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For many P&C insurance carriers, 60-80 percent of premiumrevenue is allocated to claim indemnity and LAE payments. Whileloss ratio can be an effective barometer of claim performance, itdoesn't tell the whole story.

By diagnosing the financial and customer satisfactionconsequences that result from non-adherence to claim bestpractices, insurers can gain a more complete understanding of thefactors driving business results.

For example, a best practice-driven diagnostic will point outthe financial impact of claim professionals failing to recognize,investigate, and apply comparative negligence when processing afile. This enables management to take the first steps in correctingbehaviors that lead to overpayments on auto and general liabilitylosses. One recent study revealed that, on average, every onepercent improvement in the behaviors that drive claim-handlingquality equates to a 0.7 percent improvement in loss ratio.

A Quality Framework

Based on more than 20 years of working in the "claim trenches,"I have observed there are four core principles underlyingsuccessful quality improvement programs. The following cornerstonesare apparent:

?Identify, document, and embed precisely measurable claim "bestpractices" into organizational culture.

?Implement a consistent, metrics-based approach to measuringbest-practice adherence at all organizational levels. This includesestablishing measurable relationships between best-practicenon-adherence and financial outcomes.

?Analyze the data that matters. Find the pain points and theirroot causes throughout the organization.

?Strengthen performance by executing continuous qualityimprovement processes that consistently drive measurable gains inknowledge, skills, and behaviors.

By consistently employing these quality principles incollaboration with executive and front line management, weidentified best practices that most positively affected claimoutcomes. We were able to pinpoint claim-handling behaviors that,when consistently applied, drove claim success. Another maincomponent was learning how to spot best practitioners on claimhandling teams and leverage their behaviors to drive performanceexcellence.

By integrating these principles into your own claimorganization's culture, you can ensure the adoption and continuousapplication of best-practice behaviors that will improve financialperformance and enhance customer satisfaction.

Applying the Framework

The first cornerstone calls for "identifying, documenting, andembedding highly measurable claim best practices into yourculture." Organizational policies and best-practice guidelines arethe marching orders for any claim organization. They are thedynamic elements of an operational strategy, reflecting the impactof constantly changing regulatory standards, market conditions,customer expectations, competitive pressures, and technologicalinnovation.

In order to be effective, process guidelines must be readilyunderstood and achievable. As such, be certain to clearly defineexpectations and document them in such a way as avoid putting theorganization at risk of bad-faith litigation.

Let's assume that you've compiled and published your bestpractices operational guidelines. You have also trained, tested,and certified that your handlers understand how to apply thesepractices. Why then might you still notice performance variance inexcess of expectations? The reason is subtle. Individual claimhandlers have varying levels of knowledge and skill. Additionally,each claim handler has a unique desk-level process, a pattern ofbehaviors applied to each file.

Effectively, claim handlers are translating operationalguidelines and best practices in real-time based on theirknowledge, skill, and desk-level practices. This leads to afundamental challenge: constructively managing the performancevariance.

Applying our first cornerstone, let's examine best-practicebehaviors in desk-level processes. To identify best practitioners,managers need to analyze and review all performance data for all oftheir direct reports. They must also move away from their "greenscreens" to directly observe, document, and question floorbehaviors. Consider the case of one prototypical high performer.This particular instance involved an actual person at a majorcarrier. Vera (a fictitious name for our purposes) always finishedher work by 5:00 p.m. Her desk is organized, the red message lighton her phone seldom blinks, and correspondence is answered in atimely fashion.

Compared to the rest of the unit, Vera, an APD handler, boaststhe lowest cycle times, highest level of quality in physical damageassessments, and lowest average number of rental days. She also hasthe best inbound/outbound call ratio, is always current in herdiary, and has the highest customer satisfaction ratings.

Sure, Vera is working from the same "rule book" as every otherhandler in her unit. But what makes her more successful? Perhapsmore importantly to your own success, how can you leverage hersuccessful behaviors throughout the rest of the claimorganization?

Measuring Adherence

Consider our second cornerstone of implementing a consistent,metrics-based approach to measuring best-practice adherence at allorganizational levels. By implementing a well-developedbest-practices compliance questionnaire, you can:

?Accurately translate best practices into a measurement toolthat allows for capturing job performance and behavioral attributesin a discrete data format.

?Identify tasks and decision points where the highest frequencyof errors occurs.

?Assess the economic impact of errors at the task level.

?Generate insightful reports that enable supervisors to developimprovement plans and deliver meaningful, objective feedback.

Once a questionnaire has been drafted, a review protocolsupporting continuous quality-improvement objectives should bedeveloped. This may include both a central review process and afield review process. Here's why:

?A sound central review process ensures that steady statemeasurements for evaluating the program's impact on financialperformance are in place.

?A continuous field review process forms a foundation fordepartmental/unit/handler quality issue identification andanalysis. This means that supervisors have the requisite tools todevelop and execute sustainable quality improvement plans.

Analyze Pertinent Data

Our third cornerstone, analyzing the data that matters, leads toa fuller understanding of what can be achieved by effectivelyapplying captured data. To perform an accurate claim handlerperformance analysis, you need to look beyond audit results.

Let's return to Vera, our prototypical high performer. Herorganizational best practices dictate that -- wherever possible --initial contact with an insured occurs within four hours from thetime a claim is assigned. Other members of Vera's unit consistentlyhit this target more than 98.5 percent of the time.

Upon review of the audit data, you observe Vera is deliveringbelow this benchmark, at 90.5 percent. Is she underperforming? Ifyou relied on audit data alone, that would be a logical conclusion.A broader performance analysis, however, reveals that year-to-datecustomer satisfaction reports show the rest of the unit is scoring85 percent across all key customer satisfaction dimensions, whileVera's score is 95 percent. Meanwhile, her inbound/outbound callratio is the lowest in the unit.

By effectively partnering with her customers and clearlyexplaining the claim process during initial contact, Vera hasreduced her number of inbound calls, providing her with more timeto focus on timely resolution of the physical damage claim. Whileshe isn't hitting timely contact numbers, her contacts are moremeaningful. Because she explains the process to her customers, Veraobtains the relevant information she needs at the time of firstinteraction. While others get bogged down in callbacks, she canquickly resolve claims to consistently outperform her peers.

Continuous Quality Improvement

In this scenario, Vera's methods should be identified as bestpractice behaviors to be used as organizational benchmarks andmodeled by her supervisor for the rest of the unit. All of whichbrings us to our fourth cornerstone of "strengthening performanceby executing continuous quality improvement processes thatconsistently drive measurable gains in knowledge, skills, andbehaviors."

It is possible by having a sound continuous improvementmethodology. In executing the detailed analysis described above,you will have identified your pain points, their root causes, andthe levels within the organization where the issues occur. Inaddition, you will have established a clear link between theseissues and the impact on both financial outcomes and customersatisfaction.

Now it's time to document and communicate what you have learned.Armed with performance analysis data, your first task will be todraft concise statements that outline the depth, breadth, and rootcauses of issues that need to be addressed. Next, detail theperformance goals and metrics that will be applied in measuringyour progress in mitigating identified issues. Then, clearly spellout financial and customer service outcomes that will result fromfailure to meet these objectives.

Once your issues, goals, metrics, and targets are clearlydelineated, your issue-driven action plans can be developed. Theplans should be task- and time-driven. Assign responsibilities andaccountability at the appropriate organizational levels. To assuresuccess, plans should incorporate continuous testing and analysisto determine whether performance improvement is actually takingplace.

Lessons Learned

The continuous quality improvement principles outlined here canhelp you identify, codify, and accurately measure best-practicesadherence across an organization. In heeding this advice, you aretaking a step toward enabling your supervisors to more effectivelymanage their teams, thereby creating a culture of continuousimprovement that empowers individual claim handlers. However,hurdles will invariably exist:

?Errors result from unfavorable decisions made by individuals,but performance data is not always adequately individualized.

?Aggregate quality improvement requires improvement inknowledge, skills, and desk-level behavior from eachindividual.

?Claim supervisors are not traditionally practiced in dataanalysis and quality improvement techniques.

?Gaps can occur in addressing performance issues as a result ofsupervisory knowledge and skill deficits, as well as inconsistentimprovement planning and execution processes.

It is crucial to keep in mind the positive results to anticipatewhen implementing a sound continuous quality improvement program.For one, objective measurement tools will have enabled managementto develop an actionable understanding of the depth and breadth aswell as root causes of performance issues impeding success. Yourmanagers will have the information they need to improve knowledge,skills, and behaviors across all organizational levels. Finally,the entire enterprise will be aligned to best practice behaviors,continuously identifying new and better ways to drive theperformance improvement to increase claim handling quality,customer satisfaction, and financial outcomes.

Mark Snyder is director of insurance services at Athenium, Inc.He may be reached at 781-478-6300; [email protected];www.athenium.com