READERS' FEEDBACK

New business model needed to advance interface efforts

I truly enjoyed John Ashenhurst's October 2002, column titled "Three perspectives on interface issues."

One issue hampering the industry's development efforts through the years to better serve the community at large is that we haven't been challenged to find maximum efficiencies or a new business model--there is only the need to benchmark against each other.

Therefore, all the committees, movements, and dinner-and-hallway conversations, etc., provided the insight into the dilemma of maximizing customer satisfaction, but the bottom line is still controlled by following the lead of the party or group dubbed the leader at a particular moment in time. The remainder of the industry is left to attempt to copy that approach. And don't overlook the underlying reality of the insurance carriers (still) led by IT groups controlling the technology (and maybe even the purse strings) rather than the agents/business units.

However, there has been significant change through the last 25+ years. We must remember this data exchange effort began in the '70s and significant solutions have made their way into our processes during this time. But when one finishes reading an article such as "The three perspectives," one can't help but recall the same conversations and articles from the past years and say, deja vu!

This industry must focus on the business model and figure how to break out of it without taking too great a risk to ensure we survive. No more, "could'a, should'a, would'a."

--Terry Castelli
eBusiness Development Team
Liberty Mutual Insurance

Do carriers make enough mistakes to warrant direct bill reconciliation?

I read Wanda Shumaker's November 2002 column titled "Why bother? A look at the pros and cons of direct bill reconciliation," and found one piece of critical information missing. What is the percentage of error made by carriers? Is it substantial enough to warrant agents reconciling their direct bill?

Wanda's article was most interesting on the "how to" side of the issue. However, I'm interested in knowing more about the "need to" side. In her consulting work, has Wanda found there to be substantial errors with the companies' reports? It would also be interesting to know which companies have these accuracy problems.

--Gary Veenstra, CIC
Veenstra Insurance Agency
Farmington Hills, Michigan

Wanda Shumaker replies:

I could find no specific information as to how often/what companies experience errors. As to my experience with agencies, I can't say it's a regular occurrence with given carriers, as that tends to vary by region. Agencies typically say, though, that they watch the "non-standard" lines more closely, as well as the assigned risk workers comp policies. These tend to have more frequent incidents of missed or misdirected commission payments than the standard contract P-C lines.

Agencies also pay close attention to life and health carriers since after the initial "group policy" premium is placed, the monthly billings fluctuate, and the agencies have no frame of reference from which to determine what should be billed/collected. I'm being asked more often by agencies that I work with to help them craft some way of identifying when/how much is being paid on direct bill group health/life coverages.

I have found the "need to" reconcile to be driven more by internal philosophical decisions, weighed against staffing, reporting needs, agency financial situation, carrier relationship, volume, etc., as noted in my column. While my recommendation is toward full reconciliation, I fully understand some of the issues that keep agencies from doing so.

A number of agencies have mentioned an industry study--supposedly done some years ago--that indicated a less than 1% margin of error by carriers. Unfortunately, none of the agencies that seemed familiar with the study could remember where they read it, who performed the study, etc. Even so, a 1% margin of error (against the agency) based on $1 million revenue is $10,000. If the agency feels it can afford to pay producers for revenue they didn't get, and that the cost to perform the reconciliation outweighs the "lost and found" issues, then that's their decision.

During one of my recent group classes, the CEO of a large agency in the Tennessee/Kentucky region told me that he felt the margin of error was small, but that that same small percentage once amounted to $100,000 in commission checks that would have been missed had he not been reconciling. *