Besides determining the best ways to sell insurance policies to customers and ensuring that policy applications are processed in a timely manner, insurance companies must focus their benchmarking, business intelligence and operational reporting efforts on claims processing metrics, or their loss ratio will continuously rise. Measuring insurance claim payouts (i.e., payment for a customer reported loss, or damage) covered by the customer’s policy, and how much should be paid out, with the right claims metrics will help keep this cost in check. The amount of money spent processing claims and the amount of paid losses themselves can become exuberant, if they’re not tracked rigorously.
How do we know this? We implement insurance claims BI dashboards and benchmark claims processes for Fortune 1000 insurers daily.
Insurance claims metrics and KPIs are defined as the quantitative values used to determine how efficiently and effectively specific goals and objectives are achieved for the insurance claims process over a set period of time. Insurance claims department metrics used to measure the efficiency of the insurance claim process should focus on the quality of service provided, the productivity of the insurance company’s claims employees and the cost of the claims process.
Here are 4 examples of insurance claim metrics and KPIs that every insurance company should be tracking to improve the efficiency of the insurance claim process.
Insurance Claims Metrics Example # 1: Claims Settlement Cycle Time
As unrealistic as it may sound, customers expect claims to be settled as soon as they notify the insurance company that they incurred a loss or damage. But settling a claim is a process that varies greatly in length of processing time from company to company. Insurance companies must first review the claim to see if the events, or circumstances that have occurred are covered by the policy held by the customer. It is not advisable for the insurance company to take too long to settle a claim as that will both reduce customer satisfaction, causing them to turn towards other insurance companies, and open the insurance company to litigation risks.
When benchmarking or implementing department-wide insurance claims operational reporting, use the Claims Settlement Cycle Time metric, which is defined as, the number of days required to settle a property and casualty (P&C) insurance claim from the time the claim is reported by a customer. Benchmark values for this insurance claims processing metric range from 7 days to 14 days.
To prevent high values for this insurance claims metric, seek to improve claims triage procedures (i.e., the procedure used to prioritize reported claims, route the claim to the proper claims adjuster, etc.), inbound data collection practices (i.e., how insurance representatives, or claims adjusters collect information from the customer concerning the claim and the affected policy) and claims adjuster training. This not only results in higher productivity rates and lower costs for your insurance company, but can also reduce claims leakage – losses paid out that are higher than they should/could be.
Insurance Claims Metrics Example # 2: Claims Processed per Claims Employee
One factor that can influence extended claims settlement times, is the productivity of the employees working within the Claims Department of an insurance company. Sub-par inbound data collection practices, poor information exchanges between claims adjusters and underwriters, and the inability of the claims adjuster to triage, or prioritize, incoming claims, all affect insurance claim employee productivity and, therefore, the amount of time spent settling claims.
To accurately determine which claims employee is causing a productivity bottleneck, and thus what necessary steps need to be taken to improve the insurance claim process, measure Claims Processed per Claims Employee in your operational reporting and benchmarking efforts. This insurance claims metric is defined as the division between the total number of claims processed over a certain period of time and the number of employees working within the Claims Department (e.g., claims adjusters, underwriters, etc.) of an insurance company. Claims processing productivity variance of employees at one company can be large – some employees can process ten claims per day, other employees just one.
Once managers know where the insurance claim processing productivity issue lies, they will be better able to determine what next steps are needed to improve. This primarily includes restructuring the employee training regiment, simplifying the claims process itself, or even terminating unproductive employees that aren’t meeting claims processing quotas. This claims processing metric should be measured and benchmarked regularly as low productivity rates drastically increase cost, decrease customer satisfaction and cause high customer turnover.
Insurance Claims Metrics Example # 3: Cost per Claim
Insurance companies exist to make a profit, so having profitability tied up in improper insurance claim processes that increase cost per claim can be detrimental to the bottom line. While claims adjusters can cut back on errors by taking extra time to process claims, taking too long, as previously mentioned, may end up costing the company money and customers due to extended claim cycle times.
Measuring a Cost Per Claim metric in insurance operational dashboards can shed light on common inefficiencies within the insurance claim process, which can in turn identify problematic claims adjusters and insurance claim processes. This insurance claims KPI is defined as the total cost, including intake, adjustment, estimate and closure, of processing property & casualty insurance claims divided by the total number of P&C claims processed over the same period of time. The total cost of processing claims for this metric should include labor, technology and all overhead costs.
Using operational business intelligence and claims benchmarking to identify insurance claims metrics that require attention and claims adjusters that would benefit from remedial training should be at the top of every insurance claims executives to do list as extended claim cycle times, high amounts of rework, and improper claims routing all increase the amount of money the insurance company needs to spend to process an insurance claim. Claims assigned to the wrong adjusters get passed through the process until they finally reach the proper desk increasing company cost. Tracking this insurance claims metric can pin-point exactly what is raising claims processing costs and negatively impacting customer satisfaction, opening a path towards insurance claim process improvement.
Insurance Claims Metrics Example # 4: Claim Error Rate
Errors in the insurance claims process should not be treated as random events. There are likely certain claims adjusters who consistently produce claims with repeated errors when compared to their peers. All levels of insurance company management can benefit from measuring claims error metrics. Measuring claim processing error metrics to reduce errors due to erroneous or missing info before they end up costing money, time, and impacting the customer experience seems like the prudent thing to do for any manager or executive, right? But where do you begin?
Well, to start, add the Claim Error Rate metric to your next benchmarking analysis. This metric measures the number of claims processed that contain errors requiring correction and customer touches to fix (i.e., missing customer names, erroneously added personal customer information, incorrect addresses, etc.) relative to the total number of claims processed. Many errors can be caused by improper work habits, misunderstandings, a lack of knowledge and general oversight.
Fortunately, measuring this claims metric can help managers identify the above-mentioned habits that plague the claims process in insurance companies today. Once the root causes of these errors are identified, insurance managers can ensure that the employees committing these errors are provided with additional training, and construct a standardized checklist to help stay on top of specific behaviors that lead to a rise in error rates. Only by identifying measured trends in error rates, and why the errors are occurring, can insurance managers work towards a solution to reduce them.
Committing to Measuring the Right Insurance Claims Metrics and How We Can Help You
While there is a plethora of other insurance industry KPIs to measure and analyze, by tracking these 4 claims KPIs in your operational reporting and benchmarking, you’ll be better able to ensure your insurance claims process is running as efficiently as possible.
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