Key performance indicators (KPIs) are metrics used to evaluate and benchmark performance. Their purpose is to help businesses measure and monitor progress toward set goals. If a company looks at its KPIs and discovers it is not on track to reach a specific target, it can then identify and address inefficiencies.
In the claims management realm, self-insured businesses can use key performance indicators to figure out what is working and what may need improvement. For example, by monitoring a KPI that measures incident response time and comparing it to the target, an organization can determine if its team has efficient risk mitigation procedures.
KPIs are not always one-size-fits-all — you can create your own KPIs to match your business’s needs. To develop claims process KPIs, you will generally want to take the following steps:
- Determine your goals and objectives.
- Set a benchmark target to help you measure progress over a given amount of time.
- Consider your current data sources or establish new data collection methods.
Your company can begin making more informed decisions with a few basic KPIs. The following are examples of claims management KPIs:
1. First Notice of Loss Response Time
First notice of loss (FNOL) response time illustrates how quickly claims adjusters respond to a reported loss. This KPI helps pinpoint inefficiencies in FNOL reporting or response. This KPI is especially important for organizations that may wish to intervene on select incidents before a claim is filed.
One way to create a KPI to gauge FNOL-related performance is to compare the average time it takes for claim adjusters to respond to FNOL reports to the number of FNOL reports in a certain span of time. You can then compare that number to your benchmark target and gain some insight into your current position.
For example, envision a KPI that reveals a 10-hour FNOL response time per incident. If your target FNOL response time is eight hours per incident, your next step could be contemplating strategies to streamline FNOL reporting and response. You might explore the causes of FNOL response delays first, like data entry errors. Then, consider adopting a solution that promotes accurate FNOL data capture, like incident-based claims management software.
2. Claims Frequency Rate
Claims frequency rate refers to the ratio of claims to a chosen base within a specific time frame. For example, you might track the number of claims to a certain number of employees over six months to calculate your claims frequency rate. This KPI can help your organization determine the efficacy of its risk management strategies.
To illustrate, imagine your company wants to decrease its claim frequency rate by 5 percent over the next quarter. In this case, you would first create a KPI to measure and monitor your current claims frequency rate.
For example, you might calculate the average number of claims per 100 employees filed in a month. Then, you could benchmark that number against your goal to see if your company is on track. If your claims frequency rate increases or does not move closer to your target, consider ways to decrease the rate. This may mean improving your risk management process, for instance.
3. Claim Closure Ratio
Claim closure ratio compares the number of opened claims to closed claims. It provides insight into whether a company efficiently manages claims. This KPI can help determine if improvements to claim processing efficiency are necessary.
A claims closure ratio of 100%, for example, may indicate that a company has an effective claims management process, closing claims at the same rate as opening them. A lower claim closure ratio means that an organization opens claims at a greater pace than it closes them, which can suggest performance issues or system inefficiencies.
To determine your claim closure ratio, divide the number of claims closed by the number of claims open. Monitor this ratio, which you might convert into a percentage, over a specific time period to understand your organization’s claims processing performance.
4. Claims Cost Per Closed File
Claims cost per closed file (CCCF) measures the average cost of processing and closing a claim. By monitoring CCCF, you can identify patterns leading to increased costs — so you can then take steps to change them.
For instance, CCCF might reveal that claim adjusters are not utilizing automation to streamline their workflows, contributing to labor costs. In this case, it might be worth evaluating your current claims management software for barriers to optimal system use, like user experience issues. If you discover usability challenges, consider adopting a more intuitive claims management solution.
5. Claim Cycle Time
Claim cycle time measures the average number of days to close a claim. It highlights claim processing speed and is another important KPI for monitoring performance efficiency. Additionally, this KPI is important for organizations that seek to optimize claim outcomes by minimizing turnaround time.
You can determine claim cycle time by identifying the number of days it took to close claims within a certain time frame from their corresponding FNOL dates and calculating an average. A lower claim cycle time can protect your reserves and promote claimant satisfaction, whereas a higher claim cycle time can do the opposite. Refining workflows and minimizing manual data entry are some ways to reduce claim cycle time.
6. Subrogation Recovery Rate
Insurance companies miss out on about $15 billion in subrogation dollars annually. Factors like insufficient communication and lack of supporting documents can hinder successful subrogation recovery.
If you are concerned about your company’s subrogation results, consider monitoring your subrogation recovery rate and implementing strategies like enhancing FNOL data collection to improve it.
Subrogation recovery rate measures the amount of subrogation dollars recovered within a period of time. You can compute this metric by dividing the total number of subrogation dollars recovered in a given period by the total amount paid to claimants. This KPI can provide insight into the timeliness and effectiveness of your organization’s subrogation efforts.
Create and Monitor KPIs With Cloud Claims
KPIs give self-insured businesses insight into their processes so they can monitor progress toward goals and make strategic decisions on how to improve. Any self-insured organization, regardless of industry, can benefit from using KPIs to understand where their performance ranks. Fortunately, integrating KPIs into the management workflow can be straightforward and seamless with the right claims processing system.
For example, Cloud Claims by APP Tech is cloud-based claims management software that helps self-insured businesses, Third Party Administrators (TPAs) and insurance carriers create and monitor KPIs. Cloud Claims offers the following:
- User-friendly, modifiable dashboard
- Customizable reports and drop-down menus
- Subrogation, deductible and recovery tracking
- Widgets to monitor claims from incidents, claims cost per quarter, incident types by month and top incident causes
- Single location for all claims and incident data
- Incident-based design enabling incident-related KPI monitoring and streamlined claims filing
- Easy report and graph generation to communicate or visualize KPI data
Cloud Claims makes it easy to choose which data to track and transfer into graphical representations so you can quickly spot trends and smoothly communicate KPI insights to your team.
Contact us today to schedule a Demo and experience Cloud Claims firsthand.