Leaders and Servants

“The first responsibility of a leader is to define reality. The last is to say thank you. In between, the leader is a servant.” ― Max De Pree

I bumped into an unhappy former colleague at an industry meeting a while back. He told me that the insurance world had changed, and that now claims executives were expected to practice something called “servant leadership.” He rolled his eyes as he emphasized “servant.” He seemed genuinely concerned but I suspected he, like most people, probably wasn’t entirely clear on what the term “servant leadership” meant. So I asked him to tell me more.

His CEO, fretting over lackluster results, decided it was time to transform the company’s operating culture and improve results by reducing the employee turnover rate and increasing customer satisfaction and persistency. He had hired a consulting firm to engineer a leadership team makeover, to move the group away from a “transactional” leadership mindset and into a “servant” leadership mindset. The firm was scheduled to be on site the following month.

“What exactly are you concerned about?” I asked.

“I don’t want to be a servant. I am a senior executive, a leader. My job involves establishing strategy, securing resources, attracting and developing good people, setting performance objectives, measuring performance, and delivering results.”

Of course, he had done some research and discovered Robert K. Greenleaf, who launched the modern servant leadership movement in 1970 when he published The Servant as Leader. He showed me Greenleaf’s paper on his phone, but at 27 pages long it was too onerous to be immediately useful. He read somewhere else that servant leaders believe in the concept of an inverted pyramid organization in which top management “reports” upward to lower levels of management and ultimately to front line employees.

“Imagine that—30 years in this business and now I am supposed to report to my employees? That’s ridiculous.”

He had another commitment, so we agreed to get together later that day to talk further. Curious, I pulled up the Greenleaf Center for Servant Leadership site:

A servant-leader focuses primarily on the growth and well-being of people and the communities to which they belong. While traditional leadership generally involves the accumulation and exercise of power by one at the “top of the pyramid,” servant leadership is different. The servant-leader shares power, puts the needs of others first and helps people develop and perform as highly as possible.

Larry Spears, CEO of the Greenleaf Center for Servant Leadership, identified ten servant leader characteristics:

• Listening
• Empathy
• Healing
• Awareness
• Persuasion
• Conceptualization
• Foresight
• Stewardship
• Commitment to personal growth
• Building Community

Dr. Kent Keith, the former CEO of the Greenleaf Center, offered a definition of servant leadership that includes this explanation:

Greenleaf said that "the servant-leader is servant first." By that he meant that that the desire to serve, the "servant's heart," is a fundamental characteristic of a servant-leader. It is not about being servile, it is about wanting to help others. It is about identifying and meeting the needs of colleagues, customers, and communities.

Nothing particularly nettlesome so far, but what about the inverted pyramid?

Ken Blanchard, in Servant Leadership Revisited, argued the pyramid should be right side up for matters such as vision, mission, values and goals, but inverted when it comes to implementation or execution. His inverted pyramid has customers at the top and customer contact people right below them. The customer contact people are responsible for meeting customer needs, and the managers and executives below them on the inverted pyramid are responsible for helping the customer contact people succeed in doing that.

When I got back together with my former colleague later that day, I asked him to think about the ways in which he was responsible to his employees. In other words, what did he provide that they expected and needed from him? His list included strategic clarity, adequate tools and resources, fair and measurable performance objectives, timely and accurate communication, feedback opportunities, inspiration, trust, integrity, honesty, accountability, coaching and career development. We talked about the pyramid, and how responsibilities and expectations flow both ways, so he made a similar list of the things he expected and needed from his employees.

Finally, we looked at the Oxford Dictionary definitions of servant:

• A person who performs duties for others, especially a person employed in a house on domestic duties or as a personal attendant.
• A person employed in the service of a government. 
• A devoted and helpful follower or supporter

The first definition bothered him, the second didn’t apply, but he liked the third and agreed he definitely had a responsibility to be a devoted and helpful supporter of his employees.

I told him I thought he would probably have an easy time of it with the consultants because it appeared he was already thinking like a servant leader—even though he had never thought of himself in those terms.

“We’ll see,” he said. “Unfortunate choice of terms, though. Why couldn’t they have called it something less provocative?”

“Ask the consultants,” I suggested.



Dean K. Harring, CPCU, is a retired insurance executive who now enjoys his time as an advisor, board member, educator and watercolor artist.  He can be reached at dean.harring@gmail.com or through LinkedIn or Twitter or Harring Watercolors

Bashing the Claims Department

As I was sorting through some old reference materials a few weeks ago I came across an article I had written for Best's Review Property Casualty edition way back in February, 1990.  At that time I had been in the Claims business for about sixteen years, and I was in my third year as the Chief Claims Officer at Providence Washington Insurance Company in Providence, RI. Unfortunately, Providence Washington was destined to cease operations and head into runoff mode in 2004, after 205 years in business.  I would be long gone by then, but I wasn't terribly surprised it worked out that way.  We had a CEO who had been a university professor--he was smart and entertaining and engaging, but he had some blind spots about certain parts of the insurance business.  I still remember the time one of our managing directors presented to the executive team a potential MGA program deal involving waste haulers in New York city.  Following the presentation, the CEO went around the table, asking each of us to comment.  The Chief Underwriting Officer was against it, and I was against it, but everyone else thought it was a great opportunity.  Without missing a beat, the CEO announced: "Excellent.  Let's do it."  That deal, and the many others like it that followed, helped seal Providence Washington's fate.

I had written the original draft of the article, "Bashing the Claims Department", in early 1987 when I was working for Commercial Union Insurance Company (CU) in Boston.  Years later CU merged with General Accident (1998) to form CGU Corporation, then White Mountains Insurance Group, Ltd. acquired CGU Corporation in 2001 and changed its name to OneBeacon Insurance Group.  But two things happened in 1987 that influenced the final draft of the article.  First, as a newly minted CPCU I was pondering my career options so I asked our CEO for advice on how I might begin to shift my career path from Claims to general management in a profit center.  His response was that there had never been a claims person born who could run a profit center.  Second, I had to get the article approved by someone in HR or Legal, but it didn't get approved because of the concern that readers might misinterpret it as critical of CU.  So, with the benefit of fresh and vivid clarity on my career path options,  I accepted my first Chief Claims Officer position at Providence Washington Insurance Company a few months later and filed the article away.

I pulled out the article again in 1989 and rewrote it, this time with the full support of my new employer.  It is fascinating for me to re-read it after all these years, because even though it strikes me now as a bit idealistic and shrill, I still remember the angst I felt while writing it.  I was trying to describe situations that didn't seem fair or right, but I really did believe they could be remedied with positive results.  One of the early paragraphs helped set the tone:

Like most people I know in this business, I stumbled out of college and into the employ of a major insurance carrier purely by chance.  Given the opportunity to get involved in either claims or underwriting, I chose claims because it sounded more interesting and, if the truth be known, it included a company car.  It took me only a few years to realize that I had inadvertently become part of what seemed to be a disadvantaged (and frequently maligned) class of insurance company employees.  It took about the same amount of time for me to get promoted to an inside position, at which time I had to turn in the company car.

Denise Gordon at AM Best was kind enough to provide me with a scanned version of the original article, so I hope you enjoy this glimpse into my own personal 1990 Claims time-capsule:  Bashing the Claims Department

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 dean.harring@gmail.com or through www.linkedin.com/in/deanharring/

Five Troublesome Truisms About Claims Management

Originally posted on November 20, 2013

I was driving home from Pennsylvania recently listening to an NPR program about historical misconceptions (http://www.npr.org/2013/11/05/243293489/misconceptions) and I started musing about some of the persistent fallacies concerning claims management that I encountered during my years as a Claims officer.  Here are just a few of my favorites:

1.  A claim is a claim is a claim

No doubt lifted and adapted from Gertrude Stein’s famous quote about roses, this identity platitude asserts that claims always have been and always will be claims, and nothing more.  In other words, claims don’t vary much from period to period so neither should claim costs or resolution approaches. This chestnut regularly surfaces when the Claims department observes that claims of unusual or unexpected frequency or severity are adversely impacting productivity, case reserves, loss payments, and expenses.  If the loss ratio is trending higher than projected (see fallacy 5), this slogan is often used to attempt to redirect the responsibility spotlight from underwriting to claims.

2.  The best claim is a closed claim

Since insurance company claims handler productivity is measured by closed claims, and TPAs usually don’t fully earn their fees until a claim is closed, it’s easy to understand why this one persists.  Of course a claim closed too soon (without proper coverage verification, damage investigation, analysis and evaluation) probably won’t result in the best claim outcome. Most claims people understand that the objective is a bit more complicated, i.e., claims should be closed as promptly as possible consistent with claim handling best practices and regulations.  Yet I still remember standing in a TPA office in New Jersey a few years ago at the end of a month, listening to a manager imploring claims handlers to “close claims now” so they could increase that month’s revenue.

3.  It’s all about claims cycle time

Cycle time refers to the amount of time it takes to resolve a claim, so this assertion is closely related to fallacy 2.  Cycle time is a great example of a performance measure that appears to be valid, yet encourages the wrong behavior if it isn’t balanced appropriately by other objectives.  So while cycle time may be important from a productivity and customer service perspective, it is only one of many claim quality control objectives that are critical to producing the best outcome.  Others include paying the right amount on a claim at the right time, resisting fraudulent claims, denying claims that aren’t covered, managing allocated expenses, pursuing subrogation recovery, complying with regulations and communicating with stakeholders.

4.  Just listen to the voice of the customer

I always get a kick out of this cliché since it sounds so easy and obvious that most people nod in agreement when they hear it.  And in terms of apparent applicability, it transfers effortlessly from industry to industry so even a neophyte COO can feel comfortably righteous when uttering it.  But what on earth does it mean when it is applied to a claims organization? Which customer’s voice is controlling? Claims departments have lots of different customers, although they are commonly called stakeholders.  A stakeholder is any individual or group who has a vested interest in or dependency upon how well the claims operation performs, and stakeholders often help define and influence programs, products, and services offered.  Claims’ stakeholders include business units, underwriters, insureds (premium paying customers), distribution partners, actuaries, employees, investors, and regulators. Their wants and needs are extensive and varied and sometimes in conflict, so they don’t speak with a single voice.  It takes a full-blown stakeholder needs analysis to record all those voices and successfully harmonize them into a balanced plan. Note to self: not easy, not obvious, but necessary.

5.  The loss ratio is the best measure of Claims’ effectiveness

The loss ratio, as the term implies, represents the ratio of net claims incurred (reserves, payments, claims expenses) to net earned premium.  Claims certainly is responsible for the numerator of the loss ratio, but the denominator (net earned premium) is determined by other factors that are not managed by Claims, such as rate levels, policy terms, and risk selection criteria. The two parts of the ratio are basically independent. So if Claims does a fantastic job of managing payments and reserves, but underwriting chooses the wrong risks, at the wrong rates, and with the wrong policy terms, the loss ratio will explode.  It makes no sense, however, to hold Claims solely responsible for the entire loss ratio when it is only responsible for the numerator of that ratio.  That’s not to say that Claims shouldn’t have to demonstrate its effectiveness in managing the magnitude of that numerator, but that’s a story for another day.

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 dean.harring@gmail.com or throughwww.linkedin.com/in/deanharring/

Loss Cost Management in Claims

Originally posted on November 21, 2013

Years ago I joined a large, troubled insurance company and the CEO asked me to do just one thing—fix the Claims department. He wasn’t sure what was wrong with it, but he knew it needed work.

I called the claims management team to a meeting and asked one question:  How does Claims contribute to profitability here? I wrote their answers on a flip chart, dozens of them. After about 15 minutes, I told them they were describing important things that Claims did, but they hadn’t mentioned the most important contribution Claims makes to profitability: loss cost management.  Claims organizations exist to manage loss costs. The puzzled faces looking back at me told me what needed to be done to fix that Claims department.

Loss Cost Management is nothing more than the ability to consistently generate superior claims results and outcomes while nurturing stakeholder relationships and complying with applicable laws and regulations

Loss costs have three components:

• ULAE–unallocated expenses (salaries, rent, etc.)
• ALAE–allocated expenses (outside attorneys, independent adjusters, TPAs, appraisers, etc.)
• Loss–loss dollars paid to insureds or third parties.

At most companies, graphically stacking these three components by dollars spent yields a triangle with ULAE at the top, ALAE in the middle and Loss at the base. This is often called the loss cost triangle.

Managing loss costs means managing all three components of the loss cost triangle.  The costs are interrelated, so fewer dollars spent on ULAE may translate into more dollars in ALAE or Loss, while fewer dollars spent on legal expense may increase Loss dollars paid to third parties, and so on.

The challenge for Claims managers is straightforward: understand how the loss cost components interact, then deploy and incur the most effective combination of allocated and unallocated expenses to produce the most appropriate level of loss payments.

Although as a concept it is often misunderstood, the best gauge of loss cost management effectiveness is the level of loss cost leakage (loss dollars paid in error due to breakdowns in claim handling) identified through closed file reviews. World class claims operations operate with leakage of less than 5% (percentage of loss dollars paid that shouldn’t have been paid.)  As it turned out, the troubled insurance company I mentioned earlier was operating with a leakage rate above 20%.

Here’s a quick primer on loss cost leakage:

• What is loss cost leakage?
• Leakage is the amount paid on a claim above and beyond what should have been paid. 
• Leakage is reported as 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 % is the amount overpaid ($1,000) divided by the total paid ($10,000) or 10%. 

•  How is leakage measured?
• Usually a calibrated team of claims experts reviews a sample of closed files periodically.  They analyze claim handling decisions and track compliance with best practices, ultimately estimating the amount of loss cost leakage on each claim.

• What causes leakage?
• There are dozens of root causes, but some of the most common involve failure to apply best practices in investigation, evaluation and resolution.  
• Coverage errors, inadequate subrogation investigations, evaluation based upon unverified damages—these are examples of breakdowns that can inflate claims payments.

• How can leakage be reduced?
• Since the closed file review process reveals, by line of business, where in the claims handling process leakage is happening and the root cause analysis reveals why it is happening,  it is actually fairly easy to identify what needs to be done to eliminate causes of leakage. 
• Training, decision support and process improvement aimed at the root causes of leakage usually produce rapid improvement.

• Do leakage reductions improve loss ratios?
• Since leakage reductions imply that overpayments on claims are being reduced, they certainly have a favorable impact on the numerator of the loss ratio (losses.) The denominator of the loss ratio (earned premium) is influenced by other factors, however, including rates charged and policy terms, so there may not always be a direct cause-and-effect relationship between leakage and loss ratios.  The leakage number is a useful indicator of the loss cost management effectiveness of the claims operation since it reveals the extent to which claims are being overpaid.

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 dean.harring@gmail.com or through www.linkedin.com/in/deanharring/