You have finally gotten the state-of-the-art claims management system. Now, that you have the ability to self measure your performance, are you doing so? The following benchmarks suggestions are some of the ways you can compare where you are now with where you were in the past. These benchmarks will also provide you with the information you need to objectively set goals for the New Year.
Many risk managers and claim managers want to measure their performance by the amount of dollars spent on claims. Financial results can be excellent benchmarks. We will discuss financial benchmarks, but also will look at ways to benchmark the quality of the claim handling process. Here are some benchmark suggestions.
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Claim Financial Benchmarks
- Changes in average claim cost– This is the most common benchmark – a comparison of the average cost of medical benefits, indemnity benefits and claim expenses. The data is easily obtainable and allows you to compare your claim cost with last month, last quarter, last year and any other time frame you chose.
- Average claim cost compared to your industry– It is often not enough to know that your claim cost has declined since last year. You will also want to know if your claim cost is higher, lower or about the same as your business competitors. (A great way to gain a competitive edge in your industry is to do a better job of managing your workers’ compensation program). Information on your industry can often be difficult to obtain. Some of the large TPAs and large workers’ compensation insurers have partial data with which comparisons can be made. The National Council on Compensation Insurance (NCCI) collects payment data in the 35+/- states in which they operate, but they charge some hefty fees for their data on your industry. WorkersCompKit has a good benchmarking system to quickly calculate these numbers.
- Initial reserve to ultimate value ratio– This is a ratio of the aggregate payments in a coverage line (for example: medical benefits) to the initial reserve value. This will give you an idea as to the knowledge and accuracy of the adjuster is estimating claim value.
- Ratio of reserves + payments (90 days prior to closing) to final claim cost– By comparing what the adjuster has in reserves plus claim payments made 90 days prior to the claim closing date, with the final amount paid on the claim, you can gauge the accuracy of your large claim reserving. [Exclude the claims closed in less than 6 months]. The ratio of reserves plus dollars previously paid on the claim, to the final claim cost should be approximately 1.0. If the ratio is under 1.0, the overall claims are under reserved. If the ratio is over 1.0, there is on average extra money setting in reserves.
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Claim Handling Process Benchmarks
While there are many ways to gauge your claim handling, these are some suggestions for measuring claim-handling performance:
- Average bill process time– This is simply a comparison of days between the date the medical bill, legal services bill or other expense was received in the claims office, and the date the payment was processed. This allows you to measure the timeliness of your bill payment process and gauge the progress of your staff.
- Closing ratios– This is the ratio of files open during the month, quarter or year compared to the files closed during the same time frame. Ideally 1.0 or better.
- Percentage of closed files with payments over $1,000– This indicator will keep the claim office honest on the closing ratios. It is too easy to manipulate closing ratios, so this will tell you the claim office close files prematurely when the number of closed claims with payments increase.
- Average time to input initial reserve – While different claim offices have different standards as to how soon (48 hours, 7 days, 15 days, 30 days) the initial reserve should be in the computer system, by comparing the current average length to time to a prior month, quarter or year, you can gauge how quickly the adjusters are inputting initial reserves.
- Average days between reserve changes– By having your computer compute the average number of days between reserve changes, you can quickly determine if the reserving is adequate. If you see on average a reserve change every 6 months, the claim office reserving procedure is probably okay. If you see the average days between reserve changes is 30 days, the claim office definitely has a problem with stair-stepping the reserves.
- Files on diary– This is a measurement of the files that are being actively worked on the diary. The claim office should have every file on diary to prevent the files from stagnating.
- Files with missed diary– This benchmark can be either a list of the files where the diary has not been updated the diary due date has passed, or it can be a percentage of the files with a claim handling due date that has passed. Either way, it provides you with insight into how current the claims office is in the handling of the claims.
- Claim file notes usage– As most computer systems automatically input a note when a check is paid, diary is due, etc., a benchmark measuring non-computer generated file notes will tell you how often on average each file is being actively reviewed/worked on by the adjuster.
- Initial index filings– If you require all your workers’ compensation indemnity claims to be indexed, this ratio will tell you whether your goal is being met. Your computer system should also be able to tell you the file numbers of the claims that have not been indexed so they can be corrected.
10.Subsequent index filings – Many work comp insurers require long term claims to be re-indexed every 6 months or every year. This benchmark would compare the number of long term claims with the number of subsequent index filings.
Now while we can make these recommendations for benchmarks, don’t ask us to program your computer system. That’s a job for your IT department. However, by using these benchmarks, you can measure both the fluctuation in your claim financial and the success of your workers’ compensation claims handling program.
Grading you adjusters is another aspect of measuring adjuster performance. Ask the carrier or TPA whether they SCORE their adjusters – as in giving them a numeric grade. Broadspire scores and ranks their adjusters in a unique and extremely interesting scoring sytem which is backed up with additional training if needed. Adjusters with superior scores receive monetary incentives each month. This is the only such system I know about although there may be others.
Author Rebecca Shafer, JD, President of Amaxx Risks Solutions, Inc. is a national expert in the field of workers compensation. She is a writer, speaker and website publisher. Her expertise is working with employers to reduce workers compensation costs, and her clients include airlines, healthcare, printing/publishing, pharmaceuticals, retail, hospitality and manufacturing. See www.LowerWC.com for more information. Contact: RShafer@ReduceYourWorkersComp.com
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