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.
Buyers Beware: General Liability Outlook May be Shifting
The soothing drumbeat of “excess capital” and “soft market” to describe the general liability (GL) market is a familiar sound for brokers and buyers. Emerging GL trends, however, suggest the calm may not last.
Increasing severity of GL claims may hit some sectors like a light rain at first, if they have not already, but they could quickly feel like a pelting thunderstorm in others. A number of factors could contribute to the potential jump in GL prices for certain industry segments or exposures, possibly creating “micro” or niche hard markets in the short-term, and maybe even turning the broader market over the longer-term.
“There are trends we’re seeing that will play out slowly. Industries that carry more general liability exposure will and have been hit first and hardest, but it won’t apply across the board initially,” said David Perez, Senior Vice President and Chief Underwriting Officer, for Liberty Mutual Insurance’s National Insurance Specialty operation. “There is ample capital in the market today, which allows a poor performing account to move its policy frequently from carrier to carrier. Poorer performing classes, however, will likely face increased pricing for GL policies and a reduction in capacity.”
The good news for buyers is that they can take action today to lessen the impact these trends and the evolving market may have on their GL programs.
David Perez on the state of the GL market.
Medical and Litigation Trends Drive Severity
One factor increasing claim severity is the rising cost of health care, driven both by greater demand and by medical inflation that is growing faster than the Consumer Price index.
The impact of rising medical costs on commercial auto is well-known. Businesses with heavy transportation exposures are finding it more difficult to obtain coverage, or are paying more for it.
That same trend will impact general liability, just on a slower and more fragmented basis.
“In light of these trends, brokers and buyers should seek to understand how effectively their current or potential insurers defend GL claims, particular in using evidence-based medicine to assess and value the medical portion of a claim, and how they can provide necessary care to claimants while still helping clients control their total cost of risk.”
— David Perez, Senior Vice President & Chief Underwriting Officer, National Insurance Specialty, Liberty Mutual Insurance
“It takes longer for medical inflation to register through the tort system in general liability than it does in auto liability (AL) because auto claims are generally resolved more quickly,” Perez said. “But the same factors affecting severity in AL also exist in GL and as a result, it’s foreseeable that we will not only see similar severity trends in GL, but they may in fact be worse than we’ve seen in commercial auto.”
Industries with greater exposure to severity in general liability claims should be the first wave of companies to notice the impact of medical inflation.
“Medical inflation will drive up costs across the board, but sectors like construction and product manufacturing have a higher relative exposure for personal injury lawsuits.”
The impact of medical inflation on the GL market.
Beyond medical inflation, two litigation trends are increasing GL damages. First, plaintiffs’ lawyers are seeking to migrate the use of life care plans—traditionally employed only for truly catastrophic injuries—to more routine claims. Perez recalled one claimant with a broken thumb and torn ligaments who sought as much as $1 million in care for the injury for the rest of his life.
Second, the number of allegations of traumatic brain injuries (TBI) in GL claims is growing. It can be difficult to predict TBI outcomes initially and poor outcomes can be expensive and long tailed.
“In light of these trends, brokers and buyers should seek to understand how effectively their current or potential insurers defend GL claims, particular in using evidence-based medicine to assess and value the medical portion of a claim, and how they can provide necessary care to claimants while still helping clients control their total cost of risk,” notes Perez.
Changing Legal Landscape
Medical inflation and litigation trends are not the only issues impacting general liability.
Unanticipated changes in court interpretations of policy language can throw unexpected pressure on GL pricing and capacity.
Courts sometimes issue rulings interpreting policy language in a manner that expands coverage well beyond the underwriter’s original intent. Such opinions may sometimes have a retroactive effect, resulting in an immediate impact on not only open, but also closed cases in some circumstances.
Shifts in the Marketplace
In addition to facing price increases, GL brokers and buyers will be challenged by slightly shrinking capacity due to consolidation and repositioning among carriers in the marketplace. “Some major carriers have scaled back their GL writing, resulting in a migration of experienced senior management. As these executives leave, they take their GL expertise and relationships with them, resulting in fewer market leaders and less innovation,” Perez said.
“Additionally, there are new carriers coming into the business that may not have the historical GL loss data to proactively identify trends or the financial strength and experience to effectively service their GL customers and brokers. Both trends make it important for brokers and buyers to work with an insurer that is committed to the GL market and has the understanding and resources to help better manage risks impacting customers.”
Last year saw a high level of mergers and acquisitions in the insurance industry. Buyers should take advantage of that disruption to re-evaluate their needs and whether their insurers are meeting them. Or better yet, anticipating them.
What’s a Buyer to Do?
Buyers—and their brokers— should look to partner with insurers that can spot emerging trends and offer creative solutions to address them proactively.
What should buyers and brokers do, given the trends facing the GL market?
“Brokers and buyers should value insurers that have not only durability and a long history in the general liability business, but also a strong risk management infrastructure,” Perez said. “Your insurer should be able to help you mitigate your specific risks, and complement that with coverage that works for you.”
Beyond robust GL claims and legal management, Liberty Mutual also provides access to one of the insurance industry’s largest risk control departments to help improve safety and mitigate both claim frequency and severity.
In addition, notes Perez, “Even if a company has a less than optimal loss history in general liability, there can be options to provide adequate coverage for that company. The key is to partner with an insurer that has the best-in-class expertise, creativity, and flexibility to make it happen.”
By working closely with their insurers to understand trends and their potential impacts, brokers and buyers can better prepare for the possible GL storm on the horizon.
To learn more about Liberty Mutual’s general liability offering, visit https://business.libertymutualgroup.com/business-insurance/coverages/general-liability-insurance-policy.
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.