“Knowing is not enough; we must apply. Willing is not enough; we must do.”Funny how a simple quote in a notebook can provoke vivid memories. I was immediately able to recall the situation I was facing when I scribbled that note. I had been in place as the Chief Claims Officer for a large, troubled insurance company for a little more than a year. One of the premier US management consulting firms had been in residence the entire time, helping to do a baseline loss cost leakage study. It was a very tense situation. Just to be clear, there are some inconsistent definitions out there now, but when I use the term "leakage" I am referring to the amount paid on a claim above and beyond what should have been paid. Leakage is generally reported as a rate, a % of the total amount paid on a claim (or sample of claims), so if $10,000 was paid on a claim that should have been resolved for $9,000, the leakage rate would be the amount overpaid ($1,000) divided by the total paid ($10,000) or 10%. Leakage rates under 5% were considered acceptable back then, but the baseline numbers I was seeing were at least three times that number, across all lines of business, so I knew I had a problem.
While a properly executed baseline leakage review reveals, by line of business, where in the claims handling process leakage is happening, it's the root cause analysis that pinpoints why it is happening. The only good news about leakage is that it is easy to eliminate if you have access to a candid and dependable root cause analysis.
I remember being disappointed with the original root cause analysis because it concluded that training was the remedy for the leakage problem. In other words, claim handlers were making poor loss cost management decisions because they hadn't been trained appropriately--they didn't have the level of knowledge necessary to handle claims properly.
I knew it couldn't be that simple. I had looked at closed files myself and I had seen breakdowns in core claim handling that couldn't be fully explained by lack of knowledge. Best practices were being ignored by claims handlers and their managers, file documentation was substandard, the prevailing claims management focus was passive and tactical (process based) rather than active and strategic (resolution based), and there was an alarming lack of urgency evident in the files. Something else was going on.
We dug a bit deeper, and it didn't take long to conclude that our primary leakage root cause did indeed involve a competence gap, but the gap had three different components: knowledge, skill and will. Think of knowledge as the process of learning and understanding how to do something. Skill involves applying that knowledge in a practical setting to produce desired results. And will, as we considered it, was all about attitude, character, determination, discipline, and the desire and willingness to work to produce the best outcomes. Competence requires all three--knowledge, skill and will. In claim handling, that means the claim handler has to know how to handle claims, be skilled at applying that knowledge, and be willing to diligently work at producing the best results.
While training can close a knowledge gap, and hands-on training, guided practice and mentoring can help improve skills, will is a "hearts and minds" challenge--it involves determination and choice. People decide the degree to which they are willing to apply their knowledge and skills and efforts in any given situation based upon well known motivators. Of course today we tend to talk about employee engagement (the extent to which employees feel passionate about their jobs, are committed to the organization, and put discretionary effort into their work), not will, although the concepts are basically the same.
It turned out our most significant competence gap component back then was will, not knowledge and skill, so additional training on its own would never would have solved that leakage problem. Once we understood that and knew where else to focus in order to create an operating environment conducive to producing better outcomes, we managed the leakage number below 5% within about 12 months.
Many thanks to Johann Wolfgang von Goethe, who according to my notebook played at least a supporting role in illuminating the true nature and breadth of the root cause problem we were facing!
Dean K. Harring, CPCU, CIC is a retired Chief Claims Officer and an expert and advisor on Property Casualty insurance claims and operations. He can be reached at firstname.lastname@example.org or through LinkedIn or Twitter.