Beaumont Vance Enterprise Risk Management Announces New Blog
Beaumont Vance, author of ERM for Dummies and previous owner of RM Reports is beginning a new blog which will focus on quantifying uncertainty, and corporate risk management at the strategic level as well as any other topics that interest him.
Beaumont Vance, author of Enterprise Risk Management for Dummies and editor of Risk Management Reports is launching a new blog. This blog will focus on strategic level risk management for the board and C-suite level of decision making.
Themes will include applying new concepts to strategic risk management, e.g., decision science, complexity theory, econometrics, Big Data, modeling, Monte Carlo, Bayesian statistics and belief networks, systems dynamics and game theory.
Risk management is a field that requires a multidisciplinary approach and beaumont, being a consummate polymath, is the ideal person to fuse together multiple disciplines into a single, elegant suite of solutions.
Beaumont Vance’s blog can be found at www.beaumontvance.com.
When Yelp Reviews Are Better Than Hospital Rating Systems
There is widespread industry agreement that moving towards reimbursing quality versus quantity of care is an important means for controlling medical costs. But how do we define “quality?” And, how do we quantify “quality”?
A recent Health Affairs study illustrates the difficulty of those questions.
The study reviewed four popular hospital rating services (Consumer Reports, Leapfrog, Healthgrades, U.S. News & World Report), and the measures they used were so divergent that their rankings became strikingly different:
- Not one hospital received high marks from all services.
- Only 10 percent of the hospitals rated highly by one service also received top marks from another.
- Twenty-seven hospitals were simultaneously rated among the nation’s best and worst by different services.
We deal with this frequently in our networks. We’ll have one client “absolutely” refuse to work with a provider, while another “absolutely” demands that same provider in their network.
Why such amazing disparity? It’s apparent that both hospital rating services and our clients utilize different factors to measure quality, and weigh those factors differently.
One scoring system may value cost per episode, while another values cost per diem. Another system might reward great valet parking, while another focuses on infection rates. Even slight variances can massively impact ratings. At this point, a Yelp review is likely just as good … or better.
So how do we get to meaningful provider ratings? It’s clearly a pervasive problem. In Rising’s 2014 Workers’ Compensation Benchmarking Study, medical management ranked as the top core competency impacting claim outcomes, yet only 29 percent of respondents rate their medical providers. As demonstrated by the Health Affairs study, it’s really hard to delineate the best from the worst, and trying to make those determinations can cause organizational paralysis.
So, I recommend starting simple. First evaluate what outcomes are most important. Do you value customer experience, clinical, or financial outcomes and to what degree? Do you weigh factors differently by service type (e.g., MRIs weigh convenience highly; surgeries weigh clinical outcomes highly)? If your measurements don’t correlate with your goals, your process won’t produce valuable results.
Even slight variances can massively impact ratings. At this point, a Yelp review is likely just as good … or better.
After determining your most important factors, then your second step is to carve providers from the bottom. This avoids the inertia that can come from trying to rate “top” providers too soon. It’s much easier to eliminate the outlier providers that cause the majority of bad outcomes to instantly improve your program.
Only after these steps would I recommend trying to establish the “best” providers. The “best” often deal with the most difficult cases, with the longest recovery periods or possibly the “worst outcomes.” It’s easy to see how a gifted surgeon might suffer under many quality rating systems. On a positive note, the transition to ICD-10 will allow provider quality comparisons at a deeper level of specificity never possible with ICD-9. In other words, we’ll actually be able to compare apples to apples over time.
With this three-step iterative approach, you can create and refine measurements that bring real, long-term value to your organization…making your system better than Yelp.
Commercial Auto Warning: Emerging Frequency and Severity Trends Threaten Policyholders
The slow but steady climb out of the Great Recession means businesses can finally transition out of survival mode and set their sights on growth and expansion.
The construction, retail and energy sectors in particular are enjoying an influx of business — but getting back on their feet doesn’t come free of challenges.
Increasingly, expensive commercial auto losses hamper the upward trend. From 2012 to 2015, auto loss costs increased a cumulative 20 percent, according to the Insurance Services Office.
“Since the recession ended, commercial auto losses have challenged businesses trying to grow,” said David Blessing, SVP and Chief Underwriting Officer for National Insurance Casualty at Liberty Mutual Insurance. “As the economy improves and businesses expand, it means there are more vehicles on the road covering more miles. That is pushing up the frequency of auto accidents.”
For companies with transportation exposure, costly auto losses can hinder continued growth. Buyers who partner closely with their insurance brokers and carriers to understand these risks – and the consultative support and tools available to manage them – are better positioned to protect their employees, fleets, and businesses.
Liberty Mutual’s David Blessing discusses key challenges in the commercial auto market.
“Since the recession ended, commercial auto losses have challenged businesses trying to grow. As the economy improves and businesses expand, it means there are more vehicles on the road covering more miles. That is pushing up the frequency of auto accidents.”
–David Blessing, SVP and Chief Underwriting Officer for National Insurance Casualty, Liberty Mutual Insurance
More Accidents, More Dollars
Rising claims costs typically stem from either increased frequency or severity — but in the case of commercial auto, it’s both. This presents risk managers with the unique challenge of blunting a double-edged sword.
Cumulative miles driven in February, 2016, were up 5.6 percent compared to February, 2015, Blessing said. Unfortunately, inexperienced drivers are at the helm for a good portion of those miles.
A severe shortage of experienced commercial drivers — nearing 50,000 by the end of 2015, according to the American Trucking Association — means a limited pool to choose from. Drivers completing unfamiliar routes or lacking practice behind the wheel translate into more accidents, but companies facing intense competition for experienced drivers with good driving records may be tempted to let risk management best practices slip, like proper driver screening and training.
Distracted driving, whether it’s as a result of using a phone, eating, or reading directions, is another factor contributing to the number of accidents on the road. Recent findings from the National Safety Council indicate that as much as 27% of crashes involved drivers talking or texting on cell phones.
The factors driving increased frequency in the commercial auto market.
In addition to increased frequency, a variety of other factors are driving up claim severity, resulting in higher payments for both bodily injury and property damage.
Treating those injured in a commercial auto accident is more expensive than ever as medical costs rise at a faster rate than the overall Consumer Price Index.
“Medical inflation continues to go up by about three percent, whereas the core CPI is closer to two percent,” Blessing said.
Changing physical medicine fee schedules in some states also drive up commercial auto claim costs. California, for example, increased the cost of physical medicine by 38 percent over the past two years and will increase it by a total of 64 percent by the end of 2017.
And then there is the cost of repairing and replacing damaged vehicles.
“There are a lot of new vehicles on the road, and those cost more to repair and replace,” Blessing said. “In the last few years, heavy truck sales have increased at double digit rates — 15 percent in 2014, followed by an additional 11 percent in 2015.”
The impact is seen in the industry-wide combined ratio for commercial auto coverage, which per Conning, increased from 103 in 2014 to 105 for 2015, and is forecast to grow to nearly 110 by 2018.
None of these trends show signs of slowing or reversing, especially as the advent of driverless technology introduces its own risks and makes new vehicles all the more valuable. Now is the time to reign in auto exposure, before the cost of claims balloons even further.
The factors driving up commercial auto claims severity.
Data Opens Window to Driver Behavior
To better manage the total cost of commercial auto insurance, Blessing believes risk management should focus on the driver, not just the vehicle. In this journey, fleet telematics data plays a key role, unlocking insight on the driver behavior that contributes to accidents.
“Roughly half of large fleets have telematics built into their trucks,” Blessing said. “Traditionally, they are used to improve business performance by managing maintenance and routing to better control fuel costs. But we see opportunity there to improve driver performance, and so do risk managers.”
Liberty Mutual’s Managing Vital Driver Performance tool helps clients parse through data provided by telematics vendors and apply it toward cultivating safer driving habits.
“Risk managers can get overwhelmed with all of the data coming out of telematics. They may not know how to set the right parameters, or they get too many alerts from the provider,” Blessing said.
“We can help take that data and turn it into a concrete plan of action the customer can use to build a better risk management program by monitoring driver behavior, identifying the root causes of poor driving performance and developing training and other approaches to improve performance.”
Actions risk managers can take to better manage commercial auto frequency and severity trends.
Rather than focusing on the vehicle, the Managing Vital Driver Performance tool focuses on the driver, looking for indicators of aggressive driving that may lead to accidents, such as speeding, sharp turns and hard or sudden braking.
The tool helps a risk manager see if drivers consistently exhibit any of these behaviors, and take actions to improve driving performance before an accident happens. Liberty’s risk control consultants can also interview drivers to drill deeper into the data and find out what causes those behaviors in the first place.
Sometimes patterns of unsafe driving reveal issues at the management level.
“Our behavior-based program is also for supervisors and managers, not just drivers,” Blessing said. “This is where we help them set the tone and expectations with their drivers.”
For example, if data analysis and interviews reveal that fatigue factors into poor driving performance, management can identify ways to address that fatigue, including changing assigned work levels and requirements. Are drivers expected to make too many deliveries in a single shift, or are they required to interact with dispatch while driving?
“Management support of safety is so important, and work levels and expectations should be realistic,” Blessing said.
A Consultative Approach
In addition to its Managing Vital Driver Performance tool, Liberty’s team of risk control consultants helps commercial auto policyholders establish screening criteria for new drivers, creating a “driver scorecard” to reflect a potential new hire’s driving record, any Motor Vehicle Reports, years of experience, and familiarity with the type of vehicle that a company uses.
“Our whole approach is consultative,” Blessing said. “We probe and listen and try to understand a client’s strengths and challenges, and then make recommendations to help them establish the best practices they need.”
“With our approach and tools, we do something no one else in the industry does, which is perform the root cause analysis to help prevent accidents, better protecting a commercial auto policyholder’s employees and bottom line.”
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Liberty Mutual Insurance. The editorial staff of Risk & Insurance had no role in its preparation.