A Nice Refresher: The Critical Role of Timely and Accurate Practices in Claims Management 

I hate to state the obvious, but accurate, timely and consistent reserving is the one truth that remains constant in the ever-evolving world of insurance. As a recent industry analysis pointed out, “This gap ultimately impacts claims and reserves, as carriers with outstanding cases will have to ensure they have adequate reserves to handle payouts when the cases do eventually resolve.” This statement underscores a critical aspect of claims management that deserves our full attention. This concept is so important it deserves repeating again and again.  

While many reading this blog know the importance it’s worth a refresher especially for those new to the industry. Let’s dive into why consistent reserving and informative trend analysis are not just good practices, but essential strategies for navigating the choppy waters of modern insurance.

The Ripple Effect of Reserving

Think of reserves as the financial shock absorbers of the insurance world. When set correctly, they help cushion the impact of claim payouts, ensuring the stability and solvency of insurance companies. But when reserves are inadequate or inaccurate, the consequences can ripple through the entire organization, affecting everything from financial reporting to pricing strategies.

Consistency: The Golden Rule of Reserving

Consistent reserving practices are the cornerstone of effective claims management. By establishing and adhering to clear guidelines for setting reserves, insurers can:

  • Enhance transparency for stakeholders
  • Facilitate more effective comparison of performance over time
  • Improve accuracy in financial forecasting
  • Provide a solid foundation for identifying emerging trends

But consistency doesn’t mean rigidity. The key is to have a systematic approach that can adapt to changing circumstances while maintaining its core principles.

Trend Analysis: Your Crystal Ball

While consistent reserving provides the foundation, trend analysis is your crystal ball, offering insights into the future of claims patterns. By regularly analyzing reserve change trends, insurers can:

  • Identify potential problems with reserving practices early on
  • Distinguish between reserving issues and genuine increases in exposure
  • Anticipate and prepare for emerging risks
  • Make data-driven decisions about policy pricing and risk management strategies

The Power of Early Detection

One of the most valuable aspects of robust trend analysis is the ability to detect issues early. By monitoring reserve change trends, insurers can quickly identify whether increases are due to:

  • Inadequate initial reserves (a reserving problem)
  • Unexpected claim development (a potential new trend in exposure)
  • External factors like social inflation or legal environment changes

Early detection allows for prompt corrective action, whether that means adjusting reserving practices, re-evaluating risk assessment protocols, or developing new strategies to address emerging exposures.

Putting It into Practice

So, how can claims departments implement these principles effectively? Here are a few key strategies:

  • Establish clear, written guidelines for setting and adjusting reserves
  • Regularly review and update these guidelines to ensure they reflect current realities
  • Implement a robust data analytics program to track and analyze reserve trends
  • Conduct frequent (at least semi-annual) reviews of reserve adequacy and trends
  • Foster collaboration between claims, underwriting, and actuarial teams to ensure a holistic view of risk and reserving
  • Invest in training to ensure all relevant staff understand the importance of accurate reserving and can interpret trend data

The Road Ahead

In an industry facing challenges from social inflation, court backlogs, and evolving risk landscapes, the importance of timely and accurate reserve practices cannot be overstated. By focusing on consistency in reserving and leveraging the power of trend analysis, insurers can navigate these challenges more effectively, ensuring they’re prepared for whatever lies ahead.

Remember, in the world of insurance, forewarned is forearmed. The insights gained from robust reserving practices and trend analysis are not just numbers on a spreadsheet – they’re the compass that guides strategic decision-making and ultimately, the long-term success of the organization.

What strategies does your organization use to ensure timely and accurate reserving? How do you leverage trend analysis to stay ahead of emerging risks? Share your thoughts and experiences in the comments below – let’s learn from each other and continue to elevate our industry practices.

Taming the Claims Severity Beast: A Data-Driven Approach to Litigation Management

In today’s landscape of escalating lawsuit costs and economic uncertainty, managing litigation severity has become a critical challenge for claims departments (see Social Inflation is up). The question is: how can we effectively address this issue without compromising efficiency or breaking the bank? Let’s explore a data-driven, technology-powered approach to litigation management that can help tame the claims severity beast.

Understanding Claims Severity

Claims severity is more complex than just the dollar amount of a settlement. It encompasses financial costs, time invested, and even emotional toll. Influenced by factors ranging from company procedures to unexpected events, understanding severity is crucial for developing effective litigation management strategies.

A striking real-world example of claims severity comes from the trucking industry. According to a 2020 study by the American Transportation Research Institute (ATRI), the average cost of a crash involving a large truck increased from $120,000 in 2009 to $182,000 in 2019 – a staggering 52% increase. Even more alarming, crashes with injuries saw costs rise from $195,000 to $428,000, a whopping 120% increase. (Understanding the Impact of Nuclear Verdicts on the Trucking Industry.” June 2020)

This example illustrates how factors like rising medical costs and increased legal fees can dramatically impact claims severity over time. It’s not just about the initial incident anymore – the long-term implications and escalating costs play a significant role in the overall severity of a claim.

Leveraging Data as a Strategic Asset

In the battle against claims severity, data is your most powerful asset. Historical cases, claims records, and legal documents form a rich repository of information. With proper analysis, this data can reveal patterns, predict high-risk claims, and even prevent problematic cases before they escalate. It’s about transforming raw information into actionable insights.

A striking example of leveraging data and AI in claims management comes from Lemonade, a disruptor in the insurance industry. Lemonade uses AI extensively in claims processing, employing a combination of machine learning, chatbots, and computer vision. Their AI system, aptly named “AI Jim,” handles the entire claims process for simple cases, from initial report to payment. The results are nothing short of remarkable: 30% of claims are settled instantly, with the record for the fastest claim processed standing at an astonishing 3 seconds. Perhaps most impressively, Lemonade has managed to reduce its claims expense ratio to just 2%, significantly outperforming the industry average of 10-15%. This case demonstrates the transformative potential of AI in claims management, showing how it can dramatically improve efficiency, speed, and cost-effectiveness. https://www.linkedin.com/pulse/ai-insurance-streamlining-underwriting-claims-andre-ripla-pgcert-4qdye

Another powerful example of leveraging data and technology comes from Zurich Insurance. They implemented an AI-powered system to handle property and injury claims, utilizing machine learning and natural language processing. This advanced system reviews medical reports and assesses the severity of injuries to determine appropriate compensation. The results were impressive: claims processing time was reduced by 50%, consistency in claims decisions improved by 25%, and they saw a significant reduction in operational costs. This case clearly demonstrates how AI and data analytics can dramatically improve claims management efficiency while also ensuring more consistent and fair outcomes for claimants. https://www.linkedin.com/pulse/ai-insurance-streamlining-underwriting-claims-andre-ripla-pgcert-4qdye/

These examples demonstrate the power of leveraging data to not only improve efficiency but also to proactively manage and reduce claims severity.

Embracing Technological Tools

Artificial Intelligence and machine learning are no longer just buzzwords; they’re essential tools in modern litigation management. These technologies can process vast amounts of data, identify hidden patterns, and predict outcomes with increasing accuracy. 

Automation tools also play a crucial role, handling routine tasks and freeing up your team to focus on strategy. Effective communication tools ensure that all stakeholders remain informed and aligned throughout the litigation process.

Implementing Best Practices

Deploying new tools and strategies requires a thoughtful approach. Consider these best practices:

1. Foster collaboration between all stakeholders, from insurers to legal teams to front-line claims assessors.

2. Establish clear objectives and Key Performance Indicators (KPIs) to measure strategy effectiveness.

3. Maintain accurate data – the adage of garbage in garbage out is never truer than with litigation data. Make the time and investment and get it right.

4. Use technology to enhance, not replace, human judgment and decision-making.

5. Invest in continuous training to ensure your team can effectively utilize new tools and strategies.

The Importance of Action

Managing claims severity isn’t solely about cost reduction; it’s about creating a more efficient, effective claims process that benefits all parties involved. By leveraging data, embracing technology, and implementing proven strategies, we can significantly improve litigation management outcomes.

The tools and strategies are available, and the potential benefits are substantial. It’s time for claims leaders to take action and implement these approaches to effectively manage claims severity.

What strategies have you employed to address claims severity in your organization? Share your experiences in the comments below – let’s continue to learn from each other and advance our industry practices.

Navigating the Choppy Waters of Claims Technology Implementation

Let’s face it, implementing a new technology into existing processes and systems is no easy task. But in today’s fast-paced insurance world, it’s not just about upgrading tech—it’s about transforming your entire claims ecosystem. So, how do we ensure that this shiny new penny enhances rather than disrupts our current processes? Buckle up, folks, because we’re about to dive into the deep end.

1. Map It Out and Take Your Time Doing It

Before you jump headfirst into this tech tornado, you need to know where you’re standing. As I like to say, “knowing where you are is just as crucial as knowing where you want to go.” So, roll up your sleeves and get mapping of your existing processes and how the new technology will fit into that process. Assess your current processes, systems, and challenges. Trust me, this homework will pay off when you’re not lost in the implementation wilderness later.

2. It’s Not Just About Claims, People

In some instances, the impact of a new system initiative goes way beyond the claims department. Don’t adopt new technology in a vacuum. This isn’t just a claims thing—it’s a business thing. Drag your underwriters and actuaries into the mix when needed. Their input will help create an enterprise-wide solution that improves overall business outcomes, not just makes claims handling easier. Remember, we’re all in this together.

3. Executive Champion: Your New Best Friend

A project needs an executive champion who can move mountains (or at least meetings). This isn’t a part-time gig—you need someone who’s all in. Yes, it’s a big ask, but the payoff in streamlined decision-making will be worth every executive hair that turns grey in the process.  It’s also important for change management to ensure executive buy in and not just in approving the project but being involved in the process.

4. Passion: Not Just for Romance Novels

Your project team needs to live and breathe this implementation. They should be more excited about this project than a kid on Christmas morning. We like to ensure that there is a focus on minimizing disruption and maximizing ROI. That’s the kind of passion we’re talking about and such passion will be infectious to help with adoption.

5. Scope Creep: The Silent Killer

It’s tempting to keep adding bells and whistles, but remember—every change needs to bring value. Before you add that shiny new feature, do a cost-benefit analysis. Some enhancements might take time to show their worth, so be patient. Measure the impact over time, and don’t be afraid to admit if something isn’t working out. No system or technology will be perfect right out of the box.  Teams need to use and learn how best the system integrates in the process.  Get it working and look at future enhancements as part of an iterative development project.

6. Integration: The Name of the Game

It is so important to try and seamlessly weave cutting-edge technology into your existing claims ecosystem. This isn’t about out with the old, in with the new. It’s about creating a beautiful harmony of efficiency and familiarity. Think of it as a tech tango—new and old, dancing in perfect sync.

7. Customize, But Don’t Go Crazy

Yes, tailor those workflows to match your unique claims processes. But don’t go overboard—you’re implementing a new and modern approach, not building a spaceship. Find that sweet spot between customization and out-of-the-box functionality. Your future self will thank you when it’s time for system updates. Scope creep can be put in check and adoption rates will go up.

8. Remember the Humans

At the end of the day, your fancy new system is only as good as the people using it. Invest in training and make sure that interface is more intuitive than your smartphone. I like to stress that a user-centric approach is key. After all, a technology that no one can use is about as useful as a chocolate teapot.

9. Measure, Tweak, Repeat

Once your system is up and running, don’t just sit back and admire your handiwork. Keep fine-tuning for optimal performance. Use those data analytics to spot areas for improvement. Remember, in the world of claims technology, standing still is the same as moving backward.

Implementing a new system might feel like trying to change a tire while driving, but with the right approach, it can transform your operations faster than you can say “subrogation.” The goal isn’t just new tech—it’s creating a claims process so smooth, it helps claims professionals do their job better.  We all love the idiom of work smarter not harder!

So, claims leaders, what’s your secret sauce for successful system implementations? Share your wisdom in the comments below—let’s learn from each other and keep this industry moving forward!

Social Inflation has Commercial Casualty Losses up 11% Over the Last 5 Years: 3 Claims Department Strategies That Will Help You Navigate The Problem

Swiss Re’s latest report on social inflation is a must-read for claims professionals. Their sigma No 4/2024 study, “Litigation costs drive claims inflation: indexing liability loss trends,” offers a comprehensive look at this growing challenge. The findings are sobering: the U.S. liability risk pool is expanding rapidly, with commercial casualty insurance sector losses growing at an average annual rate of 11% over the last five years. Importantly, this isn’t just a U.S. phenomenon anymore. The UK, Australia, and Canada are also experiencing similar trends, albeit to a lesser degree. As claims leaders, it’s crucial we understand and adapt to this changing landscape. With that in mind, let’s explore three essential strategies that can help your claims department navigate the complexities of social inflation.

1. Embrace Your Inner Data Nerd

In today’s claims environment, data should be at the forefront of your decision-making process. Modern claims departments need to utilize their data effectively, not just for reporting, but for predicting future trends. Predictive analytics can help you identify potential high severity claims before they escalate. 

By analyzing historical data, court rulings, and social trends, you can spot patterns that may indicate where social inflation is likely to impact your claims. This foresight allows you to proactively adjust your strategies, whether in reserving, settlement approaches, or litigation decisions.

If you’re not using your claims data to anticipate future challenges, you’re missing a crucial tool in managing social inflation. The ability to predict which claims are likely to result in larger-than-expected payouts can be a game-changer for your department.

Predictive does not always mean some hi-tech analytics model. Predictive can also be developing, using and analyzing the correct trends within your existing data. 

2. Early Case Assessment: Your New Best Friend

In the age of social inflation, early case assessment has become more critical than ever. The sooner you can identify high-risk claims, the better positioned you’ll be to make informed decisions about how to handle them.

Your early case assessment process should be comprehensive and efficient. It should help you quickly identify claims that have the potential to result in large verdicts or settlements. This might include cases in jurisdictions known for high awards, claims involving severe injuries, or those that touch on hot-button social issues.

By identifying these high-risk claims early, you can develop appropriate strategies – whether that means early settlement negotiations, allocating additional resources for defense, or preparing for potential litigation. Early case assessment is your first line of defense against the impacts of social inflation.

3. Invest in Advanced Technology

If your claims department isn’t leveraging advanced technology, you’re at a significant disadvantage in today’s environment. Advanced data analytics tools and AI can process vast amounts of claims data quickly and accurately, identifying patterns and predicting outcomes that might not be apparent to human analysts.

These technologies can help you process claims more efficiently, spot potential fraud, and assist claims professionals in making more accurate reserve estimates. They can also assist in identifying trends in jury awards and settlement amounts, helping you stay ahead of the curve in your claims handling strategies.

However, it’s not enough to simply have these technologies – you need to use the insights they provide to inform your strategies. Use this data to adjust your reserves, refine your pricing models, and guide your overall claims handling approach.

Adapting to the New Normal

Social inflation is reshaping the claims landscape, and it’s clear that this trend isn’t going away anytime soon. By embracing data analytics, prioritizing early case assessment, and leveraging advanced technology, your claims department will be better equipped to navigate these challenges.

Remember, the goal isn’t just to react to social inflation, but to anticipate and mitigate its effects. With these strategies in place, you’ll be well-positioned to manage claims effectively in this new environment.

What strategies is your claims department using to address social inflation? Share your thoughts in the comments below – let’s learn from each other and develop best practices for this ongoing challenge.

Nothing Has Changed in Litigation Management: Why Your Current Strategy May be Extinct

Is your claims litigation management strategy stuck in the Jurassic era? If you’re still relying on the same old methods of stringent guidelines and micromanaging counsel hours, I hate to break it to you, but you’re piloting a prehistoric beast in a world of modern marvels.

Let’s face it, folks. The approach to claims litigation management hasn’t seen a major evolution since billing systems were implemented over 25 years ago. For decades, we’ve been clinging to the same two strategies:

  1. Implement ironclad litigation guidelines
  2. Scrutinize every billable hour like it’s the Da Vinci Code

Sound familiar? I thought so. But here’s the kicker – these antiquated techniques aren’t delivering the stellar results you’re after. It’s time to shake things up and re-examine your approach.

3 Reasons Your Old-School Approach is Failing

  1. It’s All Stick, No Carrot – Stringent guidelines and hour-by-hour oversight create an adversarial relationship with your counsel. Instead of fostering collaboration, you’re breeding resentment. And let me tell you, a resentful attorney is rarely a cost-effective one.
  2. You’re Focusing on the Wrong Metrics – Obsessing over billable hours is like trying to lose weight by weighing yourself every hour. It’s the outcome that matters, not the minute-by-minute process. Your fixation on hours billed is blinding you to the bigger picture of case outcomes and total cost.
  3. It Stifles Innovation – When attorneys are more concerned about adhering to rigid guidelines than finding creative solutions, you’re shooting yourself in the foot. The best legal strategies often come from thinking outside the box, not coloring inside the lines.

The New Era of Litigation Management

So, what’s a forward-thinking claims leader to do? It’s time to evolve, my friends. Here are three strategies to catapult your litigation management into the 21st century:

  1. Embrace Outcome-Based Billing – Instead of nitpicking hours, focus on results. Implement a billing structure that rewards efficiency and favorable outcomes. When your interests align with your counsel’s, magical things happen.
  2. Leverage Predictive Analytics – Use the wealth of data at your fingertips to predict case outcomes, optimal settlement points, and litigation costs. Let technology be your crystal ball, guiding your strategy from day one.
  3. Foster True Partnerships – Treat your panel counsel as strategic partners, not adversaries. Regular strategy sessions, open communication, and mutual goal-setting can transform your relationship and your results.

Time for an Extinction Event

It’s time to face facts: your old litigation management strategy is a dinosaur, and the meteor is coming. You can either evolve or go extinct. The choice is yours.

Remember, in the world of claims, it’s not the strongest that survive, nor the most intelligent, but the ones most responsive to change. So, are you ready to leave the Jurassic era behind?

What’s holding you back from evolving your litigation management strategy? Or if you’ve made the leap, what results have you seen? Share your thoughts in the comments below – let’s start a revolution!

5 Early Case Assessment Strategies That Will Lower Your Litigation and Outcome Costs

Is your claims department losing money on unnecessary litigation? If you’re not employing robust Early Resolution Strategies (ERA), the answer is probably a resounding “yes.” But don’t worry, savvy claims leader – we’re about to turn that ship around.

In my years of working with insurance companies, I’ve seen far too many claims spiral into costly legal battles that could have been avoided with proper ERA. Today, we’re diving into five game-changing strategies that will help you minimize litigation costs and keep your CEO smiling when they review those quarterly reports.

Why Early Case Assessment Matters

Before we jump into the strategies, let’s remind ourselves why ERA is so crucial. Early case assessment is your claims department’s crystal ball – it helps you predict the likely outcome of a case, estimate potential costs, and decide on the best course of action early in the process. Go review some recently settled claims and ask could the decision to settle have been made sooner? Would that have changed the approach to litigation spend? Faster resolutions, lower costs, and happier policyholders is certainly a desirable outcome. Now, let’s get to those strategies!

5 “Must-Implement” ERA Strategies

  1. Embrace Data Analytics – If you’re not using data analytics in your ERA process, you’re flying blind. Modern claims systems are treasure troves of historical data. Use this data to identify patterns, predict outcomes, and make informed decisions.
  2. Implement a Standardized ERA Checklist – Don’t leave ERA to chance or individual discretion. Develop a comprehensive checklist that covers all aspects of early case assessment. This should include liability analysis, damage evaluation, potential defenses, settlement value estimation, and litigation cost projection. A standardized approach ensures consistency and helps less experienced adjusters spot potential issues early.
  3. Leverage Technology for Document Review – Gone are the days of manually sifting through mountains of documents. Invest in technology that can quickly analyze large volumes of data. AI-powered document review tools can identify key information, flag potential issues, and even suggest similar past cases – all in a fraction of the time it would take a human.
  4. Collaborate with Legal Early and Often – Your legal team shouldn’t be an afterthought in the claims process. Involve them early in complex or high-value claims. Their expertise can help identify potential legal issues, assess the strength of the case, and develop effective strategies. Keep everyone on track and the outcomes will improve.
  5. Train Your Team in ERA Best Practices – The best ERA tools in the world won’t help if your team doesn’t know how to use them effectively. Invest in regular training sessions on ERA best practices. This should cover not just the technical aspects of assessment, but also soft skills like negotiation and communication. A well-trained team can turn your ERA process into a powerful cost-saving machine.

Putting It All Together

Implementing these strategies isn’t a one-and-done deal. It requires ongoing commitment, regular evaluation, and a willingness to adapt as you learn what works best for your organization. But trust me, the payoff is worth it. I’ve seen companies reduce their litigation costs by up to 30% through effective ERA strategies.

Remember, every dollar saved in unnecessary litigation is a dollar that goes straight to your bottom line. And in today’s competitive insurance landscape, that’s an advantage you can’t afford to ignore.

The ERA Challenge

Here’s a challenge for you: take a look at your last 10 litigated claims. How many of them could have been resolved earlier with a more robust ERA process? If the answer makes you uncomfortable, it’s time to take action.

What ERA strategies have worked well in your claims department? Or what challenges are you facing in implementing ERA? Share your experiences in the comments below – let’s learn from each other!

Unlocking the Potential: Harnessing the Power of Claims Data Analytics

There’s encouraging news in the insurance industry: claims departments are now in possession of vast amounts of data. This development is indeed promising, especially when the data is utilized to enhance operations, reduce costs, or forecast future trends. However, many firms are not yet fully leveraging the wealth of information at their disposal.

The Data Influx: Opportunity and Challenge

With the advent of modern claims technology, there’s been an increased emphasis on capturing more detailed information. Claims professionals are now tasked with inputting specific data points, ostensibly for use by other departments within the organization. Additionally, we’re witnessing the emergence of sophisticated data models that integrate claims data with underwriting and financial information. When properly utilized, this combination can provide invaluable insights.

The key question remains: How can we best utilize this wealth of information?

At a minimum, your data should serve three critical functions: managing operations, revealing trends, and predicting outcomes.

Metrics for Operational Excellence

Fundamentally, your claims system should generate data that aids in effective personnel management. This involves daily, weekly, monthly, quarterly, and yearly metrics that ensure claims professionals and support staff are performing optimally.

Key areas to monitor include:

  • Claims flow (new claims, closures, closing ratios)
  • Aging reports (processing time, setup duration, open to close periods)
  • Workload management (caseloads and closing ratios by adjuster)
  • Financial indicators (reserve changes, average reserves, total paid amounts)

Trend Identification: Foresight Through Data

Your data contains valuable trends – the challenge lies in identifying them. Recognizing shifts in loss frequency and severity can help you anticipate external factors such as legislative changes, environmental shifts, or economic fluctuations.

Analyzing claims data trends empowers underwriters to refine pricing and terms, allowing the organization to address potential issues before they escalate. Numerous companies have thrived by recognizing claims trends and adjusting their strategies accordingly. Conversely, others have faltered due to a failure to identify warning signs in their claims data.

Predictive Analytics: Enhancing Decision-Making

Utilizing data extends beyond trend identification to outcome prediction. Predictive analytics serves as a powerful tool that can process vast amounts of information and draw conclusions more rapidly than traditional methods.

Effective applications of predictive analytics include:

  • Identifying outlier claims
  • Estimating reserve and settlement values
  • Developing defense strategies
  • Managing litigation expenses
  • Assessing subrogation potential

Embracing the Data-Driven Future

Historically, predictive modeling was constrained by limited systems and data availability. However, the landscape has evolved significantly. Most carriers now possess substantial data that could revolutionize their operations.

Naturally, data integrity is crucial for these models to function effectively. Nevertheless, the potential benefits are too significant to overlook.

In conclusion, it’s worth considering: How is your organization leveraging data and analytics in claims operations? Are you fully capitalizing on the wealth of information at your disposal? As the insurance industry becomes increasingly data-driven, positioning your organization at the forefront of this trend could provide a significant competitive advantage.

Leveraging AI as a Decision Support Tool in Claims Processing: A Balanced Approach

In the rapidly evolving landscape of insurance claims operations, Artificial Intelligence (AI) has emerged as a powerful ally. However, its true potential lies not in replacing human judgment, but in enhancing it. As we navigate this technological frontier, it’s crucial to develop a strategic plan for implementing AI as a decision support tool in claims processing, ensuring we maintain the critical balance between efficiency and ethical considerations.

The key to successful AI integration lies in viewing it as a sophisticated assistant rather than an autonomous decision-maker. This approach harnesses AI’s analytical power while preserving the irreplaceable human elements of empathy, complex reasoning, and ethical judgment – particularly vital when dealing with diverse claim types requiring different levels of oversight.

To effectively implement AI as a decision support tool, insurers should consider a multi-faceted plan:

  1. AI-Powered Insights: Utilize AI to analyze vast amounts of data, providing claims adjusters with comprehensive insights, historical comparisons, and potential settlement ranges. For instance, in complex liability cases, AI can quickly analyze historical claim data, legal precedents, and policy details to offer a comprehensive overview and suggest settlement ranges.
  2. Bias Mitigation: Implement AI systems designed to identify and flag potential biases, both in historical data and in real-time decision-making processes. This helps ensure fair and consistent outcomes across similar claims, addressing unconscious biases that human adjusters might have.
  3. Explainable AI: Prioritize AI models that provide clear rationales for their recommendations. This transparency allows human adjusters to understand, validate, and, when necessary, override AI suggestions, fostering trust in the system.
  4. Continuous Learning and Feedback Loops: Establish mechanisms for human decisions to refine AI models over time. This ensures the system evolves alongside changing regulations, market conditions, and industry best practices.
  5. Customizable Thresholds: Develop systems that allow claims departments to set and adjust thresholds for AI autonomy based on their risk appetite and regulatory requirements. This flexibility ensures that human oversight can be dynamically allocated where it’s most needed.
  6. Cross-functional Collaboration: Engage claims adjusters, data scientists, and ethicists in the development and ongoing refinement of AI decision support tools. This multidisciplinary approach helps balance technical capabilities with practical and ethical considerations.
  7. Regular Ethics Reviews: Conduct periodic reviews of AI-assisted decisions to ensure they align with the company’s ethical standards and values. This process should involve both internal stakeholders and external ethics experts.

By thoughtfully integrating these elements, insurers can create a synergistic environment where AI amplifies human expertise rather than attempting to replace it. This approach not only enhances operational efficiency but also maintains the trust of policyholders by demonstrating a commitment to fair, ethical, and empathetic claims resolution.

It’s important to note that the level of AI support may vary across different types of insurance claims. For straightforward cases, like minor auto damage, AI can handle most of the process autonomously. However, for complex scenarios such as liability disputes or severe injuries, human expertise becomes indispensable, with AI serving primarily as a decision support tool.

Implementing AI as a decision support tool also helps mitigate potential bad faith risks. By maintaining human oversight, especially for claim denials, and ensuring transparency in AI decision-making processes, insurers can avoid the perception that claims are being unfairly handled by automated systems.

By viewing AI as a sophisticated decision support tool rather than a replacement for human judgment, insurers can significantly enhance efficiency and consistency in claims processing while maintaining the critical human element. This balanced approach not only improves operational performance but also builds trust with policyholders by demonstrating a commitment to fair, ethical claims resolution in an increasingly AI-driven industry.

Staffing a Claims Department

So what’s a good staffing ratio?

Figuring out the appropriate levels to staff a claims office can be a tricky exercise. Having too many claims professionals can have a negative impact on bottom-line financials, however, having too few can also have a more costly impact improper reserves, higher settlement payments, increased loss adjustment expenses. Determining the correct balance of files to handlers is critical to ensure the claims department can serve the company, claimants and customers appropriately. Well run claims department manage their staffing by developing empirical methods to model the correct need. Those models are also reviewed as part of regular management metrics and adjusted to suit changing conditions.  While it may seem cost effective to run a very lean claims department, the truth is if it is too lean costs will go up, claims handling will suffer and the company can be exposed to liability.

How do you determine what the appropriate staffing level is?  Unfortunately there is no hard and fast rule that defines exactly how many files per handler is appropriate. The nature of the type of claims handled, the company approach to customer service, internal and external variables are going to impact how many claims professionals are needed. For example, the number of claims professionals needed to handle a small fender bender property claim is dramatically different than needed to handle a large commercial property loss.  This can also be said for a standard bodily injury claims versus a complex medical malpractice matter. There are so many factors that go into each type of claim that must be considered prior to developing a working staffing model.

What type of claims department are you?

What type of claims department are you? Do the types of claims you handle require a touchy feely claims department that relies heavily on interactions with clients? Some carriers pride themselves on significant and meaningful customer contact because that customer focus differentiates them in the market place even over the price of coverage.  Other types of insurance companies don’t rely on the customer interaction as the differentiator and as such a customer centric claims department may not be the focus. Think Motel 6 versus The Four Seasons. Both provide a place to sleep but clearly the approach is completely different.

For example, a homeowner’s claim will require multiple hands on connections with the claimants to build a level of client satisfaction and help to maintain more renewals. Conversely, in D&O insurance, the contact is rarely as interactive and the client is usually more concerned about the financial ability to pay claims and a less expensive premium. Regardless, given the value the claims, the expertise needed to manage a D&O loss versus a property claim and the frequency of losses coming into the office will all impact the number files that can be assigned to any one professional.

Developing a staffing metric must be based initially on the type of claims organization you are and how much contact with the client is expected. From there a metric can be developed to deal with other factors impacting the time needed to handle a file. Such a metric may, for example, be based upon not just the number of files in the door but on how many touchpoints need to be made on how many claims and over what period of time. Often determining the impact of those touchpoints will require conducting a time study to learn how long each touchpoint takes to complete.

What are the internal variables?

Internal variables to consider involve those issues that can be controlled within the company and, like the type of claims department you are, will impact how resources are implemented. Some internal variables to consider:

  • Skill levels of claims professionals needed – Does your claims department manage files with entry level workers or do you require experienced claims professionals with advanced degrees?
  • Support staff and ancillary claims professionals – are claims professionals expected to do everything from sending letters to coding to on-site investigations to state reporting? Or are some of those tasks handled by others?
  • Technology – are you up to date with the latest and greatest automated claims technology or are there limitations to the systems in place? Does your technology help to automate workflow?

What are the external variables?

External variables can equally impact staffing levels and must also be considered. These variables can’t be controlled but they can be measured.  The trick is to create metrics to identify trends in external variables that could have an impact on staffing.  Frequency of claims activity is an external variable that can be predicted based upon the number of policies and other events that impact claims being filed. For instance, bad weather during the winter months will likely increase auto property claims being filed compared to in summer months.  Being aware of the natural cycles and predicting trends is an important factor in creating models.  External variables to consider include:

  • Jurisdiction and court delays
  • Claim frequency
  • Claim cycles
  • Regulations and reporting
  • Legal changes

Creating a staffing model

Creating a staffing model must take into account a number of factors and there is no one size fits all approach. Understanding the time it takes to handle an issue will be needed to determine an appropriate staffing level. At the very least there must be an understanding of new claims set ups and expectations as well as what is expected to manage a book of claims.

As an example in the simplest form, a claims department may expect a claim professional to only handle one new claims set up a day. If a department gets 20 claims a week then they would need 4 claims professionals (20 claims/5 days = 4 per day).  This is a basic example because there are clearly more factors to consider for claim professionals to accomplish in a given day.  The model needs to be built by understanding the times it takes to manage particular tasks. If in addition to setting up one file it is expected that a claims professional review 3 files on diary and which includes contacting the claimants and insureds to provide updates, then a picture of how much time needs to be spent to perform various tasks can be factored into the model.

Conclusion:

Determining the optimal staffing ratio for a claims department is a complex and nuanced process that requires careful consideration of numerous factors. There’s no one-size-fits-all approach, as each insurance company’s needs and priorities differ. The key takeaways from this discussion include:

  1. Balance is crucial: Overstaffing can negatively impact financials, while understaffing can lead to higher costs and potential liability issues.
  2. Consider your company’s approach: The type of claims department you run (customer-centric vs. efficiency-focused) significantly influences staffing needs.
  3. Analyze internal and external variables: Factors such as staff skill levels, technology, claim frequency, and legal changes all play a role in determining appropriate staffing levels.
  4. Develop a data-driven model: Create a staffing model based on empirical data, including time studies and performance metrics.
  5. Regularly review and adjust: As the insurance landscape evolves, continually assess and update your staffing model to ensure it remains effective.

By taking a thoughtful, analytical approach to staffing, claims departments can strike the right balance between efficiency and quality service. This not only benefits the company’s bottom line but also ensures that claimants and policyholders receive the level of care and attention they deserve. Remember, an well-staffed claims department is a cornerstone of a successful insurance operation, contributing to customer satisfaction, risk management, and overall company performance.

3 Types Of Claims Metrics Every Department Should Be Looking At

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There is gold at the end of the rainbow!

Good news! – claims departments are now flooded with great data.

Seems like great news doesn’t it. It is great news, or can be, if you’re using the data to help improve the operations, lower cost or predict the future. However, many firms aren’t using the data they have to provide valuable information for the operation.

With the advent of more modern claim technology there has been a push to input more and more information about claims. Claims professionals are being asked to capture very specific fields of information presumably to be used by others within the organization.  In addition, more sophisticated data models are combining claims data with underwriting and financial data that when used correctly can be a treasure trove of information.

With all that information available what is the best way to use the information?

At the very least data should be used to manage the operation, reveal trends, or be predictive.

Metrics to Manage the Operations

At the core, information coming out of the claims system should be used to manage the people handling files. Daily, weekly, monthly quarterly and yearly metrics around performance issues should be used to ensure claims professionals and support staff are performing at their best, responding to claims promptly and managing workloads and staffing levels.  Typical metrics to manage the operation would center on matters coming and going out (i.e., open, closed, closing ratios); aging reports (i.e., throughput, time from receipt to setup, open to close); workloads (i.e., caseloads and closing ratios by adjuster); or financial in nature (i.e. reserve changes from one period over another, average reserves, total paid).

Metrics to Reveal Trends

There are trends in your data if you know where to look. Trends in loss frequency and severity, which may be caused by external factors, such as legislative, environmental and economic forces, are all developed from claims data. Trending claims data will help underwriters ensure pricing and terms are appropriate and allow problems to be addressed before they become disasters. There are numerous examples of companies that succeeded because they were able to review claims trends and adjust their business before it was too late. There are conversely many companies that failed because they did not have or use their claims data to spot deteriorating books of business in enough time to address it. Information from claims is the lifeblood of the organization and should be identified and regularly shared to help the organization make better decisions about loss reserves, risks, investments, and resources.

Captives and self-insured can benefit even more on using data to trend losses and lower costs to the bottom line. In an article in Business Insurance about how Captive Insurers Provide Owners With Key Risk Management Tools, the authors discuss how Direct TV used claims data to trend key issues that allowed them to significantly improve results in their Workers’ Comp program:

DirecTV Inc. used claims data from the past several years …to help it manage claims more aggressively for its installation crews…DirecTV used the claims data identified to implement changes to its safety programs, its training programs and its return-to-work strategy…. The claims data also showed opportunities to improve fleet risks. Over a three-year period, the safety changes resulted in a 43% reduction in calls on the Driver Alert phone line. The data also found delays in reporting claims and lengthy lost time due to worker injuries. As a result, the company implemented a formal return-to-work program, which resulted in a significant decrease in lost time, and used additional training on claims reporting to reach the point where 91% of claims now are reported within three days of an incident.

Metrics to Be Predictive

Using data is not just about spotting trends but predicating outcomes. Using predictive analytics is not about deciding claim outcomes without the involvement of skilled claims professional, but rather it is about providing a tool to assist in the process. Predictive analytics can correlate multiple aspects of data and draw conclusions in an instant that claims professionals would not be able to do without hours of analysis. Predictive analytics tools are being successfully implemented to combat fraud and streamline the claims intake process as Gen Re noted in Predictive Modeling – An Overview of Analytics in Claims Management, some other uses of  uses of predictive analytics include determining:

  • Outlier Claims
  • Reserve and Settlement Values
  • Defense Strategy
  • Litigation Expense Management
  • Subrogation Potential

The benefits, if used correctly, are limitless when robust data sets now common in the claims world are used. More and more companies are using analytics to improve operations. In fact, according to a Towers Watson study in 2012, 63% of Chief Claims Officer’s surveyed stated they were starting to use predictive analytics in in their claim’s operations (see study).

Predictive modeling has been limited in the past because systems were not as robust and the amount of data available to run data models was limited. Times, however, have changed and most carriers should have more than their share of data that could prove invaluable. Of course data integrity must be as clean and accurate as possible for these new models to be effective. Regardless, the possibility for significantly improving claims outcomes is compelling.

 How are you using data and analytics?