Raising the level of claims performance
Sedgwick takes proactive, outcomes-focused approach to managing claims
By Michael J. Moody, MBA, ARM
Over the past 10 years, the insurance market has appeared immune to price increases. Recent events, however, point toward an uptick in insurance pricing. Significant claims activity and modest returns from investments in the last 18 months appear to be moving rates upward.
The Risk & Insurance Management Society (RIMS) reported in its Annual Cost of Risk Survey an overall pricing increase of about 5%. Additionally, the Council of Insurance Agents & Brokers noted a rate increase of 4.3% in the second quarter of 2013. While these numbers by themselves are quite modest, it must be remembered that they are reflective of rate increases reported by the world's largest corporations. Many middle market accounts have experienced even higher rate increases in recent months.
Regardless of the size of increase, one thing is clear: Rates are headed up. For the insurance-buying public, this generally signals increased interest in risk retention plans, such as a large deductible plan or qualified self-insurance program, as a way to mitigate these price increases.
Taking action now
Alternative risk-financing plans generally require the employer to take on a more active role in the administration and management of the program. Nowhere is this truer than in the claims administration area.
For the most part, employers are able to exercise more control over the claims process in a risk retention type of program than in a traditional plan. Many corporations today elect to delegate this control to a third-party administrator (TPA). They typically find this arrangement allows them access to a wider range of jurisdictional claims expertise and cost management services.
Most TPAs still rely on claims management practices and processes they have been using for many years. There have been some improvements in areas such as managed care protocols, but for the most part claims management has remained the same. Employers have depended largely on the claims audit to determine the effectiveness of the claims process and services provided. Central to the traditional claims audit is a critical review of events after the claims have closed.
"Unfortunately, this is too late to provide meaningful feedback to those handling claims due to the retrospective aspects of the traditional approach to claims management," according to Darrell Brown, chief performance officer at Sedgwick Claims Management Services, Inc. Sedgwick has developed a new approach known as Performance 360 that is more in tune with employer needs in today's fast-paced claims management environment. Performance 360 is designed to incorporate a "continuous review cycle of audits which begins much earlier in the life of a claim," says Brown.
More aggressive review process
In describing Performance 360, Brown notes, "This process is used to determine whether claims are on the path to the best possible outcome or whether they should be adjusted to achieve a better outcome." In essence, he explains, Performance 360 involves evaluations that center on claims metrics in three specific areas. The three categories are:
• Communications—"Since this is such an important area, one of the first things we look to determine is whether actual communications are taking place," Brown explains. "We want to make certain that when we talk to the claimant (e.g., injured worker) or the employer that we are communicating in a thorough and professional manner." Most in the claims profession are aware of the importance of communications in the overall claims process. Brown indicates that there are several landmark studies that confirm "the importance of communication in the timely resolution of workers comp claims." These studies confirm the need for early and continuous communications from the employer as well as the claims professional. Failing in this critical aspect can result in costly attorney involvement.
• Proactive engagement—It is also important to be proactively engaged in the actual claims process. "We must make certain that we are moving the claim forward," says Brown. "While we try hard to avoid attorney involvement, sometimes it just happens; however, when it does, we need to make certain that they do not run off with the claim," he states. In order to accomplish this, he says, "We need to look at the level of engagement the same way we do with communications, along all the same segments of the overall claim."
• Results—All of this work is really directed toward one goal. "At the end of the day, all that is important is the result," says Brown. There are any number of methods to look at this goal, but Brown points out, "Ultimately, we need to look at the claim and how it was resolved." The paramount issue here is, "Did we get the client the very best result?"
Performance 360 is a significant departure from the traditional claims management approach. As Brown points out, "Auditing is looking back, usually on an annual basis, but our approach is really built to a more continuous work in process. We believe that it makes more sense to do these audits closer to when the actual work is performed."
According to Brown, "Predictive modeling plays a big role in our new approach." He acknowledges that predicting the severity of a claim is nothing new for the claims profession. "However, predictive modeling in this scenario can offer insight into the level of exposure posed by various types of claims and the work required. In the Performance 360 model, Brown says, "We look at claims based on the age of the incident." Thus, the audit is dependent on whether or not the claim is a zero to 90-day claim. "We look at specific things that would generally happen within zero to ninety days and those will give you immediate feedback," he says. This opens the door to make course corrections before the claims are settled.
"Take for example, open claims. If the claim is young, you have the opportunity to take one of several courses of action. One option is to provide some feedback to the examiner who is still working the case," he says. The other is, "If there is a problem, you can redirect that claim and get it back on track quickly," he points out. This situation really helps all the parties involved, proactively—rather than waiting until it shows up on a closed claim audit, when nothing can be done.
"This approach allows our claims professionals to provide a much more integrated method to their auditing work. Working with claims while they are still open allows both the employer and the TPA to have input into the most advantageous resolution prior to closing the claim. When coupled with things such as predictive modeling, Performance 360 offers a more innovative, proactive approach to claims handling," Brown says.
Sedgwick's new claims management standard, Performance 360, signals a marked change from the past approach to auditing claims performance. The philosophy is directed at a proactive methodology that will provide ample opportunities to make course corrections to claims settlement in advance of closure. According to Brown, "It will allow Sedgwick clients the ability to focus the bulk of their efforts on claims that will benefit the most from increased supervision." Sedgwick has spent the past few months rolling out Performance 360 to its claims people and existing clients. Both groups have been very receptive to the change since, in the end, the shift is moving claims management from a primarily compliance-based process to a much more outcomes-focused approach.