensation claims in-house, Mr. O'Connell advised. Otherwise, a risk manager would have to maintain a huge staff to deal effectively with all the varying state auto and workers comp claims laws, he said.

However, Weyerhaeuser Co. handles its workers comp claims in-house, said Gary A. Baxter, assistant treasurer and director of insurance for the Tacoma, Wash.-based forest products company. The company brought workers comp claims handling in-house 15 years ago. By having injured workers deal with only company personnel and by redoubling its commitment to safety, the company has cut its workers comp claims and its claims staff significantly, he said.

Mr. O'Connell said general liability and product liability claims may be best handled by an in-house claims staff. An in-house staff can provide consistency in handling and coordinating claims, with an eye toward keeping down defense costs, he said.

But, he expressed some concern with the relationship between some in-house claims departments and legal departments. "Legal has to know who is funding the claims. Sometimes, legal shunts the claims department aside. My experience is you don't want to abandon claims to the legal department, because many times they don't have the expertise from a claims standpoint. And, unless the legal cost is charged back, sometimes they don't care about the expense," he asserted.

However, the corporate claims staff must be sensitive to the inherent conflict of interest issues in handling those claims in-house, he said. "In a third-party claim, it's nice to have someone in between the claimant and the insured," he said.

Michael D. Phillipus, casualty risk manager for Houston-based Pennzoil Co., agreed. "You maintain a view of objectivity when a claim is denied or only a certain amount is paid. The company isn't doing that. A company with claims expertise is doing it."

For that reason, Weyerhaeuser uses a TPA to handle its third-party claims, Mr. Baxter said.

Mr. Phillipus noted several other reasons that a TPA might be more effective than in-house staff in handling claims, including:

The client might gain access to a substantial amount of statistical data it might not have from its own claims database.

TPAs likely will have greater claims-handling experience than an in-house staff.

Outsourcing facilitates downsizing at the risk manager's company.

Claims arising from a catastrophe, like an oil spill or a chemical release, could overwhelm an in-house staff.

The panel also offered several tips on selecting a TPA and what assistance it should expect from clients:

The TPA should have one key contact or office that deals with its client's risk management department.

The TPA should be qualified to handle claims arising from your particular exposures. In addition, one should assess the experience level and the turnover of the TPA's staff.

The TPA should be capable of handling your claims volume, whether it is large or small. If you have many claims, the TPA's staff size should be sufficient before the TPA is engaged. If your claim volume is small, "you many not want to choose someone used to dealing with a large number of claims. You may be seen as a speck on the screen and not get the services you want," Mr. Phillipus said.

Study the TPA's client base and verify why former clients left and if your industry is represented.

The client must give the TPA enough authority to operate efficiently, both in settling claims and in reporting authority. Don't make TPAs go through a lot of channels to settle small claims. And, eliminate captured reports on small claims, as long as the TPA, for example, provides the client some claims information through an electronic transmission.