The ability to increase operating earnings Operating Earnings
Profits after subtracting expenses such as marketing, cost of goods sold, administration and general operating costs from revenue.
Tax and interest expenses are not subtracted - operating earnings are synonymous with EBIT (earnings before through better management practices is often the equivalent of writing several million dollars worth of new premiums.
More efficient and effective billing and collections represent a major opportunity to increase investment income and one that is overlooked by many commercial property/casualty insurance companies.
Top-performing organizations focus on getting money in the door faster. By accelerating the collection of premiums and nonpremium revenue, such as service fees and loss-sensitive rating plan reimbursements, funds are available more
quickly for investment, which in turn generates additional investment income. Simply put, the ability to increase operating earnings through better receivable-management practices is often the equivalent of writing several million dollars in profitable new business premiums.
The amount of premium that flows through an insurance company is considerable, ranging from $500 million to $18 billion annually for the top 40 commercial property/casualty companies. The average is $3.2 billion. Given these significant cash volumes, it is surprising to find that insurance company billing and collection practices are not as aggressive as those of their banking counterparts.
Banks have instituted well-managed, centralized cen·tral·ize
v. cen·tral·ized, cen·tral·iz·ing, cen·tral·iz·es
1. To draw into or toward a center; consolidate.
2. collection centers with standardized standardized
pertaining to data that have been submitted to standardization procedures.
standardized morbidity rate
see morbidity rate.
standardized mortality rate
see mortality rate. business processes and practices such as consistent call escalation es·ca·late
v. es·ca·lat·ed, es·ca·lat·ing, es·ca·lates
To increase, enlarge, or intensify: escalated the hostilities in the Persian Gulf.
v.intr. and assessment of late fees, well-trained collectors, state-of-the-art collection technologies and meaningful performance benchmarking. In contrast, insurance organizations use a variety of practices resulting in significantly different collection results, according to according to
1. As stated or indicated by; on the authority of: according to historians.
2. In keeping with: according to instructions.
3. a survey of the 40 largest commercial property/casualty insurers in the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. recently completed by the Financial Services The examples and perspective in this article or section may not represent a worldwide view of the subject.
Please [ improve this article] or discuss the issue on the talk page. Industry Business Consulting practice of Arthur Andersen For the U.S. Supreme Court case commonly known as Arthur Andersen, see .
Arthur Andersen LLP, based in Chicago, was once one of the "Big Five" accounting firms (the other four are PricewaterhouseCoopers, Deloitte Touche Tohmatsu, Ernst & Young and KPMG), performing .
The primary objective of the survey was to identify organizational strategies and practices that drive high performance. The survey findings highlight best practices used by high-performing organizations and the potential economic benefits other companies can achieve by implementing these practices.
Aligning Payment Options
Top-performing insurance companies understand the connection between collection performance and product standardization standardization
In industry, the development and application of standards that make it possible to manufacture a large volume of interchangeable parts. Standardization may focus on engineering standards, such as properties of materials, fits and tolerances, and drafting . They offer a limited number of payment options to their agents and policyholders. The most effective organizations, as measured by average collection lag, indicated in the survey that, on average, they offer only 12 policyholders. Collection to 15 payment options to lag measures collection efficiency in obtaining payment relative to the invoice due date.
As companies across all industries work to better classify clas·si·fy
tr.v. clas·si·fied, clas·si·fy·ing, clas·si·fies
1. To arrange or organize according to class or category.
2. To designate (a document, for example) as confidential, secret, or top secret. customers based upon profitability, there has been a dramatic rise in preferred-status programs designed to meet the specialized spe·cial·ize
v. spe·cial·ized, spe·cial·iz·ing, spe·cial·iz·es
1. To pursue a special activity, occupation, or field of study.
2. needs of each segment. The insurance industry applies the concept of agency tiering based on profitability and productivity, but they seldom apply the service-tiering concept to the management of agency receivables. It is not unusual to find that all types of installment plans and payment arrangements-such as account current reporting, statement bill or direct bill-are offered to all agents regardless of their relative importance to the company
High-performing insurance companies differentiate themselves by aligning their bill-payment options with agency status to improve customer service for their key agents. By tiering payment options by segment, the majority of a company's resources are allocated to their most profitable segments. This also simplifies, and thereby reduces, the higher processing costs, unsecured credit risk and negative cash flow associated with the agencies that represent a relatively small portion of the company's total written premium.
Another way an insurance company can dramatically reduce the adverse implications associated with agency billing is by converting as many policyholders as possible to direct billing direct billing Managed care The submission of bills for services rendered–eg lab work directly to the party–ie Pt or financially responsible third party–insurance company, for whom the service was performed, rather than to the physician who ordered the test . Although most insurance carriers offer commercial-lines direct-bill services, the level of penetration for commercial lines is considerably lower than with personal-lines insurance. Historically, insurance companies have done a poor job of promoting the benefits of direct bill to their commercial lines agents. They have also been hampered by direct-bill information systems designed with operating constraints CONSTRAINTS - A language for solving constraints using value inference.
["CONSTRAINTS: A Language for Expressing Almost-Hierarchical Descriptions", G.J. Sussman et al, Artif Intell 14(1):1-39 (Aug 1980)]. that reduced the level of flexibility needed to service commercial policyholders. Quite frankly, agents will continue to view agency billing as a way to "play the float" as long as insurance companies maintain their traditional billing processes. The potential benefits resulting from increased direct bill usage, however, far outweigh out·weigh
tr.v. out·weighed, out·weigh·ing, out·weighs
1. To weigh more than.
2. To be more significant than; exceed in value or importance: The benefits outweigh the risks. the costs and challenges associated with improving the penetration rate of commercial-lines direct bill.
Most organizations recognize the benefits of a centralized or regionalized location for their billing and collection activities. The resulting economies of scale and cost efficiencies make it a critical component of successful companies. Another consideration affecting the alignment of resources involves the concept of teaming.
One of the coordination costs associated with a centralized structure is the communication barrier that often exists due to geographic boundaries. One way of promoting effective communication is to align align (līn),
v to move the teeth into their proper positions to conform to the line of occlusion. billing and collection service teams with external users. The alignment can be based on agency, business unit or field office, but the primary objective is to establish a strong, cohesive cohesive,
n the capability to cohere or stick together to form a mass. working relationship to mitigate the barriers created by not having a local presence.
1. Open to argument: an arguable question, still unresolved.
2. That can be argued plausibly; defensible in argument: three arguable points of law. , one of the most important qualities exhibited by high-performing companies is the timeliness of their collection follow-up activities on past-due balances and their insistence on collecting partial payments for disputed bills. Many companies stress the importance of billing and collections, but their actions fall to reinforce their strong statements. Prompt, persistent, yet polite follow-up on past-due items conveys the message that someone is carefully watching payment activity. Requiring agents to make partial payments reinforces the understanding that billing is being closely monitored and that any discrepancies will be resolved in a professional manner.
The success of many of these practices lies in the hands of the staff. As such, the effective recruitment, retention and training of the right types of employees is critical to the success of my billing and collection organization. Not all individuals are skilled in calling agents or policyholders and asking for money or, for that matter, providing exceptional customer service. The skills and temperament temperament, in music, the altering of certain intervals from their acoustically correct values to provide a system of tuning whereby music can move from key to key without unacceptably impure sonorities. needed to be a successful collection employee must be defined and appropriately considered when evaluating current and prospective employees.
At present, many companies assign all billing and collection activities for an insurance agency to a single person. However, high-performing organizations break down the function into specific tasks, such as entering data, searching for unmatched cash, generating bills, following up on past-due balances, and resolving payment discrepancies. Then they assign specific tasks to different individuals based on required skill levels. For example, the respnsibilities are very different for someone performing low-skill activities such as data entry compared to high-skill activities that involve more client interaction such as collection of past-due balances. They can designate des·ig·nate
tr.v. des·ig·nat·ed, des·ig·nat·ing, des·ig·nates
1. To indicate or specify; point out.
2. To give a name or title to; characterize.
3. one "collector" to spend the majority of his or her time following up on past-due balances, as opposed to performing clerical tasks. This segmented approach helps increase the flow of money into the company
The driving force behind any company's collection initiatives is account- ability. If employees, agents and policyholders are measured based on payment results, then billing and collection performance will undoubtedly improve. High-performing insurance companies establish strong performance benchmarks that promote the type of behavior that leads to positive results and regularly share findings with key stakeholders Stakeholders
All parties that have an interest, financial or otherwise, in a firm-stockholders, creditors, bondholders, employees, customers, management, the community, and the government. . Furthermore, the ability to monitor the key performance indicators Key Performance Indicators (KPI) are financial and non-financial metrics used to quantify objectives to reflect strategic performance of an organization. KPIs are used in Business Intelligence to assess the present state of the business and to prescribe a course of action. at an agency, field office and individual level ensures effective management of the entire collection process.
Before trying to improve billing and collection operations, an organization must understand key activities, business drivers, activity prioritization, desired behaviors, technological constraints and the difference between value-adding and nonvalue-adding activities. The solutions needed in receivables management often involve aligning the organizational structure This article has no lead section.
To comply with Wikipedia's lead section guidelines, one should be written. with business unit strategies, streamlining process flows and implementing performance measures that encourage desired behaviors in both the front and back office.
There are four primary trends in billings and collections, based on survey responses and additional research:
* improved information management with scanning and imaging technologies;
* greater automation of processes that interface with external customers
* increased flexibility in the customer-service channel; and
* increased use of outsourcing (1) Contracting with outside consultants, software houses or service bureaus to perform systems analysis, programming and datacenter operations. Contrast with insourcing. See netsourcing, ASP, SSP and facilities management. freeing management to focus on core competencies A core competency is something that a firm can do well and that meets the following three conditions specified by Hamel and Prahalad (1990):
Insurance companies will be able to respond more rapidly to customer inquiries and pursue unpaid balances more efficiently by improving the quality of their data-management systems and procedures. Increased use of data-imaging and scanning technology will enable insurance companies to improve management and sharing of information within their organizations. These technologies will help shorten (audio, compression) Shorten - A form of lossless audio compression. customer-service response times, reduce storage costs and increase flexibility in staffing arrangements.
In addition, insurance companies are beginning to use the Internet to interface more effectively with agents and policyholders. For example, they can use the Internet to increase efficiency in accounts-receivable transactions. Also, increased emphasis on electronic-bill presentment presentment: see indictment. and payment technologies will enable insurance companies to eliminate paper for account-current reports, deductible/captive-reimbursement billings and profit-sharing reports. This type of information can then be exchanged more quickly and cost efficiently over the Internet.
High-performing insurance companies realize they can no longer do business with their agents in a traditional manner. Insurance companies are evaluating the feasibility of aligning bill-payment options with agency status. They also are reviewing the ways in which they deliver customer services. More companies are implementing self-service strategies that enable agents and policyholders to select their level of customer service. For example, voice-response systems, e-mail policy endorsement or claim reporting and online access to claim information over the Internet are a few of the customer-service methods being used.
James W.McAveeney is partner in charge of the Financial Services Industry Business Consulting practice of Arthur Andersen. David R. Finkelstein is a manager in the Financial Services Industry Business Consulting practice of Arthur Andersen.
In a slow-growth industry like commercial property/casualty insurance, high-performing organizations capitalize on Cap´i`tal`ize on`
v. t. 1. To turn (an opportunity) to one's advantage; to take advantage of (a situation); to profit from; as, to capitalize on an opponent's mistakes s>. nontraditional profit-improvement opportunities. Arthur Andersen's survey of the billing and collection practices for the 40 largest commercial property/casualty insurers in the United States, combined with the firm's overall receivables-management experience, have enabled Arthur Andersen to identify a number of best practices that are applicable for both premium and nonpremium billing and collection activities. These benefits and opportunities can be realized without a reduction in work force.
Product and Service Offerings
* Offer a limited number of payment-plan options
* Integrate billing and collection activities with agency service tiering strategies
* Actively promote the use of direct-bill payment plans
* Use a centralized or regionalized billing and collection structure
* Develop streamlined and standardized billing and collection processes
* Initiate the past-due collection follow-up process at an early stage, such as after 30 days
* Minimize negative cash flow arising from billing disputes through the collection of partial payments
* Recruit and retain personnel with collection and customer-service experience
* Provide continuing training to employees to update business process and collection skills
* Use an operating model Operating Model is a term that is used in many contexts. In essence an operating model describes how an organization operates across both business and technology domains. The Operating Model describes what is important for the organization. that promotes specialization A career option pursued by some attorneys that entails the acquisition of detailed knowledge of, and proficiency in, a particular area of law.
As the law in the United States becomes increasingly complex and covers a greater number of subjects, more and more attorneys are of resources such as one that differentiates between high-skill and low-skill functions
* Establish effective performance metrics Performance metrics are measures of an organizations activities and performance. Performance metrics should support a range of stakeholder needs from customers, shareholders to employees . that promote desired behaviors
* Monitor collection performance at both a company-wide and employee level
* Share billing and collection results with key stakeholders, such as underwriters