Escaping from the Land of Big Data

Medical Cost Containment

Key metric—Medical network utilization is monitoring the percentage of claimant treatment inside the established medical network. This is an effective way to watch several aspects of a program, helping answer important questions, such as the following.

• Is the provider's network matching up to your needs?
• Is there effective early communication with claimants and physicians?
• Are your managers and claim adjusters directing care when appropriate?

In Aon's Casualty Laser Benchmarking Data, a study of claim element outcomes for more than 400 companies and $8 billion in workers compensation claim values across 16 industries, network utilization varies somewhat by industry, with the highest averaging penetration being construction at more than 79.3 percent and the lowest being transportation at 57.7 percent.

Disability Management

Key metric—Average temporary total disability (TTD) days per indemnity claim is likely the most effective measurement of the severity of injuries and the effectiveness of an organization's return-to-work program. The results can lead to important insights, particularly when comparing department, location, or division results against one another. Who—among internal and external partners—is supporting the return-to-work program will quickly be uncovered. As one would suspect, the target is industry specific and has a fairly large range from 117 average TTD days per indemnity claim in mining to just over 60 in education.

Disability Management

Key metric—Medical only to indemnity conversion rates are often the result of the limited opportunity in the life of a workers compensation claim to mitigate the cost of that claim as well as the extent of an injury that is not always apparent at the time of claim reporting. Therefore, claims routinely convert from medical only (minor in nature) to indemnity. Converted claims are often an organization's most expensive claims, primarily because effective causal connection investigation and medical management practices are not applied at the onset of the claims management process. When conversion rates are reduced, so are costs.

The use of data mining enables the identification traits of past converted claims applied to future claims, which can also identify problematic claims. Flagging those claims at inception and applying more aggressive cost containment strategies typically applied to indemnity claims have shown to significantly reduce claim conversion rates and ultimate costs by building claim strategy based on quantitative analysis of a client's unique claims profile. 

Medical only to indemnity conversion rates also vary by industry with the highest being in education, at more than 53 percent, to the lowest being in construction, at 20.1 percent.

Litigation Management

Key metric—Ratio of paid legal expense shows that it is important to monitor the litigation costs as a percentage of the claim expense category. Historically, too many organizations chose their litigators based on the blended rate, choosing firms with the lowest rate. Numerous studies of litigation costs across various firms indicate that some firms with higher rates were actually more efficient and also more successful. In addition to monitoring litigation trends as a percentage of total claims that organizations confront, it is important to also monitor the ratio of paid legal expense.

Claim Process

Key metric—Claim closure rate is an excellent metric to monitor how effectively claims are being managed to closure. While there are several ways to make the calculation, use the most recent 12 months (the loss date within the most recent 12 months from the valuation date) and take a percentage of the closed claims to the total claims within that same 12-month period. This resulting rate is not affected by initiatives to close older claims, but it reflects the effectiveness of the current claims management process. In examining the closure rates of hundreds of organizations, it has been found that low closure percentages are more commonly caused by poor internal claim management and settlement authority issues than the effectiveness of the third-party administrator or insurance company.

Over the last few decades, data has become more available and more precise. Looking ahead, the challenge will be gaining an understanding of how to make access to data more directional in nature and thus actionable. The data and analytics industry has outgrown the annual stewardship process, and companies should seek to leverage information more effectively. Committing to key process measures and working with business partners and providers from a common dashboard offer the opportunity for joint targets with clear, concise measures. Organizations that escape from the land of big data through the use of key actionable metrics will begin to gain valuable insights by spending less time gathering data and more time analyzing its meaning.