When It Comes to Learning, Let’s Treat Adults Like Adults

When I retired from QBE last year, I thought it might be interesting to do something totally different, so I got myself appointed as an adjunct faculty member at our local community college, where I teach courses in management, leadership, business writing and presentation skills. Since I am in the School of Continuing and Professional Studies, my students are adults.

Recently, my connection with the college led me into a project with a Maryland defense contractor, and as part of that project I did some background research on adult learners--how they learn, what motivates them to learn, and what learning strategies are the most (and least) effective. Now that I am well read on the topic of Andragogy (the art and science of teaching adults), I can tell you something you may already know based upon your own personal experiences--adults and children learn differently. Instructional strategies that work well with children do not work well with adults.

As learners, adults:

• Are wary of formal classroom learning. They may feel uncomfortable or "at risk" in the classroom since their self-esteem and ego and reputation are on the line. That being said, adults learn better in a classroom setting when they are treated with respect and when their knowledge, abilities and achievements are welcomed and acknowledged.
• Choose what they will learn. They are more strongly motivated to learn by intrinsic rewards (personal growth, satisfaction, self-esteem) than by extrinsic rewards or requirements (promotions, increase in compensation, licensing or certification.)
• Need to know why they are being asked to learn something, and why it is in their best interest to learn it. They routinely weigh the benefits of learning against the consequences of not learning. To move into a state of learning readiness, they may need to be convinced they have a critical learning gap that needs to be filled.
• Prefer learning that is problem or task-centered, not subject-centered. Ideally, content should have relevance and immediacy so they can apply newly learned concepts to real world problems and situations.
• Prefer to learn by doing. They dislike lectures and survey courses, but are increasingly fond of self-directed and self-paced instructional media such as self-study, programmed instruction, and computer or web-based training. In the classroom, active learning experiences involving problem solving, judgment, reasoning, questioning, critical thinking, exploration/research, and group relationships and dynamics are most effective.
• Need to be given time and space to integrate new ideas, particularly if those new ideas conflict with what they already know or believe.

Of course I don't have to worry about running a Claims operation any longer, but for me Claims is still a powerful personal frame of reference. Once I understood these adult learning principles (having given myself the time and space to integrate them with what I already knew, of course!), I suddenly had more informed insight and a new and potentially useful perspective into why so much of the training I experienced, and designed, and delivered at insurance companies over the years inevitably failed to fully achieve learning objectives. For whatever reason, in most cases the training just wasn't designed with adults in mind. It didn't appeal to what motivates adult learners, it didn't consider their learning preferences, and it didn't employ the most effective instructional techniques to help them learn. That was unfortunate, in retrospect, since one of the first steps in designing any instructional approach usually involves a detailed analysis of the learner group so the training can be tailored to their needs and preferences.

Perhaps your training strategies are sound, but I sense an opportunity to review and possibly improve claims training outcomes simply by incorporating and considering adult learning theories and principles that have been around for decades. If you want to learn more about those principles, just do a search on Andragogy or start here.

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@theclm.org or through www.linkedin.com/in/deanharring/

Rethinking the Claims Value Chain

As a claims advisor, I specialize in helping to optimize property casualty claims management operations, so I spend a lot of time thinking about claims business processes, activities, dependencies, and the value chains that are commonly used to structure and refine them.  Lately I have been focusing on the claims management supply chain---the vendors who provide products and perform services that are critical inputs into the claims management and fulfillment process. 

In a traditional manufacturing model, the supply chain and the value chain are typically separate and distinct--the supply chain provides raw materials, and the value chain connects a series of activities to transform the raw materials into something valuable to customers. In a claims service delivery model, the value chain and the supply chain are increasingly overlapping, to the point where it is becoming hard to argue that any component of the claims value chain couldn’t be handled directly by the supply chain network.

Which creates an intriguing possibility for an insurance company—an alternative to bricks and mortar and company cars and salaries--a virtual claims operation! Of course there are TPAs that are large and well developed enough to offer complete, end to end claims management and fulfillment services to an insurance company through an outsourced arrangement. That would be the one stop shopping solution---hiring a TPA to replace your claims operation.  But try to envision an end to end process in which you invite vendors/partners/service providers to compete to handle each component in your claims value chain (including processing handoffs to each other.) You select the best, negotiate attractive rates, lock in service guarantees, and manage the whole process simply by monitoring a performance dashboard that displays real time data on effectiveness, efficiency, data quality, regulatory compliance and customer satisfaction. You would need a system to integrate the inputs from the different suppliers in order to feed the dashboard, and you would also need to make certain the suppliers all worked together well enough to provide the ultimate customer with a seamless, pain free experience, but you are probably already doing some of that now if you use vendors. You would still want to do quality and compliance and leakage audits, of course, but you could always hire a different vendor to do that for you or keep a small team to do it yourself.  Your ULAE costs would become variable, tied directly to claim volume, and your main operating challenge would be to manage your supply/value chain to produce the most desirable cost and experience outcomes. Improved cycle time, efficiency, effectiveness, data accuracy, and the quality of the customer experience would be your value propositions.    You could even monitor the dashboard from your beach house or boat—no more staff meetings, performance reviews, training sessions—and intervene only when needed in response to pre-defined operational exceptions. Sounds like a no-brainer. Insurance companies have been outsourcing portions of their value chain to vendors for years, so why haven’t they virtualized their claims operations?

If you are running an insurance company claims operation, you probably know why.  Many (probably most) claims executives are proud of and comfortable with their claims operations just the way they are.  They believe they are performing their value chain processes more effectively than anyone else could, or that their processes are “core” (so critical or so closely related to their value proposition they cannot be performed by anyone else) and thus sacrosanct, or that they have already achieved an optimal balance between in-house and outsourced services so they don’t need to push it any further. Others don’t like the loss of control associated with outsourcing, or they don’t want to consider disruptive change.  Still others think it might be worth exploring, but they don’t believe they can make a successful business case for the investment in systems and change costs. Unfortunately, this may help explain why claims executives are often accused of being stubbornly change averse and overly comfortable with the status quo, but I think it is a bit more complicated than that—it all begins with the figurative “goggles” we use to self-evaluate claims operations.

If you are running a claims operation, you have an entire collection of evaluation goggles—the more claims experience you have, the larger your collection. When you have your “experience” goggles on, you compare your operation to others you have read about, or seen in prior jobs, or at competitors, to make sure your activities and results benchmark well and that you are staying up to date with best practices. At least once a year, someone outside of claims probably demands that you put your “budget” goggles on in order to look for opportunities to reduce ULAE costs. or legal costs, or fines and penalties, or whatever.  You probably look through your “customer satisfaction” goggles quite a bit, particularly when complaints are up, or you are getting bad press because of your CAT response, or a satisfaction survey has come out and you don’t look good.  Your “stakeholder” goggles help you assess how successful you have been at identifying those who have a vested interest in how well you perform, determining what it is they need from you to succeed, and delivering it. You use your “legal and regulatory compliance” goggles to identify problems before they turn into fines, bad publicity, or litigation, much as you use your “no surprises” goggles to continually scan for operational breakdowns that might cause reputational or financial pain, finger pointing and second guessing. Then there are the goggles for “management”—litigation, disability, medical, vendor—and for “fraud mitigation” and “recovery” and “employee engagement.”  Let’s not forget the “efficiency” goggles, which help you assess unit costs and productivity, and the “effectiveness” and “quality control” goggles, which permit you to see whether your processes are producing intended and expected results.  And of course your “loss cost management” goggles give you a good read on how well you are managing all three components of your loss cost triangle, i.e., whether you are deploying and incurring the most effective combination of allocated and unallocated expenses to produce the most appropriate level of loss payments.

Are all those goggles necessary? You bet. Claims management involves complex processes and inputs and a convoluted web of variables and dependencies and contingencies. Most claims executives would probably agree it makes sense to regularly evaluate a claims operation from many different angles in order to get a good read on what’s working well , what isn’t, and where there is opportunity for improvement. The multiple perspectives provided by your goggles help you triangulate causes, understand dependencies and impacts, and intelligently balance operations to produce the best outcomes. So even if you do have a strong bias that your organization design is world-class, your people are the best, and all processes and outcomes are optimal, the evaluation should give you plenty of evidence-based information with which to test that bias and identify enhancement opportunities--as long as you keep an open mind.

No matter what you do, however, there will always be others in your organization who enjoy evaluating your claims operation, and they usually aren’t encumbered by such an extensive collection of goggles. They may have only one set that is tuned to budget, or customer experience, or compliance, or they may be under the influence of consultants whose expensive goggles are tuned to detect opportunities for large scale disruptive/destructive process innovation or transformation in your operation.  On the basis of that narrow view they just might conclude that things need to change, that new operating models need to be explored. Whether you agree or disagree, hopefully your evidence-based information will be of some value in framing and joining the debate.

Will we ever see virtualized claims operations?  Sure.  There are many specialized claims service providers operating in the marketplace right now that can perform claims value chain processes faster, cheaper and better than many insurance companies can perform them. The technology exists to integrate multiple provider data inputs and create a performance dashboard. And there are a few large insurance company claims organizations pursuing this angle vigorously right now.  I fully expect the companies who rethink and retool their claims value chains to take full advantage of integration of supply chain capabilities will begin to generate improved performance metrics and claim outcomes, ultimately creating competitive advantage for themselves.  Does that mean it is time for you to rethink your claims value chain?  I think the best way to find out is to put on your “innovation” goggles and take a look!

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@theclm.org or through www.linkedin.com/in/deanharring/

Claims Success Vision

Many Claims leaders get uncomfortable and move toward the exits when they are asked to contemplate and discuss their "vision", as in the vision statement of a strategic plan.  For most of us, that discomfort originated from participation in ritualized annual strategic planning events, where our company's leadership team got together to participate in intense wordsmithing exercises designed to produce a strategic plan document.  Vision, Mission, Values, Strengths, Weaknesses, Threats, Opportunities, Critical Success Factors, Objectives, Key Performance Indicators--all of these topics were tossed onto the table, to be debated and scrutinized with the assistance of a cadre of skilled facilitators.  I remember these planning events as contentious and dramatic, featuring break-out sessions, flip charts, storyboards, critiques, soliloquies, and of course mandatory camaraderie, all of which culminated in team solidarity and consensus on a newly minted strategic plan. Whew!

While I am an unapologetic strategy fan (I believe it takes both planning and execution to achieve the best result) I am not a fan of the strategic planning process used by many insurance companies.  I think the process itself has become more important than the plan it produces. In other words, getting through the strategic planning ritual and producing a plan that complies with the company's prescribed format/template has become the primary goal--the quality and utility of the plan is secondary.  Which is too bad, but it does help explain why strategic plans at many companies are so irrelevant.  Once completed, they are tucked away like sacred scrolls, not to be seen again until the next year's strategic planning event. So while most insurers have strategic plans, many of those plans have nothing to do with their day to day operations or decision making.

Google the question "Why do strategic plans fail?" and you'll get over 7 million results, although they sort down into a familiar handful of reasons:

·         plan was not communicated effectively

·         company vision, mission, values and value proposition were poorly defined

·         unrealistic goals

·         disconnect between strategic plan, operating plan, individual performance plans

·         invalid assumptions about internal and external environments

·         lack of resources and commitment to implement plan

·         lack of accountability and ownership

·         lack of meaningful performance metrics to track execution

But don't despair. Even if your company's strategic plan is nothing but fluff, you can still use proven planning techniques to help keep your Claims operation focused on what's important.

Years ago I was doing planning work with a motivational expert from the UK.  She told me about a process called "success visioning" in which leaders visualize what success would look like in their operation and then make a list of 8 to 10 things that, if true, would signal success. The concept was familiar to me, as I enjoy Stephen Covey's books and I’ve read my copy of The Seven Habits of Highly Effective People so many times it is falling apart. What she was describing was essentially Covey’s second habit:  Begin with the end in mind. If you are setting out to do something, it helps to start with a clear visualization of your objective: an image, a picture, or a description that can serve as a touchstone and frame of reference as you move forward.  And if you keep that visualization in mind, you’ll have a better chance of achieving it.

So I prepared a Claims “success vision” document and adapted it over the years to address challenges at the different companies where I worked.  My final version, prepared about five years ago, looks like this:

1.    Effective, efficient claims management operation producing the best claims outcomes

2.    In control: creating and maintaining a “no surprises” claims operating environment

3.    Known for providing industry leading claims service and expertise

4.    Attentive and responsive to stakeholder needs and concerns

5.    Reliable and consistent in setting accurate and adequate case level loss cost reserves

6.    Sought after source of claims thought leadership and timely, actionable, loss-related      information

7.    Seamless operations, utilizing a single claims system and a shared services operating  environment

8.    Skilled at integrating acquisitions and new programs

9.    Viewed as an employer of choice and a developer of people.

To make the list actionable, I included bullet points to provide details and specifics, and developed metrics to track performance. I used to look at the list every month, and think about what had been done and what else needed to be done to make these statements come true.  Why? Because I knew if we could turn these aspirations into reality, and if we could support improved performance with objective metrics (evidence), and if our stakeholders (individuals or groups who have a vested interest in or dependency upon how well the Claims operation performs) were saying and believing these things, then our Claims operation would be a success.

Give it a try.  It's easier, more useful and considerably less painful than strategic planning, and it will give you most of the raw material you need to talk about your vision at your next strategic planning event.

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/

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/