The insurance industry relies heavily on actuarial models and benchmarks to
analyze performance and predict future exposures. One of the core assumptions
of analytics and benchmarking is that most components of the analysis mirror
conditions similar to the past. However, the pandemic introduced several
variables into the analysis that question the validity of those models in the
future.
The latest Out Front Ideas with Kimberly and Mark webinar brought
together a panel of industry experts discussing how models have been impacted
and how risk managers need to adjust their future expectations to account for
the pandemic's impact. Our guests included the following.
- Tamika Burgos Puckett—risk manager corporate security at Zoom
- Richard Frese—principal and consulting actuary at Milliman
- Ron Schuler—head actuary of property and casualty broking North America
and head of collateral solution at Willis Towers Watson
- David Stills—senior vice president of carrier and risk practice at
Sedgwick
Benchmarking Goals
Benchmarking is essential for any risk management program. Utilizing threat
and opportunity assessments and identifying key risk indicators help an
organization assess any new risks. Organizations that have incorporated
enterprise risk management programs use these identifiers in a holistic
approach to establish business objectives.
Months before the first claim of the year, risk managers working with
actuaries will need to make predictions about ultimate costs for the entire
year. Significant business and financial decisions are made based on these
predictions, including budgeting, service pricing, and how much risk to take in
other areas of the company. Predictability is critical for year-over-year
improvement in these metrics.
While there are many vital aspects of benchmarking in casualty claims
management, it is crucial to recognize the direct correlation between
employees' care and financial management metrics. With regards to workplace
injuries, ensuring the delivery of timely and appropriate care and returning
your employees to a preinjury condition should remain at the top of the list.
Staying focused on advocacy and timely care results in better outcomes for
everyone.
Benchmarking Challenges
The amount of data currently available seems endless, but is everyone
interpreting it correctly? Are the risk managers' goals aligned with
executive goals or even the legal team's metrics? Does everyone know what
they are trying to achieve with their data collection? While collaboration is
key to understanding benchmarks, making sure that everyone has similar goals is
critical to exposing areas of opportunity.
Additionally, finding a good data source can be a primary challenge.
Comparing similar risk profiles based on claims performance, including
reporting, case reserves, severity, and frequency, is critical to data
accuracy. Other benchmarks—such as deductibles, premiums, and collateral
amounts—can provide increasingly specific data to an organization.
Regardless of how much and what type of data is gathered, be sure to make an
action plan. If the effort is put into gathering all of this data, get
interpretations from other experts, and plan for making improvements.
COVID's Impact
COVID-19 has made a considerable impact on analytics, but one of the most
significant impacts has been caused by presumption laws. These laws shifted the
burden of proof, which completely changed the perspective in workers
compensation. Employers, both insured and self-funded, anticipated more of a
financial burden, resulting in duplication of benefits for some employees.
The pandemic also forced employers to focus on leading risk indicators like
safety and preparedness, creating a more positive impact on benchmarks. As far
as major disruptors, remote work had not been considered by many employers
before COVID-19. New considerations like hardware, Internet access,
productivity expectations, and, of course, cyber risk had to be made a priority
to minimize business interruption.
While there are some similarities in overall impact, the overall effect of
COVID-19 on benchmarks depends on the nature of the business and the physical
location of its employees. For example, retail will not be affected the same
way that health care has been affected. Some states also had a greater impact
than others because of differences in government shutdown orders. With claims
consideration, pay close attention to the types of claims since exposures have
shifted. While retail has seen a shift to online shopping, creating less foot
traffic and reducing in-store exposures, increased distribution center activity
could result in claims associated with overexertion or driver activity.
Considerations also need to be made for the following.
- Unemployment rates causing difficulties with the return to work and
potential for fraudulent claims due to financial strain
- Potential surge in cases due to businesses reopening and restrictions
being lifted
- Comorbidities with COVID-19 long-haulers
- Changes made to presumption laws
- Backlog of litigation cases
- Prolonged hard market due to uncertainty in underwriting new
policies
While many risk profiles have changed because of workers compensation
resources being reallocated and exposures moving to other jurisdictions,
recognizing the difference in those jurisdictions and their influence on those
risk profiles is critical in terms of cost and performance.
Advice for Risk Managers
First and foremost, define your narrative. Be aware that every business is
unique and has been impacted differently by the pandemic. Risk managers should
focus on claims frequency and how it has been affected by COVID-19 but
understand that it could be starkly different from historical workers
compensation claims. If possible, isolate the variable of COVID-19 claims,
increase the frequency of analysis on metrics, and test scenarios and
assumptions. The finer the data can be stratified, the better.
Uncertainty is a risk manager's worst nightmare, but properly using
critical resources can lessen the fear. Lean on peers and colleagues for
different perspectives, and utilize subject matter experts like brokers,
insurers, and actuaries to plan and prepare. Also, get senior-level management
and the executive team involved to understand the full scope of the risks. Make
sure financial leadership understands the uncertainty around the range of
estimates on policy costs, and read full policies and understand potential gaps
in coverage. Remember to stay focused on the people—advocate for the injured
workers and focus on getting them back to work.
To listen to the archive of our complete "COVID Analytics &
Benchmarks" webinar, please visit https://www.outfrontideas.com/.
Follow @outfrontideas on Twitter and Out Front Ideas with Kimberly and
Mark on LinkedIn for more information about upcoming events and
webinars.