Not long ago, managing money meant sitting down with a paper checkbook, a monthly bank statement, and a pencil. Each month, you'd receive a paper statement via post, manually tick off cleared payments and try to reconcile the numbers. This process was slow and error-prone and gave you little-to-no real-time visibility into your finances. It feels like a relic, but claims funds are still managed with the same outdated mechanics.
Claims funds remain scattered across stakeholders and systems. Banking structures are split between insurers and TPAs, while MGAs often sit in the middle, reliant on reports that arrive late or don't align. Across all parties, reporting lags behind reality. Reconciliation still depends on manual processes, and payments are often handled in batches rather than in real time. What should be a seamless financial flow instead resembles balancing a giant, industry-wide checkbook.
This fragmentation is more than just inefficient. It is a structural problem that drains liquidity, hides cash, slows payments, and consumes valuable time across the entire insurance value chain. Tens of millions of dollars often sit idle, reducing efficiency and yield. Accounts are routinely underfunded or overfunded. Teams spend hours reconciling balances when they could be focused on strategy and performance. The result is higher costs, lower margins, lost opportunities for investment, and a poorer customer experience at the very moment policyholders expect speed and certainty.
Hidden Costs Identified
The fragmentation of claims funds creates a series of hidden costs that ripple across the entire insurance ecosystem. While these costs may not appear on a balance sheet, their impact is felt in liquidity management, operational efficiency, profitability, and customer satisfaction.
1. Liquidity inefficiencies
When funds are spread across multiple accounts and stakeholders, balances are rarely optimized. Some accounts sit underfunded, limiting the ability to settle claims smoothly. Others hold excess cash that sits idle instead of being deployed or invested. For many insurers and TPAs, this can mean tens of millions of dollars not only tied up unproductively but, in some cases, effectively invisible, hidden across fragmented accounts with no clear line of sight.
This is not just a theoretical issue. A recent analysis of U.S. property and casualty insurers found that companies have increased their holdings in cash and other short-term liquid assets by more than 3% year over year, largely in response to rising catastrophe losses and unpredictable claim demands. While holding liquidity is prudent, the need to maintain such large buffers often reflects the limitations of fragmented systems and delayed reporting. Without clear visibility into cash positions, insurers lock up capital that could otherwise be put to more productive use.
2. Lost real-time visibility
Fragmentation obscures the true financial picture. With accounts scattered and reporting delayed, it is difficult for carriers, MGAs, and TPAs to know exactly where cash sits at any given moment. According to one recent industry commentary, insurers often struggle with "lack of balance visibility," especially when funds are handled across different accounts, in restricted currencies, or segmented by TPAs and insurers. This lack of real-time oversight hinders decision-making and increases the risk of errors, especially in times when claims surge and liquidity is needed most.
3. Operational inefficiencies
Reconciliation is still largely a manual process. Teams spend hours chasing reports, matching payments, and trying to balance accounts—much like the old days of reconciling a paper checkbook. According to the State of Claims Finance report, nearly eight in 10 insurers (79%) see these internal inefficiencies as a major barrier to timely claims payments, and 78% point to coordination breakdowns with brokers, TPAs, and banks as a source of friction. Only 1% describe collaboration between claims and finance teams as "highly effective," a telling sign that silos persist across the value chain. At the end of the day, this represents thousands of hours lost to administration, diverting talent away from analysis, strategy and improving performance.
4. Profitability impact
When money sits idle, balances are unclear, and teams spend hours on manual work, profits suffer. Insurers lose out on opportunities to put cash to better use, everyday costs remain high, and the gap between revenue and expenses narrows. Competitive pressures in the market make these inefficiencies even harder to absorb. Across U.S. insurance markets, rate dynamics are increasingly uneven. Some lines continue to see upward pressure, while others, such as property and certain financial lines, are beginning to soften as more capacity returns. Catastrophe exposure, such as the impact of California wildfires, adds another layer of volatility that puts further strain on margins. In this environment, inefficiencies in claims fund management are no longer a minor inconvenience. They have become a direct drag on profitability.
5. Customer retention costs
Perhaps the most damaging consequence lies in the policyholder experience. Delays in claims payments erode trust. For example, in the 2025 J.D. Power Small Commercial Insurance Study, customers rated "problem resolution" and "ease of doing business" as among the top drivers of overall satisfaction. Small commercial customers who experience poor problem resolution are much less likely to renew.
In an environment where even small mistakes or delays can push buyers to shop elsewhere, this becomes expensive. The cost to acquire a new policyholder far exceeds the cost to keep an existing one—with churn tied to claims experience being an accelerating risk, especially in specialty and smaller commercial lines where margins may already be thinner.
The Path Forward
If fragmentation is the problem, simplification is the solution. The industry faces a choice: continue investing in bespoke systems that are costly to build and slow to adapt, or embrace shared, modern infrastructure that enables real-time visibility, automated reconciliation, and faster payments. The goal is not to rip out everything that exists today, but to rewire the financial foundation of claims in a way that reduces friction across the value chain.
Progress will come as more stakeholders, carriers, MGAs, TPAs, and their partners, work from connected platforms rather than isolated silos. When that happens, cash is deployed more effectively, reconciliation becomes less resource-intensive, and policyholders receive funds with greater speed and certainty. The benefits go beyond efficiency. Faster, more transparent claims payments improve trust, and at scale can strengthen the resilience of the entire insurance ecosystem.
