How PBMs can help auto insurers navigate rising costs and operational challenges

The current economic landscape presents multiple challenges that directly affect how auto insurers process and manage claims. Inflation continues to influence virtually every aspect of the claims process, while broader economic uncertainty adds complexity to claims management decisions.

“There are a host of challenges from both economic and health insurance perspectives that auto carriers face when managing claims. Economic uncertainty regarding impending tariffs may affect how claims are processed for patients. Payers are also still experiencing the impacts of inflation across goods and services,” said Shawn Waters, Director, Medical Clinical Ops at Optum.

Beyond inflation, the industry is grappling with supply chain shortages and bottlenecks with far-reaching effects. “The industry is still seeing challenges with supply chain disruptions, which relate directly to rising costs in vehicle repair and replacement. This is having a significant impact on obtaining auto parts and increasing labor costs,” noted Amy Santoro SVP, National Sales – Strategic Accounts at Optum.

The financial pressures extend beyond immediate repair costs. Interest rate fluctuations are creating additional challenges for insurers’ investment portfolios, while rising healthcare costs create challenges for the overall claims landscape. “Interest rate fluctuations are impacting insurers’ investments, resulting in negative effects on profitability and pricing strategies,” Santoro added.

Post-COVID factors also play a significant role in shaping the current environment. “When we consider how people are contending with post-COVID stressors in everyday life, we’ve seen worsening mental health conditions in the general population. The rising costs of healthcare, coupled with potential loss of health insurance due to changes in Medicare and Medicaid, will certainly impact how claims are processed,” Waters said.

As Waters explained, “And with these economic pressures, there’s potential for increased fraud, waste, and abuse. After a motor vehicle accident, patients might find their auto insurance doesn’t cover certain goods or services. Alternatively, patients without health insurance might attempt to have treatments covered under their auto insurance that wouldn’t normally be covered under health plans.”

According to insurance and government data, auto-related medical costs and claims continue to outpace general inflation in recent years. This upward trend is driven by a combination of factors, including increasingly risky driving behavior, escalating healthcare expenses, more complex injuries, and a rise in litigation activity. “Recent data reveals a notable uptick in payouts for both bodily injury and personal injury protection (PIP) claims. In fact, average PIP claim payouts have increased by nearly 4% since late 2023 — a trend that definitely warrants attention,” said Santoro.

While many auto insurers continue to rely on traditional claims management approaches, an increasing number are recognizing the value of a PBM — a long-standing resource for other insurance payers — as a strategic tool to address growing cost and care management pressures.

As economic pressures mount and claim severity increases, auto insurers are discovering that PBM services can provide significant cost savings and operational efficiencies. 

Although PBM partnerships have delivered measurable benefits for insurance payers in other industries, adoption among auto insurers has been more gradual. This may be limiting opportunities to address rising costs and operational inefficiencies more effectively.

“In my experience, auto payers have not adopted the same strategies used by payers in other industries and therefore don’t always recognize the benefits of engaging with PBMs,” Waters said.

Several factors contribute to the slower adoption of PBM services in auto insurance. One key reason: the scope of auto insurance pharmacy benefits is primarily concentrated in no-fault states with higher PIP coverage requirements. “Unlike no-fault auto insurance, other payer types operate across a national footprint. From a no-fault/PIP insurance perspective, the most relevant markets for PBM integration are Michigan, New York, and New Jersey due to their higher minimum benefit requirements. However, while these states present a strong fit for PBM services, other no-fault states may also stand to benefit, ” Santoro explained.

Regulatory changes, such as the 2023 Florida Prescription Drug Reform Act (SB1550) that took effect on January 1, 2024, have also affected the landscape. “Florida, once considered a strong  opportunity for PBMs to save payers money due to its large driver population despite modest coverage limits, has become less favorable. Regulatory constraints have made it increasingly difficult for PBMs to deliver meaningful savings to payers in the state,” Santoro noted.

For auto insurers ready to embrace PBM services, the benefits can be substantial and multifaceted. PBMs offer comprehensive solutions that address both the cost management and operational efficiency challenges facing the industry.

Better Cost Management

Cost savings represent one of the most immediate and tangible benefits. “We provide cost savings by leveraging our bulk pricing capacity. This involves negotiating favorable prices for pharmacies and passing those savings on to clients,” Santoro explained. “We also enhance fraud, waste, and abuse programs through our robust internal systems. This helps clients manage potential incidents of fraud, waste, abuse, and misuse, increasing payment integrity and efficiency in claim processing,” Waters added.

Better Claims Management

Data analytics capabilities provide valuable insights that can inform both immediate claims decisions and longer-term strategic planning. “We run our data against powerful analytic models to provide important insights. This helps us identify medication trends and pinpoint cost drivers,” Santoro said.

Waters emphasized the broad applicability of data analysis: “Data and analytics for identifying trends is huge across many organizations and industries. Our ability to excel in this area benefits both our clients and patients through quicker claim processing. We can examine records, make informed decisions and recommendations, and close gaps we identify by analyzing all data points and patient records.”

Better Workflows

Waters noted that operational efficiency improvements can have a significant impact on claims staff productivity and overall claims processing speed, “We improve overall efficiency by reducing the claims professional’s workload. By taking on much of the administrative burden, we enhance the program’s efficiency.”

For claims professionals, the operational improvements can be transformational. “From the claims professional’s perspective, the benefits include reduced workload and administrative burden. Their tasks are simplified through more efficient workflows, standardized processes, and automation. Additionally, they gain valuable data and analytics capabilities,” Santoro said.

Better Recoveries

PBMs provide proactive clinical oversight that helps ensure appropriate care while also controlling costs. “From a clinical perspective, PBMs proactively monitor claims. We create formularies that comply with federal, state, and industry regulations while conducting proactive evaluation of claims,” Waters and Santoro explained jointly.

The clinical expertise that PBMs bring to claims management is particularly valuable in ensuring that treatments are appropriate. “We analyze claims to assist our carriers in managing them effectively. Our clinical expertise allows us to review patient records and prescriptions, ensuring treatments are reasonable and necessary, and are related to the specific injury associated with the auto claim,” they noted.

Formulary management represents another critical capability, particularly given the volume of new medications approved each year. “We create and manage lists of drugs that are covered or approved, and we have the ability to advise non-payment on certain medications. These are important factors in managing medications at the point of sale,” Santoro explained.

The benefits extend to multiple stakeholders within the auto insurance ecosystem. “From a claimant perspective, our services make claims management simpler and easier. We provide improved communication, extension of benefit dollars, and convenient access to medication, including home delivery options that enhance the claimant experience,” Santoro said.

The ultimate goal is improving policyholder satisfaction and retention. “At the end of the day, if we can take burden off the plate of the claims professionals and reduce costs, everyone benefits. Happy policyholders mean happy insurers, creating a positive experience for all involved,” Santoro said.

As auto insurers continue to face mounting economic pressures and operational challenges, PBM partnerships offer proven, valuable solutions. The combination of cost savings, operational efficiency improvements, and enhanced claimant satisfaction represents a comprehensive approach to addressing some of the industry’s current challenges.

The Optum PBM solution for auto no-fault delivers features tailored for the unique needs of auto injury claims. As Waters emphasized, “When someone experiences a traumatic event like a car accident, especially if it’s their first time dealing with such a situation, the ease of the claims handling process becomes crucial. When all parties involved — prescribers, providers, claims professionals, and the PBM — work efficiently together, everyone benefits.”