Measuring First Line Claim Performance

By Larry Wood
Senior Consultant

In the movie “Caddyshack,” the character played by Chevy Chase states that he does not keep score when he plays a round of golf.  When asked how he measures himself against other golfers, he replies “by height.”

Property & casualty insurers may be unknowingly measuring their claim results in a similarly questionable manner. While every insurance company believes they are measuring claim results, the effectiveness of the metrics used often falls short when applied to the first line claim handler.

The need for effective measures of claim performance is clear.  Numerous studies have shown that competency at the front line claim handler level has the greatest impact on loss payments and overall claim function results. This competency needs to be tracked from three perspectives: productivity, quality and customer satisfaction.

Productivity Measurement

Typically, a key measure of claim handlers is the number of claims pending at a given point in time.  It is commonly believed that high pending levels indicate high workloads, overworked claim handlers and a need for additional staffing.  Using pending counts as a productivity measure is somewhat counter-intuitive since it measures the amount of work not completed by the claim handler.

A better measure of productivity is the number of claims closed during a period of time, which represents work completed.  This measure can be tracked over a month, quarter or year against expectations established by management to judge productivity. From this core data, individual performance can be monitored. 

In addition, staffing models can be developed to provide a tool to project staff requirements at different business levels. Staffing models use productivity expectations, work volumes and specific allowances to calculate staffing requirements.  These models are particularly useful in predicting future staff requirements prior to the accumulation of work backlogs or under-utilization of the claim staff.

Effective productivity measurement is critical to controlling loss adjustment expense (LAE).

Quality Measurement

Virtually all property & casualty insurers have a process in place to audit claim files.  Typically, the purpose of these audits is to measure compliance to claim guidelines, measure the quality of the claim handler’s work product and, in some cases, measure claim “leakage,” defined as claim dollars overpaid or paid unnecessarily.  The effectiveness of these file review processes greatly varies, but weaknesses tend to fall into a few categories.

Absence of effective claim guidelines.   Effective claim audits need to be based upon claim handling guidelines that are regularly communicated to the staff.  Audits must be performed regularly and be seen as an important part of claim management responsibilities. 

Ineffective audit procedures.  Open file reviews should be performed by line managers and closed file reviews, using similar formats and techniques performed by parties not in the direct line of authority with the claim handler.  Reviewers of open and closed files need to be trained and calibrated to have a common view of what constitutes compliance to claim handling guidelines.

Inappropriate sample sizes.  The audit needs to review the number of files that will provide statistical confidence in the results.  The confidence level required may vary depending on how audit results are to be used.  For example, audits used to determine unit or department training and development needs may require a smaller sample size than an audit designed to directly impact individual claim handlers’ performance evaluation.  In any case, if claim handling quality is a key driver to overall claim performance, the necessary investment must be made to perform this activity.

Lack of focus on key factors.  Effective file review processes take into account the relative importance of the features being audited and apply weights based on the impact of the audit feature on the ultimate claim result. This focuses attention on the most critical factors of the claim process while not ignoring other components. 

Poor procedures to identify leakage.  Many companies have attempted to quantify claim leakage.  Some have spent significant sums of money to identify its core causes.  Effective efforts to define claim leakage include a streamlined approach that balances the need to quantify potential dollars lost with the cost of collecting data.  This includes looking only at high leverage areas of leakage that can be very objectively calculated.  Striking the right balance in this activity is critical to identifying improvement at the right cost.

Poor use of audit data.  Auditing claim files can be time consuming and expensive.  The data collected from this effort is valuable and its use needs to be maximized.  Audit results can contribute to individual and group performance evaluation, identification of training and development needs and the quality of management given to the claim staff.  Audit results should be used for developing trends, creating action plans and monitoring  changes in claim handling quality.

Excellent claim outcomes result from the application of appropriate claim behaviors by the claim handler.  Claim handling guidelines provide the guidance and direction for these behaviors.  Claim audits and file reviews are a way of determining if the guidelines are followed. They also determine the impact of deviation from the accepted handling guidelines and process.

Effective audit processes, identification of high leverage improvement opportunities and proactive steps to improve performance have a significant impact on loss costs.

Customer Satisfaction Measurement

Many companies track customer satisfaction through the use of surveys.  Often, these initiatives date back to internal audit requirements and the quality programs of days past.  To meet the needs of today, these tools require updating.

The objective of customer surveys should be to identify key measures of customer satisfaction and expectations.  They should provide insight to the delivery of claim services and identify areas needing improvement.  Responses from surveys should be incorporated into individual, unit and department performance management.

The key considerations of customer surveys include identification of the audience and determination of the required sample size (based on the objectives and uses of the survey results, the statistical validity required and the way the data will be segmented for analysis). Also, the methods used to administer, tabulate, analyze and act upon the survey findings need to be developed to achieve the goals of surveying.

Inexpensive tools are available to create, administer and analyze surveys.  Paper, the Internet, kiosk and even telephone surveys can be created and merged for analysis.  Understanding customer satisfaction with claim services is the third aspect of front line performance.

Comprehensive View of Performance

Once the three components of front line claim performance management are in place, they can be consolidated to create a balanced scorecard. Scorecards provide a means to view overall claims performance, weighting the individual characteristics based on their influence on claim results.  The scorecard approach, as with the individual tools, can be prepared at the individual, unit and department levels. Areas operating within expectations are documented and areas requiring more in-depth scrutiny are highlighted.

Effective claim organizations must constantly balance the three components of claim performance.  To accomplish this, claim managers must regularly ask themselves, “Do we have effective ways to measure productivity, quality and customer satisfaction—or are we measuring performance ‘by height’?”