If an insurer consistently pays out more than what it actually should owe, its bottom line takes a hit, so subrogation of claims losses has to figure prominently in the corporate earnings and loss landscape. In the fight for tools, resources and talent, though, subrogation has taken a back seat to other claims processes despite ranking among the top-three revenue sources for insurance carriers, following only premiums and investment income.
Determine Your Place in the Marketplace
Benchmarking against others in the same sector of the industry helps insurers identify areas of weakness that need to be corrected and areas of strength that need to be protected.
Benchmarking is generally defined as the process of comparing a company's performance to that of other companies or organizations through the use of both objective and subjective criteria. Benchmarking should take place at the very beginning of any improvement cycle. If other companies are recovering a higher percentage of paid losses, benchmarking can highlight practices that can improve recovery.
There is nothing like honest fact-gathering and accurate comparisons to provide a baseline or reference point from which improvements can be made. When it comes to benchmarking, there are three general steps:
- Gather information
- Learn from the information you gathered
- Apply what you learned to the improvement of your internal processes.
Step 1: Gather Information
A quality process must be designed for gathering accurate facts and performing apples-to-apples comparisons. Getting the most out of benchmarking requires attention to detail and a clear understanding of what should be included in your comparison. No benchmarking efforts are effective if the data gathered have little to do with the processes at the target company.
Identifying the key performance indicators is essential to beneficial benchmarking since some processes are at the core of a company or department's overall performance and should be assessed critically, while others are just too trivial to worry about.
When it comes to subrogation benchmarking, some key areas to consider are:
- The percentage of claims referred for subrogation
- The ratio of subrogation dollars collected to total paid losses, by claim type
- The ratio of subrogation dollars collected to paid losses on those subrogation claims, by claim type
- Cycle days from date reported to date referred
- Cycle days from date referred to date collected
- Subrogation dollars recovered, by adjuster
- Subrogation expenses as a percent of total subrogation collected
- Subrogation closed with no recovery
- Aged pending.
There are several types of benchmarking, but the broadest categories are internal and external.
Internal benchmarking compares the practices and processes of business units within the same company. Typically, comparisons are made between such things as mail handling, file opening, technological considerations, manpower per similar functions, and so forth. Internal benchmarking can also take place within a single unit or department, where comparisons are made between current and past processes and practices.
External benchmarking, on the other hand, compares an operation in one company with the same operation at a peer company, where typical comparisons made consist of first notice of loss (FNOL), investigation quality and speed, claims resolution, expense dollars spent on similar claims, staffing per functional effort, subrogation and the collection of dollars legitimately owed.
Both types of benchmarking are important; although, internal benchmarking tends to be easier to perform since all the necessary information is under one roof, is usually seen as credible, and can be measured by metrics with common definitions. This type of benchmarking introduces opportunities to learn from trends within the company: Are some units managed better than others? Are more resources available to one department over another? Are there differences in processes? Is there a misallocation of available corporate resources? Are there hiring and training opportunities?
Because external benchmarking compares a company's functions against the same functions at another company (or companies), it tends to be more complicated. Unlike internal benchmarking, where metrics tend to be standardized, external benchmarking requires validation of standards and may involve giving up information about the subject company in order to gain information about others. Because of these factors, external benchmarking may best be conducted through the cooperative efforts of members of trade associations or by benchmarking-survey vendors. The use of surveys or questionnaires, and the promise of access to the results in return for answering the questions, are often key to conducting this type of benchmarking.
Getting Started with Good Resources
The National Association of Subrogation Professionals (NASP) has been performing benchmarking studies for years, and their reports are available online for purchase. NASP gathers its data using questionnaires and focuses on personal and commercial lines at property and casualty companies. NASP then uses the results to establish industry best practices; its studies break these practices down into categories, including organizational structure, file handling, workflow and goals. The November 2008 report, NASP Benchmarking Study: Automobile Subrogation, contains information on state-by-state subrogation performance and provides gross and net recovery percentages. The report is a good place to start because it provides a collection of practices of the participating companies in one place.
performs benchmarking analyses for the insurance industry. Their Web site, www.wardinc.com
, offers a calendar of ongoing and future studies as well as white papers and webinars. In 2009, Ward Group released two subrogation studies in partnership with subrogation services provider Praxis Consulting. The first was a New York/New Jersey Subrogation Study (June 2009) that addressed issues such as personnel expense and experience, PIP/MedPay claims and losses, and the key metrics used by participants in the study in their management of subrogation performance. The second surveyed carriers' chief financial officers on their assessment of their companies' subrogation efforts and the value and financial consequences of those efforts.
is a comprehensive source of statistical information about the industry. This organization receives approximately two billion detailed records of insurance premiums collected and losses paid from carriers throughout the year. It provides reports that enable benchmarking against the industry or segments of the industry. Its Web site, www.iso.com
, provides comprehensive information about its statistical databases and benchmarking services. The large databases it maintains for the industry enable comparisons between a company's performance and the aggregate of ISO reporting companies. Using these, a company can evaluate its book of business by examining trends in claim frequency and severity and can access aggregate data not available elsewhere.
Step 2: Learn from What You Find
Benchmarking results provide data that are the basis for comparing one company's performance with others. The information gleaned serves as a reference or starting point for a comprehensive analysis of a company's operations. That analysis can better be called "the learning curve."
Used often and properly, benchmarking can provide early indicators that competitors may be better at an important key performance indicator or metric. How exactly they are better will be learned throughout the analytic process. In fact, the assessment program could reveal numerous areas where improvements are needed. Each revelation provides a lesson learned and an opportunity to adjust internal procedures and products as needed.
Keep in mind that it's important to assess benchmarking results in light of an individual business's features. Not all competitors' processes will work at the subject company. For example, legal or regulatory differences might preclude the implementation of another's best practice.
Part of the trick is to get rich, reliable data from appropriate competitors and to compare it to your own company's data in the proper niches. There are several reputable sources for benchmarking data that can be used in the assessment and as a stepping stone up the learning curve.
Step 3: Apply and Improve
Once a company has collected good data and learned what its strengths and weakness are, it's time to apply that knowledge to product and process change. One of the best ways to use information obtained from benchmarking efforts is as part of a company's standard quality or Six Sigma program. There should be side-by-side pilots for implementation of new procedures to ensure that the new process provides the expected improvement. Once the pilot phase demonstrates the value of a new process, there should be a control phase to ensure that deviations are minimized and all works as planned. This requires a continual evaluation of what is occurring in-house and should also include periodic review of the company's results against industry benchmarks. The whole process is a continuous loop that ensures review, evaluation and change where necessary.
Benchmarking is a useful tool that should be utilized regularly—at least as a periodic review of published benchmarks to identify variances and then to determine what and why. The process isn't simple, however, and you don't merely flip a switch and become better just because you have benchmarked. Some companies have the internal skill sets and the inclination to conduct the benchmarking themselves—and can and will do it well. Others need outside assistance and can find it through a variety of vendors. Subrogation benchmarking can be tailored, in fact should be tailored, to the subject company's needs, size and market.
It's also just the first step. The action items it creates can lead to an array of options and decisions, all of which, when acted upon, will benefit from ongoing review through the benchmarking process.
, former VP of Claims at GEICO
and head of its highly effective Web site, www.geico.com
, is with Praxis Consulting
, which specializes in subrogation benchmarking, best practices and recovery.