Clarity Affords Focus

I was young, new to the insurance industry and eager to advance my career when I first heard that the best way to get ahead in the business was to change employers every 5 years (3 years now.) Serial job-hopping might not have been an attractive or comfortable strategy for the timid or insecure, I was told, but for those willing to uproot and repeatedly challenge and prove themselves it promised a fast-track shot at superior compensation, more diverse and interesting job experiences and exceptional career growth. I went all in, and over the next 40 years I worked with eight different employers and more than a dozen different CEOs, all in the insurance claims business, and served as the Chief Claims Officer at 5 different companies. Some of my moves were regrettable, and I suffered through my share of intense, character-building experiences, but along the way I learned three things that helped make my overall career experience fascinating and gratifying:  

• How to think and plan strategically
• How to identify and manage stakeholder relationships
• How to design and implement performance measures to support achievement of organizational objectives

I also learned one other thing. In the property casualty insurance business, there is no generally accepted performance profile of claims management excellence, no standardized claims performance scorecard. As I changed jobs I was amazed at how variable (not to mention capricious, ill-considered, unfair or non-existent) the claims performance assessment process was from company to company. Even within a single company it was common for executives inside and outside of claims to evaluate performance of their claims operation differently, often by looking at “key performance indicators” of dubious reliability and value. And in the infrequent situation where everyone agreed on a slate of claims performance categories, they often ranked or weighted them differently. Or they ignored them and focused on some new indicator.

To have any chance at success, a Chief Claims Officer needs to clearly establish, with his/her CEO, exactly how the claims operation can contribute to achievement of the company’s strategic objectives, and how performance will be evaluated. Knowing and communicating those expectations is absolutely essential, since a claims leader who wants employees to perform at their best must do four things:

• Communicate performance expectations and confirm understanding
• Use measures of performance and success that are well-designed, explicit and understood
• Provide the resources and support they need to succeed
• Give appropriate guidance and feedback so they can produce the best results

Three of those four things demand clarity on key performance indicators, which is why an agreed set of performance indicators is the cornerstone of any claims strategy. I found that evaluation conversations with CEOs could be circular and unrewarding, so I developed a balanced set of claims performance categories and used them to frame those discussions and illustrate options. I also carried that framework with me to each new company, where I reviewed it with the CEO and adapted it as needed to fit the circumstances and strategy of the new company.
Recently I invited a small group (50) of insurance Chief Claims Officers, CEOs and COOs to provide me with some feedback on claims performance categories by asking them to do the following:

Please rank the following claims performance categories in terms of their importance to you when evaluating the effectiveness of your claims operation.

• Claim loss cost management (average paid, leakage ratio, etc.)
• Claims expense management (allocated and unallocated)
• Claims productivity and throughput (closing ratio, cycle time, reopening ratio, aged pending)
• Customer satisfaction (premium paying customer)
• Agent/Broker satisfaction
• Internal stakeholder satisfaction (business units, underwriters, actuaries, etc.)
• Loss reserve adequacy, accuracy and timeliness
• Regulatory compliance (avoidance of fines, penalties, negative publicity and other unwelcome surprises)
• Employee engagement/satisfaction
• Claims fraud detection and mitigation

The weighted average results showed strong ranking alignment between the two groups:

Performance Category	Combined Group Rank	CEO/COO Rank	Chief Claims Officer Rank
Loss Cost Management	1	2	1
Expense Management	5	6	4
Productivity	4	4	5
Customer Satisfaction	3	3	3
Agent/Broker Satisfaction	8	7	8
Internal Stakeholder Satisfaction	10	10	10
Loss Reserve Adequacy, Accuracy and Timeliness	2	1	2
Regulatory Compliance	7	5	7
Employee Engagement	6	8	6
Claims Fraud Detection and Mitigation	9	9	9

But the individual responses told a different story. Loss reserve adequacy was ranked as most important by the CEO/COO group as a whole, for example, yet 30% of the respondents didn’t even rank that category in the top three. Employee engagement was ranked 8th by the group, yet 20% of the respondents ranked it in the top 2. The Chief Claims Officer group ranked loss cost management as most important, yet 30% of them didn’t believe it belonged in the top 3. One Chief Claims Officer said the most important performance category was employee engagement, as did one CEO/COO—let’s hope they work together! The individual rankings were all over the place, even for the internal stakeholder satisfaction category, which both groups ranked as least important, although 15% of the Chief Claims Officers had it in the top 5 (no one in the CEO/COO group did.)

What’s the takeaway? Thomas J. Leonard probably put it best: “Clarity affords focus.” If you are a Chief Claims Officer, have a conversation with your CEO/COO and make certain you are aligned on what success looks like and how it is measured in your claims operation. Use the performance category framework in the survey for your discussion, or develop your own, but don’t fall into the trap of assuming that all performance categories are equally important. They may all be important, but they are not equally important, so your job is to identify and deliver on those that matter the most to your organization. Get clarity, and then focus. After all, if your company’s strategy relies upon the claims customer experience as a competitive differentiator, your claims strategy should be designed and your resources deployed to deliver that first and foremost.

The claims performance category survey will be open through the middle of June, 2015. If you would like to participate in the survey, you can do so here.

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

Magical Thinking

 
Remember that TV commercial where a wide-eyed guy's favorite football team scores every time he goes into his basement to get more beer, so he concludes he has "cracked the code," leaves his friends and goes down into the scary basement one more time "for the win"? That spot depicted a form of magical thinking, which according to psychologists Leonard Zusne and Warren Jones in Anomalistic Psychology: A Study of Magical Thinking involves believing "that one's thoughts, words, or actions can achieve specific physical effects in a manner not governed by the principles of ordinary transmission of energy or information."

Magical thinking is a normal dimension of thinking in young children, of course. Toddlers routinely make illogical and unsound decisions--they just don't have enough information about the world yet to form more reasonable conclusions (more on that topic here.) At around age seven or eight most children begin to think logically and are better able to grasp cause and effect relationships, so they move away from magical thinking.

Yet magical thinking lives on in many adults--sports fans, athletes, coaches, gamblers, sailors, politicians and even business executives. Think of all the people you know who regularly engage in superstitious rituals-- following lucky routines, wearing lucky items of clothing, carefully avoiding any behavior or circumstance that might curse or jinx an undertaking or outcome. While such rituals might be irrational, they are not generally harmful and some experts even consider them to be potentially beneficial. Perhaps that's why the tagline for the beer commercial described earlier offered viewers this subtle reassurance:

“It's Only Weird if it Doesn't Work”

O course there is a darker side of magical thinking that can be problematic, particularly in business. It has roots in narcissism and can involve delusional thinking fueled by an unrealistic or underdeveloped understanding of causes and effects. Unfortunately, since experts believe we're "more likely to find a narcissist in the C-Suite than on the street" it follows that we're also more likely to find magical thinking in the C-Suite.

Here's the problem: a business leader with even mild narcissistic tendencies can be a compelling and disruptive leadership force even when he or she hasn't the slightest knowledge or understanding of the dynamics, the causes and effects, that shape a particular situation. Such leaders come across as supremely certain, energetic, decisive, strategic, visionary--even charming and charismatic in the short term. But they have a big blind spot: when they are in unfamiliar territory, they are incapable of recognizing and acknowledging their own ignorance or lack of understanding. They are confident, but not competent. Sadly, when they don't have the requisite information (or understanding, or knowledge) to make logical and sound decisions, they fall back into magical thinking--just like toddlers do. So their decisions are informed and driven by biases, superstitions, fantasies and faulty logic rather than by facts and evidence-based thinking.

I worked with a CEO years ago who was, among other things, a rip-roaring magical thinker. One of his more peculiar blind spots involved strategy. He categorically refused to even discuss the topic (he called it the S-word) and he would behave even more scornfully and abusively than he normally did if someone dared to bring it up. He made his magic belief mindset clear--if people just did their jobs, the company would flourish, so it was foolish to waste time thinking or talking or worrying about something as unimportant as the S-word.

I was reminded of that CEO (let's call him S-word CEO) the other day while listening to an HBR Ideacast featuring Harvard Business School professor Frank Cespedes, author of Putting Sales at the Center of Strategy. He was describing how companies often have a vision, or a mission, but they don't have a coherent strategy--because they have failed to make "explicit choices" about markets, customers, value propositions and competitive differentiators. Why is that important? Professor Cespedes:

"...it’s obviously difficult, if not impossible, for people to execute a strategy that doesn’t exist or that they don’t understand."

Cespedes went on to say that once a coherent strategy has been developed, it's vital for company leadership to ensure that the tasks and behaviors (plans and activities) performed by different company segments (Cespedes talked about Sales, but I took his comments to apply equally to all segments of a company) are focused on delivering value and helping to implement the strategy effectively. In other words, strategy should define the critical tasks and behaviors, not vice versa. Nothing very magical about that.

Well, that S-word CEO struggled with his biases and his fuzzy logic. He made more than his share of dubious decisions, and he caused some degree of harm and collateral damage in the process, but he was tenacious and persistent and he completed a multi-year run as CEO. As he walked out the door on his last day, I'm sure he was pleased with himself, and proud of how well he had steered the company during his tenure. What about his struggles, his setbacks, his ill-advised decisions, and the collateral damage he had caused? Not his problem. He accepted no accountability for anything that didn't work out well, since in his mind someone else was always to blame.

I've worked with many magical thinkers, but S-word CEO probably provided as vivid a demonstration as any I've ever seen of the power, and the wonder, of magical thinking in business. Maybe the beer commercial was spot on--maybe magical thinking is only weird if it doesn't work--and while it may not have worked for others within S-word CEO's sphere of influence, it sure worked for him!

Dean K. Harring, CPCU, CIC is a retired insurance executive who now spends 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.

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/