How Does Your Company Compare? The Value of Benchmarking Your Risk Management Program
Benchmarking is on one of the most powerful forms of data analytics. The abundance of data that is accumulated in the claim’s management process can be used to measure competitor success and uncover opportunities to improve the cost and efficiency of operations.
Benchmarking your risk management data and performance against your top industry peers, helps identify trends for improvement, establish goals, lower insurance costs and prevent future claims. Although each insurance risk management program is unique, there is a common approach to benchmarking that can help accomplish these initiatives.
Benchmarking is only useful if it’s tied to your organization’s strategy and goals. Setting a strategy is the most important element in the skill of competing. Your company may have many goals when conducting the benchmarking exercise. For example, they could want to look at risk management performance, or how programs compare to industry standards, or a cost-benefit analysis, etc. Ultimately, defining the goals and strategy at the beginning will allow your team to be focused and efficient.
Benchmarking also requires the accumulation of correct data to be an effective tool, which can be daunting for some companies. However, by utilizing existing data and the right benchmarking analytics sources and solutions, you’ll be well on the way.
Benchmarking Sources & Solutions
There are many popular sources within the insurance industry for providing accurate industry information to benchmark your risk management data and processes against, which can include the Insurance Services Office, Workers Compensation Research Institute, state insurance commission studies, various federal government agencies, etc.
There are also specific benchmarking tools like TerraClaim Benchmark, which provide users access to an extensive claims data warehouse to validate their programs, uncover opportunities to improve operations and facilitate enhanced claims outcomes.
Skip Brechtel, Executive Vice President & CIO at CCMSI said, “Benchmarking is a key component to analyzing the performance of a client’s workers compensation program. TerraClaim Benchmark provides TPA’s and their clients with a quality, easy-to-use tool that provides many options to review performance results from multiple data selection variables. It is an important tool we utilize in our client stewardship reports.”
Another option is for your organization to benchmark against itself. You can compare current or expected data with historical results, thus tracking change over a specific time period. You can treat departments or business units as “competitors,” with the successful performing department’s strategies reviewed and shared across the organization to replicate improvement.
Common Risk Management Benchmarking Metrics
Two common benchmarking metrics are severity and frequency. Both provide accurate ways to determine the effectiveness of your insurance risk management program and meet the goals. Below are examples of both types of measurements.
Sample Frequency Measurements:
- Average frequency (number of claims/number of exposures)
- Percentage of closed known claims (number of closed claims/number of reported claims)
- Percentage of closed claims with payments (number of closed claims with payments/number of total closed claims)
- Percentage of closed claims without payments (number of closed claims without payments/number of total closed claims)
Sample Severity Measurements:
- Average severity (losses/number of claims)
- Average case outstanding (case reserves/number of open claims)
- Average paid on closed claims with payment (paid on closed claims with payment/number of closed claims with payment)
- Average paid on closed claims (paid on closed claims /total number of closed claims)
- Average reported (reported losses/number of reported claims)
- Costs per exposure unit (losses/number of exposures)
- Percentage of paid losses on known claims (paid losses/reported losses)
Creating Value from the Benchmarking Results
The benchmarking results will showcase loss drivers, which will allow for your organization to prioritize short and long-term goals, identify which claims or divisions to focus on, promote safety and reduce expenses. Results can also provide an opportunity to support a request for more revenue to invest in risk management with the goal of reducing total future losses.
Ultimately an accurate and well-planned benchmark experiment will answer the question of “How does your insurance risk management program compare?”