WFH Productivity Metrics

As the nation begins to re-open, many insurers plan to keep a significant number of staff working from home on a permanent or part-time basis. We have heard from many that they believe WFH has improved productivity, but there is still a heightened desire to improve visibility on productivity.

When everyone was in the office, and productivity metrics were not in place, there was confidence that work was getting done, as it was physically observable. The increase in remote work situations means that organizations can no longer infer productivity; it requires actual measurement.

Metrics and Balance

A balanced set of metrics is critical, depending on how organizations use them. If insurers use metrics to evaluate and compensate, they will drive behavioral changes. For example, an underwriting metric that focuses on sales without a balancing metric on losses or account profitability will encourage an increase in underpriced business. Lacking a balancing metric is an even greater risk for writers of long-tail lines.

Metrics and Strategic Alignment

Metrics should align with company strategy. For example, an organization that has strong ties to its producers may not reap benefits from an agency metric that focuses on the number of appointments but ignores the “franchise value” of an appointment. This metric may encourage high volumes of low-value appointments with inappropriate agents while diluting existing franchise value and creating friction within the existing distribution.

Metrics and the Premium Cycle

Insurance fluctuates between soft and hard markets, impairing the usefulness of common financial ratios that include premiums in the denominator. Combined ratio, loss ratio, expense ratio, acquisition ratio, etc., all rely on a form of premium in the denominator. These ratios have value in terms of meeting profitability goals, but they are ineffective when measuring productivity. The metrics would indicate weak productivity when rates are soft, and a hard market would make everyone appear more productive.

Speed Metrics

In IT Value Metrics: Six Common Measurements of Business Impact, Novarica identified the most commonly mentioned metrics in the Impact Award case studies. Most metrics that insurers used to justify IT initiatives were speed metrics. The most common measurements were average time from submission to quote, new product and product enhancement time to market, policy issuance time, claim handling time, and straight-through processing percentage. The report also contains a framework of 21 metrics, which may be a good starting point for insurers.

Unit of Measurement

Insurers can apply individual productivity metrics cost-effectively in functions where many individuals have similar responsibilities, e.g., accounts receivable, agency management, call center, claims, and underwriting. However, it may be challenging to develop meaningful productivity metrics for organizations where each staff member may have a unique role, e.g., finance, actuarial, HR.

Examples

Here are examples of productivity metric frameworks that balance competing priorities for claims and underwriting:

Claims

The goal of every claims organization is to adjust a claim quickly at a low cost with high levels of customer satisfaction. These goals are at odds with each other, which highlights the importance of strategic alignment. A balanced scorecard for a claims adjuster may contain:

1. Claim count information, such as new claims, pending claims, and closed claims.
2. Claim duration segmented by ground-up loss value. Higher value claims tend to take longer and are more likely to face litigation. The exceptions are limit losses: Once it is determined that the loss exceeds the limit, cut the check, and do not waste any more time on the claim.
3. Leakage study results.
4. Customer satisfaction metrics, e.g., voice of the customer, Net Promoter Score.

Underwriting

The goal of underwriting is to maximize the volume of profitable business. The effort to quote a risk is almost as significant as the effort to issue a policy; consider a scorecard that balances hit-rate, premium booked, and evaluation of book profitability/underwriting quality.

1. Declination ratio
2. Hit ratio
3. Premium
4. Profitability of high-volume/short-tail book
5. Underwriting quality audit of low-volume/long-tail book

Conclusion

The pandemic has accelerated changes in business practices that were already underway. It was always a good idea to measure productivity, but the current environment makes it imperative.