Risk managers should compare and contrast a dedicated claims unit to a more traditional claims-handling approach when determining which is most appropriate for any given scenario. Both can be very effective, and such a decision should be specific to an organization’s circumstances.
Characteristics of Traditional Claims Handling
Under a traditional claims-handling program, a claim is reported to either an insurance company or third-party administrator. Upon receipt, a supervisor assigns the claim to an individual selected from a pool of examiners. Such a selection is typically based on that person’s experience, expertise and caseload. This allows an insurance company or third-party administrator to support a wide range of clients and handle many types of claims.
Claims examiners follow boilerplate claims-handling protocols. This model is very efficient in handling a high volume of claims from a large number of employers. It also allows an insurance company to move examiners from one claim to another and from one office to another since the claims procedures are highly standardized. Employers may or may not know the examiner managing the claim, as these positions vary from case to case.
Characteristics of a Dedicated Claims Unit
As the name implies, exclusive focus on a single company is the difference with a dedicated team. As such, claims examiners develop a level of program expertise and a consistent way to handle claims. Further, a dedicated claims unit presents risk managers with a limited number of claims examiners with whom they must interact. Over time, a partnership can be forged, as examiners learn to talk the company’s language and understand the company’s culture.
Moreover, the company often has a direct say in which examiners are selected and retained to work on the account. The risk manager knows he or she is working with individuals who understand the organization and its broader risk management philosophy. Together, they can implement a wide range of specific quality standards, audit procedures and processing protocols that are tailored to the company’s operating objectives.
Key Considerations
There are several key considerations to make when determining if a dedicated claims unit is appropriate. One is the size of the company’s claims volume. The company must determine if it generates enough claims during the course of a year to necessitate one or more full-time claims examiners.
It is possible to dedicate a single examiner if the goal is to limit the number of claims an individual handles. The same applies if the claims tend to be highly complex. When the types of claims filed are usually similar, examiners can develop a higher level of skill in managing them and add consistency to the process.
Budgeting is another key consideration. The cost of a program is tied to the expense associated with the individual examiners and supervisors assigned to the dedicated claims unit. This is in contrast to traditional claims-handling practices in which companies pay a fixed amount per claim handled. The dedicated unit model and pricing structure, while likely to be more expensive, gives a company greater predictability in knowing what its annual claims-handling costs are going to be. You may pay more for this customized service, but there is greater cost certainty.
In addition, there are indirect costs and savings associated with a dedicated claims unit. More specifically, successful units improve claims investigations, lower litigation rates and costs, and increase productivity. These enhancements and savings are the direct result of examiners’ familiarity with all aspects of the company’s specific claims-management process.
Another consideration is the time and involvement a dedicated claims unit requires of a risk manager. The risk manager must be actively involved in staffing decisions, quality control, developing service standards, formulating processes, and training both new and existing examiners. While the level of involvement required by a dedicated unit is higher on the front end, the actual time required once a dedicated unit is established can be lower than that required by a traditional program.
In this way, using a dedicated team becomes closer to managing claims in house. Self-administration of claims offers many of the same benefits and poses many of the same challenges as a dedicated program.
Team Selection and Performance
When selecting team members, the most direct approach is to choose a group of examiners with whom the risk manager has been working and have the insurer or third-party administrator form a dedicated unit with those known examiners. Other approaches include working with the insurance company or third-party administrator to define the job requirements and background needed. The risk manager and insurance company or third-party administrator can then jointly interview and select examiners for the program. Most risk managers retain the right to have an examiner removed if attempts to coach him or her prove unsatisfactory.
In order to have a good program, the risk manager must learn to get the most out the team. One way to accomplish this is through ongoing feedback and recognition. Such acknowledgements can be provided on individual files as well as on monthly, quarterly and annual reviews. Making the unit feel like a part of the company and involving it in company events when possible also fosters a team-like atmosphere. Taking time to relax and have fun together is important. Supporting examiners’ development is essential.
Evaluations of team members should have both a qualitative and quantitative component. Some of the qualitative factors to consider include how they interact with field operations, their creative approaches to claims handling, and how well they know and assume the company’s culture. Quantitative evaluations can be based on claims-specific targets and goals, including file costs, claims durations and ultimate program results.
Personal Experience
In my professional experience, I have found a dedicated claims unit to be very effective. I currently serve as the director of risk and insurance at Advance Auto Parts and have held similar positions in the retail and food service industry throughout my career. A dedicated claims unit has been a part of my overall risk management strategy at many points along the way. It is an approach whose success can be replicated in a wide range of companies and across many industries.
My experience is that, with a dedicated claims unit, my team has achieved better claims outcomes in terms of cost, duration, and fair and equitable results than under traditional programs. It has also been my experience that the quality of work—investigations, rapport, insight and claims-management solutions—is greatly enhanced with a dedicated claims team.
As mentioned, in order to rationalize establishing a dedicated claims team, there needs to be a significant claims volume and some level of expertise. Since arriving at Advance Auto Parts in April 2010, I have worked with an outside company to establish what I believe is one of the top dedicated liability claims units in the country. Since moving to the current dedicated team, nearly all of our metrics have improved substantially. Moreover, the partnership of working together is extremely rewarding and beneficial.
In addition to establishing the liability claims unit, I have also had great success by using a single lead property examiner. This individual knows our operations, buildings, accounting and inventory procedures. He is on a first-call basis to manage our property losses. Even though we only need to utilize his property claims expertise a few times each year, the benefits for the company have been tremendous.