At this very moment you are chasing thousands, or maybe even hundreds of thousands of ULAE dollars, all refusing to be hunted and tagged back into ALAE territory.
These clandestine dollars are experts in finding ways to stay undetected by even the most sophisticated insurance financial tracking systems in the world.
Every time I hear someone reference a ULAE, I get a slight nauseous feeling in the pit of my stomach.
Because unallocated means unmeasurable. Unmeasurable translates to unmanageable. And unmanageable means, “I don’t know where the money’s going!”
But let’s first define a few terms and make sure we’re all on the same page.
All claims have two primary exposures: Indemnity and Expense.
Indemnity, of course are all payments made to the insured for the sole intent of returning the insured to their pre-loss condition.
‘Indemnification’, hence, the indemnity payment. Now many of these payments can be further broken down, but for the purposes of our ULAE conversation, let’s concentrate on the expense side of the equation.
The other payments that are made are ‘Expenses. These are any and all expenses incurred in the process of adjudicating the claim.
These expenses are broadly referred to a ‘LAE’ or ‘Loss Adjustment Expenses’.
LAE can further be broken down into two categories. ALAE and ULAE.
ALAE or ‘Allocated Loss Adjustment Expense’. This is good loss LAE (to the extent that any expense can be good).
Allocated here means that any expense that can be attributed directly back to any one claim. Example, ABC Insurance Carrier hires an independent adjuster to handle a claim.
That adjuster submits an invoice for that one claim. That expense is ALAE. It is allocated to that ONE claim. So ‘A’ is allocated in ALAE, that means that the ‘U’ is unallocated. In contrast, ULAE is ‘Unallocated Loss Adjustment Expense’.
For that example, the claims department of XYZ Insurance hires 10 adjusters on salary to handle its daily claims in a metro area. They handle whatever claims come across their desk, and their claims expenses are usually booked as ULAE.
Adjusters need to be paid, and heretofore XYZ would have just booked those salary expenses as ULAE.
It is easy enough to calculate the true claims handling expense on those files, (salary/number of claims=costs). But that calculation is not showing the full picture, there are other soft costs that may or may not be loaded into that simple math equation.
Moreover, there are other expenses that are so minor that it doesn’t make practical sense to allocate them to the claim.
An example of these expenses would be weather reporting services, satellite services, postage expenses or ITEL reports.
All of these services are valuable, they all add to the global understanding of the claim and the position that the carrier needs to take on any number of issues, but their costs are generally rolled up and booked as ULAE.
So if you’re looking for the effectiveness of any one of these services, how do you begin to measure that?
Some anecdotal examples where the policyholder thought their builder grade carpet was a hand looped wool Berber and the ITEL report provided the analysis to refute and stand on the actual cost for like kind and quality?
The EagleView report showed the roof is 24.54 actual squares rather than the 29 that the roofer is claiming!
Each of these are impactful and justify the service, but again the question remains… How do you manage when and where to use these services?
The Solution
By having consolidated ALAE invoicing with each of the microservices, the claim expenses then becomes reportable, actionable and therefore manageable.
While accepting the mission to eliminate ULAE has been a daunting task, the impact has been equally rewarding.
By affording every qualified vendor a platform to reach the desk adjuster and provide single sign on microservices requests, the quality of the underlying claim has benefited.
The accuracy of the indemnification has become far more precise and due to transparency across vendor-to-policy holder, consumer confidence in the process has skyrocketed.
We pay NOW!
This is the other differentiator to the carriers and vendors. Upon completion of their service; we pay the vendor up front and wait for the carrier to repay us for their services.
The time it takes a carrier with all of its moving parts to get a vendor paid, added to the costs for that vendor to perform its services drags too long and requires unnecessary human intervention and follow up.
Therefore, the carrier is getting little value because of the multiple deadspace points between service provided and monies paid to the vendor.
So by fastforwarding payments to vendors we’ve eliminated those issues.
ULAE is complex. Providing services to a geographically diverse group of policyholders is complex.
Most vendors do an amazing job and work very hard to partner with the carriers to perform their respective services. By eliminating the friction in the process, we are allowing the carriers the ability to better manage their vendors and their services while simultaneously allowing the vendors the ability to focus on what they do rather than getting paid.
We look forward to extending the conversation on the topic.
Your thoughts and comments as we continue to strive to make the claims marketplace as efficient as possible, and increase the carriers’ confidence that their goal of indemnification is being accomplished; is extremely necessary and welcome.
If you would like to know how our innovative claim process can help you make effective real time decisions, maximize control and minimize costs relating to your claims. Click here to schedule a brief chat with me!
Would love to know your take on the topic, if you’d like to chat, once again you can set up a time right here.
Founder, CEO / TelaClaims. Author, speaker and entrepreneur. David spends most of his time today developing software solutions for the Property Claims and Insurance space. Enjoys good food, fast cars, and a room full of developers, marketers, and videographers. He lives in South Florida with his wife, son and two daughters.
