Background

In parts 1 and 2 of our series, “An Exposure Driven Approach we examined how the liability claim exposure model is the foundation for both claims management, organizational efficiency and structure. In this article we look at how the claim exposure model can also be used as the driving element of the liability decision support system, and how that system can utilize the exposure model to provide an organization’s claim representatives with the right tools at the right time to maximize claims handling effectiveness.

To understand the concept of the liability decision support system as a platform rather than a product, it is helpful to view the liability decision support system not so much as a simple claims handling mechanism but rather as a system that is designed to collect and organize claim information on a continuing basis. This type of information can then be used to develop ongoing claim exposure models. On the basis of those exposure models the proper analytical tools (resource profile) can be provided to the claim representative for the most expeditious and advantageous settlement of the claim.

Elements of Exposure

To accurately model exposure prediction levels on a continuing basis throughout the lifecycle of a claim, the liability decision support system needs to be able to assess all of the individual factors which contribute to the overall exposure level of the claim. These factors can change over time, and changes to any of them can affect the predicted exposure level. The liability decision support system must continuously assess and respond to any changes with updated claim exposure predictions and toolbox resource requirements. Exposure factors fall within four general areas – general claim, injury specific, medical information and negotiation factors (not all claims will have factors / information within all areas).

General Claim Information

There are a number of factors and variables that are considered in the prediction of exposure and can dictate the resource profile for the claim, for example:

Age of the claim – Older higher exposure claims may require more resources, for example, they may require the claims representative to do additional investigation as well as include expert analysis. Additionally, they are more likely to be attorney represented / litigated.

Location of the claim – Exposure potential is affected by the locality of the claim, for example the likelihood of large jury awards. Medical costs are also affected by the location of a claim.

Mitigating and/or contributing factors – These are important to the claims representative’ evaluation of the claim for both the insured and the claimant.

Claimant specifics – For example occupation, age, earning level / potential, health status, credibility and reliability, history, etc. can affect the exposure and ultimate outcome of the claim.

Nature of claim / components – Nature of loss, injury, injury factors, medical specials, pain and suffering, self-represented, attorney represented, etc. from a historic perspective are key elements of exposure prediction.

Injury Specific Information

As we look at the dimensionality of a claim and the going exposure prediction, injury information developments become a primary predictor of overall exposure for example:

Initial injury assessment – Ambulance, hospital, diagnostic and treatment records at time of injury.

Injury and medical record evaluation – Subsequent treatment and diagnostic records and component evaluations exposure key predictors for claim exposure development.

Mechanism of injury – Assessment to insure treatment is consistent with diagnosis and no preexisting conditions, degeneration etc., are present or receiving treatment.

Treatment utilization – Progress assessment versus authorized medical specials to insure treatment numbers and payments within normal range.

When looking at a claim from a multidimensional perspective, exposure deviations, severe factors, injuries diagnosis or sudden changes in medical specials during the life of claim can be used and change the profile of a claim in the liability decision support system / platform. Claims with severe injuries at initial filing, or claims where medical specials suddenly spike or otherwise exceed the normal predicted exposure level will trigger the liability decision support system to deploy a detailed mechanism of injury investigative tools.

Medical History and Treatment Information

Injury causation and the qualification of treatment are key elements of liability claim handling and a liability decision support system / platform. Correlation of injuries, diagnosis, and the treatment (ICD9/10 and CPT codes and their correlation to the physical injury mechanisms) are important elements of the medical handling process. Additionally, these elements establish a baseline for the analytical processes that are the basis for establishing injury causation and financial predictors.

Other areas that have direct adjudication elements such as usual and customary rate analysis for over-billing via geographical area, specialty, etc. can help give a relative measurement for claim representatives. Physician fee schedule (Centers for Medicare – Medicaid Services) analysis, comparison for service charges and other ancillary services for medical cost containment all contribute to the establishment of a baseline for normalized medical units that provide a consistent exposure base. The medical dimension of the exposure model is a key predictor to the overall financial elements of a claim. The liability decision support system / platform must allow claim representatives to not only adjudicate medical, but must also utilize the results in the overall exposure model that drives the settlement process and resource profile for the claim.

Negotiation Factors

Ongoing exposure prediction, as well as prediction of the key negotiation factors allows the claim to be presented to the claim representative in proper context. Additionally, the prediction driven process allows the determination of the resource profile for the claim (Turner and Zizzamia, July 2008). Below are examples of prediction of the key negotiation factors and modifiers of the negotiation platform:

• Contributory negligence and comparative fault analysis and documentable application to settlement offer ranges.
• Use of insurers’ historical data and industry standards for advanced profiling and case correlation.
• Quantification of the effect of attorney representation on probable settlement outcomes.
• Individual analysis of attorney records and venue specifics.
• Pre-existing conditions effects on negotiations and settlement outcomes.
• Strength of case prediction to provide claim representative settlement guidelines.

Exposure Model: Analytical Approach and Tools

Exposure modeling should be seen as a dynamic and continuous process throughout the lifecycle of a claim. At any given time, the exposure model generated by the liability decision support system provides a snapshot of the predicted exposure given all of the available information at that moment. However, truly sophisticated exposure modeling is much more like a movie than a snapshot or series of snapshots. It is both continuous and reactive to changes in predicted exposure as they occur.

Changes in any of the elements of exposure during the claim life-cycle will cause corresponding changes in the exposure prediction model. A sophisticated liability decision support system will react to those changes by automatically providing the analytical tools to the claim representative that are best suited to investigating and resolving the claim given the level of exposure prediction. The tools available to the claim representative will vary on a continuing basis as the predicted exposure level of the claim varies (Ayuso and Santolino, 2008/07).

Tools/Platform Elements

The tools available to the claim representative can be thought of as resource profile / platform elements. The availability of the platform elements varies with the exposure prediction level of the claim. High exposure level claims that require in-depth investigation by the claim representative will see a greater number of platform elements presented to the claim representative than will relatively simple low-exposure claims.

Data and information generated by the claim representative through the use of each platform element is used by the liability decision support system to continuously refine the exposure prediction level of the claim. As exposure prediction levels change, the liability decision support system continuously responds to those changes by providing the claim representative the platform elements best suited to analyzing the changes and minimizing exposure levels.

Platform Elements/Exposure Analysis Tools – examples

Understanding each of these tools and how they incorporate new data into the exposure model is critical for heuristic process exposure evaluation. Each of the products incorporated into an exposure driven platform allows for the utilization of appropriate tools given the overall exposure of the individual claim.

Medical Bill Review

Medical cost contentment is a critical function of a liability platform. The elements of the adjudication process are also a large adjustment expense. A platform that can differentiate exposure can select the elements of adjudication. These elements can be incorporated and triggered by; different medical bill processes (including medical utilization prediction), usual and customary rate data, expert analysis requests, provider sequencing flags etc.

Medical Profile Review

Nurses, specialists, experts etc., understanding the aspects of the medical review that includes medical history and reports specific services can be incorporated into the claim evaluation process given the triggers of these factors within the development of the case.

Expert Witnesses and Reports

Integration into legal services for attorney representation and the evaluation of the strength of case based on the progression of the evaluation process case analysis using quantification of expert reports and other specialists can add additional dimensionality to the exposure model.

Medical Records Review

For a certain case the specific medical record subject to review can provide date of service sequencing that can be added into the exposure model and change the exposure base for the predicted engines for general damages.

Police report retrieval and review

Services such as police report retrieval and review can also be incorporated based on factual information in the development of the case. In many organizations such services are used as a matter of fact. When straight through processing based of key predictive nodes each service has a defined role in the claim process.

Accident Reconstruction

An investigation may also include sophisticated techniques such as accident reconstruction. These types of techniques can be warranted given questionable factors surrounding the accident and the injuries that are being claimed. Most importantly if the exposure prediction mechanisms are accurate these techniques can be used effectively establish injury causation.

Causation Analysis

There are a number of techniques that can establish mechanisms of injury. These techniques can be incorporated to show causation within the process of evaluating the injuries and the circumstances surrounding the individual case.

Negotiation training/coaching

The ability for a liability support platform to communicate factual and predicted aspects of a claim to the representative so that the full context of the case is apparent during the negotiation phase of a claim is critical. Unobvious concepts related to strength of case and fraud indicators can be extremely important. Additionally, given the circumstances of the case support modules that discuss the injuries that are being claims and the causation factors can help the claim representative.

Tools – Note

Each of the exposure factors and tools can be taken in any specific order; however, the order and number can be designed by the organization to address key strategic goals and individually incorporated into the exposure platform. The point about tools is that they should be incorporated based on exposure of the claim and that all claims should not be forced through tools – tools are based on exposure there by utilizing services, maximizing efficiency and minimizing loss adjustment expense.

Conclusion

There are three major drivers to the evaluation of a liability decision support system / platform, (1) assisting the claim representative to understand the key elements of the claim information as it develops, (2) providing predictive elements of key financial nodes within the liability handling process and (3) the utilization of claim organizations tools / resources that will aid in providing the best outcomes of the claim process, thereby, minimizing the overall loss cost expense for the organization.

In this segment we continued to provide food for thought and encourage the thought process that can inspire the reader to examine their existing claim processes with a renewed perspective.

Bibliography

Ayuso, Mercedes and Santolino, Miguel (Working Papers 2008/07): p1-24: Forecasting the maximum compensation offer in the automobile BI claims negotiation process. Research Institute of Applied Economics 2008

Turner, Kevin A and Zizzamia Frank (July 2008): Predicting Better Claims Management. Risk and Insurance Management Society. Retrieved 9/1/2012 from: http://www.rmmagazine.com/MGTemplate.cfm?Section=MagArchive&NavMenuID=304&template=/Magazine/DisplayMagazines.cfm&Archive=1&IssueID=324&AID=3706&Volume=55&ShowArticle=1

(CC) September 2012 Vatti-Manhattan Group
This article may be copied and distributed freely provided that you keep this copyright notice intact and is provided for free and without charge.  We have to the best of our knowledge abided by all copyrights, trademarks and quoted material.  Any comments, omissions, misuse concerns etc. regarding the use of trademarks and copyrights should be directed to info@vatti-manhattangroup.com.

The Claim’s Organizational Structure

In Part 1 of our series, “An Exposure Driven Approach,” we examined the key role that the liability claim exposure model plays in the management of a claim throughout its lifecycle. In this article we will look at: how the liability claim exposure model complements the workload quantification model; how it can be used by the organization to quantify and distribute individual workloads in order to maximize adjuster efficiency through effective triage; and finally, how it can also be used to develop the most effective staffing profile for the organization as a whole.

Utilizing the liability claim predictive exposure model in workload quantification requires an organization to have a thorough understanding of its claim servicing model, and how that model drives the allocation of available resources. For the purposes of this series of articles, the term “claim servicing model” can be thought of as the management defined prioritization of resource allocation based upon how the organization has defined its liability claims organizational structure. We will see that the claim servicing model chosen by the organization will significantly define the organization’s focus, structure, workflow, and staffing model.

Claim Servicing Model

Claim liability can be characterized in part by the structure of the claim servicing model around which the organization has been designed. For example, a liability organization can be designed around a geographic based claim servicing model. In such a model, the organizational thought is that the workforce of liability adjusters who are highly specialized in the local laws, customs and norms within given geographical areas can accurately assess exposure potential and guide claims through the most advantageous settlement process, given the idiosyncrasies of the jurisdiction governing the claim. (Consider for instance jury damage awards likely to be decided by a jury in the Bronx, New York, versus a jury in rural Texas.)

A liability organization structured around a geographic claim servicing model will require a workflow model that triages claims to adjusters based upon the adjuster’s familiarity with the locale of the claim. If claims are assigned to adjusters outside of their geographic area of expertise, the efficiency of both the individual adjuster and of the claims handling process as a whole would be expected to have less positive financial outcomes for these assignments; hence triage would first focus on geographic area.

Geographic based claim servicing models represent just one of the possible structures of the claim liability organization, and is used in this article to emphasize the point that whatever foundational structure is implemented (from specific geographic offices to one of centralized service centers), that structure will act as the organizational base of the liability group. An exposure driven claim servicing model is a complementary framework around which the organization triage can be enhanced.

Exposure Driven Claim Servicing Model

In an exposure driven claim servicing model the adjuster workforce is designed based upon exposure potential of the types of claims handled by the organization. For example, if an organizational analysis of claim patterns reveals that the greatest claim frequency potential lies in soft tissue injuries, the organization would structure its workforce so that its liability claim adjusters have an exposure delineation with soft-tissue injury expertise predominant within the claim process, complemented with adjusters with expertise within other injury types. Likewise, it would structure its workflow so that the exposure delineation of soft tissue injuries would be directed to those adjusters with the most experience, or those adjusters with expertise in the particular type of injury reflected in the claim.

Claim servicing models based on exposure can take other base or complementary forms. For example, the litigation/attorney representative driven model can function in a complementary role to the exposure driven model. In this model the organization structures its workforce with adjusters skilled in the negotiation techniques and strategies that might be required during any portion of the lifecycle of the claim. For example, an adjuster will use different negotiation styles depending upon whether the adjuster is negotiating directly with a claimant or with a claimant’s attorney. Claims workflow in this model is characterized by triaging of claims to the adjuster best suited to the particular type and style of negotiations most likely to result in a satisfactory resolution of the claim.

The claim servicing models mentioned above are general examples that highlight functional structures within a liability organization. The model adopted by any organization will be dependent upon the requirements of the specific organization, and will be determined by senior  management of the organization. Notwithstanding, exposure and more importantly predicting exposure and triaging, are the key elements within an organization’s functional structure.

Organizational Skills

The ability of any organization to develop and maintain a workforce with skill levels sufficient to meet the demands of the workflow handled by the organization is paramount to its success. Matching workforce skill levels with work requirements is particularly important within a claims organization. It is especially significant within the liability function because of the range of skills required to handle claims of varying complexity and because of the difficulty in both recruiting new adjusters and retaining experienced adjusters.

For these reasons, it is important that management has the ability to both quantify the skill levels of their adjuster workforce, and to track those skill levels on an ongoing basis. This ensures the availability of an adequate pool of adjusters in the workforce, with skills matched to both current and predicted claim inventories.

A recent article in Best’s Review highlights the current adjuster shortage in the industry, and the need for maximizing the productivity of experienced adjusters:

Experienced claims people are an increasingly scarce resource. In fact, in early 2006 Deloitte Consulting predicted a shortage of 84,000 adjusters by 2014.
Prior to embarking upon huge hiring efforts, carriers should first ensure that they are maximizing the value of the claims adjusting talent they have by evaluating where, when and how they use their current claims resources.

Highly experienced resources must be reserved not only for the claims (or pieces of the claim, such as individual coverages) that truly require their expertise, but also for the knowledge transfer they can pass along to less-experienced claims professionals. (May 2011, p33)

Claims Inventory and the Staffing Model

In addition to understanding the dynamics of the claim servicing model under which the liability group functions as a whole, the organization must also analyze its claims inventory flow and assess its workforce needs under all possible variables within that flow. Is the claims inventory of the organization stable across time, is there seasonality?  Other factors that can influence the claim service model such as mix changes, given business model/strategy changes, or organizational acquisitions must also be assessed for their effects on the model.

The organization must have a clear understanding of the baseline norm of its claims inventory, and when there is likely to be a deviation from that norm (either high or low) as well as the probable degree of that deviation. With this understanding the organization can structure its most effective workforce size to deal with its average claim flow yet retain the flexibility to deal with anticipated peaks in claims flow.

To achieve maximum efficiency, the staffing model of the organization must be a reflection of both the claim servicing model developed by the organization, and the inventory flow of the claims serviced by that organization. To put it another way, the skills possessed by the adjuster staff must match as accurately as possible the demands made of that staff for the type and number of claims being handled by the organization. Furthermore, claims should be assigned to adjusters based upon all factors, not just one – the adjuster’s skills, inventory, and the claim servicing model of the organization. The claim servicing model should be the guide in determining staffing levels, including both the number of adjusters and their skill levels.

In a January / February 2009 article, the journal Risk Management noted that a staffing model which brought the right adjuster to the right claim at the right time would result in lower operating costs for the organization:

Risk managers should implement a new approach to claims management that drives down open claim inventory levels while driving up speed and efficiency. They should go back to the drawing board and implement a claims staffing model that will allow them to maintain this lower cost operating model. If the right expert is brought to the table, the risk manager will most likely find a lower cost claims administration program with far greater efficiencies than they had before. (p56)

Claim Workload Quantification

Workload Elements

All claims are not created equal. Regardless of their severity or complexity, they require that adjusters perform certain key operations. These operations will vary in the amount of time and effort required for their completion, depending upon the specific factors involved in each individual claim. The operations that are common to all claims can be thought of as basic claim workload elements. The specific factors that affect the time spent on completing the basic claim workload elements can be thought of as workload multipliers.

Basic workload elements common to all claims include such items as:

Contact with both claimant and insured throughout the claim lifecycle.

Data input on the specifics and details of the claim.

Investigation of the specific element of the claim.

Analysis of the claim and settlement offer or proposal.

Negotiation of final settlement of the claim.

Each of these basic claim workload elements (and any others which might be specific to the business process for any given organization) can be quantified by the time required to complete them. That quantification can be defined by the term work units. Obviously claims that are more complex or that have greater exposure potential will require that an adjuster devote more time to completing any or all of the basic workload elements required to handle the claim. As the complexity or exposure potential increases, the work units required to complete the basic workload elements for the claim increases as well.

Workload Multipliers

Workload multipliers are any elements of the claim that increase the work units required to complete the handling of the claim. These can be present at the beginning of a claim or they can occur at any point during the lifecycle of the claim. Following are examples of various categories of workload multipliers.

Claim age. Most routine claims require the most effort by adjusters (work units) during the 30 day period after initial filing. In effect, work effort is front loaded into the claim cycle. During that time adjusters conduct initial interviews, gather routine information, enter that information into claim management systems, make assessments, recommendations, etc. As the claim progresses through its lifecycle, it generally requires less effort by the adjuster.

Reported date lag on claims. This can play a significant factor as workload multipliers. Often a lag in claim unit reporting will require substantial extra effort by the adjuster to complete the routine tasks associated in handling the claim. For example, it may be harder to locate involved parties; interviews may require more time and effort because memories have faded, etc.

Exposure class changes. If the exposure potential of a claim increases significantly during its lifecycle, greater resources will need to be devoted to handling that claim. An increase in a claim’s exposure potential from its expected or predicted exposure level will act as a workload multiplier, increasing the work units needed to close that claim.

Attorney representation and/or litigation. If, during the lifecycle of a claim, a claimant should move from direct interaction or negotiation with the adjuster, to attorney represented negotiation, that change will act as a workload multiplier for that claim. Such a change will require that the adjuster devote more time to extra contact with the attorney, increase clerical requirements, and maximize negotiation efforts. Should the claim proceed to litigation, the workload multiplier effect will increase even further.

Indemnity payment effects. Claims that can be closed without indemnity payments to the claimant will obviously require fewer work units and the inventory effect of these claims in the overall mix is a needed factor to take into consideration.

Quantifying Workload

Once the claims organization is able to define both the basic and multiplier elements that comprise the workload of its core claim handling functions, it will be able to quantify those elements and assign work unit values for each of them. In addition, management will possess a tool that will give it the ability to classify claims by both estimated time and work unit requirements.

Timeframe. As noted above, most routine claims will fall into a frontloaded work unit structure. Assuming the claim is filed in a timely manner and that there are no substantial workload multiplier elements, the average routine claim will exhibit an initial surge in required work units (as the claim enters the processing system). As the claim progresses through its lifecycle the amount of work units devoted to it will steadily decrease, except for a brief spike as the claim reaches final settlement and closure.

Work unit quantification. The timeline required to settle a routine claim can serve as a useful benchmark for the organization. The time it takes for each basic workload element to be completed can be quantified and averaged across the range of skill levels of the organization’s adjuster workforce. Once this is done, the organization will have a metric that can be used in conjunction with the liability claim exposure model to give a numeric indication of the work units required (as defined by the organization) for the completion of each basic workload element. From that baseline measurement, the same process can be applied for each potential workload multiplier and its effect on the work units required across the varying skill levels of the adjuster pool.

By objectively quantifying the workload elements involved in claim handling, the organization will be able to triage their claims inventory by workload type and assign adjusters based on ability and inventory. Using the exposure model to triage claims into work unit categories at the beginning of the claim lifecycle will provide the organization the flexibility to triage claims in the most efficient manner, matching adjuster skill levels with claim requirements. In addition, effective claim triage will permit management to balance employee workloads during both routine operations and during periods of increased or decreased claim flow.

Monitoring

Effective management of any liability group requires the ability to efficiently and accurately model all of the elements involved in the claims handling process. In order to maximize adjuster productivity, measure strategy and effectiveness, and better understand trends as they evolve, management must monitor and adjust both the workload and workflow within the organization. Workload analysis using a liability claim exposure model can provide the organization the ability to analyze adjuster performance across the entire range of claims operations.

By applying a work unit metric to individual claims handling elements, management will be able to measure adjuster performance in handling not only individual claim functions, but also across claims of varying types and ages. This will in turn, provide management both greater flexibility and greater precision in claims assignment, and will result in the most efficient utilization of the adjuster workforce.

While the liability claim exposure model can play a key role in helping assess individual and organizational performance as well as determining optimal workload and workflow, it is not limited to these functions alone. By applying the data derived from workload quantification against normal claim flow fluctuation, management can develop a staffing model template that is both efficient and responsive to workflow changes.

Closing Thoughts

In the first installment in this series, we illustrated how the liability claim exposure model can provide a foundation that an organization can use for both claim management and workflow/workload distribution. In this article, we went on to describe how the liability claim exposure model can also be the basis for quantifying both organizational and individual workloads, and how that quantification can be used to triage the claims inventory and produce a staffing model designed to service that inventory.

In part 3 of our series, we will look at the dynamic interaction between the liability claim exposure model and the liability decision support system.  We will examine the concept of the liability decision support system as platform rather than product, and how that concept can ensure that adjusters are provided the right tools at the right time for optimal claim resolution.

Bishop, Mike, and Mahoney, Mike. “Filling a void: property/casualty insurers need to hire and train the next generation of adjusters.”  Best’s Review. Retrieved 9/1/2011 from Gale Power Search (Infotrac): Subscription or Library membership required.

Pelto, Corby. “Three ways to cut claim costs now.” Risk Management. Retrieved 9/4/2011 from: http://www.rmmag.com/Magazine/PrintTemplate.cfm?AID=3841

(CC) September 2011 Vatti-Manhattan Group
This article may be copied and distributed freely provided that you keep this copyright notice intact and is provided for free and without charge.  We have to the best of our knowledge abided by all copyrights, trademarks and quoted material.  Any comments, omissions, misuse concerns etc. regarding the use of trademarks and copyrights should be directed to info@vatti-manhattangroup.com.