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

Posted on September 9, 2024 by Marc Lanzkowsky

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

Posted on September 6, 2024 by Marc Lanzkowsky

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:

Implement ironclad litigation guidelines
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

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.
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.
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:

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.
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.
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!

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

Posted on August 22, 2024 by Marc Lanzkowsky

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:

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.
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.
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.
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.
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.
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.
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.

3 Types Of Claims Metrics Every Department Should Be Looking At

Posted on February 12, 2016 by Marc Lanzkowsky

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?

Breaking Those Competing Commitments To Change

Posted on January 23, 2015 by Marc Lanzkowsky

Even the most supportive team member can derail organizational change

Change is always difficult in an organization. For a myriad of reasons people resist being taken out of their comfort zone and asked to take on new tasks or modify old ones. It is for this reason that “we’ve always done it that way” is such a comforting way of doing business (see my article 15 Excuses For Not Changing And 5 Reasons To Change The Way We Make Change). But good organizations need to change to keep up with new customer demands, competitive pressures or just to grow and remain efficient.

In life change happens and people adapt. In business change happens and people react. Those who are resistant to change are usually easy to spot and equally as easy to manage and therefore rarely derail a change initiative. However, it is the person that generally supports change and outwardly appears to be working for the implementation of a new initiative that can sometimes harbor a “competing commitment” that can have a more deleterious impact on the success of a new initiative.

The unknown hidden agenda

I know this comes as no surprise to all of you savvy managers, but yes there is a psychological reason that people don’t actually effectuate change despite good intentioned efforts.

Harvard Graduate School of Education lectures Robert Kegan and Lisa Lahey state in their article, The Real Reason People Won’t Change, that “even as they hold a sincere commitment to change, many people are unwittingly applying productive energy toward a hidden competing commitment” causing change initiatives to fail. In fact, they go on to state, “competing commitments cause valued employees to behave in ways that seem inexplicable and irremediable….” These valued employees aren’t deliberately trying to undermine change but rather there is an underlying hidden agenda that conflicts with their stated desire to support the initiative.

According to the authors, competing commitments stem from deep rooted beliefs or underlying assumptions that are formed early in life. Understanding those underlying beliefs and identifying the “big assumptions” will help to break down those hidden barriers.

I had a client, Joe, who was the head of claims for a large organization. Joe was one of the biggest supporters of a large change initiative to reorganize and modernize the operation. Joe’s management style was to take on work that should have been done by subordinates. He had a very difficult time delegating, and even when he did, he would often re-do the work to ensure it was being done correctly. Joe knew the organization had problems with technology, staffing and most importantly the ability to deliver consistent results. As initiatives in the project were designed, Joe was supportive and helpful in identifying problems and offering ways to change and improve the organization. However, as a particular project was being implemented suddenly Joe would be unavailable or would find a reason why the change he supported, and agreed to, wouldn’t work. Joe’s competing commitment was that the work couldn’t be done if he didn’t do it. His underlying big assumption was if he delegated the work and it was done wrong it would show that he truly didn’t have the management skills to warrant his position.

Joe was someone who started as a field adjuster and worked his way up through management. He worked with many around him that had formal training or advanced degrees and Joe felt the best way to succeed was to become the expert on certain issues and hold them close to ensure his value. This underlying belief system was subconsciously impacting his ability to make change.

Manager = Psychologist = Results

So how does one break the underlying big assumptions?

Whether you realize it or not, part of being a good manager is developing skills akin to a psychologist. You have to listen, be empathetic to the issues, and help to provide solutions and coping mechanisms to elicit results. Kegan and Lahey give three steps managers can take to help break through and employee’s resistance to change. This is not some quick hit magic pill and takes time and energy to achieve results. Each step is designed to help draw out what drives a person to be adverse to change.

Step 1 – Diagnose the competing commitment

Digging up a competing commitment will take a small commitment of its own and a few hours to to realize there is another voice countering an employees desire to make things work. The authors suggest these questions be worked through:

What would you like to see changed at work, so you could be more effective, or so work would be more satisfying?
What commitment does your complaint imply?
What are you doing, or not doing, to keep your commitment from being more fully realized?
Imagine doing the opposite of the undermining behavior. Do you feel any discomfort, worry or vague fear?
By engaging in the undermining behavior, what worrisome outcome are you committed to preventing?

Step 2 – Identify the big assumption

Big assumptions are the elephant in the room within your subconscious. It is fairly understood and can be identified but often hard to make the connection to the actions a person takes. “People often form big assumptions early in life and then seldom, if ever, examine them.” One way to understand the big assumption is to invert the competing commitment. Like Joe who couldn’t delegate because he felt the work wouldn’t get done would have a big assumption that would be that if he didn’t do the work it won’t be done right and people would discover he didn’t have the skills to manage.

Step 3 – Test – and consider replacing the big assumption.

Sounds easier said than done. However the trick here is to get the employee to understand their big assumptions and test them as situations come up. From there, the employee can try and behave differently and try and replace those assumptions holding them back. Changing deep rooted behavior is obviously the goal but even getting an employee to understand and test these assumptions will have a positive impact on a projects success.

It’s worth the trip

Kegan & Lacey point out that “while primary commitments nearly always reflect noble goals that people would be happy to shout from the rooftops, competing commitments are very personal, reflecting vulnerabilities that people fear will undermine how they are regarded both by others and themselves.” Achieving success is no easy task but managers should not be deterred. Trying to understand and get to the bottom of such competing commitments and big assumptions will in and of itself provide management with additional insight that will undoubtedly help to move the project forward.

How do you deal with stalled projects and understanding people’s resistance to change?

4 Keys to Managing a Successful Outsourced Claims Operation

Posted on October 30, 2013 by Marc Lanzkowsky

To be Successful One Must Have Strong Oversight and Controls From the Beginning

So you have decided to hire a Third Party Administrator to handle your claims and it seems like a reasonable decision at the time. You either have some new specialized business you are writing and don’t have the expertise in-house, or you don’t want to set up a new regional claim office or you are a new company and want to have an experienced claim department in place. Yes – the TPA is the answer to all your concerns.

All things being equal there are many fine TPAs in the market that will provide wonderful service to your insureds in a cost effective and comprehensive manner. Initially you think you have chosen a good one. However, as time goes on you realize you are not exactly getting what you expected from your TPA. So what happened?

It matters little what your reasons for outsourcing were. Bottom line is if you didn’t take certain steps to properly select and manage a TPA you are likely to end up with problems. The partnership you form with your TPA will be fruitful if you take these key steps to select and manage them in a way designed to foster long term success.

TPA Selection – Do your due diligence. If you are handling claims over to a Third Party Administrator remember they will be the face of your company to your customers. Take their selection seriously. Form a multidisciplinary selection team and engage IT, Finance and Operations in the selection process. Besides the basic questions, look at their staffing and turnover rates. Ask to speak to references and understand how they manage their accounts internally. Do they have dedicated claim units? How strong is their technology? How flexible are they in producing reports? When was the last time they had an independent audit? There are many more questions to be asked but this is not the time to be shy. Dig deep and understand who they are and what they can do.
Oversight – General Guidelines. Don’t rely on the TPA’s claims guidelines. You should develop, and expect the TPA to adhere to, a very specific set of best practices to suit your company’s requirements. Tell the TPA what you expect and hold them to it. When drafting guidelines pay attention to sections involving the retention of counsel, vendors and experts. Make sure they seek approval where appropriate and drive the selection to vendors that have been vetted by you or better make them use your own panel. Be specific about what claims you want to know about and when. Make sure you review these guidelines regularly and adjust them where appropriate. Remind the TPA will be using these guidelines to measure their compliance.
Strong Internal Formal Claims Program. Just because you have outsourced your claims management to a TPA does not mean you do not need to maintain a strong internal claims program. The successfully managed programs work with a combination of oversight and strong in-house claims account managers watching the TPA’s activities. It is important that internal claims staff be well versed in the expected handling practices and the ability to spot issues before they become problems. Internal claims professionals should have skills similar to a department manager that can handle trend analysis as well as being able to have difficult performance discussions with the TPA. No successful program works without skilled in-house claims resources.
Audit – Review and Re-review. Unless you are reviewing the TPA’s work for compliance through regular claim audits you are setting your program up to fail. Reacting to individual claim issues will not create a balanced efficient program and will cause the TPA to react to whatever the issue of the month is. Regular audits identify problems and force solutions to be addressed by the TPA. Some of the best run programs audit their TPA’s 3-4 times per year. In addition to regular best practice compliance reviews conducting specific targeted reviews can strengthen a program’s effectiveness (i.e. reserve review, vendor management or financial controls).

Working with TPAs can be a very rewarding and cost effective method for handling claims. Many are experts at what they do and have well run efficient operations. Regardless, the old adage about the squeaky wheel getting the grease is never truer than in the oversight of a TPA. Get squeaky!

What are other things needed when selecting and managing a TPA?

Claim Files Are Evaluated Using A Form Of Root Cause Analysis So Why Not Do The Same When Evaluating The Department?

Posted on March 5, 2013 by Marc Lanzkowsky

Assessing operational ills requires the same skill needed to evaluate a claim file

We have heard the mantra time and time again about how treating the symptom of a problem doesn’t do anything to cure the cause of the problem. As one of my favorite bloggers Seth Godin recently wrote in Signals vs. causes, “A fever might be the symptom of a disease, but artificially lowering the fever (ice bath, anyone?) isn’t going to do anything at all to change the illness.”

Assessing a claim file is like doing a Root Cause Analysis. Looking at the damages and paying the claim may move a file but it doesn’t tell you whether the claim should be paid in the first place. Analyzing a claim file is learning to know the what, why and how an event happened which is essentially what Root Cause Analysis is.

Root causes are specific problem or faults that create a breakdown in an operation or process. Claim files are a result of some event that causes a claim to arise (i.e. an accident, malpractice, property damage). It is the claims professionals primary job to assess these events and determine what happened and why prior to paying a claim. In general, root causes can be defined as an event that is:

Underlying to the problem
Reasonably identifiable
Within managements control to correct
When corrected will be effective in preventing recurrences

Despite Root Cause Analysis being a core skill in handling a claim file, claims management doesn’t always approach departmental issues with same type of evaluative assessment. Using the same techniques in assessing the root cause of a claim, management can assess operational problems.

Since the techniques are already in use for claims analysis why not use them for operational assessments?

Doing a Basic Root Cause Analysis: The 5 Whys

Similar to a claim file analysis, operational problems require an assessment as to what happened, how it happened, how could it have been prevented, who was at fault, what’s it going to cost to fix the claim and are there any lessons learned. For example, let’s say payments are being delayed resulting in fines being assessed against the department. If one looks at the fines as a claim one would want to determine what caused the fine? how did it happen? and how can it be corrected? An analysis of the “claim” needs to take place prior to making any decisions.

A great technique for getting to the root cause of a problem is to ask the question “Why” question five times. “By repeatedly asking the question “Why” (five is a good rule of thumb), you can peel away the layers of symptoms which can lead to the root cause of a problem. Very often the ostensible reason for a problem will lead you to another question. Although this technique is called “5 Whys,” you may find that you will need to ask the question fewer or more times than five before you find the issue related to a problem.” (Determine the Root Cause: 5 Whys – from www.isixsigma.com)

Going back to our example of a payment delays causing fines, and using the 5 “whys” technique, one could assess the problem this way:

Why are we being fined?
Because payments are being delayed by 5 days
Why are payments being delayed 5 days?
Because they were delayed in getting to finance
Why were they delayed in getting to finance?
Because they were not in the outgoing tray for approved payments
Why were the not in the outgoing tray?
Because they were sitting on a manager’s desk for signature and the manager was on vacation
Why was there no plan to have another manager cover the vacationing manager’s desk?
Because there was not procedure in place

The example above is simplified but it truly demonstrates that similar types of issues can be explored with a series of basic questions. Getting to the root cause is essential to moving a problem to a solution.

What are other techniques used for assessing a claim file can be used to assess the operation?

How Would Albert Einstein Approach Claims

Posted on January 3, 2013 by Marc Lanzkowsky

Albert Einstein must have been a claims manager!

As we begin the New Year it is always a time to reflect and look forward to new beginnings. Recently an executive in my company sent along some words of wisdom from Albert Einstein. Einstein was an interesting character known not only for his scientific brilliance but also for his quick wit. He produced some wonderful quotes which I believe were directed to the claims industry.

OK maybe they weren’t written with the world of claims in mind, they are nonetheless applicable.

“Setting an example is not the main means of influencing others, it is the only means.”

Claims departments should be leading companies in how they run their business. Claims departments are the fruits of the product being sold and when an insured buys a policy it is claims that serves up the services paid for. One of the best ways to retain and grow new customers is by “setting an example” in claims. Ensuring customer service metrics are met and exceeded and developing new ways to assist the customer is not the “main means of influencing others, it’s the only means.”

“Any intelligent fool can make things bigger and more complex…it takes a touch of genius—and a lot of courage to move in the opposite direction.”

There is a trend for more systems, more technology and better information in claims departments. I am a big supporter and believe it’s about time the industry wakes up to the power more claims data can have in making departments more efficient and providing robust information to improve the business. Regardless, providing more complexity and bigger technology solutions is not the only answer. Be a “genius” and go smaller and less complex in building and implementing claims software. We have the technology it just needs to be used correctly.

“Not everything that can be counted counts and not everything that counts can be counted.”

This is one of the biggest claims dilemmas. We are being overwhelmed with data and that can be a good thing. Regardless, the fact that it can be measured doesn’t mean it is actually adding value to the process. Take a look at your metrics and really explore if what is being counted “counts.” On the other side, there are things in claims that unfortunately can’t be counted perfectly. Given how climate, legal issues and other external factors change rapidly, comparing claim metrics from period to period is sometimes a difficult exercise. Regardless, striving to “count” what “counts” is what the industry needs to continue to do.

“If you can’t explain it to a six-year old, you didn’t understand it yourself.”

Wouldn’t it be great if we could all work like this? Let’s be realistic, if you can’t explain your claim to management, opposing counsel, the claimant, in an easy simplified way then you probably don’t understand it yourself and will never get to the desired outcome. Like his quote on being a genius by making things smaller and less complex I say get to the point. It is still important to get all the facts and make sure all the “i’s” are dotted and the “t’s” are crossed, but do it in a way that will allow you to truly understand the claim and be able to explain it.

“Nothing happens until someone does something.” So go make it happen!

3 Ideas To Prepare For The Completely Unexpected: The “Sandy Contingency”

Posted on November 28, 2012 by Marc Lanzkowsky

Time to revisit those disaster plans!

As much as one can prepare the reality is you never believe the worst will happen until it actually happens. The tragedy of 9-11 was my first hands-on experience in dealing with initiating a disaster recovery plan. Despite being with a well established multinational insurance company with plenty of documented protocols for dealing with disasters, there were still lessons learned.

Unfortunately it seems that we have to suffer a disaster before we take the steps necessary to truly prepare for them. The Sandy “Super Storm” has been the latest disaster to expose weaknesses in existing plans – assuming of course you had a plan to begin with.

The “Sandy Contingency”

I have termed having to prepare for the completely unexpected event such as Sandy as preparing for a “Sandy Contingency.”

Back in February 2010 I wrote in Blizzard Warning in the East! Can your claims department keep running if the office closes? about preparing your office in case of disaster. Clearly the recent events of “Super-storm Sandy” made me revisit the subject. Unlike other events, the Sandy storm really brought the worst possible scenarios together in one event. Buildings flooded, transportation went down, gas shortages grew, and several areas suffered extended power outages that lasted for weeks. While coastline areas are still dealing with the storm, and will be for months and years, many of the business areas are finally getting back to normal.

The insurance industry, like many, faced challenges from a business operations perspective. While companies instituted there well managed disaster recovery plans, the widespread nature to a major metropolitan area exposed weaknesses in these plans. Insurance companies extensively prepared to manage an influx of claims, knowing how to deploy resources to disaster areas and trained to initiate those plans.

Large insurance companies with multiple claims office locations across the country could deal with local offices that were impacted. However, smaller carriers with local operations may have prepared well on how deploy adjusters to the disaster areas, but they likely did not expect to have problems with their claims offices 20 miles from the coast.

Other entities that one would have expected would have been prepared for a large storm also found how unprepared they actually were when faced with the Sandy Contingency. A major hospital in New York lack of preparedness forced mass evacuations of critically ill patients and created a ripple affect to surrounding medical facilities forced to take in an influx of patients. (see Sandy Exposed Hospitals’ Lack of Disaster Preparedness).

So what was learned? Sandy exposed the unexpected

The Sandy Contingency will dictate the need for a new approach to disaster planning. Often times the disaster plan deals with a single event that causes a disruption in an area for a relatively short period of time or one location for a long period of time. Sandy showed us a disruption in a large area for a long period of time. This was further complicated by the fact that almost no one dealt with a 1 in a 500 year scenario in an place such as the New York Metropolitan area.

The three things that stood out to me the most that I would never have thought were going to happen were:

Extensive power outages lasting more than a week. It took almost a week to restore power to half of Manhattan and even longer to areas within a 100 miles of the city. This widespread power outage meant that business with back up locations within that area were still unable to get running. The “we have great technology and our employees can work from home” plan proved to be useless in many instances as there was no ability to work from home without power or Internet connections.
Transportation disruptions went beyond some minor inconvenience. Public transit disruptions and gas shortages lasted weeks and made it extremely difficult to get employees back into the office or to remote locations. The impact on such a wide area exposed holes in many contingency plans. The restoration of power and services alleviated some of these issues and allowed people to work from home, however, the difference wasn’t felt for at least a 10 days. Did businesses really expect to have a complete office down for 3 days? 5 days? 10 days?
Flooding in places that you would never expect. I am not sure many business in lower Manhattan expected extensive flooding to inundate basement facilities and significantly damage electrical service at the building. Some buildings lost not only electrical equipment but their entire HVAC plant. Some of those office are still closed and will be for months. And while lower Manhattan should have expected the possibility of basement flooding, I don’t think anyone thought how extensive it would be.

So how can we improve our planning?

Here are 3 suggestions to consider when preparing for the Sandy Contingency

Think about crazy possibilities. It’s time to put away the “that won’t happen here” mentality and figure all bets are off the table. Assume tornadoes in a non-tornado prone area, earthquakes in a non-seismic area, and flooding in places you never thought of. If Sandy showed me anything it was that holding to ideas that it can’t happen here is a dangerous way to plan. I know some of the planning around the doomsday event may seem silly, but it’s worth having the discussion and some form of plan. Does that mean we plan for alien’s attacking the Earth? Maybe not, but using some of the crazy Hollywood movie plots may not be an absurd way to think of possible scenarios.
Is your back up area really far enough away? 100 miles was not going to help get your business up and running in short order if your office was in Lower Manhattan and your back up office was across the river. When you factor in the regional power outages neither was the “work at home” a viable solution. Redundancy plans have to consider the possibility of moving people greater distances in the short term. That may mean factoring in office space and lodging for a few key team members in a location in excess of 100 miles.
Practice. Practice does make perfect. Practice also will allow you to test even crazier events to see what problems might come up. A few years back I participated in a Government test regarding preparedness to handle a pandemic virus. Each day we received a new set of events (i.e. transportation shut down, martial law imposed, hospitals shutting down) that we were asked to deal with and discuss how we were to handle our operation. Even with a well honed plan we were found some weaknesses and areas to improve. Mock disasters are a great way to perfect your plans and expose your weaknesses.

I am not naive to think we will never have to deal with a another Sandy Contingency again. Whether you believe in climate change or not, we seem to be suffering from 100 year events every 5-10 years. We have to break from the
that can’t happen here” thinking and prepare for a wider set of potential circumstance. The more we prepare for the unexpected the better chance we have of limiting the effects.

What lessons did you learn from Sandy?

Claims Predictive Modeling: Using The Numbers To Improve Operations And A Change Worth Exploring

Posted on August 22, 2012 by Marc Lanzkowsky

A recent article in Claims Magazine discusses the “Human Capital Impact of Using Predictive Models.” The article, written by the presented by consultants in the Actuarial, Risk & Analytics practice of Deloitte Consulting, discuss what it means to the claims professionals and suggests methods for implementing a Claims Predictive Model.

What Is Claims Predictive Modeling?

Claims Predictive Modeling (CPM) is one of the big buzz words in the industry. After a few decades of improving claims technology systems and creating vast databases of claims information, CPM is an attempt to use that information more effectively. It is an attempt, as the article infers, to provide better information to the claims handler to let them use their skills to make better decisions, apply resources more effectively and really allow claims departments to do more with less.

As the article notes:

“Leveraged effectively at first notice of injury or loss (FNOI/L) and throughout the lifetime of the claim, advanced analytics can have an impact on various aspects of the claims lifecycle: claims assignment, special investigative unit (SIU) referral, medical case management, litigation, subrogation, escalation and, ultimately, claims settlement and outcome.

No who wouldn’t want to have a positive impact on claims settlements and outcomes?

Change Can Be Good

Claims professionals are a rightfully proud group. We have always taken on the role of analyst and investigator and understand that there are nuisances in claims that a computer can’t possibly see. We live in the world that handling claims is a science and an art that requires a combination of elements and not just data on a spreadsheet. CPM and other tools are inherently perceived as a threat to the professional as another way to diminish our skilled judgment. We point to years of decreasing staff and being asked to do more with less as evidence of the erosion of our profession. Unfortunately, as the industry continues to struggle attracting new qualified staff, there may be some truth to these perceptions that the profession is under attack.

Regardless, we are an industry that needs to embrace and welcome new technology. CPM is not a means to further refine the profession to the point of not needing a true skilled professional. The tool is designed to highlight claims with greater risks and focus the claims handler’s attention to where it is best served. While the statistics vary slightly from company to company it is fairly well understood that 10-20% of claims volume make up 70-80% of a typical companies claim dollars. Ensuring that those claims are most effectively handled quickly is one of the best ways to manage loss and expense costs. And these same data analytics will also help to manage the high volume of matters that make up the remaining matters.

The authors point to several key elements to consider when implementing a CPM program as a way to improve the process with the claims professionals:

Communication
Making CPM Champions
Buy-in from early doubters
Closed claim reviews and comparative models

These issues are excellent suggestions no matter what type of change is being implemented. The bottom line is people need to be engaged when change is being implemented. When people perceive their jobs are being threatened they get defensive so it is important to help make the transition easier by being open. Regardless, times are changing and we as claims professionals need to adopt.