Tag Archives: subrogation

Blockchain: A Hammer Looking for a Nail?

Netting of subrogation payments, the exchanging of payments between carriers at regular intervals instead of on a claim-by-claim basis, is a concept that has been around since the mid-1990s. It is once again back in the news with the announcement that State Farm is developing its own blockchain solution to net subrogation payments between itself and another unnamed carrier. Some say this is an innovative solution for the use of blockchain for the insurance vertical, but is it really nothing more than a hammer (blockchain) looking for an old nail (payment netting)?

All will agree there is room for vast improvement in reducing friction of the subrogation workflow, including the exchanging of funds. Carriers send thousands of checks to each other on a monthly basis in the settlement of subrogation claims – the same process that has occurred since the beginning of time relative to the subrogation process. It’s expensive, involving the printing of checks, mailing costs and the labor to apply funds by the receiving company. Each payment needs to be broken down and applied in the claims system to the individual lines of coverage for the original claim payment and then balanced out in the accounting platform. In a “netting” scenario, the total value of what two companies owe each other is issued by one payment, but then still has to be reconciled on both an outbound and inbound basis, making sure to reconcile every claim that is affected. Remember, each side of the payment has premium ramifications. Many touchpoints, applications and processing.

No wonder this has been an issue, but why does it still garner so much focus, with the advancement of financial technology and the reduction of check processing fees? Shouldn’t we now be focusing on a more holistic solution for the industry affecting more than just the payment?

In the mid-1990s, banking costs drove the netting conversation as a way to reduce fees, but the industry wasn’t able to come together on how to solve the problem. Competitive pressures, internal constraints and the problem of how to reconcile the carriers’ multiple platforms contributed to the futility of the conversation. Industry organizations even tried to solve the problem but with no success.

9/11 changed forever how the banking industry dealt with checks. The country was brought to a standstill for three days due to air traffic being halted (remember, checks were physically moved between the Federal Reserve branches on a daily basis via planes at that point). One of the outcomes of this national tragedy was the implementation of the Check 21 Act in 2004, allowing the image of the check to have the same “value” as the original check. Financial technology, better known as fintech, was developed to place the imaging process of the check into the hands of the business customer, allowing it to image the payment and send it to the bank. The banking industry gave the insurance carrier a digital scanner so the carrier could do the teller’s job of scanning the payment instead of the bank incurring that cost, but the insurance industry still had to manage the application of funds manually as it did before.

Great move for the banks and yet carriers couldn’t figure out their now 10-year problem of netting even though technology existed to take that scanned copy of the payment and automatically apply it to the claim file via new insurance technology. No changes were required to claim platforms of the paying carrier or how the receiving company had to apply the funds – just a straight automation opportunity with a substantial labor savings. However, the major carriers still pursued the netting solution even though the problems they were originally trying to solve were no longer an issue.

See also: Blockchain: Seizing the Opportunities  

We are now 15 years removed from the introduction of fintech by the banking industry, and the netting conversation remains! Banks allow their business customers to image and deposit their checks through a scanner. Consumers manage their accounts through their mobile devices along with the ability to transfer money to each other through apps such as Venmo or Paypal. Moving money has become extremely inexpensive, with the result for all of us being the reduction in the processing fees. Then why does netting continue to be promoted as a problem that needs to be solved when the costs have dramatically decreased? One does have to wonder.

The industry is working through various use-cases for blockchain, and, yes, you guessed it, the financial transaction of the netting of payments is still being pursued. The original problem of check processing costs is no longer an issue, while the same issues of allocating the information to both claim files remains. Participation remains problematic, but the level of concern increases if a blockchain is being managed by one of your competitors. Who has access to the data? Where is it stored? How can it be used? Does a netting solution created and managed by a carrier create a competitive advantage for that carrier?

If we can get beyond these questions, the bigger issue remains as to why time, money and effort are being used to address a 20-plus-year-old issue that can be handled via existing technologies rather than complicating the process with the additional friction of netting being added to the industry’s expense? Maybe the alternative is to use blockchain to digitally transform the subrogation workflow affecting LAE in dollars rather than cents while also maximizing recoveries.

Our industry will continue to evolve and build on new technologies. Let’s be sure to swing our hammers at nails supporting the future building blocks rather than those 20-year-old rusted out nails.

The Question That Insurtech Is Avoiding

There’s a lot of it about. Insurtech and technology, that is. New ways of doing stuff. Breaking traditional distribution models and deconstructing established supply chains. Who could not be excited?

But there’s another side to this coin, and that’s the issue of established practice. Insurance isn’t a new gig, like telematics, but something that’s been around for three centuries. Some might argue even longer, as there are records of even the ancient Egyptians sharing and aggregating risk. Protecting the few by collaborating with the many.

Over the centuries, insurance hasn’t been an easy ride. What do we mean by appropriate compensation, or, in insurance parlance, by the principle of indemnity? How to deal with those at fault, or, in insurance language, the matter of subrogation.

See also: Where Will Unicorn of Insurtech Appear?

But in the old way of doing things, we all knew where we stood. Insurance contracts had evolved over decades, and where there had been differences in interpretation the legal system had sorted things out for us. There was a sort of certainty and framework to our business and a more certain relationship, even if the topic of trust remains contentious — the level of trust between policyholders and carriers has always been low, despite a degree of contractual certainty.

Now, here we are in a Brave New World of insurance. Things will never be the same because of technology, the experts say. Some say insurtech is mainly just about new distribution channels, customer management and operational efficiency, but that leaves the rest of the insurance proposition.

It feels like we’re throwing a ball onto a sports field and asking the two competing teams to sort out the rules for themselves.

Will there be winners and losers? Of course. The winners will be the legal profession, which will spend years, perhaps, discussing where the liability for death rests as a result of a driverless vehicle incident. Was it the manufacturer – as a product liability issue? Was it the occupant of the vehicle – extending the concept of occupiers liability? Was it the system administrator, which ran the system and which surely must be involved somehow? Maybe even the victims themselves: “Don’t you know you need to be more careful, with all these unmanned gadgets all around us?’”

We can’t all just contract out of responsibility. The proverbial buck must rest somewhere.

Think forward a few decades. Let’s accept that the insurance industry will have been re-engineered and reimagined, with robots, chatbots and wobots. Let’s assume that physical risk is calculated in a more granular way and that underwriting risk management is absolutely aligned to the risk appetite of a carrier. And we have somehow managed to be proactive, to have better responsiveness to climatic change and everything else. And ubiquitous devices provide us with bottomless barrels of information, from which our systems draw insight through advanced analytics.

See also: 3-Step Approach to Big Data Analytics

Someone, somewhere, will need to address the question — what does all this mean contractually to the insurance industry? After, all isn’t insurance just no more than a contract, between two parties? Or was that concept somehow lost, somewhere inside the Innovation Hub, or among the bits and bytes of technology?

Isn’t it time that someone slowed the momentum of change and had a real hard think about the legal implications for insurance?

Insurance Needs a New Vocabulary

Lots of industries face criticism because they talk the talk but don’t walk the talk — the computer industry, for instance, long talked about making machines intuitive but required users to work their way through manuals and memorize long series of steps before they could accomplish anything. But the insurance industry doesn’t even talk the talk yet.

Sure, everyone is talking about improving the customer experience, but look at the words we use. Many are opaque — the industry talks to itself, somehow unaware that customers are listening and are turned off by the gobbledygook. Some words are even offensive — we’re saying things to customers that we really don’t want to be saying.

We have to at least get our talk — our vocabulary — straight before we tackle the much deeper issues and figure out to really engage customers and address their evolving needs.

My least-favorite word is one so widely used that few will find it offensive: “adjuster.” My problem: If I’m filing a claim, I don’t want it adjusted. I want it paid.

Yes, I realize that processing claims is complicated and that all sorts of adjustments need to be made. I also realize that no industry simply pays when a claim is made against a company. But if you send me an “adjuster,” you’re telling me right off the bat that you don’t trust me, and that’s a lousy way to start an interaction. It certainly isn’t any way to start a relationship, which is what insurers insist they want with customers these days. Don’t trust me, if you must, but send me a “claims professional” or simply a “customer service representative.” Don’t send me an “adjuster.”

Less offensive but still unnecessarily bad are words like “excess” and “surplus.” The insurance may be categorized as excess and surplus to you, but not to me, the customer. I’ll thank you to treat my needs with the respect they deserve (says the customer).

Some words need to go away because they already have meanings — and they aren’t the meanings assigned to the words by the insurance industry. A binder is a plastic cover with three rings that you buy for your kids at this time of year as they head back to school; it is not temporary evidence of insurance. An endorsement is something you put on the back of a check — or at least used to, before banks simplified deposits. An endorsement is not something that modifies an insurance policy.

Mostly, many terms need to be revisited because they are opaque, and often archaic:

  • “Underwriting”? How about “assessing risk”?
  • “Actuary”? That’s a legitimate word, but I prefer the European form: “mathematician.” (“What do you do at XYZ Insurance Co.?” “I’m the mathematician.”) “Mathematician” just seems friendlier.
  • “Capitation” and “subrogation”? Important functions, but there have to be layman’s terms that can be substituted.
  • If I’m buying life insurance, good luck getting me to grasp intuitively the difference between whole life and universal life; “whole” and “universal” are practically synonyms in this context.
  • “Inland marine”? Please.

While we’re at it, let’s do away with the acronyms. All of them — at least on first reference, and mostly in subsequent references, too.

Changing the language will be hard because so many in the industry subscribe to what I think of as a 19th century sort of approach to business: Let’s make things seem as complicated as possible to justify the existence of lots of experts and intermediaries and to demand nearly blind faith by clients. This is sort of the “don’t try this at home, folks,” approach to business. Leave the complicated terms to us.

The approach has worked for insurers for a very long time. It has worked for doctors and lawyers. If a cynical T.A. in a philosophy class in college way back when is to be believed, it worked for Hegel, too — he supposedly wrote a short, clear version of his big idea (thesis/antithesis/synthesis), and no one took him seriously; he then wrote a 1,000-page, nearly impenetrable version, called it merely the introduction to his ideas and found lasting fame.

But things have changed since Hegel wrote in the early 1800s. Now, if I want to remind myself about Hegel, I turn to Wikipedia and its clear, little summary; I don’t crack open The Phenomenology of Spirit. Change has accelerated in recent years, to the point where even doctors find themselves having to communicate more with patients in plain English.

If doctors can simplify how they communicate about the mind-boggling issues involved in medicine, then the rest of us can figure out how to talk the talk in insurance. We need to begin by taking a hard look at every term we use and revising many of them, from the perspective of a total newbie customer, so we talk to customers the way they expect us to talk to them.

That’s the only way to lay the groundwork for the broad improvements in the customer experience that we all want to deliver and that customers are increasingly demanding.

Chasing the Right Numbers on Claims

Managing a claims operation is challenging. There are so many moving parts, dynamics and procedures. Information comes gushing in like a fire hose, making it difficult for many companies to effectively assemble and organize it. It’s crucial to help claims divisions focus on the right numbers instead of chasing numbers that have no value.

Most claims leaders know that there are a few factors that affect the majority of claim outcomes. However, many times organizations will mistakenly target metrics “for metrics’ sake,” at the expense of common sense.

Traditionally, a claims supervisor or branch manager will receive metric targets from senior leadership. Unfortunately, the intent of these goals is skewed dramatically by the time they reach front-line personnel. For example, let’s take a company that wants to improve customer service by inspecting vehicle damage the same business day. While this is a noble idea and has the potential to increase customer satisfaction, branch level managers are often forced to abandon rational thinking to meet a specific “inspection metric” or quota. Managers will chase the numbers to obtain an inspection, often having staff appraisers take photos of damaged vehicles over fences or taking shortcuts in an attempt to meet requirements. This often leads to compromised accuracy and raises the question — “Does it really make sense?” It does to the manager who needs to meet goals and protect her job but does it truly increase customer satisfaction? Not necessarily.

Having a goal at the top doesn’t mean that the numbers will retain their true meaning by the time they get to the daily staff. It’s crucial to focus on figures that actually create better claim outcomes and customer experiences.

Here’s another example of how differing goals within a claims organization can skew overall results when managers are forced to manage to the wrong numbers:

Let’s say your insured damages another vehicle and that claimant decides to go through his own carrier for repairs. Now the carrier sends in a subrogation demand that includes excessive rental, overlapping operations, duplicate invoices and mathematical errors. Would it be a good idea to just pay what is being asked without reviewing for accuracy?

Well, for some insurers that don’t have the staffing or the expertise in the subrogation department, quite often an excessive demand like this might just be rubber-stamped. The subrogation department may be overseen by an individual who has been compartmentalized away from day-to-day claims. If this manager’s goals and metrics don’t include accuracy, he may just pay this overinflated demand.

Chasing the wrong numbers can give the misperception that the manager is achieving goals, but the best possible outcome wasn’t achieved.

So what’s the answer?

The key is matching numbers to desirable outcomes that make sense. Eliminate any metrics that provide little value and only serve to create busywork. With the wealth of data that companies are able to gather and analyze, the focus should be on information that has a direct impact on customer retention and quality service.

One must carefully focus on the right numbers to add value and help push the organization forward to achieving that ideal balance of client satisfaction and operational efficiency.

How Big Data Can Transform Auto

Big data is everywhere and is becoming more powerful in every aspect of our daily lives. The hunger, and ability, to parse and analyze diverse data sets goes to the highest levels of our government, large corporations and even start-ups, which are finding ways to add immense value. Although we in the claims industry are not involved in international intrigue or attempting to create a surveillance network, we can harness data to effectively influence our decisions. This will ultimately achieve better outcomes by putting specific files in the most skilled hands, streamlining processes and eliminating unnecessary touch-points.

As technology continues to advance exponentially, the auto claims process can be radically improved. For many years, auto insurance claims departments squelched innovative thinking, in favor of tired cost-cutting measures. The departments would look at cycle time, average appraisal cost, repair cost, parts usage and total loss option documentation, but these data points are only a small portion of the picture and don’t fully address or reveal the root causes. To get to that, we need to dig a bit deeper.

Today, so much more data can be effectively captured and analyzed that a  claims manager could nearly predict outcomes and channel resources for the best results. Need more staffing in the field? What are the historical repair costs of a certain year, make and model with a matching impact location? Where are higher labor rates going to result in more total losses? Which companies allow their policyholders excessive rental on subrogation demands?

Here are a few examples of how auto claims technology and resulting data can be channeled to improve workflows, eliminate unnecessary touch points and create a more efficient process.

  1. Predictive Dispatching. Imagine putting the right claims into the right hands every time. Through predictive modeling based on a series of data points, the likely repairability of a vehicle can be ascertained to a solid degree from first notice of loss. Combine that with a robust dispatching solution, and the right field representative could be sourced based on factors such as; closest location, past performance, experience levels, historical cycle time results, CSI ratings, estimating software platform, workload volume, current volume for the day and comparisons with other representatives. Algorithms can instantly give the file to the person who is most likely to provide the best outcome. Should the file qualify for a self-service type claim or even trigger a potential total loss, the appropriate resources can be called into action, thus saving money and wasted time.
  1. Subrogation Demand Analysis. Why do some insurers focus intently on the front end of a claim to ensure accuracy yet will accept subrogation demands from carriers without the same scrutiny? Sure, much of the disconnect may be because of the compartmentalization between various departments within a claims organization, but, with data analysis, subrogation reviews can be parsed, reviewed and stored to track trends. Which companies overpay their insureds for rental when the repair is minor? Do a large number of your files end up in arbitration? If so, what are the triggers? Data can even catch potential fraud if, say, a VIN has been reported multiple times for the same damage.
  1. Where and when? For quite a while now, most digital cameras have had information embedded in each photograph. With the spread of smartphones and tablets, geocode location data can also be included. What does this mean? If detailed photo information is needed, oftentimes exchangeable image format (EXIF) data can document what brand of camera took the photo, the time it was taken and the exact coordinates. This means a field representative’s day can be reconstructed or a re-inspection date can be confirmed to ensure the condition of a vehicle at a specific point in time. While it’s never guaranteed that every phone or camera will provide the exact EXIF information, adjusters will find that, in most situations, a lot of valuable information can be gleaned.
  1. Claim delay analysis. In auto claims, the standard cycle time for a vehicle damage inspection is 48 hours. Can this always be achieved? If each step of the appraisal process is documented from assignment to completion, any issues and resulting data points along the way can lead to a treasure trove of information. You might discover that an incorrect phone number or vehicle location leads to 25% of all delayed files. This would be a valuable training tool to discuss with adjusters, stressing the importance of documenting accurate information before a dispatch. On the other hand, data may show that a certain percentage of files are delayed because an appraiser is overloaded. This could lead to an immediate focus on better allocating field resources. Capturing and recording specific data points along the way can serve as a tool to detect bottlenecks, inefficiencies and areas for process improvement.
  1. Location volume analysis. Do you need to increase your field staff? Just think if you could pull up a map at a moment’s notice and track volume in a certain location. You could track average repair costs in various zip codes, cities and states and break the information down to an even more granular level. Detailed data can be run over time and compared with newly written policies to predict staffing needs in certain areas before the losses even occur. Think about doing this in real time without needless Excel files and manual processes. This can help in forecasting and budgeting for future years, enabling efficient management and allocation of expenses.

Data, when simplified and made usable, is incredibly powerful. Nary a one of us leaves the house today without a smartphone in his pocket packed with valuable data: phone contacts, mapping directions, family photos, etc. In the claims industry, we must likewise surround ourselves with data, innovating and developing in ways that will let claims leaders manage from quantifiable data instead of basing decisions on emotion and misperceptions.