Why Extending More Claims Authority Means Extending More Responsibility

How much authority is too much authority?

Extending authority to claims personnel is always a difficult exercise. Deciding when, and how much authority to extend will always depend on the line of business, and experience of the claims professional.  Giving more authority also means extending more responsibility to the junior claims professional to make greater financial decisions for the company.

Any small increase in authority can really add up. For example, if you extend an additional $10,000 in authority to a claims professional who gets 10 new claims a week you are giving them the responsibility over an additional $5.2 million per year.  Do that for ten claims professionals, and that group can commit an additional $52 million per year to the company.

The inverse claim volume and value relationship

It is fairly well common in the industry that there is an inverse relationship between claim volume and the claim value.  A common example would 80% of the total incurred is found in 20% of the claim volume.  This would also mean the 80% of the claim volume is managing 20% of the incurred. Regardless of the exact split, this would mean that most of the claim volume is being handled by junior claims professionals.

In most companies the top valued matters are very well reviewed and examined. Those claims have to move up through the authority chain, and are seen by managers, specialists and executives, and in almost all occasions, are well worked up.  The lower value claims, however, are usually assessed and moved quickly with less scrutiny and review by senior managers.  Many claims of lesser value speak for themselves, and do no not require the work up or intense scrutiny that is needed in a multimillion dollar loss.

The lower level claims are the training ground for the industry and allow a claim professional to walk before they run with a more significant matter. Despite their individual value, the lower level claims add up. How much authority to extend is often an arbitrary matter determined by the level of the examiner. A junior examiner gets $10,000 and senior examiner $50,000 and so on. However, extending authority should be an exercise on how much responsibility the particular claims professional can handle.

The example above shows that even a moderate increase in authority can significantly affect the company’s financial outcome.  When authorities are left too low, however, there is more pressure on management and a greater risk non-value added duplicative work.  Claim professionals will have to prepare additional internal reports, consult more with attorneys and set up and attend meetings even to get a nominal increase. This creates an operational burden as well as higher costs.

So what is the big deal about extending more authority?

The authority goes up and so does the spending

Back in the day I was at a company that had a relatively new book of business that had not developed. Because of this, management made a decision to restrict the amount of authority extended to claim handlers and managers. As the book aged, as was expected, there was an increase in the number of larger claims. With authority levels relatively low, there was a delay in raising reserves and moving files. To alleviate any backlog, authority levels were increased for claim handlers as well as the threshold to present claims to senior management. The process worked and claim reserves were increasing when they needed to and files were moving to resolution. All seemed to be a success until a deeper look at the numbers told us a different story.

A close look at the numbers several months later revealed an interesting trend.  Average payments made within manager’s higher authority level were no different when compared to the pre-authority increase. This was a good sign that, at that level, there was a consistency as to how claims were being resolved. Unfortunately, the results were not as consistent at the lower levels. With an increase in authority came an increase in the average claims being paid out.  Lower level claim handlers were resolving more claims, and were doing it at higher level. While the study could have looked deeper at the total costs to see if this resulted in lower expenses due to quicker resolutions, what was clear was that with more authority came a willingness to spend more.

Where was the failure? Was it management extending too much authority? Was it the claim handler trying to resolve cases faster to move files off their pending? Did giving the ability to get a case resolved, without having to write up and present it, give too much responsibility to the claim handlers?

No matter the exact reason for the numbers, lessons could be learned and the one that stood out for me was don’t extend authority without extending responsibility.

What it means to extend authority with responsibility

Responsibility and authority are two different things and you cannot extend one without the other. With increased authority comes increased responsibility. In other words, as you extend more reserve or settlement authority to more junior employee it is important that they understand the increased responsibility that comes with it. They are becoming “keepers” of a larger part of the pie, and if they can manage that responsibility, then extending authority is appropriate. Blanket increases in reserve authority by a claims professional’s title, or years of experience, is not the best way to determine whether they will have the understanding of the responsibility behind that authority.

Extending additional authority to a number of claim handlers can have a dramatic affect on the department’s total incurred. Make sure claim handlers understand the impact, both good and bad, to the company. Interview your claim professional before the increase is extended and see how much they truly understand about the responsibility more authority will bring.  Ask them how they plan to protect the company assets while remaining compliant with fair claims practices. Reserves that need to go up, and claims that need to be settled, still need to happen, but it should happen when the claim professional understands what an increase in authority means. When this convergence of authority, understanding and responsibility occurs, then the increase in authority is warranted.

Spend the extra time ensuring there is an understanding of the responsibility of increased authority and you will create better claims professionals.

What steps do you take when extending authority?

In Claims Don’t Let The Process “Thing” Get In The Way Of Doing The “Right” Thing

Making a check in the process won’t ensure the matter is done right

Mark Susterwas the founder of Koral, a Palo Alto company which was sold to Sales Force. There he was VP of Product Management and then left to become a member of a venture capital firm.  He is also author of a blog called Both Sides of the Table and recently wrote about Doing the Right Things is More Important than Doing Things Right. In this interesting article he discusses how sometimes companies get caught up in “things”, or process, without worrying about the outcome. Tasks become the driving force not the outcome.

“When you hire people in functional roles they want to show that they’re achieving results and results are easiest to measure by tasks accomplished.  But many CEO’s and management teams fail to set clear guidelines on what the company objectives are and make sure that everybody is driving toward the same goal.  It’s actually quite hard to lay out an annual company strategy that is articulate and underpinned by facts.

So many CEO’s just carry on being … CEO’s –>  fund raise, get media attention, attend conferences, hire staff, “set direction”, whatever.  But this leads to organizational drift because staff will continue to produce “work.”

Everybody should be able to answer the question, “why am I doing this?”  Otherwise they’re likely to be doing things right, but not the right things.”

I have written, and am a big proponent of, the importance of good process as a way to ensure good results. Putting a proper process in place is a road-map to help move claims to a prompt fair resolution. Nonetheless, doing and focusing on the process without making sure the outcome is sound is doing things right without doing the right thing.

It’s so easy in claims to focus on the process and not use the process as a means to the end

In a recent audit of a hospital system’s claims department I saw an excellent example of what happens when focusing on the doing things right resulted in something not being done right. The claims staff had been instructed, like most claim departments, to place notes in the file on various issues such as coverage, damages and liability. They had previously been cited for poor documentation so a priority was placed on ensuring notes were in the files.

While every file now contained a note, there was absolutely no independent thought to the claims handler’s comments. Almost all the notes had been cut-and-paste word for word from counsel emails. They even went so far to include the salutations and signature lines. One note I found was a complete doctor’s CV that went on for over 30 pages. This type of note taking added little to the claim file and provided no insight into the thought process and evaluation of their claims staff. It was another example where doing things right was not doing the right thing.

Another client required the claims staff to create detailed damage time lines regardless of the nature of the claim. Claims adjusters would spend hours completing outlines, and sometimes even outsourcing the reviews to others, whether the case needed the assessment or not. There was no review as to whether these time lines were adding value to the claims process. Instead of using the process as a tool it was turned into a requirement for the sake of doing a requirement.  Clearly the process was being done correctly it was just not the right thing to do all the time.

So the lesson learned is when focusing on process make sure the process is not the only thing that is being done.

How many of your processes are the “thing” getting in the way of doing the right thing?

You Can’t Wait Till The Last Minute To Improve You Operation – Planning Starts Now!

Don’t let the lily pads take over the pond.  The time to deal with the problem is now.

I had the pleasure of recently attending an executive summit presented by ACS A Xerox Company in Hartford Connecticut. The conference theme was centered on insurance issues and looking forward to 2015.  It was a great meeting with executives from a variety of insurance companies and industries.

Looking to the future is a difficult task, especially when day-to-day issues make it hard to stop and be strategic. Unfortunately, trying to plan for the future takes time, and thinking it can be put off will only create larger problems.

Before you know it that little issue will grow into a big one – the lily pad problem

James Hatherly, one of the guest speakers at the conference, gave a great analogy about putting off minor issues. James is the author of Daring to Be Different, A Manager’s Ascent To Leadership and he discussed the importance of having to think about problems sooner rather than later with the following story:

One morning a farmer observed that a lily pad had sprung up on his pond. The following day there were two lily pads, and on the third day there were four. Since they did not seem to be doing any harm he took no action. However, the number of lily pads continued to double every day until the pond was completely covered on the thirtieth day.

James questioned the audience as to how long did it take for the pond to be covered 50%? Or even 25%? The answer was that the pond was 50% covered on the 29th day and 25% covered on the 28th day.

His point? Managers and executives can’t wait until the 29th day to solve problems.

With time slipping away, what should claims departments be thinking about in the next 5 years? That question, of course,  will be answered differently from company to company. Regardless, there have been certain trends that exist today, being addressed by other industries, which should be looked at in today’s modern claims department.

Two suggestions for beating the lily pads to the pond

There is nothing too forward thinking about the concepts I address here. There are plenty of cases in the insurance industry where solutions have been adopted successfully. Nonetheless, if you have not addressed either of these because you felt it was not appropriate for your organization it may be time to reconsider and see how they may apply in the future.

  • Social Media – I know it’s the buzzword in business wherever you go. You are probably aware of the powers of social media or you would likely not be reading this blog. Twitter, LinkedIn, Facebook and a variety of other services are being incorporated into businesses more and more each day. How will the insurance industry, and more specifically claims, adopt these outlets? Will you use Twitter to tweet claims alerts to customers? Are you creating a Facebook fan page to learn more about, and solve customer problems?  How about an internal social network to share claims information amongst departments and partner organizations. How can these applications make your claims department more efficient?
  • Mobile Technology – Everyone has a phone that can handle such an array of tasks that it’s amazing we ever functioned without them. Better bandwidth, and more coverage, allows access to an amazing amount of information from the palm of your hand. What is your company doing to adopt this technology? Are your claims adjusters able to assess claims on the road and instantly pass the information into systems for analysis? Are customers able to file a claim from their phone attaching photographs and other information like GPS locations?  Will new devices, such as an iPad be used in the future claims organization? How will your organization respond to these devices? Lead or follow?

Like most industries, adopting and changing with the times can be a difficult proposition. It takes time to think of issues, come up with solutions and implement the changes. Insurance companies have added legal, compliance and regulatory concerns, to say nothing of complex, and sometimes outdated, information technology systems.  Regardless, it’s not too late to address issues to create a social media or mobile strategy.

Think back five years and ask yourself how many lily pads would be on the pond had you stopped to deal with the first one on day one. The trends we see in technology, and in how people work around the world, are changing rapidly. To stay ahead of the curve, and take advantage of solutions that can help your organization, start thinking out-of-the-box now. Take a lesson from an article I wrote a few posts ago about changing hats outside your industry and see how others are adopting their operations to the changing times.

Now is the time to consider change. Before the pond gets too filled with lily pads attack the problem and look for solutions. Five years from now – you won’t be wondering what could have been.

What kind of lily pad can you see on the pond that can be dealt with today?

2 Chores that should not be neglected to become a stronger claims organization

No one likes to cut the grass, but to make the lawn grow strong, it needs to be done regularly

Lets face it – no one really likes to do mundane things. Nonetheless, it’s those very chores that have to be done regularly to ensure a strong organization. Like cutting grass, the longer you let it go the worse it is for your grass, and the harder it will be to fix the mess that has been created (for more on cutting grass read the The Importance of Mowing Frequency).

There are certainly enough chores that need to be done in the world of claims that no one likes to do. You know what they are and can include writing notes on files, keeping a diary and paying bills. But as any good claims handler knows, if you fail to do those tasks regularly, not only won’t your grass grow, but you will have quite a clean-up later.

Two chores that can really help claim departments grow nice healthy grass are in the areas of training and managerial assessments. Taking time to do these two chores regularly will go a long way to creating a stronger claims group.

Education and training

Claims is an ever changing world, and whether it’s a new legal issues or keeping skills sharp, you can never stop learning.  Malcolm Gladwell, in his book Outliers, discusses the 10,000 hour rule. Mr. Gladwell explains that to get good at anything it really comes down to the amount of time you spend doing it. I know it seems like common sense, but even common sense needs to be repeated from time to time. To improve the skills of your claims professionals it’s imperative to keep the learning process going.

Becoming a world class claims organization requires, not only hiring talented claims professionals, but is also in how you keep those skilled workers fresh and up-to-date. Lunch and learns, continuing education, reading articles in trade publications, or subscribing to a great blog on claims, are all ways to encourage claim handlers to learn and grow. The effect on your operation will be clear – better, smarter and more efficient claims professionals.

Managerial File Reviews

Despite hiring the right people, and training them regularly,  you still have to review their work from time to time. You can’t just wait for problems to happen before doing something about it. Conducting regular informal managerial reviews of claim files is the best way to prevent problems before they become disasters. Being proactive about reviewing files will help you truly understand how your claim’s professionals are working and keep you abreast of developments and trends that are occur.

Doing a basic review should take no more than a few hours a week and should become part of a routine. Take a look at one or two claims files per handler or adjuster every week. These reviews can be quick assessments as to basics practice such as proactive handling and reserve adequacy. Save the detailed “section by section” review for an annual best practice audit. Keep these reviews simple and short. Maintain a basic record of the files reviewed, and create a simple rating system of “acceptable” or “needs improvement.” Make sure it’s informal, so it’s less of a chore,  and let the claims professionals know how they are doing regularly. If there is an issue or trend developing you will know about it, and be able to correct it, before it becomes a real problem.

Be the envy of your neighbors in the industry

There are certainly other chores to address for claim handlers that if left unattended will leave a garden full of weeds and a lot of work for the future. So mow the lawn often and save yourself time and money later. Your organization will grow strong, more efficient and be a leader in providing the best claims service.

What mundane tasks do you hate to get to but know need to be done to make you a stronger organization?

Is Your Caims Department Becoming A Bus Company?

Are you going through the motions and can’t seem to get out of the traffic circle?

Seth Godin, author of well known business books such as the Purple Cow and Linchpin, recently wrote in his blog about companies Becoming a Bus Company. As he noted, “We all have a vision of the typical bus company, slowly moving people from place to place, going through the motions and showing a lot of fatigue.” Seth points out that companies fall into a place where they start acting like bus companies which becomes evident when the some of the following begins to happen:

  • Aging equipment in need of a functional and design refresh
  • Tired staff, punching the time clock
  • By the book mentality, with no room for humanity or initiative
  • Treating all customers the same (poorly) and knowing (and caring) little or nothing about them
  • Attitude that tomorrow will be just like today

Recognize any of the above? Claims departments can, and do, fall into the same traps where it feels like they can’t get out of the same old routine.

Here are three suggestions to break up the bus company mentality and help make the organization stronger:

  1. Closing Day – Spend a day dedicated to closing files or looking for closing opportunities. The idea here is not to work the files, but to glance through them quickly and see if there are any files that can be closed. Even with the best diary systems in place, there are always files that some how didn’t get closed. Whether it’s a file that had a statute of limitation expire, or one that had been denied with no appeal, dedicating time to focus on closings only will pay dividends. Not only does this type of day break up the normal routine, it can result in a reduced pending, the lowering of reserves and feelings of accomplishment.
  2. Take a poll to find the roadblocks– Ask your claims staff for the top 5 issues that they feel make their jobs difficult. Is it a system problem? Is it an inability to get information from other departments? Or maybe there is a process that is not adding any value, but is taking up much of a handler’s time. You will of course receive the standard complaints, but if you dig into those complaints you might find a common theme that could be correctable. If you have never asked you may be surprised to learn of a roadblock that can easily be removed to make the handler’s jobs easier. You will also benefit from learning more from your claims professionals and giving them the opportunity to be part of a solution.
  3. War Story Lunch – Claim handlers love to tell war stories so why not give them a forum to let loose and share the information. The experience and teachings learned from war stories can be used as a training tool to make the department stronger. Invite claims handlers to lunch and have each claims professional bring a story of success or failure from their past. Claim handlers can use that information to promote out-of-the-box thinking and learn new ways of handling future problems. Want to get even more from the process? Invite underwriters to come and listen – maybe they will learn a thing or two about the risks they are writing.

Changing the way things are looked at and done in a given day will promote new ways of looking at old problems, and will keep your department fresh. Tired staff, punching the time clock attitudes, or by the book mentality, with no room for initiative is a sure way to become a bus company.

How do you stay off the bus and stay out of the traffic circle?

Does Hiring More Staff Improve Claims? How To Know When The Time Is Right

The Age Old Question: If I Add More Resources Will It Solve The Problem?

Alright, maybe the above is a little exaggerated, but it did remind me of how difficult the question of hiring more staff is. Whether it’s today’s or any economy, the decision to bring on more staff is one that needs to be watched closely.  Often there is a knee-jerk reaction that taking on additional staff will solve problems and improve your operations. As Dilbert points out so well, hiring more does not always solve the problem. As I wrote about in With old claims systems come old claims processes – You can’t change one without the other!, knowing what you have in place first is important before making an investment on more. This is true with staffing as it is with claims systems.

Before you bring on more staff review your staffing model, see if there any trends affecting file loads and take a quick look inward at your operation. Once these assessments are completed, you will be in a better position to know if hiring is the right decision.

What – No Staffing Model? Here Are Suggestions For Creating One

Having a staffing model will allow you to objectively look at your operation and help determine if it’s a good time to hire more staff. How do you know what model to choose? Here are 3 suggestions for creating one:

  • What kind of organization are you? Are you highly technical with low frequency, or are you in a high volume business? Are you a “touchy feely” organization that wants to be in the customers face often, or not? Understanding the strategic position of your claims organization is critical to understanding what kind of staffing model is relevant
  • Decide on a metric to develop your model: The metric you choose will help to determine the model, but will be wholly based upon the types of claims organization you are. If you are an excess carrier that is sharing risks and attaches at a high level, then you may not be concerned about the number of new claims that come in. Maybe your claims settle quickly, as in some property matters, so the number of new claims a handler receives in a month is a more critical metric. It will depend on you business and needs – come up with a number an live with it.
  • You now have the metric – test the staff and come up with the model: Once you settle on a metric, check your top performers against the new metric you have selected. How many files are they handling and still managing files within best practices? At what point does their ability to manage those files well breakdown? Take an average of the top performer’s metrics and you will have a staffing model to give you a benchmark.

Just remember that models are models and they tend to always look good on paper and in photographs – there is always the subjective that needs to be addressed. Regardless, the staffing model is a good management starting point.

So You Have A Staffing Model, How Do I know If It’s Time To Hire?

I am all for the staffing model, but sometimes it just isn’t enough to know when you hire. Don’t forget other claim metrics and trends. Is there a recent influx of claims due to a change in underwriting or because of a CAT loss? Understanding the rest of your organization is just as important when deciding to hire or not hire additional staff. Speak to your underwriters and learn if there has been some new marketing initiatives. Did they write some new account that explains an increase, or decrease, in claims frequency or severity? A blip in the numbers may be just that, a blip. Regardless, ask around and dig into your numbers to see if there is a short term explanation or whether it is the beginning of things to come.

Hold On, A Model Is Good, Knowing Current Trends Is Good, Understanding If You Really Need More Staff…..Priceless!

Even though you have the staffing model in place, and have looked at the metrics for the operation, there is more to explore before jumping in with new staff. Take a regular operational pulse of your entire organization. There is always room to look for waste and improve efficiencies. There are also ways to improve handler efficiency at a more minimal cost, as I wrote about in 2 Cost-Cutting Solutions To Get Work Done Without Overloading Claims Handlers and Cutting Costs Without Overloading The Claims Handler – Part 2 Of The Series.

Do a quick assessment of your operation and determine if there is some issue preventing claims handlers from getting their core job function completed. Maybe some older internal report that no one is using can be eliminated and free up a handler’s time.  Are they being asked to take on tasks that can be done more efficiently, and if so, what would the impact be in eliminating that task.  As organizations grow, process grows, and not always for the right reason. The potential need for more staff is a good opportunity to explore those processes.

Hiring more staff is an expensive proposition for any organization. Take time to truly explore what is needed. Once this done, and you can objectively know the need is there, then hire away.

(For good advise about hiring – check out my fellow blogger Jay D’Aprile in Talent Tracks)

What types of models does your organization use?

Considering Forming a Captive? Maximize Your Claims Benefits In 3 Steps

The Benefits Of Forming A Captive Are Great – IF – You Set It Up And Manage It Correctly

The use of captives as an alternative means for managing risk is growing rapidly  (read a nice overview of captives at the Captive Counsel Law Group). Changes in laws, increasing tax benefits and control over assets makes the formation of captives easier and more attractive for many companies. There are many complex issues that need to be addressed when forming and managing a captive which is why many companies will turn to captive management organizations, such the Towner Management Group, for insight and expertise.

One of the great benefits of forming a captive is the ability to manage and control claims directly. Some of the benefits of directly managing claims include:

  • Control over decisions on how claims should be defended and when to settle or take a matter to trial
  • The ability to direct the financial benefits of good claims handling to the captive’s (and company’s) bottom line
  • Using internal specialized knowledge of your industry to better understand and manage exposures and lower claim costs
  • Ability to rapidly address claims issues, reduces future losses, and directs claims knowledge to improve overall risk management

Controlling costs, making decisions on what claims should be settled, and using specific industry expertise can all help to lower costs, but only if the claims are managed correctly.

Failing to handle claims properly can result in increased expenses, greater losses and higher costs paid for reinsurance and excess coverage.

Claims Considerations for Captives

If a captive seems like the best way to manage your risks it is still important to consider how claims will be managed.

While it may seem like a good idea to self manage claims there is a lot to consider prior to making this decision. An assessment must be undertaken to ensure claims will be handled effectively while protecting corporate assets. Managing a claim requires a certain skill, and claim tracking systems and procedures need to be in compliance with a variety of regulations. As a captive you become the insurer and must handle claims in a good faith expeditious manner. Controls must be put in place and policies must be developed so the entire organization can benefit from the captive entity.

Tom Stokes, Managing Principal at Towner Management, and I recently discussed how captive managers handle claims. Tom has found that many captive owners “solve” the claims management problem by continuing to use their current insurance provider. As he noted,

“in these cases, the original carrier either picks up after a deductible to the captive, or acts as reinsurer. The problem with this solution is that risk managers may not approve of the way that the insurer handles their claims and then feel that they still don’t have enough control.”

Since control is one of the primary benefits, utilizing this method for handling claims can negate the desired results. Another problem can arise when an excess carrier or reinsurer is put in an adverse position with the captive owner and a conflict can arise. There is always a risk that an excess carrier settles claims on behalf of a captive for higher amounts to avoid claims reaching their layer.

Being aware of all the issues is critical before making a decision on how to manage claims, so when forming a captive, look at the following steps:

Step 1 – Determine what type of claims will be part of the captive

Understanding the nature of the claims to be handled in the captive is critical to knowing what type of operation should be put in place. How many claims do you anticipate getting? Are you prepared to staff and build an internal claims department? Are the claims specialized requiring advanced skill not available in the current organization? Are there extensive regulatory reporting issues like in workers’ compensation that need to be addressed? Answer the basic questions about what type of claims will be managed and then move on to step 2.

Step 2 – Consider how you want to handle claims

There are many ways to handle claims, but keep in mind that claims handing requires specific procedures and skilled handlers to be in place. Don’t think that your legal department or risk management staff can be converted into a claims department without additional training – the skills and requirements are different. If claims are to be handled in-house, it is especially important to establish controls and have systems to track and manage losses.

Another way to handle claims is by retaining a Third Party Administrator (TPA) to oversee and manage your files. There are many specialized firms that are well qualified to handle a variety of claims. Regardless, even if a TPA is retained, establishing expectations and monitoring their activity through regular auditing is critical to getting the most from their services.

A shared claims management arrangement, with association members or in the context of a group captive, is a great way to get the benefits of claims control while sharing costs for systems and staff. Pooling resources will have the benefit of specialized claims skills and decrease costs further.

For an interesting discussion of TPA management versus self-managed or a carrier model read Kathy Kukor’s article Trending Away From Self-Administration, Carriers in Risk and Insurance.

Step 3 – Establish a program to handle or monitor claims

If you are going to self-manage claims or handle them in-house then it will be important to set up your organization correctly (see me post on self-managing claims). Understand that files will need to be reserved, costs will need to be controlled, and all will need to be tracked using some kind of electronic system. It will be important to understand any reporting requirements for the types of claims you are handling, and make sure your system can provide the correct reports. Controls must also be put in place to prevent fraud and ensure company assets are not wasted.

At a minimum, a claims organization needs to develop or implement:

  • A claims system to track claims, make and record transactions, and provide metrics to measure and report claims performance (see my post on creating a claims system)
  • A consistent reserve philosophy for better financial planning and understanding of current exposures
  • Authorities and controls over payments and reserves to minimize fraud risks
  • Claim handling best practice guidelines (see my post on drafting claims guidelines)
  • Management programs over vendors to reduce expenses and enforce compliance with the captive’s wishes

If you decide to outsource claims to a Third Party Administrator, don’t forget that they are spending your company assets while acting on your behalf. The best way to make sure they are spending money according to the wishes of the captive is to monitor them closely through regular claim file audits.

A lot of thought has probably gone into the decision to form a captive and the best way to ensure success, and take advantage of the claims benefits, is to plan correctly and be prepared in advance.

Are you a captive that is getting all the benefits of managing your own claims? Tell us how.

3 Essential Report Types That Insurance Executives Should Use To Analyze Their Claims

Metrics, Numbers, Charts, Graphs, Reports – Where do you start?

Today’s modern claims systems have a wealth of knowledge about every aspect of claims operations. With the right reports it should be easy to get a basic snapshot of how effective your claims are being managed, and how well your business is doing. With all that information where is one to start?  What are the key metrics that should be reviewed by claims and business executives to better understand their operations?

While every company will want to look at specific claims metrics around their lines of business, there are three essential report types that executives should be looking at. These include:

Claims counts

Change reports

Claims summaries

Let’s break these down further:

1. Claims Counts

Counts are simple monthly  (or weekly, depending on volume) reports showing the current state of claims in the organization. It will include claim volumes as well as financial numbers. With these reports you will have a basic snapshot of the state of your claims operation as a whole.

Examples of clams count reports:

New claims for the month

Total open claims

Closed claims for the month

Averages

Reserves on all open matters (Indemnity, expenses, medical etc.)

Total paid on all open and closed matters (Indemnity, expenses, medical etc.)

2. Change Reports

Net changes from one period to another are critical reports in any claims organization. They are essential planning tools that can help understand what areas of the organization are doing well and which areas are problematic. Spikes in a particular area could mean a shift in trends that if caught early enough could assist in making better underwriting choices. These types of numbers can also be used to ensure staffing is appropriate and identify areas for improvement.

Examples of delta reports include:

Reserve changes

Claims count changes

Total paid difference

3. Claims Summaries

Claims summaries are a more detailed report of specific losses. They include basic claims information as well as summaries of facts, damages and assessments. Knowing the specifics of a loss can help underwriters and executives truly understand the business they have written. Whether information on a coverage concern, an extreme loss, a pattern of losses, the information is critical to educating others beyond the numbers to actual losses. With this information better strategic decisions can be made regarding future underwriting.

Examples of two summary reports are:

Top 5-10 paid claims for month

Top 5-10 reserve changes for month

Bottom Line:

Check to see if these reports can be produced and if they can’t, ask why. Claims systems should be able to produce these types of reports. If they can’t then maybe it’s time to take a look at your systems again.

Regular reviews of basic claims metrics will give you a competitive advantage and allow you make informed strategic decisions. You can stay ahead of the curve, be nimble, react to changing conditions, and stand out in the marketplace.

5 expense reduction opportunities insurance CEOs should not overlook

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.

Why use a consultant? The second set of eyes!

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.