RESEARCH NOTE THE IMPACT OF RISK MANAGEMENT … · 2016-11-23 · The analysis included Auto Liability, General Liability and Workers’ Com-pensation claims reported in calendar

RESEARCH NOTE THE IMPACT OF RISK MANAGEMENT STAFFING ANDREPORTING STRUCTURE ON CLAIM OUTCOMES

Risk managers and claims professionals know that many factors – both obvious and not-so-obvious -- affect claim outcomes and the total costs incurred. The key is to identify and control what factors you can to manage risk effectively.

Obvious, critical factors that drive costs include severity of injury, magnitude of property damage, or claim duration. On the ‘less obvious’ end of the spectrum: the size and corporate reporting lines of the risk management function within a business. Risk management teams come in all sizes, and are located at different coordinates on company organizational charts. Is there a ‘best’ reporting structure

that can be deduced by examining claims outcomes and correlating them to reporting variations? Regarding staff size, it’s reasonable to assume that more staff would prob-ably translate into shorter reporting lag times and overall claim duration and thus better outcomes, but is there an optimal ratio of risk management staff per employee?

RESEARCH NOTE: THE IMPACT OF RISK MANAGEMENT STAFFING

Research Context and Approach

These were the issues explored in a recent research initiative undertaken by Gallagher Bassett (see sidebar, About the Research). Our goals in surveying 250 client organizations were to identify optimal organization reporting structures and staffing models to help our clients improve the performance of their risk management programs—whether they focused on workers’ compensation, general liability or auto/fleet. And if there was no ‘best’, what insights could help our customers evolve their risk manage-ment function so that it is as high performing as possible?

We used the following metrics to assess potential correlations between staff size and claim outcomes:

• Claim Duration – Average Days Open (Claim Life) • Average Cost Per Claim • Lag Time • Litigation Rate • Expense to Incurred Ratio • Lost Time Days (WC only)

The analysis included Auto Liability, General Liability and Workers’ Com-pensation claims reported in calendar years 2014 and 2015, (open and closed), valued as of July 31, 2016. We analyzed the data separately by line of coverage and claim periods for comparison purposes. We capped losses at $250,000 and evaluated average cost per claim outcomes on a capped and uncapped basis. In addition, we excluded zero dollar claims and run in claims. Run in claims were excluded to mitigate the variance in the prior claims handling organization’s impact on outcomes.

Company demographics appear in tables 1-4

© 2016 GALLAGHER BASSETT, INC., ALL RIGHTS RESERVED.

About GB’s Continuous Pursuit Research

Many factors affect the performance of a claims management program as well as the outcome of an individual claim. Our appreciation of claim complexity led Gallagher Bassett to launch original research to explore and quantify which factors actually move the needle on outcomes. The research initiative is called the Continuous Pursuit project because it is undertaken as part of our promise to go beyond what’s expected in continuous pursuit of a better way. The first three research topics are:

• The impact of better claimant engagement on outcomes• How structure and organization of risk departments impact claims program performance, and• The effect cost allocation strategies have on risk management performance.

To explore these issues we surveyed 250 Gallagher Bassett client service teams, the profiles of which are below. The findings and implications of that survey, and proposals for future action, are summarized here. Claims outcomes analysis for this research was provided by Gallagher Bassett Analytics which uses benchmarking, trending, and other analyses to identify opportunities to improve client claims programs and our operations.

# of Locations % of Companies0-499 60%500-2,499 24%2,500-4,999 7%5,000-14,999 6%15,000+ 2%

# of Fleet Vehicles % of Companies0-499 24%500-2,499 8%2,500-4,999 1%5,000-14,999 4%15,000-49,999 2%50,000+ 3%

1. 2.

3.# of Employees % of Companies0-499 7%500-2,499 22%2,500-4,999 10%5,000-14,999 20%15,000-49,999 28%50,000+ 13%

Deductible/Retention by Line of CoverageCoverage <250K 250K-1M 1M+WC 3% 60% 37%AL 13% 53% 34%GL 10% 57% 33%

*On average 45% are in 250K-1M and 28% at 1M+

4.


Of the GB clients surveyed 56% were public corporations, 29% private and 15% identified as ‘other’. Revenue for 42% of the respondents exceed-ed $1 billion and 15% had revenues greater than $10 billion. Domes-tic-only companies made up 58% of the respondents and for those who operate internationally, 66% have their global claims programs managed in the United States. Only 16% have captives in place.

Primary Findings: Structure and Roles

Formal Risk Management or Insurance Departments are in place in 92% of the companies surveyed, and the majority identified Claims Management and Insurance Placement/Risk Financing as the top two functions of their department. Approximately one-third noted that Risk Control/Safety and Business Continuity/Disaster Recovery were also managed by their depart-ment. Other functions often covered include Contract Review (48%) and Fleet Management 32%.

As shown in Figure 1, the reporting structure of the risk management depart-ment varies, with the clear majority (54%) reporting into the CFO/Finance. Legal was second (16%) while some teams, reported to Treasury, Human Resources, and Operations. If a claims function exists, it is mostly likely to report to Finance (53% of respondents). Separate Safety functions, however, generally report to Operations (45%) although 31% report to Finance.

Workers’ Compensation

Our survey showed that the reporting structure of a company’s Risk Manage-ment Department can impact critical factors such as the percentage of litigat-ed claims and the average duration of claims, both of which can affect the


Figure 1: Risk Management Reporting Structure

To which function does the Risk Management Department report?

15.7%35.6%

18.2%Treasurer

CFO

General Counsel/Legal

Human Resources

Operations

Other (please specify)

6.4%

5.9%

18.2%



Figure 2: Correlation between WC Claim Outcome Factors and Reporting Structures

General Liability

Correlations identified when examining general liability claims were somewhat different (Figure 3). The GL trends based on reporting structure are as follows: • Claim duration was highest when Risk Management reports to Human Resources. • The highest average cost per claim was seen when Risk Management reported to another department (this could be the company president, or an administrator) or even outside resource such as a broker. • Litigation Rate was at the highest when Risk Management reports to General Counsel. • Average Incurred cost was lowest when Risk Management reports to Treasurer.

ultimate claim outcome. As shown in Figure 2, favorably correlated outcomes by reporting structure in workers’ compensation included:

• Lower Average Incurred : General Counsel / Legal and Human Resources • Shorter Claims Duration (case life): General Counsel / Legal Unfavorable correlations included: • Higher Average Incurred: Operations/Other • Higher Litigation Rates: Human Resources, General Counsel • Longer Claims Duration: Treasurer, Human Resources

Figure 3: Correlation between General Liability Claim Outcome Factors and Reporting Structures

Reporting Structure Litigation Rate Average Duration Average Incurred Limited Average Incurred CFO 6% 183 $9,191 $9,696

General Counsel /Legal 7% 176 $8,398 $9,015

Human Resources 7% 187 $8,701 $8,801

Operations 6% 182 $11,363 $12,211

Other 5% 186 $13,167 $14,311

Treasurer 6% 190 $10,028 $10,465

Average 6% 184 $9,761 $10,350


General Counsel / Legal 11% 130 $7,372 $9,570

Human Resources 9% 153 $7,722 $7,952

Operations 7% 141 $8,388 $10,613

Other 10% 120 $15,512 $22,452

Treasurer 5% 117 $5,176 $5,618

Average 9% 124 $9,343 $12,390

Auto Liability

For auto liability claims the most favorable outcomes for litigation rate, average duration and averaged incurred were generated when Risk Management reported to Operations and Other (see Figure 4).

Primary Findings: Size of Staff and Outcomes of Claims

In general, it appears that larger risk management teams (those with 11 or more people) generate better claims outcomes across the lines of coverage as measured by average total incurred, reporting lag and (if applicable) claim duration. Results analyzing litigation rates showed that a larger Risk Management staff correlated to more Workers’ Comp claims being litigat-ed. One possible explanation is that a larger staff can undertake more investigations, and perhaps issue more denials which then motivate injured workers to retain an attorney.

Regarding specific roles, risk managers play a full-time role in 94% of the companies while 3% have the risk management function outsourced to a broker. The majority of the respondents (93%) utilize a broker for insurance placement while only 67% utilize a broker for claim advocacy. The number of respondents that reported having a high level (daily) involvement with their claims management partner (Gallagher Bassett) was 44%, while 40% reported occasional interaction and 16% little interaction.

Claims Managers play an important role in the majority of the companies; 53% of companies have a dedicated Claims Manager for all lines of cover-age. Even when there was no dedicated Claims Manager, the structure of claims management separated roles by line of coverage 65% of the time. Over two-thirds (68%) of risk management departments have direct oversight and management of liability and workers’ compensation claims, including Claims Reporting, Claims Reviews/Audits, Reserve/Settlement concurrence, and Managed Care Approval.



Figure 4: Correlation between Auto Liability Claim Outcome Factors and Reporting Structures


General Counsel /Legal 3% 103 $6,510 $8,196

Human Resources 6% 121 $6,285 $19,785

Operations 1% 83 $4,357 $5,361

Other 3% 90 $5,866 $7,275

Treasurer 4% 117 $7,411 $9,449

Average 3% 98 $6,073 $7,716

Number of Staff Average Total Incurred Average Report Lag Litigation Rate Average Lost Work Days

0 to 5 $10,872 18 5% 19

6 to 10 $10,682 17 6% 20

11+ $9,224 13 7% 17

Average $10,350 16 6% 19

Management of litigated claims generally followed the same pattern, with 76% of respondents managing their workers’ compensation litigation within the Claim or Risk Management department, and slightly fewer managing general liability litigation (71%) and auto liability litigation (65%) in-house. If litigation management is handled outside of risk, 80% of those companies have litigation managed by their internal legal department.

Workers’ Compensation

The workers’ compensation data set revealed a direct correlation between the client’s Risk Management Department size and the reduction in average total incurred, reporting lag and lost work days. Yet there was an unfavor-able correlation between staff size and litigation rates, with increased staff leading to a higher percentage of litigated claims (Figure 5).


General Liability

The general liability coverage lines revealed favorable correlations between staff sizes of 11 or more and Average Incurred, Average Lag Reporting and Expense Ratio.

Auto Liability

Correlations regarding staff size indicated slight reductions in claim dura-tion and reporting lag with staff sizes at 11+. The smaller size risk depart-ment reflects the most favorable outcomes with regard to average incurred. All other outcome measurements showed no material variances.

In summary, it appears that having a larger risk management staff does correlate with improved outcomes for the most part. This makes sense because activities across the claim resolution process from reporting to investigations to litigation management can be addressed and completed more quickly with more hands on deck, or more effectively when staff with specialized skills are part of the Risk Management department (as opposed to when fewer generalists perform the same tasks).


Figure 5: Correlation between Staff Size and WC Claim Outcomes

WHO TO CONTACT AT GB


What’s Next

A number of interesting correlations were seen from the client data that could be explored further. These include:

• How and why were reporting reporting lines determined? Would switching reporting relationships to avoid the least favor able correlations – including those companies where an ‘other’ non-traditional reporting relationship was identified -- result in improved outcomes? • Are the findings constant across jurisdictions? If so this might argue in favor of reporting lines having greater influence. • In terms of staffing size, is there an optimal ratio of staff size to employee? Is there a plateau ratio where the return on investment in additional staff is not justified by any incremental reduction in claim costs? • Regarding additions to the Risk Management staff, are there certain specialized skills of staff members that have a greater impact on improving claim outcomes? • Would further analyzing the correlation of risk department size and claim outcomes against factors such as claim volume, revenue, employee and location counts, authority levels, claim audits and review, and round-table meetings result in actionable insights?

Business leaders and risk managers want to make the best use of the staff they have, and need to justify request for additional resources or investments in staff development. Knowing that some reporting relationships and staffing result in markedly better claims outcomes can help companies get the most for their money.


We invite you to connect with us about our Continuous Pursuit research and the Reporting and Staff analyses discussed here. For more information please contact: • [email protected], SVP - Account Management • [email protected], VP - Account Management

For more information about GB Analytics, contact [email protected].

We GUIDE those suffering a loss to the best outcomes for their health and financial wellbeing.

We GUARD our clients’ assets as the trusted stewards of their claims and risk management programs.

We GO BEYOND expectations in the continuous pursuit of a better way.

2 Pierce Pl, Itasca, IL 60143 | (630) 773-3800 | gallagherbassett.com

Gallagher Bassett is the premier provider of global claims services, dedicated to exceptional customer service and demonstrably superior outcomes. GB helps people, teams and businesses overcome adversity and loss through the guiding expertise of over 5,000 claims professionals, all committed

to going beyond expectations in the continuous pursuit of a better way.

The analysis and views in this Research Note are the property of Gallagher Bassett. Copyright © 2016. Gallagher Bassett Services, Inc. All rights reserved.

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RESEARCH NOTE THE IMPACT OF RISK MANAGEMENT … · 2016-11-23 · The analysis included Auto Liability, General Liability and Workers’ Com-pensation claims reported in calendar