“The game is won or lost before it is played.” As someone who enjoys looking back and analyzing outcomes, I always liked this quote. I usually found that the source of success or failure was present and identifiable before a process got started. Luck and timing can play a role. But, claim outcomes are usually determined by methods, tools, systems and people. Those factors are in place long before the claim comes in the door. I call these four categories ‘foundational factors’ that significantly influence results. Certain factors like your claims software system and related procedures are inherited. Those inherited items can be advantageous or highly problematic depending on how your business has changed over time.
Let’s get specific here. After two decades in claims management, I can safely offer three practice tips which should be considered by any claims department. All three tips are designed to have a significant impact on results.
Take a hard look at claim intake, review and setup. Initial claim review and setup is extremely important. Some call it, ‘the first 48 hours” which gives it a label of urgency akin to a medical situation. An organization cannot afford to have ‘clerical only’ staff in the group that performs claim intake and setup. But, I have seen many companies do just that. Statistically, many claims will be of a routine nature. Generally, iterations of that same kind of routine claim will appear numerous times throughout the year. But, some seemingly routine claims will contain a wrinkle and that wrinkle needs to be identified early, flagged and followed.
Why is initial review and setup so important? Coverage issues, important liability issues and time-sensitive opportunities that are identified and addressed quickly will prevent your group from getting stuck with unnecessary costs down the line. Further, claims adjusters and outside vendors are assigned at this phase. They should be chosen in light of the issues identified. If the needs of the claim are not identified and flagged up front, assigned adjusters and vendors who are often inundated with daily follow-up tasks will miss important opportunities to prioritize the new file.
What can go wrong? One insurer paid approximately $6.4 million in preventable claim payouts over the course of 2 years. They took these losses because of a failure to identify clear policy provisions that precluded coverage but were never raised as a defense. Over half of the preventable loss was caused by repeated failures to understand the technical meaning of the term, “occurrence”.
Track and understand your production ratio, but do not manage it. Production ratio is an indicator of throughput. It is affected by a few factors. Production ratio is the ratio of closed files to incoming files within a given period. The factors that affect this ratio are (1) business growth, (2) weather events giving rise to an influx of claims, (3) adjuster proficiency, (4) claims staffing and (5) cycle time which is affected by the foundational factors listed above (methods, systems, tools and vendors). Do not manage the production ratio, use it as an indicator. Usually, higher is better. But, if you begin managing the production ratio, you may create unintended consequences as adjusters make decisions that serve neither the policyholder nor the insurer. If used as an indicator, it can help justify new hiring, the need for a change in methods and process or the need for training. It may also be an indication that systems and methods need refining or updating. Once these problems are identified, they must be addressed immediately.
What can go wrong? File neglect. If file counts rise and keep rising, your staff will be unable to properly investigate and analyze claims. They will become mostly administrative and resort to superficial comments and notes that fall well short of actual analysis. Reserve increases become increasingly untimely and the problem feeds on itself as the backlog grows. Rising file counts are often caused by poor handling methods where there was little investigation and analysis and insufficient training. This leads to a reluctance and inability to make difficult handling decisions. An astute manager once quipped that a slow moving claims department will soon become a slower moving law firm.
Metrics alone, without business knowledge, can be dangerous. To quote a world-famous management mind, W. Edwards Deming, “Nobody should try to use data unless he has collected data.” After years in the claims and insurance business, I have noticed many problems with the use of metrics. To use metrics properly, we have to clearly define (1) the question, (2) the metric that answers the question and (3) the explanation.
One of my favorite metrics for determining value for our litigation investment is “cycle time by matter type”. However, to properly calculate this metric, we have to define it with precision. Measuring cycle time for litigation involves knowing the ‘Legal Services conclusion date‘ minus ‘Litigator Assignment date ‘ for all of your closed litigation files. Using the more readily available ‘close date ‘ minus ‘open date ‘ is off-the-mark and unfair. One distortion of using the claim open date as the start of a litigation cycle clock is that the defense firm may not have received the assignment until a few months or years after the insurer opened the file. Just the same, using claim closed date on the backend is also wrong. Law firms have little control over the exact date a file is closed in the insurer system but have more control over the date their legal services concluded. To find the date when legal services concluded, the last itemized legal bill will include a variety of dates on the last page. Enter the date that best represents the firm’s conclusion of the matter from a substantive, rather than administrative, handling perspective.
Once a metric like this is determined, it is absolutely critical to review this metric in light of other metrics and more importantly, the personal knowledge and dealings one has with the attorney-service provider. Any conclusions about what is a good number or a bad number are premature without context and explanation. The context and explanations help determine if we are getting a ‘false-positive’ or a ‘false-negative’ from the metric. To help us with the cycle time metric for law firms, it is very important to analyze each firm’s corresponding “median legal spend” and corresponding “median settlement amount”. A law firm may have a relatively high cycle time but have a low average settlement amount or an outstanding record of defense verdicts.
What Can Go Wrong? Just like physicians, litigators have certain skills or specialties. Simply because a defense firm shows strong results for employment cases does not mean that firm is the right pick for a closed-head injury auto negligence case. Metrics used in combination with detailed file knowledge should guide your assignment decisions.
Claim outcomes are not a random result of fate. They are relatively predictable and controllable. Once the system, tools, people and processes are put in place, it is much simpler to control outcomes and eliminate costly errors.
