Archive for December, 2011

Benchmarking your way to subrogation success

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.   Perhaps the best source of the most current and accurate data is the most recent NASP benchmarking study reflecting an even higher percentage of net recoveries to total paid collision.   

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.  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, often with little debt collection experience, to pursue uninsured tortfeasors.   A good barometer of how much money is being left on the table is the frequency by which second, third or even fourth looks are sent out to the open market where a vendor will review it, often at no charge.    

While not an insurer, AT&T uses one of the most robust and effective collection strategies available.  They don’t rely on one vendor, but rather upwards of 27 vendors, that are used for secondary, tertiary and quaternary reviews.  They post all results daily, creating a climate of competition.   What carriers need to realize is that on a third review, they may recoup another 1-3%, while a quaternary review may yield an additional percentage point on top of that which is critical in a market with tight margins.  At the end of the day, what remains uncollected is sold on the open market. 

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.   His discussion on auto claims benchmarking will be featured at the upcoming Auto Subrogation Execusummit in February, 2012.  For more information, please visist www.christidball.com or email chris@christidball.com

Advertisements

December 27, 2011 at 7:28 am Leave a comment

Knock for Knock agreements; a roadblock to foreign insurer profitability

While a foreign concept to many Americans, knock for knock agreements are quite common in a number of overseas insurance markets.   Generally limited to auto accidents, these agreements bind insurance companies to take care of damages incurred by their insured’s when involved involved in accidents with other compact members. 

In a sense, knock for knock agreements bare some resemblance to true no-fault laws, such as those found in Michigan, whereby responsibility for reparations falls to individual insurers regardless of fault and type of loss.   

Unlike laws in true no-fault jurisdictions, these agreements generally aren’t statutory and often do more harm than good.   The rationale is economic and administrative efficiency.  While an insurer may be able to pursue a recovery from the party responsible for an accident or from its policy-holder, this is perceived to be a costly administrative procedure. The knock-for-knock agreement simplifies recovery claims among insurers and, over time, theoretically attributes costs fairly among insurers.

However, knock-for-knock agreements between insurers have been criticized as unfair on the party not responsible for an accident. If, for the sake of administrative ease, an insurer pays out to repair damage done to its policy-holder’s own car instead of pursuing the party responsible for the accident for all relevant costs, an effective claim is recorded against that policy-holder’s insurance record. In this way, knock-for-knock agreements can result in policy-holders’ finding unexpectedly, when they come to renew their insurance, that they face higher premiums regardless of responsibility for an accident in which they were involved.

In many foreign countries, market segmentation isn’t nearly as defined as it is in the United States.   For example, a knock for knock agreement in America between a non standard and standard insurance carrier would be very detrimental to the latter.   Given the disproportionate number of accidents by non standard risks, the standard drivers would sustain increased out of pocket losses, such as deductibles and higher premiums.   As market segmentation evolves overseas, this is likely to expose significant flaws in knock for knock agreements.  

Arguably a better model would entail a fundamental understanding of the subrogation process.   By developing a claims organization that utilizes  cutting edge workflows and processes, carriers who opt out of knock for knock agreements stand to gain a significant competitive edge in the marketplace.  

Santam, a leading South African insurance carrier, terminated their participation in the Knock for Knock Agreement in that nation.   In their news release, the carrier stated,  “With increased emphasis on profitability and cost containment, the debate regarding the excess has become fiercer and has often frustrated policyholders.  Santam’s decision was based on the fact that the Knock-for-Knock Agreement is outdated and did not stay abreast of developments in the insurance industry.  Our view is that Santam can serve its clients better without this agreement.”

While these types of agreements still abound in many nations, the reality is that carrier’s looking to improve profitability, increase retention and gain market share will likely to the same conclusion as Santam.  As discussed in my book, Re-Adjusted: 20 Essential Rules To Take Your Claims Organization From Ordinary to Extraordinary,  a far better road to success is that of implementing an end to end process that is second to none will serve as the springboard to handle claims better, faster and more accurately than the competion.    

 *****

Christopher Tidball is a claims consultant and author of Re-Adjusted: 20 Essential Rules To Take Your Claims Organization From Ordinary to Extraordinary.   He spent more than than twenty years in various claims, process and executive roles with multiple leading insurance carriers, developing innovative solutions to improve all aspects of the claims process.  To learn more, please visit www.christidball.com or e-mail chris@christidball.com

December 21, 2011 at 7:35 am Leave a comment

Tim Tebow and your claims organization

There may be no player in the NFL with more detractors than Tim Tebow.   Make no mistake, he has a big following.  But, there is a contingent, including many sports analysts, who have questioned Tebow’s abilities from the time the Denver Broncos traded up to draft the quirky young quarterback from Florida.  

There was much speculation that the kid who brought a state championship to Saint Johns (Florida) County and a national championship to Gainesville, couldn’t make it in the NFL.  Sure, he could work in Urban Meyer’s spread offense, but could he transition to Denver’s offensive style?  They said his mechanics were off, his technique needed polishing and that he would  be nothing more than a flash in the pan.  

So how does this translate to your claims organization?  Simple; aside from Tebow being an inspiration and a positive role model, he shows that there isn’t one way to do things.  After all, his unorthodox style has been media fodder since the day he was drafted.   But now, with a 6-1 record as a starting quarterback for the division leading Denver Broncos he is giving people reason to pause. 

Far too often in claims we are muddled in the minutiae of processes and procedures without recognizing that the best results come from those who think outside the box.   We have a tendency to live in a world where benchmarking is all that matters and results must fall within the parameters of the proscribed metrics without recognizing the potential unintended consequences. 

Make no mistake, numbers do matter.   Just as Tebow’s job security depends on numbers, in particular winning, so to does ours.   Files have to be closed, profits have to be made, policyholders must return and customers must be satisfied.  But are those achieved by simply looking at the numbers? 

If claim disposition is 100%, does that mean that they were settled accurately?  If monthly reports show that 100% of all customers were contacted within 24 hours of loss report does that mean that the right questions were asked?  If supplement rates are dramatically reduced, does that mean that better estimates are being written?  Herein lies the problem when numbers are chased instead of results being attained.  

What Tebow shows is that winning can come in all shapes and forms.   The same can be said for claims, where ultimate outcomes can be reached in a variety of ways, some good and some bad.   Chasing numbers for the sake of chasing numbers is bad.  Getting results in a never ending quest to provide winning outcomes is good.  

In Re-Adjusted: 20 Essential Rules To Take Your Claims Organization From Ordinary To Extraordinary, it is said that perfection is hard to attain, but striving for it is an achievable goal.   In 1972, the Miami Dolphins seemingly set the bar for perfection in the NFL, running the table on their way to winning the Super Bowl.   While impressive, it was not perfect.   That would be the 1933 Providence Huskies who not only went undefeated but never gave up a point.

The best way to measure a claims organization is by establishing a solid quality assurance program.   Not the kind of program where a manager randomly reviews a file, but one of impartiality where total file quality is measured, benchmarked and improved upon.  Like the ’33 Huskies and  ’72 Dolphins the quest for perfection needs to be bred throughout the organization.   A culture of transformative change and innovation needs to be embraced. 

Playing following the leader is easy.   But, across the business universe, the true success stories come from those who have bucked the trend, defied the odds and came up with new and better ways to do things.  Southwest Airlines changed the way we fly; Amazon changed the way we shop and Apple changed the way we communicate.   Herb Kelleher, Jeff Bezos and Steve Jobs were not followers; they were innovators who did things differently. 

Whether or not this changes the way your organization conducts business remains to be seen, but the one certainty is that those who take the lead in fostering change will gain a competitive edge in the marketplace.   Tim Tebow may not be John Elway but, as football fanatics are finding out, he can win.   The Broncos have just had to adapt to his style, instead of forcing him into theirs.  Maybe, just maybe, they are on to something. 

Perfection is not attainable, but if we chase perfection we catch excellence- Vince Lombardi

Christopher Tidball is an executive claims consultant and the author of multiple books, including Re-Adjusted: 20 Essential Rules To Take Your Claims Organization From Ordinary To Extraordinary!  He is a twenty year industry veteran who has held multiple leadership roles for various Top 10 P&C carriers.  To learn more please visit www.christidball.com or e-mail chris@christidball.com.

December 7, 2011 at 12:42 pm Leave a comment

Diminution of value: what’s your claim really worth?

This past weekend a major pileup in Tokyo involved eight Ferraris, a Lamborghini and a couple of Mercedes Benz.   The cumulative value of the claim is well over a million dollars.   As the claim investigation commences, one critical aspect likely to emerge is that of diminshed valued.

Diminution of value can be one of the more complex aspects of the claims process.  While determining a fair market value for property in good times is challenging enough, consider the implications of the “great recession” and collapse of the housing, collectibles and commodity markets in recent years.  Another challenge is that there are very few governing state statutes, and even when present, they often are focused on automobiles. 

Diminution of  value is a legal term used when calculating damages in a legal dispute, and describes a measure of value lost due to a circumstance or set of circumstances that caused the loss. Specifically, it measures the value of something before and after the causative act or omission creating the lost value in order to calculate compensatory damages.

Herein lies the challenge; what was the property really worth before the loss?   When dealing with an automobile, the value is readily available in resources such as NADA.   That said, if a vehicle is repaired back to pre-accident condition, has it sustained any diminished value.  My position is generally that is may have, but only to the extent that the owner sells the vehicle, discloses the loss and accepts a reduced sum when selling the car as a direct result of the disclosure of the prior damage.  

But what about property, such as a home?  Given the state of the housing market, it is not uncommon for homes to be insured for more than they are worth.   But is this what the insurer owes?  Generally speaking, the insurer will owe the fair market value or cost of replacement, depending on the terms of the insuring agreement.  

As a Floridian, I can attest firsthand to the “upside down” housing market.  Homes that were worth a half million dollars in 2007 are often worth less than half today.   This creates not only animosity between insurer and insured, but presents potential legal challenges.   The reality is that a damaged home is worth what it would have brought in its pre-claim condition, not at the peak of the market. 

This concept is certainly not limited to homes and cars.   Many commodities and collectibles including art, jewelry and boats have seen significant erosion of value over the past two years.   So how can an insurer obtain a fair market value?

Arguably, the best way to obtain fair market values is through reputable appraisers.   They need to also be wary of the few states, such as Georgia, that have statutorily weighed in on diminished value claims in certain instances and follow appropriate protocol in those jurisdictions.   Adjusters should also be cognizant of the precedent case law in the loss and/or contract state, which often precludes or limits the right to recover diminution of value.  

Ideally, an insurer will take all the necessary steps to properly evaluate a claim and provide those seeking coverage with voluminous documentation of the fair market value.  In the event of a dispute, many policies provide for an appraisal option, whereby the carrier and the insured obtain separate appraisals and any differences are mediated or arbitrated with an impartial third party. 

As discussed in Re-Adjusted: 20 Essential Rules To Take Your Claims Organization From Ordinary to Extraordinary, many conflicts between insurers and insured’s arise as the results of shortcomings in the negotiation and settlement process.  To effectively resolve claims, it is incumbent upon the adjuster to educate all parties to the claim, be they a policyholder, claimant or attorney.  

Simply making an offer isn’t always enough.  That offer needs to have backup documentation that erases any questions about the value of the claim. 

In my dealings with those making claims over the years, the biggest challenge was often emotions, whereby someone thought that something was worth more than it truly was worth.  While these negotiations can be tricky, the key to success is in the delivery.   By empathizing with the customer, a positive outcome is far more likely than taking an adversarial approach. 

As many of my dealings over the years were in Florida, it was not uncommon for me to cite the case of Siegle v. Progressive Consumers Ins. Co., 819 So.2d 732 (Fla. 2002), whereby the Florida Supreme Court ruled against the concept of diminution of value provided the insurer complete a first-rate repair which returns the vehicle to its pre-accident level of performance, appearance, and function.”  Again, having a firm grasp of the diminished value case law in each state can be a tremendous advantage when negotiating these types of  claims. 

Diminished value aside, getting to the true value can be a tricky proposition in a down economy where there may be a temptation for those making claims to recover lost market value in addition to actual covered losses.   Absent proof that the loss of value was covered by the policy AND related to the loss, these claims don’t seem to warrant consideration.   Rather, focus on the basic blocking and tackling skills necessary to identify what is covered and document why, which provides the foundation for an effective resolution. 

____

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

December 6, 2011 at 7:31 am Leave a comment

Subrogation workload: How much is too much?

An often debated question among claims executives is how to properly staff an organization.   Arguably, one of the most challenging of the positions to properly staff is that of subrogation adjuster.  Given the varying degrees of complexities involving recovery operations, this can pose quite an organizational challenge.    So what should a claims organization do?

The simple answer to the question is that it depends;  but the first answer is never base staffing on pending.  It is a self fulfilling prophecy as there is little incentive to close files.   “Hey, if I get to 500 then I won’t get any new.”  Rather focus on new with an emphasis on disposition and quality. 

Other critical questions that need to be answered are:

  • What type of subrogation is being pursued? Auto, Property, health and workers’ compensation will have different models.  
  • What is the average tenure of the adjuster? 
  • What is the complexity of the claims?
  • What percentage is insured versus uninsured?
  • Consider jurisdiction, both domestically and internationally.
  • What is the average time of referral from date of claim payment?

These are just a few of the factors that play into effectively staffing an organization.   In my experience  as a claims process leader in multiple claims organizations, and now consulting a variety of insurance carriers, the best results are obtained with the following 9 box model and several critical questions (click the box to enlarge).

 

1. Staff subrogation adjusters obtain the best results when limited to claims where insurance has been identified and the claimant carrier is a member of inter-company   arbitration.   In this subset, claims with no dispute should be placed into a Fast Track unit where at least 10/day should be no problem.  

2. Claims with disputes should be placed into a more tenured unit, such as an arbitration unit, so that attempts to settle can be made and if unsuccessful the arbitration contentions can be filed.  Typically, these cases are more complex and assignments may be half of what Fast Track can effectively handle.

3.  Claims identified as uninsured, or as non Arbitration Forums members, are often best handled by business partners with an expertise in tougher collections who have the resources to effectively recover in this challenging environment.  During my tenure as a claims manager I found that keeping tougher collections in house simply doesn’t work as they are recognized by adjusters as impediments to other goals and often find their way off diary or to the bottom of the workbasket.   Getting these claims out the door on day one increases recovery exponentially and actually is cheaper for the carrier than handling them in house. 

4.  Push for a 100 percent disposition ratio without sacrificing quality and pending doesn’t become an issue.  If you get 100 new, then you should close 100.  Provide rewards and incentives for better results.  A properly calibrated organization will increase both disposition and quality. 

5.  Measure closed with no recovery to balance out disposition metrics, which when taken alone,  can drive bad behavior.   In post mortem audits it is not uncommon to find 15 to 20% of files closed prematurely and with a missed opportunity.  

6.  Focus on quality over quantity.   Yes, production is important but it is equally important to have staff in place that can effectively investigate and aggressively negotiate settlements.  By having a solid QA process in your organization you are assured of substantially increasing your bottom line and the QA results should definitely be part of the annual PE, with each stakeholder being held accountable for results. 

7. Implement a solid adverse subrogation process.  While often overlooked, it can be a formidable driver of results.   Utilizing processes that can provide historic parts prices in combination with internal and industry rules adjustments for labor, loss of use, storage of diminshed  value can have a significant impact on the bottom line. 

*****

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 spent more than than twenty years in various claims, process and executive roles with multiple leading insurance carriers.  His proven success combines dynamic experience with Six Sigma methodologies to identify opportunities, optimize workflows, gain efficiencies and boost results.  To learn  more, please visit www.christidball.com or e-mail chris@christidball.com.

 

December 2, 2011 at 8:11 am Leave a comment


Enter your email address to subscribe to this blog and receive notifications of new posts by email.

Join 145 other followers

Contact the Author

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

Kicked to the Curb

Kicked to the Curb

Re-Adjusted

Finding Millions on Twitter

Error: Twitter did not respond. Please wait a few minutes and refresh this page.