The evolving responsibilities of software-outsourcing companies means they can now help clients ensure their reserves are never exhausted, or eroded. Gary R Markham, founder and chief executive of LSG service software solutions, speaks to Cayman Captive about visibility and using data to create what he calls 'electronic mousetraps'.
In an environment where controlling costs is increasingly important to companies that use captives, using the right software solutions can help companies gain a much better understanding of the costs involved in handling a claim-in turn helping them ensure their reserves are also properly managed.
Gary R Markham, founder and chief executive of LSG service software solutions, says that because of poor back office and claims management systems, many companies fall into the trap of adopting poor policies such as step reserving, whereby a reserve is set but the claim continues, often resulting in costs being forced higher and higher.
"We've come up with a mechanism to complement the work flow that's managed within the software application, providing real-time control over things like preventing and controlling step reserving," says Markham.
The application can track a number of variables and costs, allowing the user to keep a handle on the associated claim costs for the multitude of professionals working on a claim, including lawyers, forensic accountants, loss adjusters, and field investigators.
"Provided they've got live budgets, we're able to track that," says Markham. "We look at their erosion as relates to the overall reserve, while also tracking the indemnity."
He described the process as a pyramid-a hierarchy whereby the allocated loss adjustment expenses (ALE), indemnity, reserves, and budgets can be monitored in real time, allowing the prevention of budget and reserve erosion.
"We can give alerts and notices to the claims folks and the others involved, to make them aware in a proactive fashion that they're about to break through a particular budget," says Markham.
"You would want to know if you are at, or over, the reserve sooner rather than later so you can respond and adjust the budget and/or the reserve accordingly."
Markham explains that many benefits can be derived from this process-benefits he calls 'electronic mousetraps'.
According to Markham, an electronic mousetrap "is a feature or function of LSG's software that has been set with conditions, which when applied, will bring about more proactive behaviours in both claims adjuster and external experts; and ultimately, in driving more favourable claims total outcome results."
He says that using such transparent software tends to foster a change in behaviour, brought about by the level of visibility allowed to the claims adjusters as well as the lawyers, forensic accountants, and all external resources brought to bear on settling the claim.
"If you're tracking live budgets and notices are going out when one of these erodes to say 75 percent, or whatever threshold you've set, behaviour gets shifted because everybody is aware that the live numbers are made available to people who are able to make quick decisions," explains Markham. "This is what I mean by visibility."
Markham adds that the cultivation of this behavioural change means that everybody involved becomes more proactive.
"If an event has taken place, or something has happened throughout the life cycle of the claim that's going to alter your strategic path, then you need to revise and update the budget accordingly," says Markham.
"If you didn't have that notice about the imminent bursting through of your budget in a paper-based environment, or hadn't made the decision to revisit the budget and take account of those new events, then they may have taken place after the fact-when it's too late."
This 'total outcome' philosophy can vary, he says. When referring to healthcare, medical malpractice or workers' compensation claims, liabilities that are covered by a large portion of the captive industry, there are also the injured party and return-to-work aspects to consider.
"If you talk to a head of risk management at a large self-insured organisation that has a captive, they're going to tell you one of their primary focal points is getting that person or persons healthy and returned to work as quickly as possible," says Markham. "That's what makes them productive and happy."
He says that if a claim is a familiar type, then it should be handled as such.
"We should be aware of their main focus," he says. "So this will get pulled into the total outcome of the claim evaluation, along with everything else around the performance of external resources.
"Currently we are not handling medical professional (clinical) performance, but I do know of companies out there that do for medical what we do in the legal and expert fields. We just haven't brought the two together yet."
Markham believes that the approaches are very similar, adding that the data collected on the medical side is very much geared towards the clinical services and the various medical professionals involved in helping to settle the claim and provide support to the injured party.
"There's no reason why we shouldn't be considering bringing those two sets together," he says.
Utilising the data
Markham explains that as part of the performance evaluation of the professionals handling the claim, particularly the lawyers, forensic accountants and expert witnesses being the most expensive resources, LSG run a system using report cards and score cards.
The report cards are based on two main buckets of information. One is a quantitative bucket around a number of metrics including adherence to budget and timeliness of response.
The second is a qualitative review, as Markham explains. "This is something that we encourage claims adjusters to complete. It's a series of questions with drop-down answers, each of which carries a weighted score," he says.
"Again, we have an electronic mousetrap around this so that they cannot close the claims file unless they've completed the report card.
"As the adjuster closes out the file, the information is fresh in his or her mind as to how the lawyer (for example) performed in helping settle the claim for the insured party.
"The qualitative results from this exercise are added to the quantitative results that the system's already produced because we've captured that data, and an overall report card score is produced-on that one claim, with that one law firm, for that one adjuster," says Markham.
He explained that this then rolls up to a score card which is a running tally of how that particular firm performed across all of the claims they have handled within the portfolio.
"So you're garnering the metrics from the system as well as the opinions of your group of claims adjusters, and you're putting that information into what effectively becomes a knowledge base," he says.
An effective tool
Markham adds he believes there is a level of sophistication in terms of demands by clients, especially insurance carriers and self-insureds, for data analytics.
"I distil this down to some of these key data collection points, and how we use them within our workflow management to foster those behavioural shifts that bring about the performance improvements," he says.
But although you might be looking at the right data analytically, it needs to be something that can be plugged into a tool.
"If you're looking at after-the-fact data it's going to give you historical trends which are of interest, and maybe you can do some predictive modelling around that, which we also help clients with," says Markham.
"But unless the data is connected to a tool that's going to enable you to control certain trigger points and events within the life of the claim, then it will tend to run on and have a much longer tail than would otherwise be necessary.
Otherwise you're not going to be proactive and it's always going to be after the fact, so these electronic mousetraps are how we use the data."
Markham explains that these trigger points are then reported on via a dashboard tool that clients are able to evaluate, including metrics such as closing ratios, days in litigation, costs versus indemnity, and even a measurement of where professionals have spent their time.
He described this as a UTBMS (uniform task-based management system)-a coding methodology that investigates where people spend their time in each phase of a case: assessment, evaluation, research, trial, filing motions, trial prep, etc.
Data is therefore collected on every single event that occurs within each phase of activity, and comprehensive reports are produced as a result.
"All of these reports are interesting because they give you norms and trends, and show where best practice can be achieved," says Markham. "This is a knowledge base that you can then share with others who are handling similar files.
"This whole data analytics piece is something that could be quite dangerous if used in the wrong way, but if it's geared towards applying data in a way that enables controls to force a better result on the life of the claim around these metrics, then I think that's a very good thing.
"The education around, and the demand for, that data from clients is growing exponentially, and we now have a tool that satisfies that," he concludes.
"You don't need a PHD in computer science to run it, but of course you need to know what you want to get out of it, why you're using it, and what benefit it's going to give you."