My career in claims with a global insurer/reinsurer has afforded me opportunities and perspectives not available to most claims executives. In my experience, I have reviewed and evaluated claims handling and claims operations in Copenhagen, London (both Lloyd’s and direct), Mexico City, Sao Paulo, Seoul, Toronto, and Zurich, as well as numerous companies in the U.S. I have assisted claims managers in the evaluation and improvement of their claims departments using predictive analytics followed by an audit driven by the findings of statistical analysis. As a result of my experiences here and abroad, I believe I have some unique perspectives on how to improve claims management. I’d like to share some of those “lessons learned” with the greater claims community.
First and foremost, the insurance industry both misuses and underutilizes the audit process. How is it misused? Most claims operations audit to find fault. We look for opportunities to criticize both file management and the claims professional. We call it different or more antiseptic names, such as quality file review, but we use it as a hammer in performance evaluations and as a substitute for real claims management. I propose we turn the audit function into a review function. What are we reviewing for? We should be looking for quality file handling and leadership. So how do we audit for quality and leadership? To begin, we need to determine what real quality and leadership look like in a review.
Many claims operations use a score-based audit system. This system only motivates claims handlers to improve their scores at the next audit. This approach encourages gamesmanship and is usually done at the expense of quality. So how is quality determined in the review of a claims file?
A quality claims file tells a story. In the beginning, we have coverage. Can you tell what coverage the insured is trying to trigger? If we have a quality coverage evaluation, then the file should indicate clearly under what coverage the loss was submitted. Next, we review the claims investigation. Does the file clearly state exactly what happened and to whom? If not, we need to perform our own investigation as to the cause of this shortcoming. Does the file clearly reflect the steps that the claims manager will take and a time frame for completion to develop a clear understanding of the incident?
The evaluation of the loss follows the same approach as reserving. One separate element of reserving that should be measured is timing. This is a judgment call based on the results of the investigation and evaluation. However, the standard rule of quality reserving is to post the most probable settlement value along with probable expenses at the earliest practical time possible.
Finally, the auditor should address the negotiation or litigation plan. Has the claims professional identified the issues that require further discovery or investigation? Does the plan identify the persons necessary to provide this information? Examples of this would include issues affecting the value of the loss, as well as the strengths and weaknesses of the claim. Does the investigation and factual determination suggest that this is a file where an alternative dispute resolution would be appropriate? Has the claims professional adequately considered the effect of defense counsel and opposing counsel on the value of the claim?
This is a broad overview of how one can identify quality during the course of an audit. You may have a different approach, depending on your company and the lines of business you write and service.
Anatomy of an Audit
In my travels, I have seen various approaches to leadership. They can be described in multiple ways, some of which might include “dictatorial,” “consultative,” or “coaching.” Most approaches to leadership attempt to improve perceived weaknesses but do little to increase strengths. The approach I am most impressed with came from IE Business School in Spain and is used by many European businesses. The approach is to “coach up” weakness to an acceptable level and focus primarily on improving strengths.
We know people have different areas of strength. After a series of reviews, the results become obvious and workers can be placed in appropriate roles. At the desk level, it’s important to recognize those who are your best investigators, logical evaluators, and accurate reservists. At the supervisor level, look at who coaches best, provides the best direction, and helps their claims professionals close files quickly and appropriately. This sounds good in theory, but the question often becomes “How do you review for leadership?”
This leadership audit is far more difficult than reviewing for quality, but when completed, it is an impressive complement to the quality review. The basic approach is to take quality reviews and look at them from a performance standpoint, then compare the performance across the claims team. This is not difficult with a small shop, but it becomes quite a task in a large organization. What does this look like?
Let’s start with the individual quality review. Once the quality review process has been in place for a few cycles, start comparing individual claims managers’ results to the corporate results by individual category. For instance, let’s say that Susan has been reviewed five times. One of the quality categories is “investigation.” In three of the five reviews, she was very good. In two files, she missed some opportunities. As her supervisor, you have an opportunity to coach her up. If she has been in her position a short time, this would be expected. At this point, you compare her findings against other claims professionals who have a similar amount of time on the job. Now you have a valid comparison of the quality of the work. From this information, you can start to evaluate the strengths of each claims professional. This information can be used to assign losses according to areas of strength, which will lead to better results for the unit and improved expertise for the claims professional. This is not an easy process, and it is most effective when you start by segregating the claims team by experience.
The same approach works for the leadership team. Here, the quality review is used to evaluate the input from the first-level supervisor. Is there evidence that the supervisor is coaching up the claims handlers? Is their input appropriate? In this approach, you segregate the claims team by team leader, look at the opportunities to coach up to an acceptable level or identify a job well done. At this point, you question the team leader for their leadership skills. Are they using their highly skilled claims professionals appropriately? Are they using them to teach, perform quality reviews, and represent the company at mediations? Again, development of the team leader depends on the environment of the claims office and company.
As you see, we can improve the audit process from being misused or underutilized to a point where it provides impactful information when structured and implemented with the intent to improve quality and strengths.