A high number of re-opened cases may be a warning signal that:

1. Cases are being closed prematurely.
2. Adjusters are not settling as many claims as they should.
3. There is pressure on adjusters to close files, regardless of the decision's wisdom.
4. Adjusters do not “get it right” the first time, omitting needed details in the quest to look good in end-of-month closings.

High reopening rates may also signal that claim reps are using wishful thinking–”The claim will go away”–rather than initiative in taking releases and foreclosing future exposures.

• New cases to closing ratio. A former boss once said that an ideal ratio was 3:1 between new cases and closings. When the ratio got to be 4:1 or higher, claim offices get into trouble, as they staff up to handle the backlog. Or, perhaps more realistically, the claim office will simply try to increase the number of files per adjuster. In this case, quality can suffer.
• Turnover ratio. Retail stores have inventory in the form of stock. Claim offices keep inventory in the form of claim files. Both enterprises wish to minimize their stock, and to “move” inventory. Stores measure their efficiency by how long it takes them to replace their entire stock of inventory. Similarly, well-managed claim offices will want to measure efficiency by how long it takes them to turn over their current open inventory of files.

Average reserve per new case shows on an adjusted, per-case basis the average reserve per new claim. Compare this figure on a month-to-month or year-to-year basis to detect trends in reserve practices. Compare these with average reserve per case for the overall caseload. Also, compare these with average payout per closed file to detect the average deviation between initial reserve and final payment.

The farther apart the two figures are, the stronger indicator that either claims are being under-reserved at the initial stage or settlements are too high at the disposition stage.

Tracked monthly and annually, this metric helps claim managers make intelligent judgments on items such as:

• Total program reserves. Check the total aggregate reserves as of the first of each month. Monitor percentage changes up or down. Actuaries seek stability in reserve growth. Reserve volatility is a sign for the claim manager to probe for underlying causes.
• Average reserve per open case. Divide new reserves for the month by the number of new cases. Total aggregate reserves may reveal little, since big reserve spikes may result from an unforeseen jump in new cases. Average reserve per new case is a meaningful statistic since it tells, on an adjusted per-case basis, the average reserve for immature claims.
• Loss payments for the month. The manager may want this itemized by indemnity versus expense or by line of coverage.

Are legal and defense fees disproportionate to claim payments? It is a fine balance. If the ratio varies from historical averages, probe for reasons. Perhaps legal bills are not being scrutinized with sufficient attention. Perhaps not enough is being spent on defense, causing a leakage of funds through ill-advised settlements.

What claims are the most expensive, not only to settle, but to defend? This holds implications for targeting loss prevention efforts.

• Open caseload from month to month. This gives the manager some bench-mark for comparison on a regular basis. After a certain length of time in tracking open cases regularly, the manager has some credible experience on which to discern trends and implement corrective action.

A sudden increase in new losses, above historical averages, may signal a number of problems which the client or the carrier may need to address:

1. Poor loss prevention practices with certain insureds or accounts
2. Substandard risks being written, with underwriting ramifications
3. Natural disasters–such as earthquake or hurricane–which are uncontrollable and unpredictable anomalies
4. Demographic trends signaling growing litigiousness, with underwriting implications. By itself, the numbers will not tell the manager what to do. They will flag problem areas and serve as a useful diagnostic and “warning light” that corrective action needs implementation.

• Average case life span. Measured in days, how long is the average file open–from the day the office receives the assignment until the date the adjuster closes the file? This is another barometer as to how efficiently adjusters are handling files. Clearly the lower the number is, the better. No industry-wide average or standard exists. This will also vary significantly by line of coverage. First-party hail losses may be open on average for 15 days. Slow-developing investigations for a defective product may consume months on average. The claims office should, however, track this and develop baseline averages.

The longer period of time the claims office tracks this data, the greater the statistical credibility. Significant deviations may be signals that:

1. Adjusters are taking too leisurely an approach to closing files. Solution: Tie adjuster pay increases and salary evaluations in part to their own personal averages above or below office company norms.
2. Adjusters are swamped with excessive numbers of files, too preoccupied with “fire-fighting” than moving cases along expeditiously toward conclusion. Possible reaction: staff up to control the caseload or bring in temporary help to accelerate closings on a “spot” basis.
3. Computer software may ease the task of tracking the average gap, expressed in days, between file opening and closing. However the claims manager tracks this data, it can signal efficiency or a need for corrective action.

Watching the numbers gives managers new yardsticks of measurement to gauge claim management performance, and to “take the temperature” of the claim program. Depending on the results, quantitative analysis can augment the manager's gut feelings in spotting problems at an early stage, and taking corrective action when worrisome trends appear on the horizon.

Do more, though, than just analyze data. If you see trends that are troubling on your dashboard, you must take corrective action. The most elegant claim management dashboard is absolutely worthless if it is not coupled with thoughtful analysis and action to follow up on those areas that are moving in the “red needle zone.” Follow-through is crucial, but having a dashboard and referring to it regularly are key steps in elevating your claim management game.

Kevin Quinley is an insurance executive in the Washington D.C. area. You can reach him at [email protected] or at his web site, www.kevinquinley.com.