In many organizations, the responsibility of managing liability-related losses is assigned to risk management and/or SH&E professionals. The loss exposures may include third-party vehicle claims, nonemployee on premises slips and falls, professional liability, malpractice, employment practices, product liability, or claims involving negligence or faulty design. These types of losses are often complex and expensive. Many of the statutory protections provided under the workers' compensation system do not apply, and costs can quickly escalate.
In most nongovernmental organizations, the first notification of a liability loss is the receipt of a lawsuit. Organizations typically assign responsibility of managing the daily adjustment of claims (which include lawsuits) to a third-party administrator (TPA) that specializes in liability claims adjusting. The TPA is responsible for adjusting the claim, which may include setting up the claim file, determining liability, evaluating damages, establishing claim reserves, investigating the claim, managing the litigation process, settlement negotiations and file closure/settlement activity.
Costs associated with liability claim exposures can be significant. Jury verdicts and settlements can be in the multimillion-dollar range, and legal fees associated with liability claims can be staggering. The TPA is responsible for coordinating the activity involved in managing the claims from onset to closure, including the cost management program. The activity performed by the TPA needs to be monitored and measured in order to effectively manage the TPA and ensure that the claims are adjusted properly.
Managerial attention is often focused on information related to the outcome of an individual claim, while little attention is paid to the overall liability claims management process. This approach is ineffective and costly. The entire process should be monitored and specific claim outcomes should be a subpart of a larger claims management program. Well-defined claims management standards need to be established. These standards must be periodically measured to ensure that each claim is managed appropriately. The TPA's performance can and should be monitored and measured like every other critical business function.
The County of Los Angeles has established a six-point liability claims TPA management process. The process includes these
elements:
Well-defined liability claims management standards (LCMS) provide the TPA with a framework to develop its internal processes and quality control points. The LCMS are designed to provide the TPA with high-level direction related to the county's liability claims management expectations and deliverables. The LCMS are included in the TPA contract, and the TPA is required to adjust the county's liability claims in accordance with the established standards.
The TPA must develop a specific procedure manual based on the established LCMS. The manual is a rulebook for individual adjusters to follow to ensure consistency and efficiency and to ensure that each claim is adjusted to the highest level of quality possible. Adjusters are trained on the requirements of the procedures manual, and work activity is evaluated based on the established requirements.
The procedure manual must cover the entire claims lifecycle and identify critical business processes and decision points that will be periodically evaluated to ensure contract compliance and adjusting quality. The procedure manual also establishes the claims adjusting boundaries so that non-critical requests and contractual scope creep do not occur.
A comprehensive claim file audit was developed to ensure that required claim management activity is occurring. The audit is conducted twice a year by an external auditing firm that specializes in liability claims management auditing. The intent of the audit is to quantify claim management activity and to provide a mechanism for reporting TPA performance to the county and TPA management. Audit questions were developed based on the TPA procedures manual, the LCMS and industry best practices (Table 1). A weighted numerical value was assigned to each question so performance could be analyzed based on scores by section, subsection, adjuster or aggregate score. The TPA contracts were modified to include financial incentives and penalties based on their audit scores.
In addition to a comprehensive third-party file audit program, real-time file assessment protocols were developed. County liability claims personnel established several file reviews to determine the claims management quality status of active files. Standard assessments conducted include a review of
Each time one of the triggering events occurs, the file is assessed to determine the quality of the claims management activity. The assessment reports are shared with individual adjusters, TPA and county management.
The TPA is required to establish annual performance goals and specific tactical objectives each year. The TPA presents the goals/objectives at a meeting scheduled within 30 days of the new fiscal year. A midyear review meeting is conducted, and the TPA must submit quarterly written reports to county management. The goals are based on the biannual TPA performance audit, real-time quality assessments and changes in industry best practices or county requirements. The goals/objectives are quantifiable and TPA managements' performance bonus structure is affected by the achievement of established goals and objectives.
A well-defined TPA monthly performance scorecard was developed and implemented. The scorecard consists of statistical claims data, noteworthy events, a summary of monthly activity (meetings attended, assignments completed, etc.) and claims management ratios (closure ratio, etc.). TPA management is required to report key performance measures to county management each month. This information is analyzed and discussed during the monthly TPA status meeting. Trends, anomalies and other relevant data interpretation are discussed, and corrective action plans are developed.
The six-point liability claims TPA management process provides county managers with data related to TPA performance that can be analyzed and evaluated to ensure continuous improvement of the liability claims management process. The establishment of defined standards and practices, periodic performance reviews and monthly management reports create an environment in which quality improvement is understood and the process can be measured and improved.