SunGard Relius

Q. In the last article, you attributed your company's success to better underwriting. Please enumerate the five most important factors in underwriting.

Baisden: This is how we see this issue at IAT.

1. The TPA's pre-sale work. Gathering ALL pertinent information about the cases and passing ALL of the information on to us is most important. There must be no censorship of bad claims years and the TPA has to ask all the tough questions of his client.

2. Specific underwriting. I mentioned this in the last article, but it is so important to set an appropriate spec deductible with premium greater than $60,000, but less than $125,000. Too small premium and it's not worthwhile and the specific is probably too large; too much premium indicates that the specific is too low and there will be a lot of activity for the MGU's claims department. If there are always several spec claims on different people each year, and the case is producing an underwriting loss, most likely the specific is set too low.

3, The general health/sickness of the group. This is still in the area of specific underwriting. If there are several potential claims excess of the spec deductible being proposed, will there be an underwriting profit at year end?

4. Aggregate underwriting requires multiple years of monthly paid claims, monthly covered population, and shock claim amounts. Agg claims are SUPPOSED to happen when there is an aberration in the number of shock, or near-miss shock claims. Agg claims are happening today because of a) misinterpretation of the data by the underwriter (treating immature claims years as mature), b) assuming a case is stable in population when it's actually been growing, c) double discounting for PPOs, d) poor math skills, and e) TPA claims payment manipulations.

5. Picking the right TPA. There is a lot of what I call housecleaning at year end. Throughout the year a TPA will get behind. It will market a renewal with nine or 10 months of low claims data with a backlog of several days or weeks. After renewal terms and competitors have made offers, the TPA will look at the claims versus the current attachment point. If there is a probable aggregate violation, it will "houseclean" and the claims shoot up in the current year, but they go down the first month or so of the renewal year. If the TPA decides not to clean house at year end, but does so early in the renewal year, then it puts pressure on the agg, which was set using low claims numbers.