Time to Get Creative – Reducing Claim Costs without Sacrificing Quality (or your sanity)

By Suzanne Ganier – November 22, 2010

Bright ideas will help reduce legal costs while still getting great service

Even as the country continues its difficult economic recovery, Moody’s recently concluded that P&C personal lines insurers remain financially sound. While such a report is good news, Moody’s also noted that challenges such as rising claim severity trends and significant property catastrophe risk remain. All this leads to an increased pressure to reduce costs and close claims.

The reality that claim and litigation departments are cost centers as opposed to income generators increases these pressures. Claim and litigation departments are also asked to do more with less resources and are under increasing pressure to close claims and litigated files faster than ever, while still maintaining claim handling and litigation management best practices. With all these challenges, how do claims professionals succeed? They get creative.

What You Know and More Importantly, What You Don’t Know

Before you can make changes and employ new processes, you have to know what you know and what you don’t know.  Obtain as much information as you can regarding the following:

• Number of current litigated and non-litigated claims, broken down by type and severity
• Average length of pending litigated and non-litigated claims
• Average cost per closed litigated and non-litigated claim file
• Average number of days necessary to close litigated and non-litigated claims
• Average amount paid (indemnity) per closed litigated and non-litigated claim

These are just the basics.  If you have more information available, get it.If you don’t have this information, you have gained some valuable knowledge as well, namely, that you will need to develop or implement ways of tracking such information as part of your plan.

Who Is Doing the Work?

Next, you have to evaluate the strengths and weaknesses of your claim handlers, claim managers, outside counsel, and any other vendors you employ to handle claims and litigation.  If you haven’t formally evaluated these folks in a while, now would be a good time to do so.

Find out what they do, how they do it, and ask them for feedback regarding how they think that they can do their jobs better.  One of the biggest problems I’ve seen are companies that get in the way of their employees being successful often through employing processes and procedures that look good on paper, but don’t make sense in practice.  The only way to know if this is occurring in your organization is to spend some quality time with the people who are doing the work.

And don’t leave out the lawyers!  Although some may believe that panel counsel are only interested in billing you as much as they can, the good ones are also in an excellent position to know if your litigation procedures are costing the carrier money.  They can also provide procedural and process changes that may result in moving litigation to conclusion more quickly.

Know Thy Carrier

While all carriers want to decrease costs, decrease claims, and decrease litigation,  there are different philosophies as to how to accomplish these goals.  Some carriers may want to avoid litigation at all costs because they don’t want to pay legal fees and thus, they may be willing to pay more on questionable claims in order to avoid litigation.  Some carriers may want to take a hard-line approach with all claims and litigation (i.e. if they can’t prove it, we’re not paying it).  Some carriers take a more practical, business approach and want to do a cost-benefit analysis regarding the payment of claims and litigation.

You must know your carrier’s philosophy before you can make changes that count.  Moreover, the philosophy you choose is the one that is going to be the face of your claim and litigation department for the world to see, so make sure it’s the face you want to display consistently.  Companies that do not have, or do not know, what their claim and litigation philosophy is will not be successful at consistently reducing costs and closing claims and litigation.

In order to develop your philosophy, you will need to work with the balance of senior management and other relevant stakeholders to discuss the options and arrive at a conclusion that everyone is comfortable with promoting throughout the organization. Depending upon the size of your carrier, the number of people involved, and the difficulty you have obtaining information, going through steps one through three may take approximately two to six months.  However, once you complete these steps, you will be armed with everything you need to sit down and draft your new claim and litigation management plan.

Check back in December for part two of my blog that will discuss initial steps in your new claim and litigation management plan and provide an example of a plan that was successful for me.