2011 ALUCA TurksLegal Scholarship

Winner

Getting ready for tomorrow - accelerating the claims process Andrew Prichard | BT Financial group

In an age of instant rewards, Customers are increasingly looking for speedy resolution of their claim. From the perspective of the group or retail claims department, what systems and procedures could be overhauled or streamlined to produce faster turnaround times to enable companies to pay genuine claims more quickly? How do you separate genuine claims from more questionable claims in this process and how do they need to be handled? Your answer should be illustrated with practical examples of where you consider the current log-jams and bottlenecks to be. You should also identify what can be done to remove them while maintaining the quality of outcomes for the Customer and the company.

Introduction In a consumer society where the expectation is instant gratification and something for nothing; Insurer’s need to give serious consideration to their current claims offering and how to break away from the standard offerings of the nineties and naughties. The reality is that we are already here in “tomorrow” and claims teams across the industry are already playing catch-up, scrambling to initiate and develop this thing called “innovation”. The claims team is already somewhat behind in this more/now environment as we have traditionally focussed on the instant rewards and streamlined processing from an underwriting and product perspective. We’re underwriting less; we’re facilitating “straight through” processing and able to put policies in force literally whilst the Customer is still in the Adviser’s office! Streamlined and innovative? Yes probably, but where do you manage the risk? Shouldn’t this mean more investigation at Claim time? Claims are under more and more pressure to pay and to pay fast and it’s this push that is driving our desire for change and innovation because our established methods just won’t cut it.

In this paper I will briefly discuss the true key to getting ready for tomorrow and accelerating the claim process. Rather than go into detail on any of our current projects (and perhaps losing our competitive advantage!) my paper will outline what I believe is the most important barrier to moving forward and that is getting claims management to embrace concepts like Lean Six Sigma and; through detailed analysis of what the claims team actually does, move claims professionals into the right mindset that will ultimately facilitate true innovation and absolute reduction in turnaround times.

99.99966% or 3.4 defects per million That’s practically perfection and the defining marker for a Six Sigma (6σ) process. 6σ seeks to improve the quality of process outputs by identifying and removing the causes of defects (errors) and minimizing variability in manufacturing and business processes1. It was developed by Motorola during the 1980s and is now widely used by many businesses as a means to improve quality and reduce costs. Jack Welch, former CEO of General Electric (GE), was one leader to implement Motorola’s business management strategy into his company and was able to realise billions of dollars of financial improvement through the analysis and remodelling of their processes with a 6σ approach. For several years however, whilst GE reduced their average turnaround times, their Customer’s were not feeling the improvements, despite greatly reduced average turnaround times. Some of the statistical analysis used to drive a 6σ process is very technical, but in its rawest form it is about one thing – Variation. It was GE‟s Vice President of 6σ, Piet van Abeelen, who eventually answered the question of why their Customer’s weren’t feeling or noticing their 6σ improvements and it was he that simplified GE‟s understanding of 6σ to one of reducing variation and tightening “span” which is a measure of the variance, from the exact date the Customer wants the product, either days early, or days late2. In his book “Jack, Straight from the gut”, Jack Welch provides the following example which is very pertinent to the comparison and approach I am suggesting in claims management: “Internally, our problem was that we were measuring improvement based on an average – a figure that calculated only our manufacturing or services cycle without regard to the Customer. If we reduced product delivery times from an average of 16 days to 8 days, for example, we saw it as a 50 percent improvement. Foolishly, we were celebrating.

Our Customers however, felt nothing – except variance and unpredictability. Some Customers got their orders 9 days late, while others got them 6 days early. We used Six Sigma and a Customer orientated perspective involving span to guide us. That reduced the delivery span from 15 days to 2. Now Customer’s really felt the improvement because orders arrived closer to their want dates.”3 In this example, GE maintained the average 8 day delivery timeframe, however the value add to the Customer was the reduction in variation on when the product was delivered to either a day early (day 7) or a day late (day 9) – 2 day span. Claims teams are good and certainly getting better at innovation and improving current processes and average turnaround times, but for as long as the whole process isn’t reviewed and the variation remains, our Customers won’t notice the improvements we make and the underlying problem will lurk quietly behind the scenes in much the same way as the example above.

Moving to true innovation How do you reduce variation in an environment like claims where each and every claim is handled “on its own merits” or “case by case”? Unfortunately for Claims Assessors, these two phrases are what is wrong with today’s claim shops and why we have possibly the widest variance time and “span” of all businesses today. Whilst these comments may put me at great personal risk of being lynched by an angry mob of cynical Claims Assessors, the answer has to be a 6σ approach and standardisation of our assessment and claims payment. So much of the claims assessment process is filled with red tape and requirement to perform financially. We’re terrified of letting a single dollar slip that isn’t payable and too focussed on ensuring we protect against all the perceived “fraudsters” that are out to get us. What we’ve done is refined the process of distinguishing genuine from non-genuine claims so well over the years that we’ve ended up creating unnecessary work, filling our roles with a million and one things that ultimately delay and get in the way of making decisions and paying genuine claims. Some of these delays are absolutely necessary and unfortunately in a consumer society with so much consumer protection, we simply have to wait for things and follow the due processes. Each Insurer has its compliance and corporate governance obligations to be adhered to and these are heavily monitored both internally and by our industry regulators. These are the business value adds, although they are fundamentally in place to protect the Customers and shareholders, at the end of the day in the sense of a claim payment for Mr Smith who’s been told he has 6 months to live, there are no value adds in any of this.

The key then is to really look at the end to end process of a claim, identify all of the individual steps and processes making up the claim and then analyse the function that each of those steps in the process provides. Where are the business value adds? Where are the Customer value adds? And what steps are performed that add no value whatsoever? Once these are known and the end impact to the Customer can be measured, the waste and variance within the process can be modified or removed to arrive at ultimate turnaround times.

Keeping up with the Joneses Following BT Financial Group’s lead last year, more claims shops are beginning to roll out what is now universally referred to as a “Tele-Claims” process. Whilst claims professionals have been conducting “tele-interviews” and “pay and close” processes for some time now, for the first time we are seeing something different happening in the claims team, in the form of: a) analysis of the steps involved and the value they add (or not) b) Customer centric design c) disciplined consideration of our risk appetite and tolerance, and; d) the development of risk profiling tools With these things agreed on, BT have been able to build on the success of “pay and close” processes and evolve this concept to a decision to “pay and close” not just before sighting any claim forms but without having claim forms at all. For those claims that are eligible, analysis of the claims process and requirements found that claim forms, authorities and privacy statements did not add any value to the Customer and in fact, for those claims, there was also no value add for the business either. BT‟s model sees a true tele-claims process on offer where the decision to admit the claim and for how long is made over the phone with the insured at the initial point of contact. There are no claim forms, no waiting, no administration and no hurdles! BT Life reports that since launching tele-claims in 2010 they have seen up to 25% of all new Income Protection claims paid without the requirement of claim forms or signatures as well as a reduction in end to end times of up to 4 weeks.4 As more Insurers launch their own tele-claims offerings, the impact this has on the end Customer is growing across the industry and is a step in the right direction towards taking an unconventional view and approach to all types of claims.

Risk Appetite... Nom nom nom nom nom! ‘Risk appetite’ is a term that is frequently used throughout the risk management community, but it seems that there is a lack of useful information on its application ¬outside of financial risk areas or other risks that can easily be translated into financial terms. Risk appetite, at the organisational level, is the amount of risk exposure, or potential adverse impact from an event, that the organisation is willing to accept/retain. Once the risk appetite threshold has been breached, risk management treatments and business controls are implemented to bring the exposure level back within the accepted range.5 When the concept of claim assessment and payment without claim forms is initially coined in a claims shop, there must be a fair amount of panic and resistance from diehard and old school claims professionals. It takes guts to make such a dramatic change away from the direction of the market and more importantly it takes a shift in mindset which can be difficult when a concept goes completely against your current processes and everything you’ve ever been taught! Clearly, an Insurer would not make this decision lightly and this is where our risk appetite needs to be considered. Mark Carey (CEO of DelCreo Inc) suggests the following approach to defining an organisations acceptable level of risk. The business should ask itself: •

Where do we feel we should allocate our limited time and resources to minimise risk exposures? Why?

•

What level of risk exposure requires immediate action? Why?

•

What level of risk requires a formal response strategy to mitigate the potentially material impact? Why?

•

What events have occurred in the past, and at what level were they managed? Why?

“Each question is followed by a “Why‟ because the organisation should be able to articulate the quantitative and/or qualitative basis for the appetite, or it will come off as backwardslooking (based only on historical events) or even arbitrary”6 The concept of continually quantifying answers with a “Why” is also complimentary to a 6σ approach which along with „Lean‟ manufacturing have borrowed a concept referred to as the “5 Whys” from Toyota Motor Corp’s manufacturing methodologies. It is a question asking technique which helps to determine the root causes of a particular problem or process. It is postulated that five iterations of asking „why‟ is generally sufficient to get to a root cause.7

Once the appetite for risk is established, appropriate tools such as risk profile’s can be developed to assist in managing the risks and maintaining them at acceptable levels. Risk Profiling helps us take claims and categorise them as falling in or out of our „risk tolerance‟ limit or the limit of our capacity for taking on a risk. In the example of a tele-claim it may be the difference between receiving a pile of claims forms in the post or knowing that your claim has been admitted and paid after a single telephone discussion with the Assessor. Risk profiling helps the claims Assessor to determine the level of risk or exposure that a particular claim represents and then allows them to make an informed decision, within agreed parameters, on how to best to manage that risk.

Combining it for tomorrow Whilst the general Claims Assessor’s perception may be that modern products are becoming more difficult to manage, the truth is they are actually becoming easier to assess and pay. We have less financial assessment with agreed and “endorsed” agreed value contracts, little to no offsets to consider, 3 tier disability definitions and “day one partial” to name a few. Assessment of and alteration to payments are becoming less and less necessary. The “grandfathering” or passing back of these new benefits to all policies also means that we can develop a standardised assessment for all claims into the future (outside of legacy products). All it takes is a shift in mindset. Whilst many will argue against it, fully automated claims payment processes are both plausible and possible with the construction of thorough and detailed risk profiling tools and it is only a matter of time before these begin to grow. They already exist in the form of straight through underwriting engines which are capable of both standard and substandard assessments, so an extension of this to claims is not hard to imagine. Tele-claims is the first step in this direction. Complimentary business management methodologies like Lean (which focuses on reducing time from a process by reducing complexity, “waste” and non-value added steps) and 6σ (improved quality through reduced variation) provide us with the tools to put our claims processes under the microscope and understand our business in a numeric and statistical format. By focusing purely on the numbers, claims management can avoid the variation and emotion involved in traditional practices and move to a more methodical and statistical method of risk management.

In Closing: Claims are on the right track with risk profiling but until we shift our paradigm from traditional claims management to a more holistic insurance view, we are greatly under utilising this resource. Risk profiling needs to become more hard and fast to the point where so long as a claim falls within the risk threshold, it can be paid without further consideration, seeing more claims paid faster. This concept needs to be expanded to encompass the full gambit of Insurance products traditionally managed by claims teams and it must be done ruthlessly. One risk appetite, tolerance and profiles are established, claims teams should invest in Lean 6σ analysis of their processes to compliment the analytical approach to claim payment and seek simplified and standard processing of claims. Not all claims will sit neatly within an Insurer’s risk tolerance threshold and many will still require “traditional” assessment, however with 6σ and Lean, claims teams can refine traditional processes improving turnaround times and span across claims of all risk profiles, as even „non-genuine‟ claims will require different management and reduced turnaround times in a proconsumer society. Whilst this approach sounds clinical and cold, it is the approach we need to take to our internal process. The reduction of waste and variation though Lean and 6σ analysis provides claims staff with more time to better service their Customer at each and every touch point, providing the empathy, understanding and care that the claims industry prides itself on so much. The difference we can expect is that behind that human touch are safe and solid processes that reduce errors and turnaround times, delivering on our promises in minimum time with minimum fuss. Claims teams are playing catch up and must play by the new rules being forged in Product and Underwriting. Balancing this with profitability will be a challenge for the Insurance companies and balancing this again with the goal of insuring more Australians will require courageous, astute and holistic leadership from tomorrow’s leaders.

Disclaimer: The comments expressed in this paper reflect my personal views and interpretation of the information researched and do not necessarily represent the opinions or views of any person, organisation or other entity I may be affiliated with. In this paper, the word Customer is spelt with a capital C in all places to emphasise their importance.

Endnotes 1. Wikipedia – Six Sigma 2. Jack Welch (with John A Byrne) – Jack, Straight from the gut 3 3. Jack Welch (with John A Byrne) – Jack, Straight from the gut 3 4. Financial Standard – BT Life Fast Tracks Claims 5. Mark Carey – Determining Risk Appetite 6. Mark Carey – Determining Risk Appetite 7. Wikipedia – 5 Whys