Monthly Archives: January 2010

Better claim reports can help improve producer/carrier communications (take our poll)

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Why do producers feel it’s like talking through tin cans when communicating with carriers?

Sam Friedman, National Underwriter Editor-in-Chief, recently wrote in his blog (A View From the Press Box) about the need for carriers to improve communications with Producers. Mr. Friedman was discussing the Producer Satisfaction Survey of 1,596 qualified agents and brokers by Deloitte’s Insurance Industry Group—conducted in partnership with National Underwriter (read more at Producers Seek More Input).  Improved producer carrier relationships can be a competitive advantage to help increase profitability in tough economic times. According to the survey, a key differentiator for carriers to attract more business from their producers is in the areas of claims handling and technology.

I believe that there are two areas in claims that add to communication breakdowns:

  • Poor technology creating limitations
  • Failing to use existing technology

Most modern claims systems can create automated customized reports. Producers should be able to ask for specific reports and have them electronically scheduled for delivery. If a carrier cannot provide this service it is because their technology is not up to speed or is not being used correctly. The reality is most claims departments fail to use their existing claims systems to their fullest capabilities. At the very least automated reporting should be available to include regular loss runs and trending reports, as well as notification of significant claim events. Often all you need to do is just ask for what you want.

There are of course many steps that can enhance producer/carrier relationship as it relates to claims. From the carrier side, producers assisting in getting information from insureds, promptly reporting losses and helping with deductible issues are just a few. Carriers can work with producers to provide prompt detailed reports which will benefit both parties through improved risk selections and better underwriting.

Suggested steps:

  • Agree on a suite of basic reports to provide producers monthly including loss runs and overall summary metrics that can show loss trends
  • Establish an agreed upon significant claim event report (reserve change, trial date, discovery deadlines, etc.) for prompt notifications
  • Automate reports to run and send on regular intervals

Better reporting will go a long way to improving relationships, and can only help increase profitability and enhance service to the policy holders.

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Medical Malpractice report shows increased severity despite lower frequency

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The Insurance Information Institute has just released a comprehensive look at Medical Malpractice outlining recent developments and industry trends (read more at Medical Malpractice: The Topic). This article breaks down the industry by looking at, among other things, market conditions and national developments.

Key highlights include

  • Damage caps can save $54 Billion in medical costs by reducing premiums by about 10%
  • Fewer claims are being filed as a result of tort reform, improved patient safety initiatives and better risk management
  • Claim values, despite decrease in volume, continue to rise
  • Tort costs for medical malpractice claims are greater than other types of tort claims
  • Defense and cost containment expenses rose in 2008 to 58.1% of incurred loss, up from 55.1%
  • Defensive medicine accounts for 10% of medical care costs

It appears that tort reform measures work to decrease premiums and alleviate the high cost of Malpractice on medical costs.

5 expense reduction opportunities insurance CEOs should not overlook

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Increase your profits with efficient claims operations

Take a look at the annual reports of top performing insurance companies and you will see a similar message from their CEO’s. Expense management and efficiency is a principal driver of profitability. As the Ward Group noted in the Ward’s 50 2009 Property-Casualty Benchmark Report “‘Top performers understand that efficient operations result in pricing advantages passed on to the consumer and keep the customer at the center of the business decision.’ In 2008, expenses relative to revenue were 5.5% lower for the Ward’s 50 property casualty group of companies.” According to the Ward Group, net premiums grew 10.1% for top performing companies compared to 1.8% for the industry as a whole.

In a tight market, doing less with more without sacrificing quality or customer service is the edge needed to be a top performer. The claims department is the perfect place to lower costs and improve the customer experience at the same time. Here are 5 key areas that should be looked at for cost savings:

  1. Control what you can control: You can’t control the types of losses that can come in, but you can control allocated loss costs with effective oversight programs. Establishing litigation management guidelines can easily save 10% as well as improve outcomes through better communication. Control non-legal vendors with a program to “vet” providers and subsequently rate their performance. Audit your Third Party Administrators to catch harmless, but costly, errors.
  2. Utilize your technology to its full capabilities: Do you have the right technology and has it been implemented correctly? Failing to incorporate technology appropriately can increase costs. Procedures must be coordinated with new or existing technology so claim adjuster’s jobs are easier and the customer, not repetitive tasks, are the focus (also see our post on implementing claims technology and processes).
  3. Create strong reporting tools and use them: Comprehensive reports and analysis are essential to profitable business. You can’t manage growth without accurate benchmark reports and a good reporting tool will allow your claims department to look for trends. Using these reports to work closely with actuaries and underwriters will help ensure pricing is accurate. Good trending will also improve underwriting decisions around expanding or contracting in specific lines of business.
  4. Review your current operational procedures: Old process can equal costly operations, but change for the sake of change is not always a good thing. If you are performing tasks because you have “always done them that way” it’s probably a good time for a check-up. A regular assessment will almost always find cost savings and improve efficiencies (for an example see, Case Study: Improving file set-ups).
  5. At the very least meet minimum expectations: Customers will complain about problems when they arise, but will rarely complain when basic needs are not met. Before you can dazzle your customers with new services make sure you are first providing the basics. Regular communications and flexible reporting capabilities are minimum standards that must fulfilled or you will lose in the renewal process. You are in a competitive environment and providing mediocre performance is a non-starter.

Follow the example of the top performers, and don’t just talk about cutting costs. Take affirmative steps to reduce spending and improve your customer experience. There is no better place to do this than in the claims organization.

Don’t wait for your competitors to be a step ahead of you.

Are claim departments’ process and systems ready for the new “Freelance Nation” worker?

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Can claim departments handle the change in the American workforce? In his article The Future of Work; Here Comes Freelance Nation, insurance executive search consultant Jay D’Aprile speaks of a modern workforce that is freelance, temporary, or self employed. As he states:

There is an evolving belief that in the not too distant future, the majority of jobs will be structured as sort of an “on demand” arrangement. With this new concept employers will begin to shift work to a contract concept where talent will be treated much the same as a retailers supply chain. In the future needed skills will be added to a company in a just in time fashion. Then after a project, deadline or contract is completed that person who provided that skill will be released.Comments 1

The insurance industry has struggled in recent years to attract and retain new talent, especially in claims organizations. In an effort to continually provide the best talent, as well as provide the best customer service, more of the “Freelance Nation” will need to be employed. To do this, claim organizations will need to employ strong procedures and up-to-date technology to ensure optimal performance from this more fragmented workforce. Are they ready?

  • Do carriers have the right technology and sufficient procedures to manage the changing workforce?

  • How do you think claim departments need to adjust for the future claim professional?

What do you think? Post a comment and let us know.

A checklist of the 8 critical issues to be concerned about when self-managing claims

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You self-insure, but how well do you manage claims?

Companies make decisions to self-insure their risks for a variety of reasons from financing to claims control. Regardless of the reason, when handling claims in-house it is important to manage those claims in an organized manner to protect company assets. Insurance and reinsurance companies use loss experience to determine what to charge for coverage as well as how much coverage is needed. If claims data is not easily obtainable, or there is limited or no process for managing claims, you cannot get an accurate view of your losses or financials. Failing to manage claims correctly will increase your insurance costs and create a significant risk for being dangerously under-insured.

Act like an insurance company claims department

If you are going to handle your own claims then make sure you address the following issues:

  1. Set up an organized file system and process for managing claim files, from first notices to check payments. A claim file is a shared resource. Know exactly where it goes, and how to find it when you need it.
  2. Claim reporting is a required tool and a claims system is needed to track everything.  Monthly, quarterly and annual snapshot reports of essential claims data are fundamental to an efficient self-managed claims operation.
  3. Reserve files and be consistent about it. Under or over-reserving a file can result in poor financial reporting and more costly insurance. A consistent reserving practice can be used to predict current and future loss exposure. Adequate reserves will will more appropriately inform your reinsurance and excess insurance providers, and make your CFO happy.
  4. Actively manage claim vendors such as attorneys and investigators. Put guidelines in place with vendors to establish a clear understanding of your specific claim handling expectations. The squeaky wheel gets the grease, so check in with them frequently to ensure your files are not ignored.
  5. Review your vendor bills regularly. Mistakes are made and the only way to check for them is through regular reviews of invoices. Set a fee arrangement and make sure they stick with it. Unilateral rate increases, double billing, and someone else’s work that inadvertently ended up on a bill are common errors that can increase costs as much as 10%.
  6. Using a Third Party Administrator? Set up handling guidelines and audit the TPA regularly. Take a cue from insurance companies who review their TPAs for compliance, minimally once a year and as often as quarterly. You went self-insured for a reason so make sure the TPA is protecting your company assets as you would.
  7. Look for fraud. Insurance companies have in-house Special Investigation Units (SIU) and regularly look for fraudulent claims. While you may not need to create your own SIU, don’t overlook the risk for potential fraud and train your staff to identify red flags. When needed, you can hire a reputable firm to investigate suspicious claims.
  8. Don’t forget to self-audit your group to make sure files are being managed correctly. Claim files need to be investigated, reserved and resolved. It is important to make certain that claim files are properly worked up to prevent potentially expensive slip-ups.

Underwriters of reinsurance, and excess carriers, will find value in an organized in-house claims department. If you are self-insured, a structured and consistent approach to self managing your claims is imperative. Following this checklist will decrease your financial risk and notably improve your claim results, regardless of your organization’s size or how many claims you process.

Have I missed any critical issues to be concerned about? Please subscribe and post any comments or suggestions.

Putting Puzzle Pieces Together and the Challenge of Creating a New Claims System

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Creating a new claims system should be easy with no legacy, right? Not so fast!

One of the great things about going to work for a start-up insurance company with a lot of venture money is the idea that you can build everything from scratch. No legacy of losses, a clean balance sheet, and no system constraints. The problem was the company did so well right from the start that policies were being written as fast as they could print the paper. The company had made the initial decision to buy an old established (green screen) application to handle back office processing. The thought was it was the most robust system on the market and as such should be able to handle multiple lines of business. Nice thought but we were a specialty lines operation and the thing just couldn’t do everything that it needed to do. Individual departments knew this and started to build their own mini-systems to get the work done. Suddenly the clean legacy free environment developed a legacy problem.

So where did this leave us in claims?

Unlike underwriting or finance, we did not have to worry about a huge influx of claims from the start so time was on our side. Despite the time we had, we were not involved in the underwriting system initiative early on. We would later learn what impact this would have on everyone. There is more to this story, but needless to say involving all key stakeholders potentially impacted by a system implementation is critical early in the design process. Nonetheless, we had a handful of claims and time to decide what type of claims system we were going to use.

Option 1 – License a System From Our Vendors – Sounds like a good idea?

The first suggested claims system solution was that building a system would be too costly and we should just “rent” a system from one of our Third Party Administrators. Another nice idea in principal that proved to be a not so nice in practice. While everything seemed usable during the demo and initial discussion phases, it was not until we started to actually get down to trying to integrate the application that problems arose. The system was really designed for a TPA and not for a carrier. The meant it did not handle policy data well and in turn would be difficult to adopt. At every turn the so called “customizable” options were leading us to create work-around after work-around. Unless we wanted to pay for fields to be customized, this option was not going to work.

Option 1 – Scrapped.

Option 2 – Buy a Comprehensive System – Another nice idea that was not going to happen

Simply put, this option was way to expensive, and with no true policy system in place, an implementation was going to be even more difficult than “renting” a system. Additionally, at the time, robust claims systems did not exist on the market as much as they do now and the ones that did were an all or nothing approach. We had a half a dozen claims and buying a system that could handle more than we would could have needed for lines of business we were never going to write didn’t make any sense either. So, needless to say –

Option 2 – Scrapped.

Option 3 – Build Your Own – more a decision by accident than by design

Now time was not longer on our side. Claims were coming in and we needed to do something. Ah the wonders of excel. With a spreadsheet all we could do was keep a record of claims and money spent, but in no way provide a claims management system. The controls, and making sure various required financial reports could be provided, was a continual problem that got worse the more claims and transactions we had. Like other departments in the organization I decided to build my own system out of necessity. This began with my limited skills in MS Access and then continued with the hiring of a an actual Access developer.  I was off to the races now and the claims department could build something it could actually use.

Option 3 – I think we’re on to something…

So now let’s build – It’s time for reality, a plan and a process

Developing is very simple when you have no rules, no team and no plan. It was me and a developer. I told him what I wanted to see and he built it. Life was good.  Now claims were coming in faster and we had more users on the system and people now wanted my data. Developing this way was not going to work and I was in for a rude awakening with the assignment of a business analyst. This was all new to me at the time and my days of walking over to the developer’s cubical and telling him to stop what he was doing to add a new feature were over.  In walked much needed process and structure. The reality was I did not really think we were going to build a system from scratch – I thought I was building a stop-gap measure. The stop-gap was over and the system was now going to have to go to an entirely new level.

With structure came direction and a strategic plan was developed. We had to get the basics taken care of which included a more stable database that could handle multiple users, and a new front end that would allow us to make changes quickly as well create new features and connections to various parts of the organization. A development plan emerged and a procedure for enhancements, development, testing, and implementation took shape. The system was no longer a department database, but a corporate application.

I had to come up with a name for our new application and so the Claims Processing Administrations System, cPAS, was born. The puzzle pieces were beginning to fit.

With old claims systems come old claims processes – You can’t change one without the other!

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So you need a new claims system

You know the darn thing doesn’t work or do what you want it to do so what’s next?

You can’t just go out and buy a new system without understanding what your current process looks like. Over the years you have adopted your operation to your existing technology.  However, with older technology comes outdated and sometimes ineffectual processes. Extra steps and workarounds were common ways you dealt with the inadequate technology, but updating the system alone will not get rid of those extra spreadsheets and additional paper. Those steps have become part of your organization and its “processing culture” and as you know – old habits are hard to break. A detailed assessment as to what is really going on must happen before you spend a dime on new technology.  Not doing a process assessment will make your expensive new solution function just as poorly as the old.

As recently reported in Claims Magazine, transforming your technology is more than just buying a new system. The authors of The Claim Transformation Journey correctly understand that:

Because of the age of many legacy systems, over the years, carriers have often adopted business practices that were built around their claim system’s limited capabilities and increasing shortcomings. As a result, the entire claim operation must be reevaluated. Changing the system without examining directly and indirectly related business processes, the interaction with claimants, and how data is managed would be akin to driving a sports car the same way great grandpa drove his Model-T: You’ll not only have a serious crash, but you’ll also do so much faster.

Even new systems can feel old when existing processes are not updated

While working for a client and performing an end-to-end process evaluation I learned how important the need for a pre-implementation assessment was. This firm had adopted new technology five years prior to my retention. They previously had a basic program to capture transactions but no real claims management system. In adopting their new claims system they continued managing files the same old way. Instead of feeling more organized and efficient, claim handlers now felt they had even “more work to do.”  In evaluating their process I found out that they were only using a fraction of their claim system’s capabilities. They had, however, created nine spreadsheets to track multiple versions of similar information and duplicated their work, time and time again. Had they assessed their operation prior to buying the system and changed not only their technology, but the way they were going to use it, they would have save hundreds of thousands of dollars.

Lessons learned

  • Before you assume your current technology is failing you – check your current processes and business rules against the systems capabilities
  • Create an end-to-end map of how things are being done and see if any tasks were created solely to fit into your technology
  • If tasks were created to ram a square peg into a round hole your claims solution may not be adequate
  • Make sure a new solution can reduce or eliminate old problems and not create new ones
  • Buying a new system will not improve efficiencies unless you understand how your current work flows function versus how you want them to function

Why use a consultant? The second set of eyes!

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Ever try and organize your own closet? It should be so easy to get the thing in order yet for some reason it’s very difficult. That is until you bring in a closet organizer to arrange everything in easy to manage sections. Sometimes the only way to truly accomplish a task is to have a second set of eyes. Your operation is very much the same way. There are many reasons to consider a consultant – here are some of my favorites:

  • Independence – Plain and simple the consultant has independence. They have none of the political ties nor history within an organization. They are free to ask the sometimes difficult questions and make recommendations that are truly in the best interests of the client.
  • Objectivity – It is common for staff to become attached to their organization and procedures. Often ideas come from within and it is human nature for individuals with very good intentions to get emotionally connected to a particular method of doing things. The consultant comes in with no emotional or political agendas and can look at how things are being done with a fresh set of eyes. A good consultant provides an objective, fresh viewpoint–without worrying about what people in the organization might think about the results and how they were achieved.
  • Experience -You can’t be an expert at everything. A consultant bring a depth of knowledge based upon the uniqueness of their experience and particular history. For example, I was an attorney, claims handler, claims manager, operations director and builder of a claims department. Given my unique experience I have seen operational issues across the board and can speak to them at multiple levels. Most claims managers come from a purely technical claims handling role and as such may not have spent time addressing organizational ills.

But don’t just take my word for it . According to Entrepreneur Magazine’s Small Business Start-up Guide, here are some reasons organizations hire consultants

  • A consultant may be hired to identify problems. Sometimes employees are too close to a problem inside an organization to identify it. That’s when a consultant rides in on his or her white horse to save the day.
  • A consultant may be hired to supplement the staff. Sometimes a business discovers that it can save thousands of dollars a week by hiring consultants when they are needed, rather than hiring full-time employees. Businesses realize they save additional money by not having to pay benefits for consultants they hire. Even though a consultant’s fees are generally higher than an employee’s salary, over the long haul, it simply makes good economic sense to hire a consultant.
  • A consultant may be hired to act as a catalyst. Let’s face it. No one likes change, especially corporate America. But sometimes change is needed, and a consultant may be brought in to “get the ball rolling.” In other words, the consultant can do things without worrying about the corporate culture, employee morale or other issues that get in the way when an organization is trying to institute change.
  • A consultant may be hired to do the “dirty work.” Let’s face it: No one wants to be the person who has to make cuts in the staff or to eliminate an entire division.
  • A consultant may be hired to bring new life to an organization. If you are good at coming up with new ideas that work, then you won’t have any trouble finding clients. At one time or another, most businesses need someone to administer “first aid” to get things rolling again.

At the end of the day the consultant can speed change, improve your operation, add value to your organization and truly save your money.

Start-up – Lets get down and dirty and pitch in on everything

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On day one as Vice President of Claims for Arch Insurance Company I found myself working in cramped space in Lower Manhattan where the CEO shared an office with others and the head of Professional Liability Underwriting found a happy home in an electrical closet. Arch was rapidly growing its underwriting and was binding new policies at a breakneck pace. After getting my credenza in the hall (with a shared phone as there were no more phone lines) I was handed the entire company’s log of claim files to get to work. This consisted of one property loss, and one notification of a casualty incident. It was easy to think that claim counts would be low for a while but that would change quickly. I was hired to manage and concentrate on the administrative operation, which would free the technical claims staff to focus on strong claims handling from the inception.

We needed everything including a claims system, best practices, litigation management, a way to manage and store claim files and methods for making claim payments. Given that we were a public company, all had to be done with strong controls in mind as well. It was a different challenge every day. We concentrated on things at first that would have little impact later. It was easy to go down paths that later became muddied or ones that should never have been followed. It was not known how quickly claims would grow and what types of policies were going to be written. At first we affiliated with Third Party Administrators to handle our intakes and possibly handle claims if needed over time they handled little direct matters and even less as it relates to intakes (they did handle claims our program business which were a whole other set of problems). In some ways we were driving blind as everything changed so quickly all the time. A decision was made that we needed to outsource a call center so off I went to research and meet with various providers. I never believed we would be the type of operation that needed to handle that many calls and over time my belief proved true and that project correctly fell by the wayside. This was common in claims as well as other departments. Decisions were made, paths were followed, change happened, and the path changed.

Trying to connect all the moving parts in the early days was difficult. Each group needed to accomplish tasks quickly and there was no time to stop and connect with everyone. Underwriting needed a clearance and binding system, finance needed a system to bill and account, actuarial needed a way to manage IBNR and rate new clients and we needed all of those things to happen to manage claims. Our path to a claims system also stopped and started. At first we were going to “rent” a system from one of our TPA partners. Then we were going to use a legacy system that had been adopted by underwriting and actuarial as a stopgap (we were a start up with legacy problems already). The path to what would become a home grown state of the art system will be the subject of another posting, but needless to say, like many, we started with a spreadsheet.

Change happened daily but we needed to be ready to handle the technical aspects of running claims. We began to hire heads of claim departments – one for Healthcare – one for Property and one for Directors & Officers. Of course there was no place for them to sit. You knew someone was being hired when someone walked in with a tape measure trying to figure a way to squeeze a new desk in. It was a fun and interesting time for everyone and those who thrived checked their egos at the door and rolled up their sleeves and pitched in where needed. Despite a rich investment, we might as well have been working out of someone’s garage. As they say – it was the best of times.

Change comes quickly when you least expect it

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9/11 changed everything for a lot of people. I was at my desk at One Liberty Plaza across the street from the World Trade Center when the attacks occurred. I was literally shaken from my desk and the world would never be the same. There were significant emotional and physical issues to deal with. I will not get into those here, but they were as expected and significant. We were lucky in our department and lost no one to the horrible events of that day – other colleagues were not so fortunate. It was amazing to see those within the company and those outside rise to assist where they could. As low as humanity reached that day, evidence of the wonder of the human spirit revealed themselves in the days and weeks that followed.

By the end of the day I was on a conference call with others from the senior staff trying to figure out our next steps. The company had set up an employee assistance program, which was used by many to deal with the emotional aspects of the tragedy. As a management team we had to deal with the business aspect of getting claims up and running.  In the short term we were able to re-route claims issues to other regional offices around the country. Regardless, we had over 75 claims professionals that needed to get back to work. Unlike other firms, we were mostly paperless making recovery significantly easier. There were a few snafus such as when the back up tapes had not been taken offsite, leaving claims data delayed for a short time. As part of the recovery team I helped to establish a remote office of Specialty Claims staff in one of the Zurich field offices outside the city. For over a year claims professionals worked in cramped and close temporary space designed for a quarter of the people that we had. It was a challenge to get everyone up and running and I am proud to say we were able to get almost the entire staff up and running within one week. It was truly an extraordinary achievement at the time.

Challenges of an office fragmented

After a few months of settling in and dealing with physical and emotional issues, the business of running a claims office continued. We would not move back to the lower Manhattan for nearly a year. In that time, we had to make due with the fragmented nature of our division. Our claims department had been moved to more locations and faced more challenges during the immediate post 9/11 period than I thought could have been possible. The management, underwriting, claims, actuarial and other key departments previously located in one building in New York was now spread across the tri-state area in 4 locations.  Having a paperless claim environment made it much easier to move claim files and documents between offices. Over time the business developed a rhythm that enabled the department to succeed. Once the temporary offices were up and running, I shared a long desk with the Chief Claims Officer for Specialty Claims where we were able to handle the day-to-day operational concerns as they developed.  I increased visibility with my underwriting counterparts and worked with IT to create new reports to assist them in understanding claim trends.

All was on the right track and I was assigned to work with the Home Office IT department to help rebuild the legacy claims system that had been in place for over a decade. Just as this was taking place, my immediate boss was hired as the head of claims for a start up insurance company. The thought of working in a fresh environment in an entrepreneurial setting was very appealing to me as well. Within three weeks of his departure I got the call and he wanted me to come in and help him build the new operation. There was little for me to consider and within two weeks I was part of a new start up insurance operation responsible for building a claims department.