Proving Value and Return on Investment
In the first part of our series on proving value, we discussed brand protection and how it affects the perception of senior management towards your Special investigation Unit. In this, the second part of our continuing series, we’ll explore Return on Investment metrics and how they can help prove your value.
Since SIUs are under constant pressure to prove their value to budget-setters and company stakeholders, things like ROI can be a valuable measurement tool for helping you get the resources you need in your fraud-fighting efforts. Your justification for devoting more budget to anti-fraud resources may rely on your ability to measure and reflect the key performance indicators that are important to senior management.
Fraud savings – a wellspring of provable value
According to the Coalition Against Insurance Fraud, fraud can cost many insurers upwards of 20% of the total book of business. The national average is closer to 10%. If your company is able to run things at a lower fraud rate, how substantial is the impact you’ve made on the claim overall, and how can you report this savings to your senior management?
The three elements of ROI are:
• Savings and restitution
• Costs: Payroll, vendor costs, allocated costs and other SIU costs
• A metric showing how the savings relate to how much you’re spending on investigations
Other key questions we’ll talk about in future parts of this series will center around how we can improve fraud recognition so claims handlers send us more or better quality cases with fewer false positives, and how we can improve the technology we’re using to do the same. Today we’ll focus on fraud savings.
Calculating Savings from Anti-fraud activities
The first component of ROI is savings and restitution. Restitution is pretty straightforward, as it’s calculated based upon dollars collected from judgments and agreements with providers. Most insurers only add that to the equation when the payment is received. The bigger question is how to calculate mitigation and savings.
Below we see another study by the Coalition Against Insurance Fraud. Most insurers have a defined method of calculating the savings generated through their anti-fraud activities. You can see from the chart below, that using the actual or estimated dollar amount at the time the claim is made is the most common method. Another common method is to use the reserve amount at the point when either fraud is determined or suspected. Since these measurements are not mutually exclusive, you can use a combination of them to get different pictures of what your SIU is producing. The case management system you use should track this information and report on it easily.
The chart above, a sunburst graph, shows your financial exposure broken down by lines of business (the inner circle) and claim types (outer circle). So, for example, you can look at Auto and see that there are two claim types for that line of business – Accident, with $1,386,054 exposure, and Theft, with $842,530 exposure. This kind of graph can show you which lines of business and claims are costing your organization the most money. The next step is to analyze the other side – the potential or actual mitigation on those claims, which are shown here:
The prior graph showed you what your organization is paying by claim type, but those may be legitimate claims and a legitimate cost of business. More important to the SIU is the potential mitigation against these claims, i.e. the amount that can be avoided due to your discovery of potentially fraudulent claims. Comparing these two sets of data can be valuable to your organization for planning purposes, (we’ll get to that later in the series), but it can also be an asset when communicating the value of your SIU to senior management. This data can give them a better perspective on lines of business that may be more vulnerable to fraud, and provide further insight into what you are doing about it. Shown another way, claims savings by line can give perspective on where your investigation results have the most impact:
Tracking saving by outcome can also be a valuable communication point internally to your SIU and senior management. In the sample chart above, which tracks savings by case outcomes, withdrawn claims are the largest savings. This could be due to a number of factors. Perhaps the customer withdrew on their own, or perhaps they knew the claim was not on the up-and-up and pulled it before it could be investigated further, thus avoiding legal consequences or embarrassment. In any case, it can be a reflection of some of the success brought on by your SIU. A word of caution, however, this figure can be an element of brand damage that we mentioned in our last discussion. It’s possible the slice can represent some customers who lost trust in their insurer due to a perception that an investigation is being unfairly conducted on a legitimate claim.
In the next part of our series, we’ll delve further into the elements of ROI and discuss some more ways of proving SIU value.
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