What KPIs should you be tracking?
A lot of numbers cross our desks every day with the expectation to make meaningful analysis out of them. But do these numbers simply represent a measure much like 101 degrees can be a measure of body temperature? What does 101 degrees really mean if we don't understand that normal body temperature should be 98.6? If 98.6 degrees is a target, then a target turns a measure into a key performance indicator (KPI). We know that the important KPIs to follow regarding our personal health are blood pressure, heart rate, temperature, and weight. What KPIs will give you a clear view of your insurance company's claims health?
For any type of claim there are four important arenas to consider: customer satisfaction indexing (CSI), loss costs, expenses, and compliance. By breaking these arenas down into categories and assigning specific measures with appropriate targets to these categories, one can provide the company with easy-to-interpret results -- especially if the individual KPI scores are aggregated to provide an overall category score. When monitored weekly, these overall category scores can help avoid the roller coaster effect of balancing customer satisfaction results against the need to control loss costs.
Even more important, however, are the KPIs that comprise these category scores. (We'll use examples from auto physical damage, but the same concept applies to property damage, medical expenses, theft, and the like.) For example, with CSI it is important to include the internal CSI scores and suppliers' CSI scores. What do customers really think of the company and the suppliers and agents associated with it?
Here are some important CSI measures:
* Overall treatment
* Quality of repair
* Quality of customer service experience
* Kept informed
* Delivered as promised
* Timeliness of claim resolution
* Refer friends/family
* Refer agent to friends/family
For loss costs, keep track of a variety of categories including: estimatics, supplements, cycle time, total loss, and subrogation. Overall, track how estimates are written and how quickly repairs are completed. Monitor suppliers to ensure the appropriate amount of materials are being used and labor amounts are in line with expectations.
Important estimatics measures:
* Average severity
* Paint & materials as a percentage of estimate
* Paint & materials average dollars
* Parts as percentage of estimate
* OE as percentage of parts
* Aftermarket as percentage of parts
* LKQ as percentage of parts
* Recon/Reman as percentage of parts
* Percentage of parts returned
* Average parts discount
* Betterment as percentage of average estimate
* Sublet average dollars
* Body repair vs. replace
* Total labor as percentage of estimate
* Paint labor as percentage of estimate
* Body labor as percentage of estimate
* Body labor average hours
* Paint labor average hours
Closely related to estimatics but important enough to designate as a category on its own are supplements, which can lead to extended cycle time and are direct loss costs themselves. Keeping supplements under control will have positive ramifications in multiple areas.
Supplement measures include:
* Average dollars of supplements
* Average number of supplements per estimate with supplement
* Percentage of supplements to total number of estimates
* Supplement as percentage of total repair
* Supplement as percentage of original estimate
Another important loss cost category is total losses since they generally result in higher severity. With total losses, it is important to reduce cycle time handling totals, keep expenses low, and get the best dollar for salvage.
Essential total loss measures are:
* Percentage of total losses to estimates
* Percentage of recovery on total loss vehicles sold
* Average dollars of total loss sale (to uncover which salvage companies pay the highest)
* Average days from first notice of loss (FNOL) to total loss determination
* Average days from arrival to total loss determination
* Towing expense
* Percentage of towing expense to total loss severity
* Percentage of storage cost to total loss severity
Loss costs associated to subrogation may seem less significant, but subrogation activity is a good indicator of estimate accuracy.
* Percentage of loss on adverse decisions
* Average dollars of loss on adverse decisions
* Percentage of recovery on favorable decisions
* Average dollars of recovery on favorable decisions
* Percentage of subrogated claims with favorable decision
* Percentage of subrogated claims with adverse decision
Finally, let's look at cycle time, since it is closely connected to customer satisfaction and additional expenses associated with car rental.
Cycle time measures:
* Average days assignment to arrival
* Average days scheduled date to arrival date
* Average days arrival to delivery
* Average rental days
* Average hours/job/day
All of these loss cost categories should be tracked not only for suppliers, but also for re-inspectors and field adjusters to ensure their estimates are accurate and in line with the company's requirements.
Expenses will primarily focus on employee costs associated with claims processing. A focus on estimate accuracy can greatly reduce expenses by requiring fewer re-inspections or desk reviews. (If desk reviews are automated, it is possible to bring even higher levels of efficiency to this process.)
* Percentage of FNOL reps to total number of claims processed
* Percentage of assignments to independent adjusters
* Average dollar estimates written by independent adjusters
* Total number of estimates written by independent adjusters
* Total number of re-inspections per supplier
* Total number of desk reviews per supplier
Compliance will primarily involve a company's internal procedures around the first notice of loss process and claims processing.
Important compliance measures include:
* Average time per FNOL call
* Percentage of complaints per customer service representative
* Average time from call in to assignment out
* Percentage of assignments to network suppliers
* Percentage of assignments to independent adjusters
* Percentage of assignments to out-of-network suppliers
* Percentage of assignments to staff
* Percentage of claims to undergo desk review
* Average time from adjuster receiving claim to calling customer
* Average time from receiving claim to verifying coverage
* Average time from receiving claim to determining liability
* Average time from repair completion to claim payout
* Average time from claim received to claim closed
Analysis is critical to making the numbers work. For example, if the average cost of supplements is high, the supplier might need to change its estimate-writing procedures to ensure a tear down is completed before the estimate is locked. Behind each measure tracked, look for the scenario (the story) that led to the result.
When it comes to KPIs, the single most important factor to keep in mind is how a company is going to gather all of this data. Using spreadsheets can unnecessarily inflate expenses contributed to employee costs. Creating and maintaining spreadsheets is labor intensive and can also lead to inaccurate reporting if changes to a spreadsheet at the corporate level aren't communicated regionally or vice versa. Also, spreadsheets won't connect to the individual estimates or claims that comprise the results, making it impossible to truly analyze what went wrong.
Web-based scorecard technology can help improve accuracy and data gathering and calculations are automatic. The data is available 24/7 in one location and everyone is looking at the same information. Scorecard technology allows users to determine the categories to be measured and the individual measures within those categories. They should also be able to determine the target scores to be achieved and how the measures will be weighted. It should also drill down to the estimates/claims that comprise the results and highlight scores that don't meet target levels to pinpoint problem areas and make an accurate analysis.
Consider a scorecard provider that is capable of sharing the suppliers' scorecard results with them. When suppliers have access to their own performance ratings (and can see how they rank among their peers), they may be more motivated to identify issues and make adjustments. More importantly, these scorecards add transparency to the insurer-supplier relationship, which can assist in improving the relationship, and will lead to happier customers.