Hundreds were denied life insurance benefits. Could it have been prevented?
June 29, 2023
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Hundreds of employees were just denied life insurance benefits. Finch could have prevented it from happening.
In May 2023, the Wall Street Journal reported that hundreds of families who had diligently paid life insurance premiums were denied millions of dollars in death benefits. This unfortunate outcome stemmed from paperwork missteps made by both employers and insurance companies.
However, this situation could have been avoided with the assistance of Finch’s unified API, which bridges data silos to connect mission-critical employment data. In this blog post, we’ll delve into what happened and how Finch can help prevent such issues from happening again.
What exactly happened?
The report revealed that a leading life insurer had made errors resulting in over 200 denied claims, amounting to as much as $7 million, in recent years. The denial of these claims left families in a distressing situation, as they were rightfully expecting financial support during a difficult time.
Why were their claims denied?
Despite diligently paying life insurance premiums, employees were denied their life insurance benefits due to "paperwork errors" made by their employers. These errors specifically involved the failure to submit "evidence of good health" questionnaires, which are often required for employees to qualify for supplemental insurance beyond the basic coverage. As a result, the life insurance company did not approve the employees for supplemental life insurance, and their claims were denied.
For background, group life insurance is a common employee benefit, with coverage typically ranging from 1-2 times an employee's salary. Employers often offer supplemental insurance beyond the basic coverage, and employees contribute to it through their paychecks. However, to be eligible for this additional coverage, employees must fulfill certain criteria.
Who's responsible for this outcome?
According to the carrier, the responsibility lies with employers, who must submit the required “Evidence of Good Health” form.
Employers often handle administrative tasks, including the calculation of premiums and ensuring that employees complete the necessary health forms for additional coverage. This allows insurers to offer life insurance to workers at relatively low costs and has been the standard practice for years according to the American Council of Life Insurers.
But doesn’t the carrier also bear some responsibility too? While it may seem logical that the carrier should be accountable for the payouts since they accepted the premiums, the truth is carriers are often encumbered by siloed systems and flawed processes—which lead to clunky and error-prone data exchanges with employers. For example, premiums are often aggregated rather than individually specified in employer-administered programs, making it difficult to link specific premiums to individuals. Furthermore, some carriers only conduct audits when a death claim is filed, rather than beforehand.
The courts say both parties have a role to play in preventing these issues going forward. Carriers must improve communication with employers regarding their responsibilities, and employers must submit the appropriate paperwork on behalf of their employees. In this case, the carrier has agreed to notify its employer clients that they must confirm the approval of health forms for workers' supplemental coverage before deducting premiums from paychecks. At the same time, if employers fail to fulfill their obligations, they may be held liable for payouts to the beneficiaries.
At the end of the day, it’s about miscommunication between the carrier and employers, and inadequate sharing of data between them. And this problem isn’t unique to this case. Insurance carriers everywhere struggle with similar issues when it comes to collecting and managing data on individuals through their employer. In many instances, even leading insurers don’t have access to the technology they need to effectively tackle these challenges.
Moving forward, who will be held accountable?
The responsibility for preventing such issues is increasingly falling on employers and their employees. Employers must be more diligent in filing paperwork, ensuring eligibility criteria are met, and obtaining approval for coverage before collecting premiums from employees and forwarding them to insurance carriers.
Why hasn't this been automated?
Despite the advanced technology we have access to in 2023, the administration of employee benefits still poses challenges. Sharing employee data between systems is still in its infancy and although thousands of apps have been created over the past decade to help employers manage employee data—no underlying infrastructure exists to connect all this data together. In fact, with over 5,700 employment systems in existence today, the market remains highly fragmented, making it nearly impossible for a third-party solution to solve the problem comprehensively.
Consequently, employers are forced to manually enter and transfer employee data between multiple systems. This manual process is time-consuming and prone to error. And to make matters more complicated, each system has its own rules and standards regarding data formats, leading to inconsistencies and compatibility issues when transferring information. As a result, crucial details often fall through the cracks, causing problems such as the denial of life insurance benefits.
Employers need to demand that their HR systems communicate with each other, eliminating the need for manual data entry and ensuring a streamlined process. It's time for the industry to embrace interoperability and leverage its buying power to make automated employee benefit administration a reality.
How can Finch help solve this problem?
Finch provides the vital infrastructure to connect disparate systems, facilitating secure and efficient movement of sensitive employment data between them. By integrating with Finch, third party organizations like insurance carriers gain direct access to relevant employee data from an employer's systems of record, such as HRIS and payroll software. This connectivity is extremely powerful for companies with the fiduciary duty to report on individual employee evidence of insurability—streamlining the exchange of information, and making it easier for carriers and employers to exchange employee data accurately.
For example, after integrating with Finch, carriers can prompt employers to connect their employment systems of record, granting permission for the carrier to access relevant employee data. The carrier can then automatically pull the required information, evaluate eligibility and approve coverage. Employers can proceed to collect and pay premiums, ensuring employees receive the coverage they are entitled to.
However, it’s important to note that no two implementations ever look the same. That’s why, at Finch, we’re here to help advise.
What’s the bottom line?
Simple administrative errors shouldn’t be the reason life insurance benefits are denied. And with employment data that’s connected and programmable, they don’t have to be. In fact, everybody wins with effective data sharing. Carriers and employers can both ensure they’ve done their part, reducing their risk of future litigation, and employees get their rightful benefits, at a time when they need them most.
To learn more about how Finch can help prevent life insurance benefit denials, reach out to our sales team.
Webinar Recap—Insuring a Future: How Automating Payroll Can Help You Navigate a Recession
April 19, 2023
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In a recent webinar, Ansel Parikh, Co-Founder and COO of Finch, demonstrated how a unified employment data API can unlock multiple advantages for insurance providers, including pay-as-you-go premium models, and increase overall operational efficiency.
According to a recent study by Corinium, 65% of insurance executives aren’t fully confident in the data that’s being used for quoting and claims validation. When insurance providers don’t have timely access to accurate data—especially employment data—millions of dollars are left on the table. The problem is, traditional processes to access employment data involve manual, time-consuming tasks and a heavy amount of resources.
That’s where Finch comes in.
On April 4, 2023, Ansel Parikh, co-founder and COO of Finch, led the webinar Insuring a Future: Keep Your Insurance Product Cutting Edge in 2023 to demonstrate how insurance providers can improve operational efficiency, benefits coverage, premium collections, and customer experience through the use of a unified employment data API.
He covered the following topics:
The definition of employment data
How employment data is applied to different types of insurance workflows
How insurance providers access employment data today
How to automate access to customers’ employment data, specifically the data locked in payroll systems
Below, we provide highlights from the webinar. You can also watch the complete recording by filling out the form below.
What is employment data?
Employment data is the entire scope of information that sits in different systems of record across the entire employee lifecycle.
Employment data includes:
Employee directory information like name, contact information, date of birth, manager, salary, and start/end date
Employee income information, including hours worked, salary, wages, deductions, and taxes
Finch focuses on the employment data that's housed in HR and payroll systems. And this information—particularly the granular information in payroll records around individual pay statements, specific deductions, past wages, and tips—has the power to streamline the process of insurance workflows and open up new customer segments for different types of insurance lines.
3 key use cases of employment data for insurance providers
There are three prevalent ways insurance providers can use employment data to innovate their processes:
Determining the risk profile of a company to streamline quoting
Using employee information, like employment start and end dates, to validate claims
Checking if the right premiums are being charged during the policy, based on actual employees and their pay, to unlock pay-as-you-go models
We go further into the details for each use case below.
1. Streamline quoting
The insurance industry is always looking to improve the quoting process for different lines of insurance such as worker’s compensation, commercial, group life, and group health.
Typically, quoting for these lines includes asking prospects to complete 10+ manual forms that require them to log into different systems or pull detailed information like an EIN to find gross wages per employee for the last month. In total, prospects have to input over 25 lines of data—including location details, company information, and employee salaries—just to generate a quote.
This manual labor slows down the quoting process and prohibits the likelihood of conversion.
“We've talked to many insurance providers who see a considerable drop off…when people have to continually fill out form after form after form. At Finch, our goal is to turn it into a 30-second process, where that prospect syncs their employment data instead, specifically the information needed for quoting, [by pulling] it straight from the source of truth,” said Ansel.
Access to this data allows insurance providers to pre-fill many form fields, so they can deliver quotes faster using real-time data from the prospect’s payroll system. Because employment data from payroll systems goes to the IRS every three months, the information has already been validated, helping to produce more accurate quotes in addition to streamlining their delivery.
2. Validate claims
Similar to the quoting process, data collection for submitting a claim is onerous for the policyholder. Claims forms require dozens of different lines of data that need to be self-reported by the employer and the employee, which then have to be individually verified by insurance providers’ claims processing teams. All of that time adds up.
Alternatively, insurance providers can pull this information directly from payroll systems via API, including fields like date of employment to confirm that a claim is being made by a current employee. Having programmatic access to this data helps insurance providers verify claims eligibility quickly, seamlessly, and accurately by pre-filing forms to save time and reduce self-reporting errors.
In other words, when employment data comes directly from the HR or payroll system—the source of truth—it helps insurance providers determine if the claim is valid right from the start. The insurance provider knows exactly who the person making a claim is, that the date of the claim aligns with their actual employment dates, and if they’re even eligible to file a claim, all within minutes.
3. Unlock pay-as-you-go premium payments
When it comes to workers compensation, insurance providers often leave premiums on the table—especially for highly seasonal businesses—by waiting until the end of a policy to reconcile payments. This also creates surprise bills for customers and reduces customer satisfaction.
Alternatively, when insurance providers check to ensure the right premiums are being charged throughout the course of the policy, as opposed to the year-end audit period, they have the ability to change their customers’ payment structures when appropriate.
For example, if a ski resort’s policy starts in the summer, underwriting is based on the number of employees they have during that time. It takes a full-year cycle and a premium audit to notice the number of employees increased three-fold during the winter months. As a result, risk is mispriced, the ski resort doesn’t pay an accurate premium for their policy, and they receive an unexpected bill after the audit to shore up costs.
When insurance providers have the ability to unlock a pay-as-you-go model, real-time employment data creates more accurate premiums and more efficient cash collection throughout the policy’s term without mispricing risks for a large chunk of the year. Premiums can be adjusted as the risk profile evolves, the policyholder doesn’t receive surprise bills, and customer satisfaction increases. This becomes especially important during the renewal cycle, when insurance providers are looking to retain customers.
A pay-as-you-go program that utilizes automated employment data feeds provides a more efficient, cost-effective, and accurate solution for insurance providers, agents, and policyholders.
“When [employment] data is accessible, and the process is streamlined, it reduces friction for the policyholders’ renewal. The data also is processed in a much more standardized, ingestible format. But what’s most exciting about this pay-as-you-go model is that policyholders love it. It allows them to have more working capital, and that’s incredibly valuable,” said Ansel.
However, as valuable as employment data can be across the policy lifecycle, it’s a major problem to access this information even today.
What is the main challenge of accessing employment data?
The main challenge of accessing employment data is market fragmentation. There are over 5,700 HR and payroll systems being used by U.S. businesses today, and the top 10 payroll systems only account for about 55% of the market.
So, even if an insurance provider integrates with all 10 of these systems, the employment data of almost half of businesses in the U.S. would remain inaccessible. Ensuring proper coverage of an insurance provider’s target market means integrating with hundreds of HR and payroll systems. That’s no small feat.
3 ways insurance providers try to access employment data
There are three different ways insurance providers try to gather information from HR and payroll systems:
Build individual integrations one by one
The problem is, individual builds take up a lot of engineering resources, costing hundreds of thousands and even millions of dollars over the life of the integration.
“We've seen teams spend over a year just to build one integration, but then you still have to maintain that integration for the future. That’s a consistent resource drain,” said Ansel.
Set up a secure file transfer protocol (SFTP)
Other times, insurance providers will get customers’ IT teams involved to set up an SFTP. This means that the systems involved need to exchange flash files, which usually leads to a configuration problem, because every system has a different format.
“You're introducing a ton of friction for every single customer in order for them to share the key information you need to streamline these workflows,” said Ansel.
Manually upload different data sets
Asking customers to manually upload employment data from their HR and payroll systems isn’t just labor intensive. Manual uploads introduce more risk because there’s a chance that the data isn’t up to date. It also increases the chances of people misreporting data, not out of malice, but because the process itself lends itself to human error.
None of these options create seamless experiences for insurance providers or their customers, who expect systems to be able to talk to one another.
The top benefits of an employment data API
APIs allow secure data transfers between two or more systems to happen in real time, and different kinds of APIs exist to serve different datasets. An employment data API provides secure access to sources of employment data: HRIS and payroll systems. And they do it with a single integration, so it’s as easy for customers to transfer data as it is for them to sign into their payroll accounts.
Utilizing an employment data API like Finch for integrations leads to substantial material benefits that can boost return on equity (ROE).
Improve efficiency and reduce operational costs
Integrating with Finch’s standardized API schema unlocks programmatic access to hundreds of HR and payroll systems. Compared to building one-off integrations in-house, the time and cost savings are tremendous.
One Finch client, for example, now has direct employment data connections with more than 3,000 of their customers, and they were able to reduce their development costs by 75% by aggregating that access through Finch instead of building those integrations one by one.
Save on support resources
Without an API, accurately syncing data between systems via SFTP or manual uploads often requires an investment of at least 1.5 hours in support calls and dedicated support team resources to walk customers through the specific syncing instructions for different payroll providers. These approaches don't scale well, and they divert insurance providers’ resources away from core objectives like driving ROE and renewal rates.
In contrast, setting up API-enabled employment data feeds is quick and easy, reducing the number of support inquiries that policyholders make and requiring less support resources.
Unlock new customer segments
By allowing insurance providers to offer more customers seamless quoting, onboarding, and claims experiences, universal employment data APIs like Finch increase insurance providers’ potential to unlock new customer segments.
“There's a halo effect of saying, ‘I'm compatible with your payroll system,’ because customers trust that payroll system for very core pieces of information and operations. Your association and compatibility with that system extends that credibility to your product. Potential customers are more likely to trust your product because it talks to systems they already trust,” said Ansel.
Improved accuracy, transparency, and risk management
Unlike manual data entry, which is prone to human error, automated employment data feeds via API allow for improved data accuracy and visibility, both of which are crucial to the calculation of workers’ compensation premiums and claims payments. In turn, insurance providers can better manage risk and make more informed decisions.
A working example: Finch and InsurePay
InsurePay is a technology company that offers a cloud-based payment platform for workers' compensation insurance premiums. Their platform integrates with insurance providers, payroll providers, and brokers to automate and simplify the premium calculation and payment process.
Finch’s API ensures data is flowing compliantly and securely from the policyholder's payroll system of record to InsurePay as well as the insurance provider.
“We enjoy partnering with InsurePay, because they understand all the different pieces of the policy lifecycle and where improvements can come from. InsurePay wanted to partner with Finch, because we understand the value of automating payroll connectivity and unlocking a pay-as-you-go model,” said Ansel.
How Finch serves insurance providers
Our goal at Finch is to simplify access to HR and payroll systems with one simple, streamlined integration.
With Finch, insurance providers can map to one unified data structure, capture more edge cases, and expand their integration network anytime we add a new system. We’re singularly positioned to provide insurance providers with mission-critical infrastructure for employment data across a wide range of verticals, including read-and-write compatibility with 200+ HR and payroll systems used by more than 88% of U.S. businesses.