28th September 2021
It’s not enough to just have a claims operation; you need one that is effective, and that is where KPIs come into play. A company can be profitable and still lose money on its operations due to inefficient processes. It’s essential to measure the effectiveness of your claims operations. The more efficient you are, the less money you’ll spend on overhead and customer service costs. Claims processing is a vital part of any insurance company’s operation, so you must have a system in place for measuring its success. Read on to learn more about KPIs in insurance claims operation and how to measure your effectiveness.
Key Performance Indicators, also known as KPIs, indicate how well a business is achieving its goals. For insurance companies, KPIs show the health of an individual claims department and overall company performance. A successful claims operation can reduce overhead costs and drive customer loyalty, which ultimately increases revenue.
Many private and public employers struggle with determining the effectiveness of their claims operation, whether using a TPA, Insurance Carrier on a large deductible policy, or self-administration. How do you measure the success of your claims operation? It may not be as difficult as you think.
When faced with the question of measuring the success of your claims’ operation, many employers revert to communication (returning calls, responding to emails) and overall customer service. While these items are important, they may be difficult, if not impossible, to measure. There are other metrics you can look at to determine if you are on track.
That depends on each employer and is as varied as opinions on reserve setting. Here are a couple of important metrics to consider, by the line of coverage:
Property and Liability
One of the most important metrics to consider (and most often overlooked), regardless of line of coverage, is claim duration. Given that some jurisdictions require workers’ compensation claims to remain open for benefits, in general, the longer a claim remains open, the higher the overall cost. Claim duration benchmarks will vary by jurisdiction, line of coverage, and claims handling philosophy. Still, employers can benchmark their claims internally, over time, to determine if the data is trending in a positive or negative direction.
Claims in Litigation
Another important metric to consider is the percent of claims in litigation. Timely and frequent communication by the adjuster and employer can go a long way in reducing the number of litigated claims.
While every employer will likely have their own definition of success for their claims’ operation, you must start tracking those metrics you used to gauge that success, then hold your claims operation accountable. Only then will you begin to see improvement in your claims program.
Claims Fraud Detection Rate
Claims fraud detection rate is the number of fraud claims that were identified out of the total number of claims filed. Fraud detection rate is usually more effective when it includes a lot of data. AI technology is a great add-on to detect fraud.
Cost Per Claim
Cost per claim is the average of the total claims costs divided by the number of claims closed. If your company outsources its claims processing, this is a more difficult metric to measure because you are not necessarily tracking all of your costs but an effective way to determine if outsourcing leads to lower costs.
Components of Claim Costs (CCC)
Components of claim costs is a crucial KPI metric in the insurance industry. CCC is used to track all of the costs associated with claims processing. The components measured in a Components of Claim Costs KPI are:
Measuring the costs associated with different types of claims will allow you to price accordingly, alert you to review vendors, or decide if you should cease processing certain types of claims.
Claim Closure Rate
Claim closure rate is another key KPI metric in the insurance industry. CCR measures the speed at which your claims are resolved. By closely monitoring this KPI, you can see how quickly different types of claims (i.e., soft tissue injuries versus motor vehicle collisions) are resolved and make changes to speed up rates if needed.
Customer service is essential to an insurance company. Great customer service is crucial to drive customers to buy products and services, become repeat customers, and recommend your company. Measuring customer service satisfaction is a metric that is a bit more tricky to measure. These KPIs often don’t have straightforward numerical data, and surveys are often the way success is measured.
Survey metrics can be objective. Instead of surveys, take a look at these KPI metrics that can translate into the picture of a happy customer:
Average Time to Settle a Claim
It might not immediately seem like this is related to customer service. Claim durations vary depending on the policy type. While this is true, measuring settlement times by type to keep them as low as possible will result in happier customers. The more time it takes for a claim to be completely settled, the longer your customer is inconvenienced, stuck without their vehicle, for example, and the more likely they are to become frustrated with you and your organization.
Calls Handled Times
Getting back to customers so that they are not in the dark on the status of their claim will go a long way for customer satisfaction rates. Take a look at how many calls your team receives to determine an appropriate call-back window KPI. If your company is receiving more calls than it can quickly respond to, that is an indicator that you could improve your processes or that you may need to hire additional resources.
Problems Resolution Rate
The problem resolution rate is the number of problems identified and fixed in a period, divided by the total number of issues that came up during that period. It’s an indicator of how effective your team is at identifying the root cause of customer complaints, minimizing the frequency with which they are brought back to life due to unresolved underlying causes.
Underwriting Cycle Time
The underwriting cycle time is the amount of time between when a policy is assigned to an underwriter and when it is approved. This indicator should be tracked in aggregate by product line, risk class, or other buckets. It’s important because every policy written costs money, so you’ll want to process policies as quickly as possible. Quicker cycle time has the added benefit of a customer pleased to have their claim completed promptly. You can use this metric to highlight inefficient underwriters and decide on a course of action to help them improve.
Now that you have examples of what key metrics you might consider measuring performance, it is time to decide which would have the most impact on your operations. Choose KPIs that will measure the effectiveness of your claims operations and allow you to identify areas for improvement.
Once you have identified the key metrics that will measure your performance, it is time to establish a baseline. Knowing your baseline will allow you to see how successful future improvements are and help you identify areas for further improvement. You can’t measure progress without knowing where you started!
To create a baseline:
Now that you have a goal, it’s time to map out a strategy for achieving it. Here are some suggestions:
Be proactive instead of reactive. Offer company-wide training, create actionable items for team members to follow, or talk to employees on what they think could block your team from its goals.
Prioritize your customers. Their feedback is important! This is a great time to look at customer satisfaction surveys for clues on what needs to change.
Track claims from beginning to end. These claims will show you the entire picture and help you identify areas that did or did not run smoothly.
Utilize technology solutions. Upgrade your technology products or ensure that your 3rd party vendors use the latest tech solutions and integrations.
As you begin implementing these strategies, regularly check in on your goals. You may quickly see progress, or in the event the opposite happens, you will have the insight to quickly course correct.
Take the time to identify the right KPIs for your claims operations team. Otherwise, you risk spending time and money measuring metrics that don’t give you any meaningful insight into how your business is performing.
If you have identified KPIs that would help your claims operations become more effective but need help implementing, we can help! Contact us to learn more about how you can realize improvement in your claims operations with Davies Group as your United States insurance technology partner.
We help our clients to manage risk, operate their core business processes, transform and grow. We deliver operations, consulting, and technology solutions across the risk and insurance value chain, including excellence in claims, underwriting, distribution, regulation, customer experience, human capital, transformation & change management.
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