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A new measuring stick: the performance management initiative is helping group disability carriers evaluate their claim operations.

Today many group disability-insurance carriers try to chart a course for their claim operations based on dead reckoning and their own experience and internal metrics. They might regularly attempt to re-engineer their claim operation simply because they're not sure what works best, while the same uncertainty leads other carriers to keep doing what they've been doing--even if it's not completely effective--to avoid rocking the boat.

In both instances, the group disability carrier could use an external reference point by which to navigate. At sea, this can be accomplished with satellites and a global-positioning-system device; in the group disability-insurance market, what is needed is a standardized, performance-based way for companies to track industrywide disability claims-management issues and triangulate where they are in relation to their peers.

Without a standardized approach, each claim operation has had to develop its own model of the claim process and determine its own set of metrics. This makes it difficult to evaluate each component because there is virtually no industry data for comparative analysis. Previous industry benchmarking initiatives were helpful but--like a lighthouse--were useful only in proximity. The benchmarking information was too static for an essentially dynamic process and didn't support the industry's goals for continuous process improvement. What's been needed is an agreed-upon set of disability-industry measures that lets insurers compare their performance with peers on an ongoing, aggregate basis without compromising sensitive company information.

Developing just such a process has been on the drawing board at ING Re since 2001 and began to become a reality in 2003 as several disability carriers--both clients and nonclients of ING Re--began participating in the Performance Management Initiative for group disability, or PMI. Broad industry participation is fundamental to the effectiveness of this process.

So far, eight U.S. and Canadian disability insurers have joined the project, including four of the top 15 U.S. carriers. Participants include Standard Insurance Co., Liberty Mutual, Canada Life (U.S. operations), Principal Financial Group, Co-operators Life Insurance Co., ING Employee Benefits and PMA. Together, the participating companies insure 16% of the U.S. group disability market, representing $1.825 billion in annual inforce premium as of Dec. 31, 2003, according to LIMRA's Group

Disability Insurance survey.

Participants have shown great enthusiasm for the effort thus far even with only a year's worth of data. They report using the PMI information internally to improve their disability-claims process, and they like the Web-based reporting model that ensures confidentiality. (See "Exact Measurements" on page 113 for more company results.)

PMI is charting new waters, but all carriers want to improve their claims outcomes, and it's an accepted fact that information sharing can lead to process improvement and better outcomes.

How PMI Works

PMI is a natural extension of benchmarking, but brings greater focus and finer detail and shows how performance continuously changes, which makes it more relevant to process improvement. The challenge was to define a method and practical application to simplify data collection and evaluation, and enable insurers to draw correlations between process and results. That's where PMI's Balanced Scorecard approach comes in.

The Balanced Scorecard, a strategic management system developed at the Harvard Business School, suggests that organizations view themselves from multiple perspectives that go beyond financial measures. In other words, managers can't just look at the bottom line and be successful, since financial results are often based on how well staff performs key nonfinancial activities.

PMI will ultimately look at four different perspectives of disability management: claims outcomes, financial outcomes, customer service and administrative process. The first focus has been on claims outcomes; metrics for the other three perspectives will be introduced later.

The concept of performance measurement has generated considerable interest within disability-claim operations. A constant concern for claim departments is the ability to define measures that are not only meaningful for internal process improvement, but are also reliable measures and valid concepts for comparison with their peer companies.

During the pilot phase, ING Re leaders met with participants via teleconference and WebEx to set up the initial set of claims management metrics and to get the process going. Each insurer was asked to identify those process measures that lead to results. A preliminary set of standardized metrics was identified and a simple, standardized reporting spreadsheet was created.

Now participants use a secure, third-party Web-based reporting system to electronically submit data quarterly. They can see their results and the aggregate results, but no one--not even ING Re--sees individual company data. Each claim operation views its own data against the aggregate industry results for each measurement. These high-level views help identify areas within the organization that are not performing at the expected level. Managers and their teams can then drill down to the details, including action plans that are designed to improve performance. ING Re does not earn revenue from this process, but participating companies do pay fees to cover the expense of the Web-based system and the reports that are generated.

Metrics for Claims Outcomes

One of the challenges now is identifying the metrics that correlate to outcomes. The program currently has 150 metrics in 14 key categories relating to claims outcomes, down from an initial 200.

Some of the metric groups and their definitions are as follows:

* Initial dispositions for both short-term-disability and long-term-disability claims: Approval/denial claim rates (the percentage of claims received during a quarter that are approved or denied) and pending claim rates by aging categories in calendar days;

* Duration of disability by diagnostic group: Claim durations by type of disabling condition for 10 diagnostic groups as characterized by their ICD-9 Codes (for example, mental illness, circulatory, musculoskeletal);

* Early return-to-work outcomes: The percentage of claimants who return to work within three months or more than three months of satisfying the benefit elimination period;

* STD becomes LTD claim: The percentage of STD claims that become LTD claims in those employer plans where the company insures both the STD and LTD benefits;

* External expenses: Average external cost per claim incurred in investigating, adjudicating and managing disability claims in three categories: medical, vocational rehabilitation and surveillance; and

* Staffing rates, STD and LTD: Open claims per hill-time-equivalent employee tracked separately for clerical support, claim adjudication, vocational staff, clinical services (nurses), management and call-center staff.

Project leaders need to further refine these, and will look to current and future participating companies to help do that. At a Participants' Forum this fall each will be asked to identify the top three or five metrics as well as which ones are of the greatest value to them and why.

Discussion will also begin on the next perspective--financial outcomes. ING Re is providing participants with a list of financial metrics and asking their help in prioritizing them. This is another area where industrywide information is lacking.

Striving for Process Improvement

Once a common set of industry performance metrics is established, participants can focus on those key indicators that can lead to successful performance according to the specific needs of that company.

As participants start feeling more comfortable looking at the data and at trending, the next step is to work toward more focus and detail. For example, more measurement in the return-to-work category may lead to discussions with the employer/policyholder about how he or she can better provide internal disability services that will facilitate return to work. If PMI shows a participant company is performing poorly in a specific area, then, the leaders hope, management will be interested in finding out why. That may lead to further studies about related operations and organizational issues and further discussions with their industry peers.

One thing that won't happen is the use of PMI information for advertising or marketing purposes. Each participating company agrees in advance to only use the information internally and not to compare themselves with anyone else in the market.

ING Re has also taken steps to minimize antitrust risks. First, PMI looks only at historical data, and it is reported in an aggregate format. Second, the survey is conducted by an independent third party and not accompanied by any recommendations on action. Finally, the information is not used to project trends or set rates.

Data Sharing Ahead

PMI is charting new ground by attempting to standardize the performance measurement process for the disability-insurance industry. It may not be long, however, before carriers will be expected to provide the same type of data that is being gathered for this effort.

Industry standards are common in the property/casualty and workers' compensation industries, primarily because benefits are state mandated and the statistics on occupational accidents and illnesses are used for underwriting and setting rates. Additionally, employers are paying more attention to absence and sick-leave management. The National Business Group on Health is developing an employer-based database of quality and productivity metrics that includes a number of the same metrics as PMI. This database, the Employer Measures of Productivity, Absence and Quality, is designed to help employers and their suppliers determine the effectiveness of the health-related lost-time programs.

U.S. and Canadian group disability insurers can still join in the PMI initiative, and interested nonmembers can be invited to future Participants' Forums to observe the process. The larger the group of companies that participate, the greater the value will be to the industry.

This is only the start of an initiative that will help carriers get a better handle on what processes are most important for better outcomes. Improving process on an industrywide scale will take more time and more participation. Ultimately, identifying not only best practices but also "next" practices could be the leverage companies need to improve service and their bottom line.

Key Points

* ING Re is working with group disability carriers to establish an agreed upon set of industry measures that lets insurers compare their performance with peers on an ongoing, aggregate basis without compromising sensitive company information.

* The program, Performance Management Initiative, lets participants use a secure, third-party Web-based reporting system to electronically submit data quarterly.

* PMI will ultimately look at four different perspectives of disability management: claims outcomes, financial outcomes, customer service and administrative process.

Learn More

Co-operators Life Insurance Co.

A.M. Best Company # 06290

Distribution: Exclusive agents, independent brokers, call centers

ING Employee Benefits

A.M. Best Company # 06846 (ReliaStar Life Insurance Co.) and 06157 (ReliaStar Life Insurance Company of New York)

Distribution: Brokers, direct to employers


A.M. Best Company # 07029 (Security Life of Denver Insurance Co.) and 06846 (ReliaStar Life Insurance Co.)

Distribution: Brokers, direct to carriers

Liberty Mutual Insurance Cos.

A. M. Best Company # 00060 Distribution: Direct, independent agents and brokers, captive agents PMA Insurance Group A.M. Best Company # 18200

Distribution: Contracted agents and brokers, plus employed salespeople

Principal Financial Group

A.M. Best Company # 06150 (Principal Life Insurance Co.)

Distribution: Career agents, independent agents

Standard Insurance Co.

A.M. Best Company # 07069

Distribution: Benefit brokers

For ratings and other financial strength information about these companies, visit

Ray Ayotte is manager, Research and Development, for ING Re's Client-Driven Market Research Unit.

Exact Measurements

Even though the Performance Management Initiative has been collecting and reporting data for just over a year, participating companies have already benefited from what they've learned. Some of the results already reported to ING Re include:

* One insurer shaved months off the amount of time it would have normally required to gather and track the data on its own and had the added benefit of seeing how its results compared to other companies.

* PMI showed a company that it had a problem that was being missed by its existing internal management reports, allowing it to correct the situation.

* A company compared its external expenses with the group aggregate and used the information to justify a larger budget for claims investigation and rehabilitation.

* Companies are able to compare their staffing levels and caseload to the rest of the group.

* A company reports it found the metrics developed by PMI to be superior to the ones it was using internally.

* Companies report that discussing with the group what metrics should be included has caused them to challenge their own assumptions on what is, and is not, important information.

* One executive said having a standardized way of looking at data helps the industry as a whole become more competitive because "we can no longer be satisfied using our own history, or anecdotes, as the measuring stick."
COPYRIGHT 2004 A.M. Best Company, Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
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Title Annotation:Disability
Comment:A new measuring stick: the performance management initiative is helping group disability carriers evaluate their claim operations.(Disability)
Author:Ayotte, Ray
Publication:Best's Review
Geographic Code:1USA
Date:Oct 1, 2004
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