Traditional notions of insurance are nearly extinct, and the brave new world of retained risk has given new meaning to the notion of self-insurance as commercial consumers become the majority, and often exclusive, stakeholders in the financial outcome of claim exposures. One might argue that, except in the case of a catastrophic loss, true insurance in the commercial arena no longer exists as today’s consumers find themselves facing a much greater risk of loss through increased self-insured retentions and deductibles.
Consequently, it should come as no surprise that risk managers are demanding higher quality, comprehensive claim management vs. low-cost administration. The challenge facing them is where to find it and how to recognize it. A simple and effective method for identifying “best in class” claim practice does exist, though.
Impact of Market Pressures
Today’s quest for profitability at increasingly higher margins typically rewards flatter organizations with leaner budgets. Unfortunately, flatter, leaner organizations in the claim business produce additional challenges in the form of increased spans of control and elimination of traditional recruiting and training protocols. These challenges — combined with the increased difficulty of finding and retaining qualified, experienced employees — frequently lead to less-than-aggressive claim management practices, inaccurate claim payments, poor communication, and increased litigation. Advances in technology can further complicate this dilemma.
Today, nearly every commercial claim customer has online access to its claim files and can monitor the progress of daily claim activity (or lack thereof). This increased attention to claim administration heightens expectations, and when superimposed on existing challenges, this can set the stage for varied perceptions of claim performance. Consequently, many claim consumers feel the need to become much more involved in the day-to-day handling of claims.
Thus the paradox. Increased involvement by the customer results in significant increases in personal attention required of the adjuster, supervisor, and account manager. As more customers demand similar attention, claim staffs spend less overall time in actual management of their customers’ claims, often resulting in unattended files and missed target dates, fueling a perception of poor claim handling and the need for formal claim reviews or audits.
Claim departments are facing a conundrum as schedules become saturated with client claim reviews and broker audits, so much so that there often is little time left for adjusters and supervisors to perform their traditional claim responsibilities. While claim staff may feel these demands are excessive, their customers are ultimately bearing increased financial impact of today’s claim exposures and feel quite justified in expending significant resources on quality assurance programs that ensure appropriate management of their claims.
New Meaning of Claim Audit
While carriers and claim administrators often perform their own internal audits to gauge and improve the quality of claim performance, it would be na?ve to expect the frequency and scope of these audits to continue under the budgetary restrictions of today’s profit-oriented industry.
Much of this responsibility currently falls to risk managers and their brokers, who must rely on claim reviews and audits as a means of evaluating and ensuring the performance of their carriers and administrators. Two key reasons for today’s customer/client audits are to ensure appropriate claim management and to investigate concerns about service or performance.
While motivations for this practice vary, the message is clear. Commercial consumers are no longer willing to leave their financial fate solely in the hands of their carriers or administrators, particularly when opportunities may exist for significant cost reduction through sound claim management.
But how does one recognize best-in-class performance? Best claim practices are driven and measured by a short list of fundamental activities or behaviors. When these elements are present, a well-balanced approach to claim management and a properly handled claim are generally the rule rather than the exception.
Here are the top 10 indicators for recognition and review of best-in-class claim management:
#10. Appropriate Supervisory Involvement and Direction.
Flatter organizations, larger spans of control, and increased managerial responsibilities have combined with a general decline in front-line supervisory training to increase the risk that the supervisory element of claim management will be inadequate or missing. Yet appropriate supervisory involvement is critical and should be driven by the needs of the claim or experience level of the staff. Supervisory involvement should include focused directives upon initial assignment, participation in evaluation and reserving, or involvement in strategic planning and disposition on those claims presenting serious exposure.
#9. Appropriate Screening and Assignment.
Allocation of resources that maximize effective assignment, coverage determination, and benefit delivery improves claim service as well as outcomes. Today’s claim environment reflects numerous attempts to automate the assignment process through implementation of protocols designed to reduce or eliminate the need for human intervention. It is important that these protocols recognize the benefit of supervisory involvement in the screening and assignment, and not detract from the overall effectiveness of claim investigation and management.
#8. Timely and Appropriate Reporting, Contact, and Payments.
Claims should be promptly reported to all interested parties. Contacts that add value to or support positive claim outcomes should be timely, appropriate and meaningful, and clearly reflected in the claim file. Finally, effective and meaningful claim management must be supported by timely and accurate payments. This is achieved only when there is good teamwork and communication between a claim operation and its customer.
#7. Appropriate Recovery Activity.
The claim file should clearly reflect that traditional avenues of recovery or cost containment (e.g. subrogation, salvage, second injury fund, discounts, retrospective provider reviews, etc.) have been explored and initiated. The claim file also should reflect when one or more of these initiatives are not viable options.
#6. Evidence of a Plan at All Levels.
The adage “We must know where we’re going if we ever expect to get there,” applies here. A claim file should demonstrate a clear understanding and focus by the adjuster on direction (who is going to do what and when), and a strategy for completing action steps to ensure an acceptable result.
#5. Appropriate Reserve Activity.
Timely and accurate reserving is critical to the financial integrity of any risk management program. Thoughtful, experienced analyses of claim and medical information can provide early and accurate estimates of loss or exposure, which will minimize stair-step reserving practices and financial surprises. Meaningful rationale is a critical component and must be clearly reflected in the file at every reserving juncture in the life of a claim.
#4. Quality Investigations.
Appropriate investigative activity is as important today as it ever was. Property claims should reflect thorough documentation of the extent and scope of damage and cost of repairs. Liability claims should reflect the facts necessary to support a sound evaluation of legal responsibility and damages.
In workers’ compensation, the claim file should reflect evidence of accurate and meaningful factual, medical, educational, vocational, and societal background information relevant to the ability of the injured employee to return to his usual and customary occupation. The gathering of this information can be best achieved through effective teamwork by an inside and outside adjuster, and in the case of bodily injury, a nurse case manager or consultant.
#3. Effective Communication.
The claim file should reflect evidence of effective communication between the adjuster, all interested parties, and most importantly, the claimant or injured employee! In the event of representation, it is important to maintain timely and meaningful communication with the insured or claimant’s legal representative, as well as defense counsel.
#2. Evidence of Ongoing Claims and Resource Management Activity.
A well-managed claim must reflect evidence of proactive claim, medical, and litigation activity. Claim adjusters must drive the process and be catalysts for progressive movement toward final and appropriate resolution of the claim.
#1. Quality File Documentation.
The old claims principle that “the file must speak for itself,” continues to be an appropriate guide. A well-documented file is usually the best indicator of a well-managed claim. Conversely, a claim file barren of meaningful documentation generally is indicative of poor or ineffective claims practices.
The insurance industry will continue to evolve as it searches for a profitable balance between traditional insurance, risk financing, and loss reduction. The claim review or audit function is an integral part of any quality assurance program. Risk managers will continue to exert considerable influence over the management of their program costs, but they should be sensitive to the practical impact of increased demands on carriers and administrators for personal attention to claim needs. Respect for one another’s role in the claim-handling process, combined with communication and appropriately timed reviews or audits, will strengthen relationships and improve outcomes.
The audit process need not be adversarial. Objectives should include highlighting and reinforcing what is working, and recognizing and improving areas of concern. Findings and observations should be used to facilitate positive, meaningful dialogue between the insured and carrier/administrator, thus leading to agreement on program successes and action steps for improving results.