Dealing with Depression

The need for value protection as financial markets continue to deteriorate and the general economy softens is the single biggest issue on corporate management's mind --or it should be. In order to navigate successfully through this monetary minefield, managers need to possess a thorough knowledge of both internal and external performance drivers.

An external example in today's economic environment is credit restriction, which creates the potential for non-equity portfolio deterioration. This constraint, taken in conjunction with continuously falling prices in the stock market, places increased pressure on an insurer's capital base. At this point, departments of insurance regulators begin to pay closer attention to the organization's overall financial strength. In short, once value has been created, it must be preserved or protected. Such is the nature of enterprise. This is where the claim department comes in.

With rapidly shrinking profit margins, deteriorating investment portfolios, and pervasive economic uncertainty, where better to focus this attention than on the claim department, an internal and controllable value protection resource? The degree to which claim organizations perform in a consistent and disciplined manner increases the potential for achievement of the organization's objectives; competitive advantage in the marketplace; and improved value protection.

With the ever worsening turn of events in the U.S. and global economies, insurance carriers need to focus on value preservation, since none are immune to the mortgage-lending meltdown ripple effect.

Questions management needs to be asking that have a direct effect on value protection include: Doe the organization possess an accurate understanding of its strengths and weaknesses? Is management able to readily identify internal and external opportunities and value threats? Does the organization have appropriate processes and procedures in place to effectively deal with a historic assault on the financial system from an internal as well as external perspective? Is it consistently executing these procedures at or above best-practice levels in the performance of core adjusting skills? Does the organization have effective checks and balances in place to identify and contain trends and influences on claims themselves? Is management measuring the right activities and results, with the overall combined effect being contribution to the enterprise in effectively managing its assets?
If you don't already have the answers to these questions, or worse yet haven't begun asking them, read on.

Retrench and Recalibrate

The best place to begin confirming whether or not the organization has an accurate assessment of current internal and external opportunities as well as value threats is by revisiting the strategic plan. This will help determine if the plan remains timely in accurately documenting significant challenges or obstacles to achieving the company's performance goals and objectives in a rapidly changing external environment.

Although this is historically viewed as a long-term management tool, the rules of the game have changed dramatically to the point where more frequent evaluation of accuracy and appropriateness is necessary. It is, after all, a living document and should be sensitive to the environment for which it was developed. More frequent review will provide the organization with the opportunity to reassess its planned or current business activities, target markets, product lines, and competitive position as they relate to the present environment.

The claim department can assist with intelligence gathering and input relative to target markets and product lines. For example, in the current economic environment, trends regarding theft and vandalism in the personal lines property line of business are beginning to emerge that create potential pricing and overall risk desirability considerations.

Does the organization have clear, well-defined processes and procedures in place to effectively deal with these challenges? Are these processes and procedures up to date and responsive to current challenges and demands? For instance, in the above personal lines example, current trends indicate an increase in the number of unscheduled personal property theft losses occurring shortly following or in close proximity to policy inception. Have the involved frontline claim handlers received updated training relative to recorded statement content and ground work preparation for potential examinations under oath? Now is not the time to spare educating claim handlers on effective and responsive adjustment techniques that provide increased potential for value protection. Have SIU guidelines been reviewed and modified to respond more appropriately to these emerging trends? Most importantly, is the communication link with SIU clearly understood and being followed by all involved in the adjustment process? This is particularly important when it comes to claims involving potential arson, where standard or routine adjustment procedures are not sufficient to meet the technical requirements of investigating these difficult claims.

What about theft and vandalism claims involving abandoned or unoccupied structures under foreclosure? These claims have literally exploded over the past 18-to-24 months and present their own unique adjusting challenges, including but not limited to lender loss payable coverage considerations.

Are there effective checks and balances in place to identify and contain the trends and influences on claims themselves? Have various trigger points been re-evaluated for appropriateness in this financially pressurized environment? For example, has the organization recently assessed its payment report threshold? Does the dollar amount need to be adjusted or the schedule of review modified? Have supervisor and closed file audits been increased for certain lines of business or causes of loss? Has internal defalcation scrutiny been modified for closer monitoring of those involved in the actual disbursement of monies? No manager wants to think his employees would be involved in such activity; however, sadly, experience tells us it can and does happen. Effective value preservation considers and anticipates these questions and is actively engaged in answering them.

My next question involves how this intelligence is being used or fed back to the organization to improve performance and responsiveness. Do current audits indicate claim handlers are consistently executing at or above effectiveness levels in the performance of core skills (in particular, modified skills designed to increase value protection in the current environment)? For example, prompt same-day or 24-hour contact significantly increases the potential to control the loss adjustment and avoid costly involvement of attorneys or public adjusters. Why should this be an initial concern? Because over time, the same set of facts and damages only increase in value. A missed opportunity here results in potential loss of control and a reduced bottom line. Stated another way, it's value destruction.

Does the organization's level of performance translate into a competitive advantage in the market place? Is first contact being made insistently and thoroughly? Are claim handlers telling policyholders or third-party claimants what they need to hear in order to be as informed as possible? Not just at a regulatory compliance or perfunctory level, but at a substantive, professional adjustment level that is distinguishable? Are telephone calls being returned in a timely manner?

Given the current level of customer insecurity driven by the financial markets, calling someone back takes on a whole new dimension of importance in today's environment. Prompt contact, explanation of benefits, and whatever other ancillary activity leading to final resolution in a prompt professional manner increases the potential for lower paid loss and loss adjustment expenses. If you can do it faster and cheaper than the competition while at the same time delivering solid service, you have attained a competitive advantage.

Is the organization measuring the right activities and results for current environmental demands, with the overall combined effect being contribution to the enterprise in effectively managing its assets? For example, most organizations have diary systems, inactivity measurements, average time measurements, etc. How effectively and consistently are they being used? When is the last time an internal meeting either focused on or referred to results from the measurement mechanisms as a bottom line influencing factor? What about self, intra, and closed file audits? How are these findings making their way into bottom-line management actions? Does the organization continually measure and monitor key value protection activities? What is being measured and why? Are yesterday's metrics still valid measurements within this new economic environment, or have they become outdated and obsolete? Are closing ratios as important today as cycle times? Are pending counts relevant to corporate value protection?

All About Protection

Value protection is the result of a number of dimensions being practiced in a continuous, accurate, and disciplined manner. Successfully managed enterprises understand that they can only influence what is within their sphere of control. Now is the time, given the level of external uncertainty and financial pressure, to be utilizing an internal and therefore controllable corporate value protection resource -- the claim department -- to its fullest. While not generally recognized as a top-line contributor, the claim department does maintain an important position in bottom-line contribution and corporate value protection.

Oh, and the company to which I referred to earlier succeeded in reversing its fortunes, having learned how to manage its front door and is today one of the strongest P&C carriers in the industry. I think we all need a happy ending these days!