How Does Your ClaimDepartment Measure Up?

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Measuring Your Workers Compensation ClaimsDepartment Using Data and Predictive Analytics

C. Michael Mattix, J.D., CPCU, AReVice President, Claims and General Counsel

Armed Forces Insurance

Steven R. Henning, MBA, CPCU, AreVice President, Business Risk Review

Swiss Reinsurance

How Does Your Claim DepartmentMeasure Up?

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• Workers compensation claims• Top 15 states• Benchmarking exercise• Audit of claim files – consistency• Reserving: Analyze changes last 2 years• Recommendations for improvement• Follow-up to measure improvement

Project Scope

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• Review of all relevant contracts, proceduresand policies

• Interviews with members of seniormanagement

• Audit of over 800 open lost time claims• Multivariate Analysis of all WC transaction

data from 1994

Project Methodology

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• Analyzed company data against knownindustry benchmarking data:Workers Compensation:

» NCCI» WCRI

NOTE: USER BEWARE!You must be a member of these organizations in order to use their data.Even then, it is advisable to ask for permission to use in a benchmarkingexercise.

Benchmark Comparisons

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2009/2010 claims

Average Incurred BenefitsMore then 7 days lost time

© WCRI 2012. All rights reserved

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What’s causing your pain?

Performance Metrics

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Median and AverageOpen Case Reserves

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004-

200

400

600

800

1,000

1,200

1,400

1,600

1,800

#Cla

ims

Median $Case Reserve Avg $Case Reserve #Claims

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Non-Initial IndemnityReserves Changes

$6,000

$7,353

$9,850$9,000

$7,810 $8,023

$11,600$10,915 $11,320

$12,500

$19,768

$5,000

$10,000

$15,000

$20,000

$25,000

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

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Open Case ReservesCalifornia Only

$0

$1,000,000

$2,000,000

$3,000,000

$4,000,000

$5,000,000

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

1993 1994 1995 1997 1998 1999 2000 2001 2002 2003 2004

State CA

$Case Reserve

@YearEnd

PolEffYY

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Open Case ReservesCalifornia v. All Other

$0

$1,000,000

$2,000,000

$3,000,000

$4,000,000

$5,000,000

$6,000,000

$7,000,000

$8,000,000

$9,000,000

$10,000,000

CA NonCA CA NonCA CA NonCA CA NonCA

2001 2002 2003 2004

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

State (All) Before2001 2001-2004

$Case Reserve

@YearEnd CAvsNonCA

PolEffYY

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New vs. Renewal Business

0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

16,000,000

18,000,000

1999 2000 2001 2002 2003 2004

New account in 2001+

OldAccount

LTclaim (All) Open (All) CAvsNonCA (All) State (All) Renewal (All)

Loss Exp OS

PolEffYY

Account Age

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New vs. RenewalCalifornia Only

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

1999 2000 2001 2002 2003 2004

New account in 2001+ OldAccount

LTclaim (All) Open (All) CAvsNonCA CA State (All) Renewal (All)

Loss Exp OS

PolEffYY

Account Age

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Expense to Loss Ratio

0.00

0.02

0.04

0.06

0.08

0.10

0.12

0.14

0.16

12 24 36 48 60 72 84 96

1997 1998 1999 2000 2001 2002 2003 2004

PaidExpense (All)

ExpenseToLoss

@

AccYY

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Indemnity to Medical Ratio

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

0.90

12 24 36 48 60 72 84 96

1997 1998 1999 2000 2001 2002 2003 2004

IssuedDateMax (All)

IndToMed

@

AccYY

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Claim ReviewData Collection Categories

Data Integrity

Initial Investigation

Claim Handling & Settlement

Expense Management

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Date of Loss Correctfrom First Report of Injury

Yes82%

No18%

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Date of Report CorrectDate stamp (mail, fax, email, call log) in claim file

Yes41%

No59%

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DATA INTEGRITYSuggested Procedural Changes

Clear operational definitions• Stress importance of data integrity Clear, unambiguous message Duty of every employee

Map from policy/claims system• Performance metrics Adjuster responsible Part of performance evaluation

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Re-opened Claims

0

500

1,000

1,500

2,000

2,500

3,000

3,500

0 1 2 3 4 5

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Open (All)

#Claims

CL_TIMES_CLOSED

DOIYY

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Closed Lost-Time Claims

$1,708

$4,180

1,866

362

0

1,000

2,000

3,000

4,000

5,000

No ReOpen ReOpen

Median #Claims

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Closed Lost Time Claims

$1,708

$4,180$3,601

$23,399

1,866 1,702

164362

0

5,000

10,000

15,000

20,000

25,000

No ReOpen ReOpen ReOpen - No Lawsuit ReOpen - Lawsuit

Median #Claims

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Multivariate Analysis

Multivariate analysis (MVA) is based on the statisticalprinciple of multivariate statistics, which involvesobservation and analysis of more than one statisticalvariable at a time. In design and analysis, thetechnique is used to perform trade studies acrossmultiple dimensions while taking into account theeffects of all variables on the responses of interest.

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Multivariate Analysis

What did our analysis uncover?

Reserving Issue: Claims involving female workers wereunder reserved by 12%

Severity: 3 occupational codes were driving theseverity

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Multivariate Analysis

Why is this important?

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Innovators and entrepreneurswell into implementation

Focus on WC, GL and Auto BI

Targeted at high/low costclaimants, including thoseinvolving fraud, litigation andsubrogation

Broad interest by primaryinsurers, TPAs and large selfinsureds (No reinsurers!)

Predictive models built customto the organization

Standard practice in leadingcompanies

Seamlessly integrated withbusiness rules and systemautomation to drive results

Early adopters leveragecapability to gain market share

Pay-as-you-go type of predictivemodels that leverage common ITstructure

TODAY 2014 and BEYOND

Industry assessesvalue of predictivemodeling

Innovatorslaunchtechnology

Slow moversscramble tocatch up

Leaders achievecompetitiveadvantage

PREDICTIVE ANALYTICS

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Predictive AnalyticsFocus on the “Vital Few”

0

5

10

15

20

25

30

35

40

45

50

1 2 3 4 5 6 7 8 9 10

0.25 0.5 1 1.75 2.5 34

7

30

50

Perc

enta

ge o

f Tot

al In

curr

ed L

osse

s

Decile

Predictive analytics allow you tofocus additional resources on those20% of claims responsible for 80%of total payments

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Performance Analytics• Audit Sampling Considerations• Primary claim file review

– Sample Size Criteria (population size, confidencelevel, desired precision)

– Open/Closed (depends on issue reviewed)– Size of Claim (segmented into large, medium,

small)– By Line of Business– By Adjuster/Supervisor/Branch Office– Occurrence dates (weighted > 2007)

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Performance Analytics

• All audit questions are objective (answers are"Yes", "No" or "N/A")

• Broad range of adjuster behaviors measured,focused on each phase of a well-managedworkers compensation file– Coverage - Initial Investigation– File Management - Reserving– Recovery - Vendor Management– Return to Work - Resolution

• Operational Definitions are specific, measurable,actionable, realistic and time-oriented

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Three Point Contact

3 days3%

Late13%

None84%

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Claim Reporting LagTime from DOL to DOR

0-326%

4-718%

8-1416%

15-3015%

More than 3025%

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Accident VerificationMeaningful Contact with Employer and Employee

Yes60%

No40%

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WitnessesContact/interview with identified witnesses

Yes33%

No67%

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AWW Verification

Yes57%

No43%

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ISO FilingInitial filing within 10 days and appropriate refilings

Yes58%

No42%

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Initial InvestigationSuggested Procedural Changes

Loss Intake Process:Importance of the First Few Days

Improved Data Integrity Ensure requisite documents are available for claim

handling Establish rapport with injured worker Establish clear factual basis of loss Obtain clear plan of treatment from treating physicians

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Initial InvestigationSuggested Procedural Changes

Three-Point Contact

Witness Contact/Statements

ISO filings

Accident Verification Mandatory Clear Operational Definitions Performance Metrics Documentation

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Claim ManagementSuggested Procedural Changes

Medical records

Request treatment plans/outcomes

Surveillance Clear assignment (physical manifestation of injury, physical

description/photo) Limit number of hours/days of assignment

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Claim ManagementSuggested Procedural Changes

IMEs

Clear assignment: Send complete medical records, claim notes,surveillance results, pleadings, depositions, etc.

Ask specific questions about causation and treatment (modalities andfrequency), etc.

Keep the end in mind (i.e., what is the goal of performing the IME?)

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Claim ManagementSuggested Procedural Changes

Action Plan in file Action plan completed by adjuster no later than 60 days from

assignment Contains specific actions, dates and actors

Supervisor Notes Timing -- regular cadence (e.g., 30, 60, 120, etc.) Specific file direction/action

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Claim ManagementSuggested Procedural Changes

Reserves Use reserve worksheet – document changes Set timely; reviewed timely Consider using statistical reserves for 90 days Place medical reserves on files with PTD or lifetime medical exposure Review underlying assumptions annually Consistent with Company Philosophy Clear operational definition Changed circumstances Audits

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Claim ManagementSuggested Procedural Changes

Expense Management Legal Assignment Legal ExpensesMedical Case Management AssignmentMedical Case Management Expenses Vocational Rehabilitation Assignment Vocational Rehabilitation Expenses Claim Handler Maintaining Control

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Organizational Recommendation

Claim Intake Unit

Large Loss Unit

Settlement Specialist

Supervisors are strictly administrative

Claim Committee (Formal and informal)

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Questions

Thank you for the opportunity to discuss thisexciting topic. We are glad to respond to anyquestions you may have.

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Legal Notice

• ©2012 Armed Forces Insurance and Swiss Re. All rightsreserved.

• You are not permitted to create any modifications or derivatives of thispresentation or to use it for commercial or other public purposes withoutthe prior written permission of Armed Forces Insurance and Swiss Re.

• Although all the information used was taken from reliable sources, ArmedForces Insurance and Swiss Re do not accept any responsibility for theaccuracy or comprehensiveness of the details given. All liability for theaccuracy and completeness thereof or for any damage resulting from theuse of the information contained in this presentation is expresslyexcluded. Under no circumstances shall Armed Forces Insurance, itsaffiliates or Swiss Re or its Group companies be liable for any financialand/or consequential loss relating to this presentation.