Part 2 on Leadership: Developing a Strategic Transformation Team

Different from the crowdBreaking the Linear Approach by Leading Strategic Transformation

In my last post, Leadership: The Change Process In Claims Requires A Different Approach, I put forth the position that changing a claims organization needs a new brand of leadership skill that does not usually exist in the traditional claims organization. Continuing with this theme, I will address what it means to break from existing management process to achieve effective strategic results.

Breaking from the linear approach to management is the key to leading Strategic Transformation. A standard organization will have a head of claims and then a variety of department heads to manage each line of business. Depending on the company there may be additional senior managers to handle various operational aspects of the group, which may include support staff, call center, technology and data analytics. Under this method, projects get initiated and managed within the same linear organizational framework. The result of this approach is a development process built in a silo that limits input and understanding of possible interdependencies that may exist outside the framework.

A Strategic Transformation Team, however, is formed with a center to lead change over multiple projects. Each project team consists of people from a variety of departments and levels. The teams are charged with creating objectives, setting priorities, securing buy-in, and executing on the vision. The teams are not formed within a linear framework and can draw upon different expertise to get the project completed. The Strategic Team in the center can drive all projects, manage interdependencies, and facilitate moving projects forward without distraction from the day-to-day management. Their focus is on the bigger picture and not limited within an individual project silo.

The Best Transformation Happens When Dedicated Transformation Teams Are Formed

To make effective change rapidly, it’s best to create a dedicated team to deal with change as their sole mission. This team will have the principal objective of producing outcomes and will be dedicated to adopting and improving the organization on an ongoing basis and not as part of some once every five year strategic plan. The independent team will also have multiple benefits which would include:

  • A central pressing vision to produce valuable effective change
  • Being focused on the big, as well as little pictures
  • Rapid deployment capability to get things moved to implementation
  • The ability to challenge the status quo to break conventional methods of project deployment
  • Expanded institutional knowledge about multi-disciplinary impacts to improve team efficiency on future projects

While building such a team internally is possible, there has to be an initial effort on getting commitment and focus from the staff to work in a new framework that is different from their existing work environment. For this reason, it is often best to bring in a third party to help facilitate the process.

How a Strategic Transformation Team Works

Getting from point A to point B requires a methodical approach to projects. The Strategic Transformation team will typically establish a Project Management Office (“PMO”) to help to successfully execute those projects identified “as needed to improve the operation.” The areas of responsibility under a PMO include:

  • Project identification and defining project purpose and requirements
  • Organization and management of work resources to execute projects and requirements
  • Assuring timely and useable deliverables
  • Coordinating multiple projects and dependencies
  • Reporting to key stakeholders and organizational communication

With a PMO established, projects can be outlined and staged appropriately to both manage costs and deal with interconnecting parts. Additionally a PMO can facilitate the gradual introduction of new processes and technologies which might otherwise disrupt the existing environment. This will allow an organization to phase in procedural changes in a manner to help gain cultural “acceptance” and “buy in” from employees.

The main team will go through a series of steps following established project management techniques to define, plan and execute on multiple strategic concerns simultaneously. The overall focus will be developed; and for each project, a similar multistep approach will be used and address the following.

  • Business champion/leadership assignment
  • Prioritization of project within scope of organizational needs, other projects and budget
  • Strong objectives established
  • Well defined project charters drafted and approved
  • Interdependencies/relationships explored and managed
  • Develop a risk analysis
  • Rapid and timely implementation
  • Buy-in and adaptation to change addressed with staff and stakeholders
  • Conclusion and re-explore

Achieving strategic transformation is possible with the right teams in place. Regardless, sometimes those efforts still hit road blocks.  In my next post I will discuss how assistance from thrid parties with transformation experience can help to expedite the process or, at the very least, provide a second set of eyes to oversee the work being done.

 How successful has your transformation team been?

 

 

A Claims Tale Of Three Little Managers And Their Review Programs

My Take On The Old Story Of The Three Little Pigs

Once upon a time there were three claims managers who were told by their CEO to go out and make sure they have the best organization possible. Since they all knew that the best way to a good organization was to develop process and procedures and make sure all who worked there understood them, that’s just what they did.  Each built an oversight program to ensure all was well and to prevent being attacked by all those wolves out there.

The first manager built a review program out of straw, the second out of sticks and the third out of bricks…..

Please work with me here as I am trying to be metaphorical.

The Manager Review of Straw

The first manager was a proud manager. She knew she had a good group and they worked just fine. She had instructed them on her way of doing things and had provided sufficient training to let them know was expected. Her “straw” review program was to wait for something to happen and then if there was a problem to fix it.  One day a huge claim showed up on her desk. She had never seen or heard of this claim, but it was big – the type of claim that could really cause her a problem. Well that claim, it turns out, had been in the office for over a year. Information had been received to provide sufficient warning for everyone to make sure the company was ready. If only she had known about it.

After dealing with “fixing” the problem a knock came on the door. It was the manager’s big reinsurance company.  This reinsurer was large and seemed to come out of no where.  The manager was shocked.  This reinsurer said….”manager, manager, let me come in”  the manager responded “not by the hair of my chinny chin chin!” The reinsurer responded, “then I will huff and I will puff and I will blow your department down.”  And that’s exactly what the reinsurer did.

The manager lost his house of straw and somehow landed a new job at her manager friend who said come on over you will feel protected in my department of sticks.

The Manager Review of Sticks

The Manger of Straw’s friend, the Manager of Sticks, sat her down and told her how it was going to be.  We here in the land of sticks are prepared for any possible problem. We have a wonderful review program made of sticks.  This program is so good we can prevent all those problems that got you blown down in the house of straw. We also have procedures in place, the Manager of Sticks said, but we oversee it all with regular reviews. We spend time reviewing claim files and recoding all that information on these sheets of paper.  We catch it all before a problem arises so he told the Manager of Straw that she will be fine here in the house of sticks.

The stick reviews went on every quarter. The sticks were filled with all this great information and captured all this detail about the claims and what was working and not working. The problem is the sticks piled up and once they were in that pile it was hard to understand what was working. Someone had to put the sticks in an order to really understand how many problem sticks there were. Low and behold a day came when a whole series of claims came in all seemingly insignificant.  It turns out there was a trend and a real problem brewing with a particular type of claim.  Individually they seemed fine, collectively they were significantly under reserved. Those sticks had the information but it was so spread out and disorganized that the information was lost. Without the information available, the company rewrote that book of business and was now going to face a very big problem to explain to the shareholders.

The Manager of Sticks was about to get a knock on the door!

Knock knock….”who is it” asked the Manager of Sticks?  It’s the Chief Underwriting Officer, the Chief Financial Officer and the CEO. See it turns out that they had some explaining to do to the board about a reserve charge that seemed to have come out of no where. “Manager Manager please let us in” with the Manager of Straw next to him nodding her head thinking oh I know what’s next, the Manager of Sticks responded “not by the hair of my chinny chin chin.” Well those executives were not about to be shut out and said “then we will huff and we will puff and we will blow your house in!” and that is exactly what they did.

Amazingly, the Manager of Sticks and the Manager of Straw were able to find jobs again in their friend the Manager of Brick’s company.

The Manager Review of Bricks

Working for the Manager of Bricks was actually not as bad as people thought it would be. Yes he was a tough manager and expected a lot from his people, but in the end he wanted them and the organization to succeed. The Manager of Bricks was keenly aware that when procedures were working and followed there was less of a chance of surprise. He also knew that the way to avoid those surprises was to have a very specific audit and oversight program in place. Because the Manager of Bricks also knew that using technology in the right way was a benefit, he made sure he had an oversight tool in place to manage the review process and make sure he captured, and not wasted, all the hard work performed by his reviewers.

The Manger of Straw and the Manager of Sticks had never seen anything like it.  All the reviews were coordinated in one place online (of course they used the Audit Portal).  Issues were categorized and follow-ups documented.  Trends just popped off various dashboards and made it so simple to proactively run the department.

Then one day there was a knock on the door.  It was the big bad mean regulator trying to find a violation.  “Manager, manager let me come in” the regulator yelled.  The manager of Bricks responded….”sure come on in and look around.” The regulator had apparently wanted to see the offices the Managers of Straw and Sticks but there was nothing left there to see.  The Manager of Bricks had nothing to fear.  When the regulator asked for controls and a plan it was all ready to be shown.  Issues that had been identified and corrective action plans were clearly in place and the regulator was pleasantly surprised. After giving the Manager of Bricks a clean bill oh health he left with no adverse claims findings.

Don’t you love a good story? Maybe if we were all like the Manager of Bricks things would be better!

At Lanzko we can help shore up operations to become more like the Manager of Bricks using our Audit Portal application. Give us a call to learn more.

 

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?

7 Considerations When Drafting Claims Guidelines

I recently wrote about bad faith concerns with reinsurance companies when a cedent company fails to have written procedures in my post Absence of procedures to notify reinsurance is a basis for bad faith. In the post I also raised issues around having written procedural guidelines. As expected, I received some comments and support from those who want to use those guidelines against the company. In addition, some pointed out claim guideline requirements of some state insurance departments for some lines of business. Before drafting guidelines there are a few things that should be considered. Our friend Phil Loree, Jr. of the Loree Insurance and Arbitration Law Forum suggested 7 things a company should consider when drafting claims guidelines.

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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.

Absence of procedures to notify reinsurance is a basis for bad faith

Recently I was discussing bad faith and notice procedures with attorney Phil Loree Jr., an expert on reinsurance and arbitration issues and author of the the Loree Reinsurance and Arbitration Forum blog.  I thought this was a timely conversation as it reinforced the concepts regarding procedures and the potential risks when they are not in place. As with my recent post regarding the breakdown of procedures in a insurance agent’s office, the cost of failing to have proper policies in place was at issue (see my article Failing to document files can be costly).

Phil reminded me of the seminal case of  Unigard Security Insurance Company Inc v. North River Insurance Company 4 F3d 1049 (1993). The case established the rule that an insurance company can be held to have committed bad faith for lack of notice to a reinsurer if there was a showing of recklessness or gross negligence. The court found that the failure to implement a policy to notify reinsurers could be an example of a willful disregard of the risk to the reinsurer and would be considered gross negligence.

Unigard and the proposition of bad faith

A high level of good faith is owed to reinsurers

The Court in Unigard first began by defining the level of good faith owed by an insurer to their reinsurer:

“…the duty of good faith requires the ceding insurer to place the reinsurer ” ‘in the same [situation] as himself [and] to give to him the same means and opportunity of judging … the value of the risks.’ ” [citation omitted] …Nevertheless, because information concerning the underlying risk lies virtually in the exclusive possession of the ceding insurer, a very high level of good faith–whether or not designated “utmost”–is required to ensure prompt and full disclosure of material information without causing reinsurers to engage in duplicative monitoring. [citation omitted]. The question, then, is what good faith requires of a ceding insurer in the notice context.”

The establishment of the bad faith standard

The court continued to establish a standard for bad faith that is differentiated from simple negligence:

“… we do not think simple negligence in not disclosing a material fact constitutes bad faith. … Virtually every material non-disclosure will be the result of at least negligence, and, if bad faith and negligence are equated, no showing of prejudice would ever be required.

We thus think that the proper minimum standard for bad faith should be gross negligence or recklessness. If a ceding insurer deliberately deceives a reinsurer, that deception is of course bad faith.”

Lack of procedures alone can be deemed reckless

With the standard established as gross negligence or recklessness, the court discussed how the failure of implementing proper notification procedures was essentially a reckless act:

“However, if a ceding insurer has implemented routine practices and controls to ensure notification to reinsurers but inadvertence causes a lapse, the insurer has not acted in bad faith. But if a ceding insurer does not implement such practices and controls, then it has willfully disregarded the risk to reinsurers and is guilty of gross negligence. A reinsurer, dependent on its ceding insurer for information, should be able to expect at least this level of protection, and, if a ceding insurer fails to provide it, the reinsurer’s late loss notice defense should succeed.”

To have procedures or not, that is the question

There is an ongoing debate in the insurance industry about maintaining claim policy manuals as a potential risk in a bad faith action. The view is that if you have specific written procedures, and your claims staff does not follow them, then that could be used against them in a bad faith action. Here a court specifically states that failing to have procedures could be considered bad faith in the reinsurance notice situation. Recently, Claims Magazine discussed the very topic in an article by Kevin Quinley, Putting Procedures In Writing (Claims Magazine, 1/5/2010).  I agree with the general proposition from the article:

In terms of bad-faith worries and claim manuals, it is often better to explain one miscue than to tell a judge or jury that the insurer has nothing in writing for claim personnel to use as their guide, and that there are no minimum performance requirements.

Whether in the Unigard example above, or in the recent award against the agent I previously commented on, failing to have procedures or follow them can have a costly outcome. Claim handlers need some kind of guidelines to understand expectations, and to establish a baseline to measure performance. When handlers are trained on good practices, and are measured on those practices for compliance through and internal review or audit program, risks are diminished.

Focusing on good claims practices will not only lower exposure to bad faith, but will help reduce leakage, lower expenses and improve customer service.

Failing to properly document files can be costly – It cost one insurance agency $5.83 Million

Put procedures back in place before the pieces come apart

Whether it’s a claim file, an underwriting file, or in this case, an agent’s file, the lesson is the same. Proper documentation is going be more persuasive evidence that something took place. A recent example of that has just been reported in National Underwriter. A California insurance agent failed to document the absence of Workers’ Compensation coverage pursuant to state law. The agency had guidelines in place to ensure files were properly documented, but court papers indicated that they failed to follow their own procedures. This small mistake cost this agency over $5 million. Yet another example of what happens when the file fails to speak for itself.

Sometimes cliches are the best way to state the obvious: If it wasn’t in writing, it didn’t exist.

A few additional lessons learned:

  • Evaluate procedures regularly, and make sure they are effective
  • Audit and review your files for procedural compliance
  • Files should tell a story that documents what transpired
  • Even good procedures are useless if you fail to follow them

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

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

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

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

  • Poor technology creating limitations
  • Failing to use existing technology

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

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

Suggested steps:

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

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

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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.