As providers and administrators, one of the most important aspects of your day-to-day business is creating, maintaining and sometimes (unfortunately) ending relationships with one another. The most difficult part of this process is maintaining these relationships.
Why is this so important? Because, as research has proven time and again, maintaining a strong professional relationship is essential to achieving success. Even with the best products and business practices, you still need strong relationships to succeed in the marketplace.
One of the best competitive advantages that a company can attain is to have great relationships with its providers, administrators, company representatives and dealer-customers.
Throughout these trying economic times, many third-party administrators have looked to gain a competitive advantage through lower-priced products. However, while an initial advantage may be gained by using a risk retention group for underwriting to attain these lower prices, the low visibility and accountability can ultimately bankrupt the TPA and leave consumers without coverage.
When a TPA is unable to meet its contractual commitments to consumers, not only are consumers affected, dealerships, distributors and even OEMs can be affected as well. This cannot only destroy the relationship among these parties, it can destroy future relationships and give the company at hand negative publicity.
“Dealers, administrators and underwriters have the responsibility to provide products that are fully vetted for potential risks to consumers over the term of the contract,” says Randy Barkowitz, CFO, Safe-Guard Products International, LLC.
According to Dave Duncan, senior vice president of Safe-Guard, competitively priced products and responsible risk management are keys to successful long-term underwriter relationships and also to maintaining the financial stability of TPAs.
In addition, using underwriters with an A- or better A.M. Best rating, strong management and stable financial backing is a key first step to ensure that the plan purchased by the customer will be fulfilled by the terms and conditions of the contract.
“The insurance relationship is one of the most important, strategic relationships a TPA can maintain," Barkowitz says. "The strategies of both companies must be aligned in an open, collaborative relationship. Safe-Guard maintains multiple relationships with best-in-class underwriters selected to give us the greatest ability to maintain and grow relationships with our customers.”
According to Barkowitz, a partnership with an underwriter is not just about insurance. The exchange of information relating to sales, operations, risk management and compliance is also crucial. The TPA and underwriter must share risk information and other data that affects the underwriting of the product in its entirety.
“We view underwriters not as vendors, but as long-term strategic partners,” he said. “The unencumbered exchange of information can actually lead to product enhancements and the development of additional products.”
One example of a strategic opportunity is product enhancement. Underwriters and TPAs could use data from claims to discover a non-covered customer need to enhance a product. Having this close partnership puts TPAs and underwriters in a better position to react to market changes and evolve the coverage offered.
Many TPAs need to plan further ahead to make sure they are not underpricing or improperly selling products. Sharing cross-organizational information as it relates to underwriting can prevent claims issues down the road. Having a proactive partnership gives the TPA the marketing advantage in the long term. In addition, the underwriter is more likely to want to maintain a strong relationship and competitive pricing with the administrator.
After all, short-term marketing advantages gained based on poor underwriting guidelines hurt the entire distribution chain. Therefore, distinguishing between short-run and long-run marketing advantages (i.e., choosing a strong, well-respected underwriter) has a direct effect on the success of all parties involved.
“The end consumer could potentially pay the price of not getting the coverage promised on a product he or she purchased,” Barkowitz says.
Perhaps it is time for TPAs to re-evaluate their underwriter relationships. Perhaps the competitive advantage IS that relationship! Perhaps, that is the key to your success!!