Archive for July, 2011

It’s just so predictible: effectively using data analytics to predict future results

Predictive analytics have been used in a variety of industries for a number of years.   Perhaps nowhere is the concept of predicting and rating risks more common than in the insurance industry.   From zip codes and income to credit scores and driving records, a whole host of data points can be used to accurately gauge risks, identify trends and set rates. 

Certainly there are those who have taken exception to some methodologies, as not all people with bad credit are bad drivers, nor are all people living in lower socio economic zip codes going to be in an accident or have their vehicle stolen.   But this overly simplistic view misses the point, as risk is rated upon probabilities, borne out by statistically validated historical facts.  

The bigger question should be the ability of insurers to leverage predictive analytics to guide other aspects of their business, such as the claims process.   The capture of data provides a wealth of opportunities such as medical fraud, staged accidents, injury buildup, repair cost variations, towing, rental and storage.  When properly instituted, the benefit to both the company and the consumer is immeasurable. 

From the outset of a claim, data that is captured, reviewed and monitored can isolate gaps in the end to end process that are impeding productivity, quality and accuracy.   This historical data can isolate claim handlers who are not asking the right questions, properly appraising claims, overlooking fraud indicators or missing subrogation opportunities.  Much like a football coach reviewing gameday film, this type of analysis of processes, workflows and results can be utilized to improve future outcomes. 

In Re-Adjusted: 20 Essential Rules For  Taking Your Claims Organization From Ordinary To Extraordinary, I discuss in greater detail real life experiences of utilizing analytics to dramatically improve subrogation results.   When considering this aspect of claims, recognize that there are a variety of critical functions that impact outcomes.   

For response side subrogation, carriers often utilize liability adjusters to assess those claims.   As was the case during my tenure running claims operations, these types of inbound demands often had a low priority resulting in missed opportunities relating to liability, estimatics and historic alternative parts utilization

On the demand side, there are similar challenges of ensuring the right files are referred, that proper procedures are in place to minimize closures with no recovery and that all files with potential comparative negligence are identified during the claims process.  

As is the case in many aspects of claims, data analytics can be a powerful tool to identify missed missed opportunities on both demand and response side subrogation.   When factoring in perceived costs, consider that industry wide 15% of all claims are closed by adjusters with a missed subrogation opportunity and calculate what even a small percentage of this would do to your bottom line. 

By developing key metrics, data can be utilized to identify both historical trends which will predicate future behavior.  With the right set of data, it is possible to not only gauge what is being done internally, but also amongst the competition, creating an instant competitive advantage.  

Whatever your opportunity, be it subrogation, salvage, fraud identification, inspections, or a myriad of other claims related processes, consider the benefits of leveraging data for bottom line improvement.  

Christopher Tidball is an executive claims consultant and the author of Re-Adjusted: 20 Essential Rules To Take Your Claims Organization From Ordinary to Extraordinary!  He has spent more than twenty years in the insurance industry, working for multiple Top 10 leaders in adjusting, management, quality and leadership roles.   To learn more, please visit www.christidball.com or e-mail chris@christidball.com.  

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July 29, 2011 at 4:52 am Leave a comment

Is a scene investigation really that important?

It’s been said that a picture is worth a thousand words.  When it comes to insurance claims it can be worth thousands of dollars.  

During my tenure as a Quality Assurance Director for a large multinational insurer, I was surprised at the frequency of claim files lacking a quality scene investigation.   In many cases, even a trip to Bing Maps or Google Earth would have sufficed, but even this was conspicuously absent.  

Coming from a school where scene investigations weren’t optional, it was always frustrating to see so much money left on the table as the result of incomplete investigations and poor liability decisions.  For too often the investigation was limited to phone calls with claim parties, who themselves may not fully understand the concept of duties owed, duties breached and comparative negligence.    

Much like the X’s and O’s a football coach puts on a blackboard, the scene investigation provides the visual for both what happened and what should have happened.   From the timing of the traffic signal to  debris and skid marks, a trip to the scene of an accident provides much needed evidence to properly formulate a liability decision.  

Consider the case of an insured making a left turn and being struck by the claimant.  In far too many cases there are assessments of 100% liability against the insured.   While this may provide an easy path to closing a claim, it is extremely rare for any accident, other than a traditional rear-ender, to be all or nothing propositions.   

According to Jury Verdict Research, a national organization that tracks such data, rear end auto accidents accounted for only 45 percent of auto cases adjudicated, with the remainder comprised of intersection collisions, lane changes, chain reactions, and parking lot scenarios. In other words, a lot of claims where there was shared liability. 

To effectively conduct the scene investigation, it is important to gather as much information as possible.   Speaking with the insured, claimant and witnesses are all key components to gathering facts.  During these statements, which should be recorded with permission, questions should be geared towards not only what happened, but searching for possible liability mitigators.   

As discussed in Re-Adjusted: 20 Essential Rules To Take Your Claims Organization From Ordinary To Extraordinary, some such questions include direction of travel, position of the sun, weather, passengers, radio volume, cell phone usage, recognition of oncoming traffic, signal malfunction or visible obstructions.  

In the following example, consider the impact of a thorough scene investigation:

The claimant calls in a loss and says that they were going straight, had a green light and your insured turned in front of them.   A call to the insured says that they turned left because they thought there was enough time.   In far too many claims, that is where the investigation stops.  The claim notes often reflect “Insured turned left in front of claimant, insured 100% at fault”.  But should it stop there? 

Consider the following additional facts gathered during the course of the same investigation:

1-      The speed limit was 45 and the claimant was in the #3 (outermost) of three westbound lanes.

2-      The time of loss was 6:15 p.m.   Sunset was 6:35 p.m.

3-      The light cycle was 60 seconds green and 10 seconds yellow with a 3 second delay between cycles. 

4-       The claimant was headed due west, into the sun.

5-      The claimant was an 18 year old female, who attended college and had three guest passengers.

6-      The claimant radio was on and there as active conversation in the vehicle. 

7-      The damage to the claimant vehicle was centered in the front.

8-      The damage to the insured was in the right, rear door. 

Given this additional information, the investigating adjuster would consider duties owed and duties breached by each party.   While the insured failed to yield the right of way, they did clearly establish control of the intersection, crossing three lanes in front of an inexperienced driver who may have been distracted.   While the percentages of fault may be subjective, what is evident is that this was not a clear liability accident. 

By going to the scene it is possible to visualize just how far across the intersection the insured had proceeded.   By canvassing, it is possible to find witnesses who may be able to point out other contributing factors such as speed.   It is also possible to see that that the hedgerow between east and westbound traffic may be so tall that it impedes visibility, potentially creating municipal culpability.  

In this particular case, the claimant retained an attorney.  The guest passengers retained the same attorney, which would have become a conflict of interest as soon as any fault was placed on the claimant.   As a fiduciary, it is incumbent upon the insurer to protect the financial interest of the insured, which can’t be accomplished with a marginal investigation.   This, of course, can result in actions against the insurer should there ever be a judgment in excess of the policy limits.  

Basic blocking and tackling, such as scene investigations, provides adjusters with the means by which to formulate appropriate liability decisions so as to ensure accurate settlements.    By getting back to basics and focusing on quality outcomes, insurers can quickly gain a competitive edge in the marketplace. 

 

Christopher Tidball is a claims consultant and the author of Re-Adjusted:20 Essential Rules To Take Your Claims Organization From Ordinary To Extraordinary.   He combines his twenty years of claims investigative and leadership experience with innovative technology to provide an immediate impact to organizational results.  To learn more, please visit www.christidball.com or e-mail chris@christidball.com

July 19, 2011 at 9:05 am Leave a comment

Organizational Consistency: Saying and being are two different things

While consistent outcomes may very well be the foundation for organizational success, achieving them is another story altogether.    Perhaps nowhere is this more evident than the insurance claims industry where managing consistency is a full time job.  

The key to success not only lies in properly conveying expectations but holding all parties accountable for results.   Could Honda achieve record levels of customer satisfaction by simply saying that all cars were to have no defect, or is there an underlying process that drives their high quality outcomes?  The same holds true in a claims organization where accurate settlements are paramount to success, but simply requiring it won’t achieve it. 

We often find ourselves on multiple sides of consistency processes; requiring it, managing to it or achieving it.  The good thing is that consistency is achievable with a few simple concepts:

1)      Identify what is trying to be achieved and then outline specific measurements that are conveyed to staff.

2)      Ensure that there is no ambiguity.   There is nothing more frustrating for rank and file employees than having to guess what communication from above really means.    If the goal is to have all calls returned within 24 hours, communicate “I want all calls returned within 24 hours…no exceptions”.  Good managers will ensure that this is achieved while the specific metric can be used to remove those who don’t meet expectations. 

3)      Have a quality assurance process that can be used to benchmark the entire organization down to the individual level.

4)      Have a calibration process which ensures that every person in the organization understands what the expectations are, what the measurements will be and how to achieve their goals with a uniform approach.

5)      Create a culture of winners rather than whiners, as the latter drag down an organization leaving it mired in mediocrity. 

The key to consistency starts at the top, with executives leading by example.  Communication should be clear, concise, timely and most of all frequent.   Goals and expectations should be established and become a part of the corporate culture.  

Follow the lead of well run organizations and examine the types of people that they hire.  Remember that while goals come from above, consistent results come from below.  Consider Southwest Airlines, both an innovator and an industry leader.   Look at the types of people that they hire and try to find just one “whiner”, as they won’t survive the culture of positive thinking and a results oriented philosophy where everyone is a stakeholder. 

While consistency gains begin with the people, don’t forget the importance of processes and technology, which can leverage people to increase productivity and measure results.    In a world where change is the only constant, those organizations that adopt this paradigm position themselves for success.   Likewise, in a global economy, those who abandon the status quo in search of innovative and continual process improvement will thrive.   By adopting processes to gain consistency, be they internal or external, insurers will benefit with an improved work product that will positively impact every conceivable metric.  

“The secret of success is consistency of purpose.” –Benjamin Disraeli

Christopher Tidball is a claims consultant and the author of  Re-Adjusted: 20 Essential Rules To Take Your Claims Organization From Ordinary To Extraordinary!    Learn more at www.christidball.com or email chris@christidball.com.

July 14, 2011 at 7:12 am Leave a comment

Overcoming the challenges of subrogation response

The demand for payment arrives and where does it go?  If you are like a lot of insurers, it makes its way to the handling adjuster and takes a backseat to other more pressing priorities.   During my tenure as Recovery Process Leader for a large multi-national insurer, that is precisely what hamstrung our ability to effectively respond to subrogation demands. 

To effectively address such process opportunities, there are a number of steps that can be taken to ensure that:

1)      Demands are reviewed promptly

2)      Estimates are reviewed for accuracy

3)      Historical alternative used parts availability has been verified

4)      Effective negotiations are utilized to compress cycle time and limit arbitration filings. 

In reviewing some common practices, there are two that stand out as being commonly applied.    In the first, the handling adjuster is tasked with responding to inbound subrogation demands.   In this situation the following questions should be asked to ensure that this is this process is maximizing returns:

1)      Is the adjuster sufficient trained in material damage to review the estimate for accuracy and estimatics compliance?

2)      Does the adjuster have the ability to access historical alternative parts availability?

3)      When shared fault applies, is the adjuster effectively identifying duties owed and breached so as to formulate a viable comparative negligence scenario?

4)      Does the adjuster have sufficient time to ensure that subrogation demands are reviewed and evaluated within 48 hours of receipt? 

Another common iteration of this inbound process entails utilizing a material damage team to assist in the evaluation process.  While this can be effective in estimate compliance, some critical questions are:

1)      Does the reviewer have access to historical alternative parts availability? 

2)      Could the time spent reviewing, or in some cases, rekeying an estimate be more effectively spent in other capacities?

3)      If the reviewer is not negotiating the settlement, does the handling adjuster have enough knowledge of material damage to effectively apply the reductions during negotiations? 

4)     What is the actual paid amount compared to the reviewed and reduced amount?  

The challenges of any subrogation response process arise across the P&C industry, where other priorities such as contacts, inspections and disposition often take precedence.    To determine the right solution for any organization takes a critical review of the entire end to end claims process.  

By looking for organizational workflow and process gaps, the solutions often become evident.   It is also critical to consider unintended consequences, such as increased arbitration filings, rising expenses or cycle time delays.   When these arise there is often a correlating deterioration in average severity and comparative negligence assessment. 

Often the most effective solution involves leveraging claims technology to assist in the process, freeing up internal resources for more productive redeployment while increasing accuracy in ultimate settlements.  

Christopher Tidball is a claims consultant, specializing in process,  workflow and is the author of Re-Adjusted: 20 Essential Rules To Take Your Organization From Ordinary To Extraordinary.   To learn more, please visit www.christidball.com or e-mail chris@christidball.com

 

July 13, 2011 at 6:49 am Leave a comment

Gaining a competitive edge through innovative claims processes

With increasing frequency, property and casualty insurers are recognizing the need to gain efficiencies in order to maintain a competitive advantage in the marketplace.    Executive claims leaders understand that leveraging such efficiencies will improve everything from cycle time and quality to disposition and policyholder retention.  

Carriers which underperform will be left in the wake of those who leverage the three key components of success:  people, processes and technology.   By better understanding the importance of each, it becomes possible to lay the foundation upon which success can be built, giving organizations an incredible competitive advantage in the marketplace.  

 

People

Across my twenty plus years as a claims leader in the P&C industry, the mantra remains “do more with less.”  Irrespective of one’s position, be it tactical or strategic, the focus is often on reduction.  

Make no mistake, less is often more; but only when it is done properly.   In many organizations, headcount can account for more than 50% of total operational expenditures[DMA1] .   But what happens when reductions in force result in deterioration of quality, disposition, severity or expenses? 

Having the right people in the right position is critical to both quality and outcome.   There are good, there are bad and there are mediocre.   As is often the case, the focus shouldn’t be on quantity, but rather on quality.  And by effectively leveraging the best people with efficient processes and technology, insurers can gain the ability to redeploy people in order to maximize efficiencies and results[DMA2] .  Innovative claims leaders are not only embracing change and executing basic blocking and tackling moves, but are forging strategic alliances with experts who are redefining claims processing techniques.

Processes

While virtually every insurer has variations to processes, the end to end life of a claim really isn’t that divergent.   From First Notice of Loss through ultimate disposition, similar milestones are found across the industry.   People are contacted, property is inspected, liability is assessed, negotiations commence and settlements are arrived upon. 

While the process to get through the milestones may vary, such as centralized, decentralized, insourced or outsourced functions, the results are often similar.   There are delayed contacts, improper liability decisions, estimate overwrites and missed subrogation opportunities.   Alone, these are significant; combined they provide an astronomical opportunity for improvement.  

In subrogation alone, nearly 15% of all claims are closed with a missed subrogation opportunity at an industry cost of $15 billion dollars annually.  By adopting a proactive approach to subrogation identification, employing predictive modeling and revamping metrics and reporting, leading insurers are dramatically reducing leakage in this arena.   

Technology

To effectively leverage people and processes, technology can serve as the catalyst to move claims from high cost/low performing channels to low cost/high performing channels.  Claims channels may consist of estimating, claims processing or subrogation response.   When properly utilized, technology will improve every aspect of these claims handling processes. 

In both claims and recovery operations, the most innovative of industry leaders will effectively attack cost control opportunities.   These leaders will redefine the property and casualty space with not only bold visions and audacious goals but cutting edge innovation and processes that will improve speed, accuracy and cost containment. 

But insurers cannot do it alone, relying on business partners with expertise, resources and the claims acumen to seamlessly integrate claims technology into a transparent workflow.   It is this consulting relationship that will define success in coming years, as monumental changes fundamentally transform the life of the claim process. 

In several key areas, insurers are leveraging technology to make dramatic improvements in cycle time and severity while at the same time reducing expenses.  Here are a few:

First Notice of Loss- In years past, it was not uncommon to report claims during “business hours”.  Often these reports were made to a local agent who then transmitted the facts to the insurer of record.   Fast forward to 2011 and this process is a 24/7 deliverable 365 days of the year.   Increasing numbers of insurers are leveraging innovative technology to capture loss reports by live agents in multiple languages, often with the capability of having adjusters responding to the scene.  The most innovative are incorporating GPS tracking enabling the carrier to proactively identify everything from a vehicle breakdown to an automobile accident.

Property Damage Appraisal- While getting to scene of an accident can give an insurer a significant advantage in controlling claim outcomes, so too can empowering the customer. A new cutting edge innovation carrier’s are calling Customer Choice or Self Service Claims is being deployed by some of the nation’s largest insurers.   This process enables the claim party to self guide the repair process with external interfaces controlled by the insurer.   Like an eye in the sky, this can be done with virtually no carrier staff commitment, freeing up internal resources for redeployment to more critical functions.

Liability Assessment- Arguably, liability determination is one of the most challenging of all claims processes.  It is also one of the most underutilized adjusting tools.   Errant liability decisions, often assessments of 0% or 100%, result in billions of dollars being left on the table annually.  According to Jury Verdict Research, a national organization that tracks such data, rear end, or clear liability, accidents accounted for only 45 percent of auto cases adjudicated.  The remainder were comprised of intersection, lane change, parking lot or other types of losses involving shared liability.  Through a combination of training, technology and reporting, insurers can take necessary steps to improve liability assessment and outcomes. 

Subrogation Response- It is no secret that claims adjusters are extremely busy, often multitasking in order to meet the most basic of goals.   Despite the hectic schedule, many are tasked with even more duties, such as responding to subrogation demands.   On a good day, this is challenging.  On a typical day such tasks often get overlooked or overpaid.   New patented technology for auto property subrogation being used by nearly half of the top 15 P&C carriers takes this process off the adjuster’s desk, identifies historic alternative parts availability and results in a settlement that is significantly lower than carriers are seeing today.  

These types of innovation are redefining traditional norms by changing the adjusting paradigm from reactive to proactive.  Not only is this good for carriers, but for consumers who will reap the benefits of improved results that can be passed along in the form of more competitive premiums.   Carriers can then grow their market share, while continuing to deliver record results to policyholders and shareholders alike.  

Claims Innovation

According to the book Re-Adjusted: 20 Essential Rules To Take Your Claims Organization From Ordinary to Extraordinary a critical function of innovation is change.   Far too often claims organizations are muddled in mediocrity because they have become static.   What is done today is what was done last month, last year or even a decade ago.   There is a lack of creativity, innovation or dedication to moving the organization forward.  

In many respects, managing a claims organization is a lot like managing a football team.   There are defined metrics and goals to achieve, conquer and win.    Like a championship football team, the effective organization blends leadership and talent in a way that sets them apart from the competition.

With a recipe for success, why is it that so many organizations succumb to mediocrity?   From the biggest to the smallest, public and private, there are those who achieve, those to attempt to, and those who just seem to get by, satisfied with mediocrity.  

At the core of innovation are people.   From the leadership down to the rank and file employees, building the winning organization takes talent, time and savvy.    A common denominator in many struggling organizations is bureaucracy and complacency.    Far too many have been given tasks in a culture where silos haven’t given way to cross functional cooperation, impeding a company’s ability to truly become great.  

To truly understand effective leadership consider Vince Lombardi, arguably the greatest coach in NFL history.   When he took over the Green Bay Packers in 1959, they were coming off of a 1-10-1 season.  When he departed nine years later, he left behind one of the greatest dynasties in football history.   Lombardi succeeded because he challenged the status quo and had no room for the half hearted.   He had a unique ability to hone in on players talents, maximizing both their physical and mental abilities. 

The business world is no different, with successful organizations keying in on leaders who have the ability to facilitate change,  like Lombardi, who approach their challenges with a no lose, try hard, old fashioned system.    By identifying A players, motivating B players and removing C players, any leader has the ability to fundamentally transform any organization.   Often, the catalyst for this process involves leveraging technology to improve process, workflows and outcomes. 

The Future of Claims

To put everything in perspective, consider the claims process twenty years ago.   Manual processes resulted in a lengthy duration for the life of a claim.   Agents often took reports and transmitted them to the insurer.  Adjusters would manually review files, take days to contact customers and even longer to inspect vehicles.   Reserves were adjusted manually after handwritten log notes were jotted down in a hard file.  

Today, we live in a world of technology that has evolved more in the last  two years than in the prior thirty years combined.  Insurers are generally automated, with many being paperless.   The handwritten estimates have been replaced by computer generated sheets.   Television and social media are commonly used to get the message out about how a given carrier can do things better, faster and cheaper than a competitor.  

Even the changes of the last two years will be dwarfed by the changes yet to come.   That is the reality of the day and age in which we live.   Those carriers who are at the forefront of the evolution are the ones that will stand the most to gain.   The true innovators who accept change as the only constant will gain even more. 

Those who will redefine the industry will not only adapt to change, but become the catalyst of change.  These are the companies, insurers and service providers alike, who recognize that change is a constant and always seek to stay ahead of the curve.  

From contacts and inspections to liability decisions and settlement negotiations, nothing will be the same in five years.  Nor should it be.   There is always room for improvement, and one constant in ubiquitous throughout the insurance industry are opportunities to do just that. 

From how claims are reported to how vehicles are inspected to how liability is determined are just a few of the critical opportunity areas that lie ahead.   From inception to closure, the goal should be to do things better, faster and more accurately than has ever been achieved to date.   It is this mindset that will enable industry leaders to emerge as they gain a competitive edge in the marketplace. 

 

Christopher Tidball is an executive claims consultant with HyperQuest, Inc., a claims technology company that provides service based solutions to the P&C industry. He is a former claims manager, quality assurance director and executive leader for multiple Top 10 P&C carriers and  is the author of Re-Adjusted: 20 Essential Rules To Take Your Claims Organization From Ordinary To Extraordinary!  To learn more, please call (904) 742-9031 or e-mail ctidball@hyperquest.com

 

July 8, 2011 at 6:39 am Leave a comment

What claims organizations can learn from the Casey Anthony investigation

Casey Anthony committed murder…or did she?  That was the question that twelve Florida jurors had to consider during the month long trial of the mom charged with killing her two year old daughter.  While we all may have individual opinions on guilt or innocence, what matters is that the outcome resulted from the quality of the investigation. 

This is often the case in claims where adjusters and executives alike shake their head in bewilderment at outcomes that seemingly defy the odds.   As discussed in Re-Adjusted: 20 Essential Rules To Taking Your Claims Organization From Ordinary To Extraordinary, when it comes to conducting investigations the devil is often in the details. 

From the first notice of loss to final disposition, the steps taken to investigate a claim will determine the the ultimate quality.   From contacting the appropriate parties and inspecting damaged property to determining liability and negotiating settlements, the outcome hinges upon the investigation.  

While this is easily said, the reality can be much different.   Adjusters, like state prosecutors, have a tremendous workload.  They have many competing priorities that can impede the quality of investigations and outcomes.  

The key to a successful process begins at first notice of loss with a process designed to enable adjusters to leverage both time and resources.   When it comes to investigations, asking the right questions is critical to quality.   Far too often generic questions supplant those that can drive a proper outcome.  Often lacking are the answers to six critical questions: who, what, where, when, why and how. 

During my tenure as a Quality Assurance Process Leader for a large multi-national carrier I often shook my head in bewilderment after reviewing some claims.    How do these facts or damages result in this liability decision and settlement? 

While the standards of proof in civil cases are lower than criminal cases, it is important to remember that there are two critical elements that must be established; liability and damages.   Irrespective of damages, a person must be liable before owing any portion of the damage incurred.  

As we learned during the Casey Anthony murder trial, there is also one wildcard lurking in the shadows; the unpredictable jury system.   While this should always be a consideration, it should never be a crutch.  While far from predictable, cases that stand on their own merit of both liability and damages tend to have the best outcomes.   Then again, a thoroughly investigated and documented case isn’t likely to see a courtroom because the facts will have played out during the educational portion of  settlement negotiations.

It is often said that the devil is in the details and nowhere is this more evident than the claims investigation.  The prosecution lost in the Anthony trial, not because of guilt or innocence, but because of lack of evidence.  Likewise, insurers can lost monetarily not because someone was hurt or not, but because of a marginal investigation.   It is this lack of attention to details that can lead to multi million dollar jury verdicts they seemingly defy logic.   Taking the time to thoroughly investigate a claim is the single most important aspect of the adjusting process.  Not asking enough questions is a surefire way to be muddled in mediocrity which has an adverse impact on both indemnity and expenses.  

Christopher Tidball is an insurance claims consultant and the author of Re-Adjusted: 20 Essential Rules To Take Your Organization From Ordinary To Extraordinary.   He spent more than twenty years in the claims industry as an adjuster, manager, quality assurance director and business leader.   To learn more, please visit www.christidball.com or e-mail chris@christidball.com

 

July 6, 2011 at 8:03 am Leave a comment

How benchmarking can dramatically improve subrogation results

It is often said that the devil is in the details and perhaps nowhere is this truer than the insurance claims process where benchmarking and metrics define both quality and results.   This is particularly evident in the subrogation arena; where upwards of 15% of all claims are closed with a missed subrogation opportunity at an annual cost of $15 billion dollars. 

In my experience overseeing a large organizational claims and subrogation processes, this actually strikes me as low, as it may not fully encompass cases where the adjuster settlement was based upon total liability as opposed to properly identifying comparative negligence. 

When considering benchmarks, there are time bound and results oriented metrics which all have an impact on an organizational bottom line.  The most commonly used benchmark, which dates back to the original Ward studies in the 1990’s measures Total Dollars of Net Subrogation Recoveries as a % of Total Indemnity Paid Losses for Personal Auto Collision.  This is probably the most common benchmark but is only as accurate as subrogation identification, which often lacks within carriers resulting in collectible files being closed with no recovery.   After the original study, it was concluded that high performing carriers collect about 23.7% while the total universe is at 11.6%.

In the years since, there has been some focus by carriers on improving their subrogation process which has led to an increase in recovered dollars.   According to a recent NASP benchmarking study, net recoveries to total paid collision is 27% for standard carriers and 14.5% for non standard carriers. 

A potential flaw with the current benchmarking methodology is its heavy reliance on collisions.  While 72% of recoveries are indeed related to collision, it is shortsighted to not give consideration to all line coverage’s where subrogation is a viable option, in particular UM, UIM, UMPD, PIP and Medical Payment’s.   In addition, there are even more overlooked opportunities for health, worker’s compensation and property insurance. 

Some key metrics that can be considered by carriers include the following:

  • Recognition percentage – dollars identified as recoverable from paid dollars by claims adjusters.  The key here is having a pool of adjusters who understand the concept of subrogation, local jurisdictional knowledge and having the ability to negotiate shared liability settlements.  In industry benchmarking studies, subrogation recognition generally ranges from a high of 45 files to a low of 5 for every 100 new claims.   Specific to my experience, the optimal collision referral rate, while dependent upon negligence laws, should be around 35% in a pure comparative state, 25% in a modified comparative state and 15% in a contributory state.

 

  • Recovery Rate – dollars actually recovered from total paid dollars recovered from total paid dollars.  Measure this in terms of both gross recovery as well as costs after factoring in expenses.  When factoring comparative negligence and improper referrals, the recovery rate should be somewhere in the range of 85-90%.   This requires adjusters properly identifying subrogation, assessing comparative negligence and pursuing only what they are entitled to.  

 

  • Recovery Rate per FTE. Include in this both the gross dollars as well as net dollars and expenses incurred.  There is a wide variance among adjusters, but a good target would be $1,000,000 per subrogation adjuster.  

 

  • Cycle Time- time from subrogation identification to recovery.   The industry average is about 200 days, yet the average time to issue final payment is about 10 days.   With the ability to fast track arbitrations and leverage technology, this could be compressed to well less than 100 days.   Each day that the money sits on the table there is a quantifiable impact to the actuarial triangles.  

 

  • Subrogation Allocated Loss Expenses (ALE) – file related expense dollars paid to recover subrogation dollars.  It makes no sense to spend $500 dollars in overhead to recover $400.  The following model exemplifies when it may make more financial sense to outsource more complex portions of recovery operations. 

  

  • Subrogation Unallocated Expenses – non-file related expense dollars paid to recover subrogation.

 

  • Recovery Multiple – ratio of recovery dollars to expense dollars

 

  • Files closed with no Recovery-Percentage of files referred to subrogation that are closed with no recovery.   While there can be legitimate reasons, carriers invariably tend to close files prematurely particularly in cases involving uninsured tortfeasors who tend to be a challenge for carrier subrogation adjusters. 

Some benchmarks that carriers could utilize to most effectively gauge their subrogation performance could also include a formula that divides total staff into total recoveries for a recovery amount per FTE.   This should be used in conjunction with disposition numbers such as total closures and cases closed with no recovery.  

When looking at the percentage of files closed with no recovery, it is critical to understand the carrier’s workflow.  Many carriers use internal adjusters, for such tasks as responding to incoming subrogation demands.   This workflow can be riddled with pitfalls, not the least of which is existing workload, resulting in these types of demands being left on the table, overpaid or ending up in arbitration.      

Innovative insurers are opting to leverage technology to assist in this process, which will dramatically increase results.    On the demand side, carriers are leveraging both technology and strategic alliances to ensure optimization of recoveries.      

One key aspect that is not often considered in subrogation benchmarking is that of claims.   To truly understand the end to end process, the following metrics can be very beneficial in identifying opportunities to maximize recoveries. 

  • Percentage of files referred to subrogation by line coverage. 

 

  • Percentage of files where collision was paid but no PD was paid with no associated referral to subrogation.

 

  • Percentage of claims where liability was assessed at either 0% or 100% or similar moniker in claims system such as insured not at fault/insured at fault. 

 

  • Referral of supplementals and rental invoices to subrogation.

Many carriers will look at just a fraction of the available metrics, often focusing on those that are easily obtainable, such as bottom line recoveries or percentage of collision referrals.   This approach can have unintended consequences, such as adjusters referring to meet a number rather than doing their investigation.   The challenge with any metric is to ensure that there is quality control in place, as policing adjusters is often required to make sure that they are doing the right thing.   

Christopher Tidball is a claims and subrogation consultant and the author of Re-Adjusted: 20 Essential Rules To Take Your Claims Organization From Ordinary to Extraordinary.   His career in claims spans two decades as a Claims Adjuster, Manager, Quality Assurance Director and Claims Process Leader.   For more information, please visist www.christidball.com or email chris@christidball.com

July 1, 2011 at 6:52 am 1 comment


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Chris Tidball is a claims and revenue management consultant and author of the "20 Essential Rules" series of self and organizational improvement books. You can ask him a question at chris@christidball.com

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