Benchmarks, Analytics Post-COVID

Originally published on Insurance Thought Leadership | April 6, 2021

The insurance industry relies heavily on actuarial models and benchmarks to analyze performance and predict future exposures. One of the core assumptions 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 affected and how risk managers need to adjust their future expectations to account for the pandemic’s impact. Our guests included:

• Tamika Burgos Puckett – risk manager corporate security, Zoom
• Richard Frese – principal and consulting actuary, Milliman
• Ron Schuler – head actuary, property and casualty broking, North America, head of collateral solution, Willis Towers Watson
• David Stills – senior vice president, carrier and risk practice, Sedgwick

Benchmarking Goals

Benchmarking is essential for any risk management program. Using 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 regard to workplace injuries, ensuring the delivery of timely and appropriate care and returning your employees to a pre-injury 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 like 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 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 effect of COVID-19 on benchmarks depends on the nature of the business and the physical location of employees. For example, retail will not be affected the same way that healthcare has been affected. Some states also had a greater impact than others because of differences in government shut-down orders. With claims consideration, pay close attention to the types of claims because 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 affected 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 use subject matter experts, like brokers, insurers and actuaries, to 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.