Performance measures are intended to encourage employees to behave in such a way that an organization's objectives are achieved. That being said, I have seen some claim performance measures recently that are of questionable value when viewed against the major objectives of any claim organization: managing total loss costs.

Typically, the measures are conceived by management staff outside the claim organization, such as the CEO, CFO, or COO, who develop them by wondering aloud about topics such as:

  • When is Claims going to get expenses under control?
  • Why can't Claims significantly reduce legal expenses?
  • Why can't Claims increase productivity by 5 percent (or more) annually?
  • Why can't Claims close cases more quickly?

I had never really understood why these folks felt comfortable setting performance measures for their claim organizations until I read an article about Daniel Kahneman, the 2002 Nobel Prize winner in Economics, and what he describes as System 1 and System 2 thinking.

Let's test your system thinking: A baseball bat and a ball cost $1.10. The bat costs $1 more than the ball. How much is the ball?

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