1. Breakthrough Claims Management: A Remarkable Prognosis
By Thomas C. Schell, CPCU. WCP
How We Got Here: Mary’s Odyssey
A highly skilled claim staff is critical to any company’s success. No infrastructure - no
matter how well designed- can overcome personnel who won’t or can’t deliver quality
work. In order to attract and motivate a staff that is best suited to a claims career we
must match skills/ability with the job requirements; maintain manageable workloads,
provide training/development and offer decent promotional opportunities.
Too often in the claims world, we misfire on all the above counts-especially in Workers
Compensation. A position becomes available in the Medical Only unit and has to be
filled quickly due to the claim volume. Mary has been in the clerical unit for 15 years,
and does an extraordinary job filing forms with the state and making payments on behalf
of the Claim Reps. Thus Mary becomes a natural for the job.
In some instances, Mary may be the right person for the job, but not because she pays
benefits timely. Claim handling requires a multitude of skills and talents not the least of
which is the creativity to resolve the day the day problems linked to human behavior.
It’s a foregone conclusion that claims people must understand legal and medical
concepts against a backdrop of thousands of risk types and company operations. But
that’s the easy part. It’s cajoling and coddling the employer to take the injured worker
back, or finessing the office assistant in the providers office (who already hates insurance
companies) to send medical reports and then analyzing all of this data to predict human
behavior (otherwise known as reserving) that really separates the excellent from the
mediocre.
In an effort to compensate for the lack of talent within the claim operation, we
sometimes resort to other schemes that can exacerbate the skill gap. It’s likely that the
Pareto principle is as true for claims as for any other function: 20% of the claims are
driving 80% of costs and complications. Thus a prudent organizational set up for claims
would be specialty reps for the complex, problematic claims and the rest of the staff
would handle the everyday routine losses. Outsourcing those functions best left to the
experts, (e.g. medical case management) also makes sense.
Unfortunately, due to the complexity of this industry, and the lack of a talent pool to
handle many aspects of the loss, the claim can go on quite an odyssey as soon as it
enters the doors of the carrier.
Consider this claim journey:
. from medical only to lost time unit,
. from closed end lost time to the extended disability unit,
. from extended disability to litigation unit,
. from catastrophic case unit to life time medical unit,

2. . from life time medical units back to the medical only unit because – after all - they’re
only monitoring medical now that the claim is 10 years old.
Meanwhile, there are several outsourced vendors standing by waiting to slice off their
chunk of the claim. Any combination of field investigation, medical case managers,
defense attorneys, and fraud units can become involved in the claim; many times all are
involved in the claim simultaneously. So now we must tap into the administrative skills of
the claim rep to manage all the players as well understand and assimilate the facts
developed by prior claim technicians before receiving the hand off.
Which claim rep did we select to handle this complex convergence of issues and
stakeholders? Mary, of course, because she was there when the opening became
available in the extended disability unit.
So Mary takes on a caseload of 250 files, which in today’s environment can easily be
composed of mostly intransigent, chronic pain, permanent total cases. She has two
major responsibilities as steward of these cases. This ill-prepared, under- appreciated,
high school graduate must provide vital information about the company’s financial
liability and she must deliver front line customer service to our most valued clients. And
she must do it with a minimal amount of supervision.
Reserving and Customer Service-The Essentials
Each day, the claim staff makes financial predictions regarding how much a carrier will
spend to cover its contractual obligation under the policy. This critical function is known
as reserving. Poor reserving practices can be a major contributor to the demise of an
insurance carrier. As a result a great deal of attention is devoted to this key function,
especially from industry business analysts. Additionally, with the advent of watchdog
legislation like Sarbanes- Oxley, the focus on getting the numbers right is steady and
fastened. But attention and focus alone won’t do the job.
To be sure, there are many tools/resources available to assist the claim staff in making an
informed, accurate prediction. However, in today’s complex legal and medical
environment, case management and information gathering can be a battleground,
even for the most experienced technician. Inside the carrier walls, few people are vying
for the unenviable tasks of telling the company how much it will likely spend.
.
While grappling for the right numbers to report to underwriters, actuaries, agents, and
regulators, Mary is also wearing that other essential hat known as customer service
representative. Depending on the type of risk being insured, she may be the only carrier
representative whom the policyholder will meet.
Employers and injured workers often don’t understand the WC benefit system. They look
to the carrier, and more specifically the claim technician, to explain the rules, manage
the process, and provide prompt, courteous service. When this expectation is not met,
the employer may look for another carrier and the injured workers may look for legal
assistance. Both of these detours can have a negative impact on the company’s
finances.
Considering the potential fallout for a company that does not handle the reserve or
customer service function well, it is easy to assume that the company would accord the
best resources and talent to the department that oversees these functions.

3. Unfortunately, even with the threat of a loss of customers (revenue) and a false sense of
security regarding assets (unknown liability), the staff who must oversee these functions
are often the stepchildren in insurance.
So what’s an industry to do? Fortunately it’s not all gloom and doom. Some companies
get it right. There are strategies that can effectively address these issues.
Back to Basics? Not So fast.
As recent as twenty years ago, many leading WC insurers invested heavily in recruiting
and training new staff, primarily new college graduates. The best programs included
intensive medical, legal, investigative, loss reserving and policy interpretation education.
Classroom instruction was supplemented by real-time on-the-street assignments, which
were closely supervised by experienced managers, all best-in-class former claim adjusters
who gave daily feedback on success or failure. These multiline property-casualty
programs, which ran six to ten weeks, had a Darwinian design, with a 50% flunk/drop out
rate. These graduates were sent to staff far flung field offices throughout America. Two
years later, 50% of those remaining graduates had left the company that trained them:
poor salary increases, unattractive workloads, and/or working conditions (including
rotational 24 hour on-call duty) all contributed to the attrition. The standard at that time
required five years of adjusting experience before a promotion to supervisor was
possible. Many of them joined a competitor for a few thousand dollars more in salary or
an immediate promotion opportunity.
Let’s consider some of he skills necessary for ultimate managerial success in claims
management: high energy, educated, articulate in speaking and writing, quick-thinking,
street smarts, disciplined, curious, honest, organized, compassionate and an ability to
prioritize and produce under pressure. These traits formed a foundation for leadership
later in one’s career. None of these skills are rigorously developed today.
We have evolved from a claims management ‘basic training’ model to a ‘processing’
model, staffed by managers and supervisors who have never had outside adjusting
experience. They’ve never sat face to face with a widow to explain benefits, with an
attorney to negotiate a settlement, with an injured worker to take a statement or
canvassed an accident site for witnesses and potential third-party subrogation. At best,
they’ve met with the insured or agent to discuss open claims and reserving rationale.
With many of the baby boomer generation on the cusp of retirement, insurers face a loss
of talent and intellectual knowledge assets that will be difficult to replace. The days
when companies would invest almost the equivalent of a year’s salary to train each
adjuster – without a minimum employment service contract- are long gone.
So what’s the answer? Five things: Leadership, Creativity, Technology, Pipeline
Management and an Outcomes Focus.
Leadership

4. Without great leadership, it’s unlikely the other four success items will occur. And
leadership starts with pride. Pride that what we do is critically important to the macro
economy and overall productivity as well as to the injured worker and their family. When
a claims team is infused with pride in their work and interdependence is cultivated, the
conditions for future leadership can be nurtured. Anticipatory Guidance and Quality
Responsiveness are the two most important techniques to teach, measure and improve
through constant feedback.
Anticipatory Guidance: providing a roadmap for the future, anticipating problems and
establishing benchmarks for successfully solving them, including alternatives when Plan A
doesn’t work.
Quality Responsiveness: quickly responding with clarity and substantive information: to
the worker/family, to a medical provider, to the insured, to a state regulator … to a
myriad of internal (e.g. underwriting, actuarial, loss control, financial, accounting, legal)
and external (e.g. broker, agent, attorney, administrative law judge, rating bureaus)
stakeholders.
As in any leadership position, there is no substitute for ‘Walking the Talk’ and leading by
example each day. A framed Mission Statement on the wall won’t do the trick. Claims
folks, of all people, are trained to be cynical in nature – they have to be. The best
professionals maintain a delicate balance between cynicism and compassion. And the
best leaders build teams that people want to work in.
Creativity
Workers compensation claim organizations are by their very nature, numbingly rule-
based. There seems to be no place for real research and development or
experimentation. Everyone’s too busy just doing their jobs. Expense pressures, travel
budget and headcount restrictions all affect an ability to think long term. Add span of
control expansion and the dumbing-down of adjuster talent and it’s no wonder change
comes very slowly.
Some successful non-insurer companies have set up separate walled-off ‘skunkworks’
units to encourage creative thinking and experimentation ‘outside’ the usual rules and
politics. Consider how difficult it is to consider changing vendor partners within a large
bureaucratic organization. Better solutions with obvious immediate returns go begging
because the inertia is too dense, the political risk of championing meaningful change is
too risky a career move. Better to just go with the flow, continue the current practice.
The best creative work is now done in small startup organizations which focus on a
narrow field of expertise that offer ancillary, incremental improvements. Examples can be
found in many areas: first report of injury intake; specialty physical therapy, MRI/CT,
occupational medicine and premium PPO networks; claims management software,
web-based medical bill review and enhanced auto-adjudication; and risk assumption
catastrophic injury specialization.
Are these potential solutions part of the next stage of your success?

5. . enhancing return to work: home-based eBay sales setup, training and ongoing
coaching resources for catastrophic injuries and other permanently disabled workers?
See Disabled Online Users Association (DOUA.org)
. attracting/retaining top talent: introducing the ‘virtual’ free-agent adjuster, working out
of a remote home location with broadband laptop service. Can this work as a reward for
sustained excellence or a period of rotational staff development? A method to retain
key performers who move or resign for spouse/partner/maternity reasons ? A way to
retain those about to retire?
. team rewards: top sales producers get rewarded with vacation trips and cash– why not
top claim teams? How about the best adjuster-nurse team?
. performance-based physician incentives and compensation: instead of deep-discount
PPOs, for the ‘best in class’ providers (however you define them), pay them at a higher
rate. Pay them for email communication with patients and insurers (eVisits). The treating
physician holds the key to improved outcomes. The best physicians want to be fairly and
promptly paid, not inundated with meaningless or duplicative requests and left alone to
practice medicine. Follow up communication to ensure you’re on the same wavelength.
. claim analytics and decision engines: using credit card-like software trend mapping
and behavioral characteristic profiling, quickly identify, ‘score’, segment, and
electronically assign claims for either routine processing or deeper analysis. Scarce
resources (read: expensive talent) will be quickly deployed on those claims likely to
generate higher exposures. Remember: 85% of injuries result in no compensable lost time;
the trick is to identify the problematic claims early and devote the right resources ‘just in
time.’ Easy to talk about, very difficult to reliably do over large claim populations in
multiple states. And impossible to do manually.
Technology
One area that has improved faster than any other is advancements in claims
technology, including web-based processing and communications. The information
available at a mouseclick now is astonishing --- but can be overwhelming and
counterproductive.
Innovative data mining and predictive science technologies will have several benefits,
none more important than efficient resource utilization. Comparative trend analyses
within corporate and regional office populations can identify problematic injury subsets,
allowing the adjuster to reprioritize to spend time on the ‘right’ cases.
The kind of information gathering that is routinely done to assess and manage
catastrophic injuries can be captured for less severe injuries: co-morbidity items (e.g.
diabetes, hypertension, obesity, prior injuries , high blood pressure, medications, smoking,
alcohol consumption); and family/ functional status (education level, marital status,
children, spouse/partner employment, family support, employment history). We seek to
understand the influences on recovery … and correlate them through the aggregate
data. We seek to learn early in the claim what issues may complicate recovery, and plan
for them. By beginning to build in flexible ‘expert inputs’ into our systems, we can provide
the benefit of decades of experience (institutional knowledge) from those senior
adjusters we are losing.

6. Technology positively and negatively influences productivity and quality. Consider the
following:
. many of the tasks done in the past by claims clerical are now done by much more
expensive claim technicians (keying in claims data input, claim activity notes, letter and
form generation)
. despite significant improvements in claims management software, the optimal lost time
file pending per adjuster really hasn’t changed much in 30 years: a case-mix adjusted
workload of 115-130 files, with newly reported of 10-15 monthly generally will allow high
quality work to be performed. As with any average, there are exceptions: we’ve seen
proficient adjusters handle 175 or even 200 files well --- along with adjusters who lack the
skills to manage 90 cases. But how do we reward these high-performing adjusters? By
increasing workloads, without a concurrent increase in compensation.
. Similarly, front line supervisors have seen their span of control (number of direct report
staff) increase dramatically, from ranges of 3-5 to 7-10. No supervisor can provide timely,
appropriate guidance to a staff carrying 2500 aggregate files.
. The pervasive nature of technology has expanded the work hours available; with 24/7
access to online systems, more adjusters (and their managers) routinely work nights and
weekends to keep up—either in their homes or at the office.
. The ‘acceptable’ time frame for responsiveness in American worklife has been
significantly compressed. Remember when a day or two was acceptable – for inside and
outside inquiries? With instant messaging, text messaging, Blackberries, GPS and cellular
devices, people have shorter tolerances for delay. There is almost an expectation of
‘instant gratification’: we’ve seen people upset when they don’t receive a reply in an
hour or less. Of course, this constant barrage of inquiries wreaks havoc on a well planned
day.
. Exacerbating all of this is staff turnover. Talented claim reps are in high demand in every
city. When an adjuster leaves, the files are redistributed to remaining staff, covered by a
temporary adjuster, handled by the supervisor --- or a combination of all three resources.
With each defection, there is a disconnect in continuity of relationships between the
parties. Some experts believe it takes one year for a new claims rep to become fully
knowledgeable about the files in an assumed new workload. It is not uncommon for five
year old claims to have seven different adjusters. Is it any wonder why injured workers
retain attorneys out of frustration?
Outcomes Focus
World class WC claims delivery can be likened to the UPS/Fedex model: a service
business relentlessly focused on outcomes. A well designed outcomes focus may be self-
correcting in nature, and can be used to identify and redeploy resources when certain
trigger points are hit.
Unfortunately, many traditional WC claims ‘markers’ are pure processing-related: three
point contact (employee, employer, doctor), filing state forms, paying bills within 30 days.

7. assigning a nurse, scheduling an IME, referring to SIU, etc. These markers are then
reinforced by audit techniques, which typically reward these checklist-type items.
Success in audit performance sets the stage for promotions, which perpetuate the cycle.
While these are all necessary and time consuming items, they are tasks, not mission-
critical success items.
We suggest a different approach: a customized individual claim focus on the barriers to
file closure: from the beginning --- what is preventing a safe, prompt return to work and
ultimate maximum medical improvement for this worker? Each injury occurrence is like a
puzzle with a variety of clues --- some hidden, some slow to emerge, some false positive.
What are the barriers to solving this puzzle?
Why is that some claims resolve successfully with no seemingly claims intervention
whatsoever? Can you take an early reading on motivation to return to work after injury
onset? Sure you can, if you gather and assess a variety of indicators, which taken
together may give you clues about future behavior.
Why is it that other claims, despite consuming a massive amount of expensive
investigative, UR, IME, resources, just keep getting worse?
We must find a way to solve this dilemma: it’s only going to get worse- much worse. With
heavy manufacturing jobs (and the higher acute traumatic severity linked to them)
moving out of the country, we expect to see a jump in the open inventory of slow
resolving injuries. When you overlay this upon an aging, sedentary and obese workforce
conditioned on pharmaceutical solutions, it’s a recipe for disaster. Add to that mix the
aggregate decline in adjusting expertise and the millions of workers not covered by
health insurance (leaving workers compensation and its lifetime unlimited medical
benefit as an attractive option for ‘grey-area’ cumulative trauma claims).
Lets sum up where we’re trending:
. declining skill mix in the claims workforce, fragmented claim file management, growing
inventories of slowly resolving injuries with unclear diagnoses
. heavily discounted PPO networks, onerous bill review programs, poor communication
and other frictional items which drive the better physicians out of occupational health,
and incent the remaining clinicians to see more patients, practice defensive medicine
and order more expensive tests to make their businesses viable.
. workers compensation medical costs represents only 3% of national healthcare
spending; since it’s basically a rounding error, it will not influence dramatic change. The
indemnity/medical cost mix continues to diverge: medical now is 55% (and heading
higher) of direct claim costs vs. 45% in the 1990s.
. a savvier workforce with instant access to medical information on the Web, less afraid
to challenge clinical recommendations and suggest other therapies, including new,
unproven drug regimens. Years ago, did your hometown paper cover the latest JAMA or
NEJM findings on implantable disk devices? Today it’s on the front page of USA Today.
. an administrative workers compensation judicial system which (reasonably so) tends to
give the injured worker the benefit of the doubt: in most states, when medical bills have

8. been paid for certain conditions, often you’ve ‘bought’ that kind of related treatment for
life. So you must identify and contest unrelated items early. This was easy to do when the
issue was lung cancer in a worker with a leg injury; consider how difficult this is to do for
underlying issues like chronic fatigue syndrome, migraine headaches and Lyme’s disease
for a chronic pain patient whose initial injury was a back strain years ago.
. bad faith litigation originated by both sides: the injured worker who claims harm due to
benefit delay and denial; the employer who claims excessive claim payments have
unfairly increased the experience modification. Never before has there been a narrower
margin for error in claims management.
Pipeline Management
One way to view claim file life cycles is the pipeline analogy. Where in the pipeline is the
claim now? Where should it be? What percent of a rep’s, supervisor’s, office’s and
companywide workload is on active temporary total disability? Over six months old? On
permanent total disability/life pension?
A few innovative companies have built ‘dashboard’ software utilities to measure, monitor
and model these kinds of data slices, enabling their teams to track progress in real time
against expectations. Like an automobile dashboard tracking fuel, speed, and engine
temperature, these custom-designed systems can drill down right to those individual
claim profiles that are (or will likely become) troublesome.
It can be argued that nothing is more important than a laser-like focus on open TTD
claims. After all, return to some kind of work (modified, full, part-time) is the first step to
claim closure. Some companies have designed their claim teams and workflow around
this one ‘marker’: walk into each unit and you’ll see a white board listing every open TTD
claim.
A concurrent emphasis on slow-resolving claims is similarly critical. Often these claims
have unclear diagnoses, lack objective findings, reflect poor coordination of care and
exhibit some early signs of chronic pain behaviors: all red flags that should demand extra
attention. Unfortunately, although these are the claims that will get much worse with
age, they often get lost in the shuffle, buried until the next reserve or diary review.
Some companies have re-engineered claim workflows and created a kind of SWAT
approach to the most difficult to resolve claims – almost all attorney-represented. They
reassign their most experienced claim specialists to two year rotations to attack these
claims with a fresh perspective—and they increase the career and compensation
opportunities to reflect the importance of these tasks.
In states where lump sum settlement of future medical is permitted, a creative approach
using cash and a structured settlement (don’t forget the Medicare Set Aside) sometimes
yields a breakthrough. The foundation for this kind of result is an accurate, objective
lifetime medical cost estimate (LMCE). This gives you the right point of reference to begin
negotiations- especially if you’re willing to share it with the worker’s attorney. We’ve seen
cases with 30+ years of future lifetime medical exposure settled for a fairly discounted
present value figure off the LMCE. The claimant regains control of his medical treatment
(no more ‘Mother May I’ permission), he decides how to spend ‘his’ future funds. You’d

9. be surprised at the change in medical resource consumption behavior once ‘ownership’
of the problem changes. The insurer closes the books on the medical portion of the
claim, obtains certainty on an open-ended exposure and avoids decades of further
unallocated loss adjustment expense.
We’ve Seen The Future: It’s Exciting (Really!)
As with any industry, tough problems offer opportunity – for those who can devise
attractive and reasonably-priced solutions. What sets the stage: the final migration from
legacy systems to web-based systems with full remote historical access. Consider these
possibilities:
. specialty injury-focused, risk-sharing medical claim partners for back, chronic pain, and
catastrophic injuries …. some will even offer guaranteed outcomes and all-inclusive
medical pricing. Group health, typically 8-10 years ahead of workers compensation, is
experimenting successfully with disease management (DM) outsourcing right now. By
identifying expectant mothers at-risk for low-birth weight and likely NICU admission, for
example, appropriate resources are offered before anyone asks for them. By targeting
those with high exposures early, it makes sense to offer expensive monitoring to avoid
huge costs later. Similarly, special population-based DM programs are now offered for
renal failure, cardiac disease, diabetes, acid-related stomach disorders, COPD and
asthma conditions.
. inexpensive, web-based disability management and claims training courses you
customize for basic, intermediate and advanced technicians, claim reps and nurses.
Study and test right at your desk, save progress and pick up where you left off.
. physician eVisits , paid like quick office visits, will become widespread, and an important
part of high-touch claims and improved clinical workflow. Instead of the costs and delays
incumbent in face-to-face appointments, why not supplement them with emails to elicit
progress/setbacks between appointments? Why not encourage/reward this kind of
injured worker and physician communication, and transmit right to the electronic claim
file? Today’s adolescents, teenagers, and college students (our next generation of
injured workers) are growing up with IMs, text messaging, weblogs and camera phone
tools. They’ll expect to use these kinds of tools in non-social settings too.
. computer-issued voicemails sent to remind workers of appointments, expected return to
work target dates, prescription refill, modified duty availability and physical therapy
authorizations. The dry cleaner who picks up and delivers from home (with a three day
service turnaround) does this today --- and they charge only $1.90 per shirt!
. do refillable ATM affinity credit cards for indemnity payments make sense in special
situations in place of checks? For certain jurisdictions with large non-English speaking
residents without convenient banking facilities or those who rely on high-fee check
cashing stores?
. plug-and-play vendor relationships: insurers will, over time, begin to demand every key
vendor partner abide by specific standard EDI software criteria that allows for easier
substitution and continuity when contracts lapse, are terminated – or relationships sour.
It’s no accident that those selling discounted PPO and medical bill review solutions rely

10. on the ‘stickiness’ factor: the difficulty, complexity and expense of unhooking the
incumbent vendor system and tying in the new system. It’s like reattaching a limb with
microsurgery. It can be so difficult, many just continue a suboptimal relationship because
it’s too painful to change – or to admit you made a mistake.
Summary
We believe that the most successful workers compensation claim organizations will value
five things above all else: Leadership, Creativity, Technology, Outcomes Focus and
Pipeline Management.
Leadership- anticipatory guidance and quality responsiveness in every interaction
Creativity- skunkwork labs, free agent virtual adjusters, team rewards, performance-
based physician incentive compensation, not discounted fees
Technology- test predictive science technologies to quickly identify problematic issues;
data mining and workload management techniques for optimal resource allocation:
reward your A performers and develop your B performers
Outcomes Focus – refocus activity and resources on identifying the barriers to resolving
issues, not checklist processing
Pipeline Management – ‘dashboard’ controls, understand what’s in the pipeline, laser-
focus on every open TTD claim
Tom Schell is Senior Vice President, Strategic Partnerships, Paradigm Management
Services LLC.