The Measure of Adjusting

“Claims transformation” has become a common catchphrase in the property and casualty insurance industry. Many insurers have come to the realization that antiquated legacy systems (and outmoded processes) are not up to the task when it comes to customer responsiveness, business agility and collaborative management. The result has been a wave of investments in new technologies, such as Guidewire ClaimCenter, among others.

The push to a more streamlined claims management structure is typically motivated by cost savings and service commitments. “Based on our experience, 1 to 2 per cent improvement of loss cost can be captured by identifying and measuring key claim areas where adjusters can improve loss results and enable process improvements,” notes a recent publication from Capgemini Consulting and Guidewire called Capturing Operational Efficiency and Sustainable Value through Claims.

Part and parcel of this transformation is a distinct focus on data collection and “metrics.” With that comes a renewed emphasis on performance management and tracking of key performance indicators (KPIs).

“Determining claims program metrics and key performance indicators is a critical step in the upfront design of claims transformation,” the Capgemini and Guidewire study notes. “Current state metrics may already be in place and heavily used but they are likely constrained by data availability and legacy systems and limited in connectivity between front-line metrics and management KPIs.”

Performance Scorecards

This heightened attention to performance scorecards applies to a wide range of insurance suppliers, such as auto repair shops and property restoration firms. Independent adjusters are along for the ride, whether they like it or not.

“We have absolutely seen this over the last couple of years,” notes David Riddell, president of Canadian Claims Services. “Many of the new contracts we are entering into now have an entire appendix around KPIs or (the expectation) that you are going to produce for insurance companies a number of management reports.”

“We have seen a definite increase in the inclusion of KPIs being measured by insurers on our assignments,” concurs Jim Eso, senior vice president, property & casualty for Crawford and Company (Canada) Inc. “The increase in these measurements has happened primarily in the last 3 or 4 years.”

These emergent metrics cover a wide range of areas for insurance companies keen to understand costs, service and time.

“For any type of claim there are four important arenas to consider: customer satisfaction indexing (CSI), loss costs, expenses and compliance,” notes Marilyn VanderLey of Performance Gateway in a December 2014 article in PropertyCasualty 360 publication. “By breaking these arenas down into categories and assigning specific measures with appropriate targets to these categories, one can provide the company with easy-to-interpret results – especially if the individual KPI scores are aggregated to provide an overall category score. When monitored weekly, these overall category scores can help avoid the roller coaster effect of balancing customer satisfaction results against the need to control loss costs.”

More specifically for independent adjusters, examples of KPIs include such measurements as contact with the insured, claim site visit, report to principal, reserves, cycle time, shelf life and many others.

“Generally, the metrics being measured relate to tracking success on a small number of measurable points during the life of a claim, such as ‘time to first contact’, ‘time to first site visit’ or ‘overall shelf life of claim,'” notes Eso. “Those metrics that are most effective are the ones we know directly impact client satisfaction, such as overall file shelf life.”

Tracking Data

Many adjusters say they welcome the tracking of key data in helping to more effectively manage the entire claims cycle.

“A key area of opportunity is to improve the service paradigm,” notes Patti Kernaghan, president of Kernaghan Adjusters Ltd. “These basic data elements provide an overview of the performance on an individual claim and once rolled up to the entire portfolio level, they can provide management with tools to assess the adjuster’s performance and the progress of the entire claims portfolio.

“Tracking data gives real time opportunities for the claims handler to recognize where they need to apply attention to individual claims; it also provides managers the opportunity to assist adjusters when they see stuck points in the claims handling process,” Kernaghan adds.

“The reality is that if the measurement is important to the customer, then it’s important to us,” says Riddell. “If the insurance company client feels there is value in tracking customer service survey results or shelf life or other KPIs, then we’ll do what we can to make sure they are getting the data.”

Riddell adds that it’s important for adjusters to know not just what insurance companies want to measure, but why.

“We just signed a new contract with one of our bigger clients and they provided a list of reports they want us to produce with some regularity,” Riddell notes. “They asked whether we had any issues or concerns with that. My response was: no issues or concerns, but we need to know what you’re hoping to capture, so that if we are not getting that information in our system now, whatever those data fields are, we need to adapt and get them put in. When it comes time to produce these reports, we can then give them something meaningful. It is all fine and good to say you need this measurement and these data fields and the analytics, but we need to know what data you are trying to capture, and what it will show,” he observes.

No Two Insurers the Same

It’s a truism of the p&c industry that no two insurance company measurements or requirements are the same. This requires flexibility and adaptability on the part of independent adjusting firms.

“Each insurer will have their own set of measurable outcomes based on their own internal processes and their own perception of what items are most important to track,” Eso states. “The challenge is ensuring that the measurables are ones that are or can be measured automatically in our system. The alternative of having to manually track specific metrics is not desirable, so we use different systems such as our own CMS Claims Management System, the insurer’s system or third party vendor systems such as Xactimate to track specific items that can be reported on.”

Riddell agrees that technology is critical for adjusters in adapting to measurement requirements from insurance company clients.

“Most independent adjusting firms now have quite good claims systems that are able to track those measurements with accuracy and efficiency,” Riddell says. “We are able to extract data and produce meaningful management reports, not only for owners of adjuster firms but also for insurance company clients. Our system is very flexible, so we can accommodate virtually any request for data. As time goes on, we want to be sure that the data is what they asked for and what they need, we can even hopefully anticipate some of what they might be looking for.”

However, IAs may require work processes or procedures to adapt to the relatively new world of KPIs, according to Riddell.

“It changes workflow because different insurers require different reports and measurements,” Riddell comments. “That has always been the big challenge from an independent standpoint; that every insurer wants it done just a little bit differently. Now, however, we have to make sure we are checking the right boxes or ensuring the right data fields are populated in the system so that they are able to extract the data they need.”

A crucial challenge for insurers is gathering data and avoiding cumbersome and labour-intensive spreadsheets, according to VanderLey.

“Web-based scorecard technology can help improve accuracy and ensure that data gathering and calculations are automatic,” VanderLey writes in PropertyCasualty 360. “The data is available 24/7 in one location and everyone is looking at the same information. Scorecard technology allows users to determine the categories to be measured and the individual measures within those categories. They should also be able to determine the target scores to be achieved and how the measures will be weighted. It should also drill down to the estimates/claims that comprise the results and highlight scores that don’t meet target levels to pinpoint problem areas and make an accurate analysis.”

Technology, especially mobile communications, may even make some of the KPIs or metrics less relevant in the future, according to Eso.

“Some metrics, such as ‘time to first contact’ have become less important with improved technology around communication,” Eso notes. “With email, text messaging and telephone contact, the process of receiving a claim and then reaching out to the policy holder is much easier to do, and in many cases is done by us at First Notice of Loss when we receive the claim through our Claims Alert intake centre,” he adds.

Efficiency versus Indemnity?

Some measurements are not emphasized enough at insurance companies, according to several independent adjusters. For example, the proliferation of telephone adjusting can be measured for efficiency, but what about the potential tradeoff in indemnity costs?

“I think one area that has been toned down is the investigation versus the indemnity costs,” Riddell says. “Insurers are doing more and more claims on a telephone adjusting basis instead of having an adjuster on the scene. I don’t know if I have ever seen a meaningful calculation on the cost savings on telephone adjusting files versus what you spend from an indemnity perspective. You are cutting out that adjusting process, but to what end? And how do you measure that? What is the cost savings versus indemnity?”

Kernaghan concurs that telephone adjusting is ripe for the kind of metrics and measurements that insurers are applying to all aspects of the claims management process.

“There is an opportunity to compare a telephone claim versus an adjuster attending the loss location,” Kernaghan notes. “There’s an expense to outsourcing adjustment services; however, there are also opportunities for cost savings through reduced indemnity. The expense can generate claims savings such as: where to cut off repairs; is the damage really caused by the peril being claimed; what the full extent of repairs should be, and so on.”

“When the adjuster attends, there is less likelihood of inflated claims,” she adds. “When a claim is adjusted over the phone from a photograph the insured has taken, human nature tells us that the explanation and photograph could favour the insured’s position. If we don’t measure it, how do we know whether there is a false economy at work with large telephone adjusted claims?”

For Riddell, there is an element of caution that should be applied to the universal use of claims measurements. “I think the whole data analytics and metrics piece is relatively new and I think companies need to be cautious in how they approach this,” he says. “It tells part of the story but not the whole story. They need to be able to determine exactly what it is that these measurements are telling you, in what context and then go from there.”

Re-inspection and Audit Process

Riddell cites the example of insurance companies relying less on the re-inspection or audit process due to a strict reliance on data metrics.

“Some of my clients have told me: ‘for the last several years we have been taking all this data and we know now this is what our average repair cost should be. We can now do away with many of the controls in place, such as re-inspections, appraisals or audits,'” Riddell notes. “My response is that the average repair cost may well be accurate, but isn’t that number impacted by the very fact that you had controls in place? And that the service providers knew that at any point in time, the process could be re-inspected or audited?”

CIAA president Fred Plant believes that the prevalence of telephone, or remote, adjusting raises broad questions about the effectiveness of standard insurer measurements.

“It is not just about taking pictures and sending them to someone at a desk 1,000 kilometres away,” Plant says. “The service we provide as independent adjusters is difficult to measure; it comes out of our heads. We can tick off all the boxes on the audit or KPI sheet, and say we did a great job on that particular claim. But the claimant could be dissatisfied or we could have overpaid under the policy terms. As long as you followed the process, everything is fine and you get a pat on the back. It’s that old saying: the operation was successful, but the patient died.”

One of the difficulties with standardized measurements is that they may fail to take into account unique claims scenarios, according to Plant.

“Claims are not all the same. Even fender benders or minor fires may seem like routine events, but they are very different, involving different claimants and personalities. You can’t necessarily do the same thing every time and expect it to work exactly the same way, ” he says. “So many business rules and processes have been created that don’t allow adjusters to be agile in the field. If you step out of the process, that is a failure for some insurance company measurements – but that may be exactly what is needed in a certain claim. It may actually be the best thing to get the claim resolved.”

Plant notes that there is nothing wrong with claims efficiency measurement in and of itself. “In the world of big data, measurement is crucial. People want to measure everything,” he says. “It is not that the processes insurance companies employ are ineffective or counterproductive. They are in a competitive business, they want to keep their costs down; I understand that and I agree with it. But you can’t go so far as being focused completely on claims costs at the expense of service.”

Worm Starting to Turn

Some adjusters, such as Jim Eso, say the worm is starting to turn when it comes to the measurement of customer service indexes and claimant satisfaction.

“I think that with the increased recognition and measurement of policyholder satisfaction as a key driver for growth at the insurance company level, the focus on things like first contact time, total indemnity or estimate accuracy have been replaced by a more focused effort on measuring those things that help the client understand the impact of the claim process on customer satisfaction and retention,” Eso notes.

“The increased use of satisfaction ratings like Net Promoter Score, combined with the increased use of data analytics that helps the insurer validate the impact of positive or negative customer experience, is what will continue to drive the development of metrics that will be measured on independent adjuster files,” he adds. “Adjusters need to adapt to these changes in order to remain a relevant part of the insurance claims process.”

Several sources say the world of KPIs, metrics and data analytics is here to stay in the insurance industry – and the broader economy. It will be up to adjusters to cope with this new reality.

“I think we will see a continued focus on data analytics, metrics and measurement in the coming years,” Riddell concludes. “That is the way the world is going. It is not just insurance, but virtually all types of businesses and sports. As a service provider, you have to be prepared to evolve. If you cannot adapt your business, you will be on the outside looking in – which is where nobody wants to be.”