Imagine this: your employer uses an outdated technology for payroll. Because of this, your paycheck is a different amount each week. Assuming you’re a salaried employee, can you imagine accessing your bank balance and scanning your recent transactions each week to confirm if the amount deposited is close enough to what you were expecting? If it’s not close enough, you have to call your bank, employer and potentially another third party to find out why.
Under these circumstances, you’d consistently lose money you expected to make. Would you accept it as okay if it was within a certain standard deviation? I’m guessing no. It seems absurd to work all week long and end up with less pay than you and your employer agreed upon. Now, put this into the context of employee benefits carriers. For many, this scenario is a reality.
How does 5-10% of revenue vanish?
Due to legacy systems, disparate technology, and antiquated processes, many insurance carriers lose out on 5–10% of premium (revenue) annually. This adds up and can potentially cost carriers up to ten million dollars annually. That money may be earmarked to pay claims, fund employee benefits, pay to turn on the lights (when we go into the office), or cover the bill for remote video conferencing.
The persistent loss of money every year is real, but it’s not a universally understood problem. We call this ‘premium leakage’ and broadly define it as: the premium you don’t collect due to inefficiencies, inaccuracies, and otherwise risky processes.
How can the issue of premium leakage be addressed?
In the insurance industry, much plan administration is done outside the insurance carrier’s walls either due to self-insured plans or broader self-administration. That’s not going away, nor should it. Thinking about enrollment and the broader benefits administration market, I see a more focused conversation occurring around the options to address this issue. However, the solution won’t be one–sided: it’s going to be a partnership between self–administration technology providers and insurers.
The answer is core strength
Just like when you experience back pain or other pulls and strains the solution is to strengthen your core. The core solutions an insurer deploys can prevent premium leakage and create a superior customer experience. Going a little deeper: we’re moving toward an environment where the insurance carrier can be a source of truth for the current plan and policy, as well as member data for the employer.
All of this can be accomplished by leveraging a modern SaaS platform purpose-built for the Employee Benefits market. Using a repurposed Property and Casualty system can only compound the issue. Attempting this is like forcing a square peg into a round hole.
How does a purpose-built core system for Employee Benefits address the $10M/year premium leakage question?
By integrating the enrollment and benefits administration ecosystem into the carrier’s source of truth, all service providers and administrators will be using the same data set. That means the same class structure, plan design, GI limit, etc. Everything is current and accurate.
Now when the monthly payment comes in, the employer and the insurance carrier are both calculating it from the same source of truth. This ensures an efficient and accurate process with proper claims payment output, resulting in zero premium leakage.
Leverage one source of truth to solve premium leakage
This is the next frontier in expanding the integration possibilities in Employee Benefits. The good news is, this is what FINEOS has been pursuing for the past few years. We’ve invested in building solutions within the FINEOS Platform for the Employee Benefits market; Integrated Disability and Absence Management (IDAM), policy administration, and multi-administration billing.
Our latest addition to the FINEOS Platform, the FINEOS New Business & Underwriting solution (formerly Limelight Health), further expands our ability to leverage one source of truth for the plan, policy, and member data from quote to claim, including absence – all equipped to help solve the problems of premium leakage. This is the future.
If you’d like to have a deeper conversation about this, feel free to reach out to me directly. In my next blog, we’ll address how premium leakage impacts the employee and member and why that is the most important aspect of this conversation.