A claim department is a difficult system to measure. Anengineer who designs a bridge can precisely predict and measure thedeflection from a load on the structure. A claim manager can't benearly as sure about the effect of decisions made in the claimoffice. Some aspects of accuracy in property claims can beaccurately measured, but much of the work is more ambiguous. Did adelay in investigating the claim cause the claimant to retain anattorney? Did a concession in settlement negotiations avoid futuretime, expense, and indemnity payments?

With more than $113 billion in claim payments in 2008 just fromU.S. auto carriers, managing quality is an important job thataffects not only the financial bottom line, but also customerretention and employee satisfaction. A lot of time and money areallocated to performing quality assessments. Now is a good time totake a close look at the process to make sure it is effective.

Transforming QA Efforts

It's ironic that the name commonly given to the systematicmonitoring of a system or process to assess outcomes versus astandard is called quality “assurance.” Nothing assures a qualityoutcome every time. However, it is possible to transform yourassessment system into a quality management (QM) system byincluding a few ideas to give it every chance of helping youimprove the claim process.

There are several key attributes for a successful QM system:

• A leader with both the right skills and organizational positionmanages the effort.
• A well-defined standard is the basis for measurement.
• The observation system is adaptable to different needs.
• The system's design balances ease of use with sufficientdetail.
• The focus is the ability to understand real causes of problems,not merely symptoms.

Of course, quality management is not a substitute for aninternal audit department. Auditors focus on statutory complianceand financial outcomes, not causes. The claim operations departmentmust know both what happened and why it happened to remedyproblems. This calls for a different approach to measurement.

For the claim representative, quality measurement usuallycombines with productivity and customer satisfaction as the pillarsof evaluation. This applies to leaders for whom aggregating qualityin the organization is an essential milepost, but QM is also a lensto allow them to see the effectiveness of the organization'sstrategy. It gives managers guidance to revamp systems, changeprocesses, address behavioral issues, and update training programsto alleviate problems.

Despite the importance of QM in people management, don't let itsinfluence stop at the adjuster's performance evaluation. Capitalizeon your significant investment by taking the next steps to move toa true quality management system.

Managing the Process

The success of the QM system can depend on who coordinates it.Having a process leader with a hearty grasp of the overall businesswill pay big dividends. The sidebar on the next page includes anoverview of the typical duties for which a process leader isresponsible.

The quality process leader might be the claim manager orexecutive responsible for a department, or someone devoted solelyto the task. Regardless of the leader's title, when that personunderstands the key components of the system, then he or she willable to help ensure that it will be more effective.

The QM plan includes deciding on the standard you'll testagainst, how the quality observations will be organized, how thefiles will be selected, and how root-cause analysis will occur.

Know Your Standards

Most QM systems assign a score as the key performance indicatorof a claim outcome. Much like a football game, the entire processcomes down to the score. Statistics like total rushing yards orthird down conversions are useful to a coach as they lead theirteam, but the number of actual wins determines who makes theplayoffs.

A well-communicated standard is the basis for ensuring thatscores are accurate and consistent. Simple standards are better.It's easy in football: score more points than your opponent to win.It's harder in a complex system such as claims. An example of astandard might be that an “acceptable” file is one that has “anoverall outcome with minimal financial variance and would beperceived by the customer as a positive experience” or a “standard”file contains a “combination of outcomes that would be acceptablein future similar situations.” Any reasonable standard works, butit must be published and repeated often so it's understood.

Organizing Your Quality Observations

The holistic review of a closed claim file for feedback to anindividual adjuster is the most common type of assessment. Thistraditional approach is essential to the overall quality assessmentsystem but is not the only component. It offers the advantage ofassessing the entire system and can bring to light problems thatwould not become apparent through key performance measures.However, an error on a closed claim has already done the damage andthorough holistic reviews take a lot of time.

Adding other types of reviews makes the overall system moreefficient and gives new dimensions in the insight the processbrings. Intervention (assessment of open claims) can stop errorsbefore they actually cause harm and tighten the feedback loop fromreviewer to adjuster. These interventions are a natural activityfor claim supervisors and managers, as they complete qualityassessments as part of their routine daily activities. Interventioncan have a strong impact on morale when the feedback is positiveand closer in time to the action.

Targeted reviews focus on a specific area that is suspected as aperformance problem either from analysis of holistic reviews orfrom reporting metrics. Targeted reviews can be completed on openor closed claims, but try to focus more tightly on the suspectedissue. Because of the narrower area of attention, the review may becompleted more quickly.

A discussion of statistical sampling confidence would go on forlonger than most of you would be willing to endure. Thankfully itneedn't be complicated. You can create a sample for your QM systemby selecting from a closed claim file list that includes all claimexposures in a given case, paid severity, loss adjustment expenses(LAE), and exposure pending times. Don't be afraid to introducesome “bias” by getting away from purely random choices andselecting claims that reflect some risk. It is important to seesome of the majority of claims that are simple, but they are notusually problematic. You'll learn more and fix more problems fromhigher profile claims.

In open claims, avoid “sampling” claims submitted for authority.Open claims expected to settle just below the adjuster's authoritymight tell you more about the work. Claims that have been pendingfor a long time are another place to look. Reps may not be clear onwhat steps should be taken next. A supervisory review can lead tocoaching that moves the claim to resolution.

Doing fewer holistic assessments by adding targeted and monthlyreview types can increase the number of observations created with agiven amount of effort, increasing confidence in the findings. Forreps handling claims of an average level of complexity andperforming a reasonable level of quality, a total of 20observations in a year can provide adequate confidence.

Calibrate Your Team

In most claim organizations, the frontline supervisor ormanager does the majority of reviews. The frontline team is a goodchoice for reviews, as they understand the environment and are ableto get feedback directly to adjusters. A specialized review team orthe audit department often backs up the effort. The advantage of aspecialized team is that they may be more impartial.

Be sure to get all reviewers well calibrated This calibrationcan include any number of exercises designed to ensure that similarobservations give the same score. Second-level reviews of qualityassessments, a scoring matrix, intra-review team discussions aboutexceptions during engagements and process leader involvement areall ways to calibrate the QM system. Second-level reviews areparticularly useful for calibration, as they present excellentcoaching opportunities for leaders and validate the results of theentire QM system.

Calibration is improved when responses for individual QMquestions are consistent. Careful design of question wording and adetailed help document can clarify common situations. Use ofdropdown lists for answers can help, but choices must be clear andunambiguous. Limiting questions to the minimum number necessary canreduce reviewer fatigue.

Root Cause Analysis Maximizes ROI

The design of the QM system should anticipate relationships toroot causes of problems, making them much easier to spot. Thesimplest way is to focus on outcomes rather than strict compliance.Instead of addressing symptoms, such as reps who delay customercontact, focus on the causes, such as lack of skill in statementtaking.

Get a head start on cause analysis by asking what happened as aresult of actions in addition to what the action was. The skills orbehaviors of adjusters are usually the cause of claim issues. Lessfrequently, process, system, or environmental issues are the causeof problems, so some questions should focus on those areas aswell.

The analysis of QM results is just the first step in getting aclear picture of the root cause. Quality management assessmentscan't account for many other organizational issues. Rapid growth,new markets, changing objectives systems, employee turnover, andmany other things may influence results. A QM process leader withthe right position in the organization can help see those variedrelationships. When many reps, departments, or regions start toreport similar outcome issues, the corrective effort can beorganization-wide rather than one adjuster at a time.

Too few companies use quality information as a way to assessprogress against the claims department strategy. The process leadercan build that analysis and supplement key measures reporting toprovide a better picture of the state of claims. The measurementcan be made in real time to get an earlier indication ofchange.

The data and decision-rich nature of the claim business buildsin unique challenges to assessing the work. These challenges,however, can be managed. Giving the process sufficientorganizational importance by having a process leader is a start.Choosing the right combination of review types, along with theright mix of reviewers blends the advantages of each into acomplete system. Using the assessment data for as many purposes aspossible reduces the cost at each level. Having a systemspecifically designed for the task of understanding root causesmakes turning data into action easier. So look at your system as amanagement process to maximize your returns and maybe make life alittle easier.

Jim Kaiser is the former leader of commercial claims atProgressive and is the current president of Casentric, LLC. He maybe reached at 216-644-1352.

David Young is president of ClaimsVision, a firm providing arange of claim services, including QM solutions to the P&Cindustry. Young may be reached at 970-231-7668, [email protected],www.ClaimsVision.com.