Managing claims supply spend effectively is crucial. But before you can optimize, you need to create a clear picture of your current expenditure. That’s where this guide comes in.
Step 1: Understanding Your Claims Supply Spend
The most critical step (and often the most challenging) is grasping your total claims spend. Here’s how to tackle it:
- Choose a Timeframe: Select a period like the last 12 months or your fiscal year.
- Data Juggling: Unfortunately, there’s rarely a single source. Prepare to gather information from multiple sources like:
- Claims System: This captures agreed-upon claim payments.
- Finance System: This reflects actual payments made.
- Supplier Data: This provides their perspective on transactions.
Step 2: Building Your Claims Spend Dataset
Once you have your data, organize it in a format that offers insights. Here are key data fields to include:
- Spend by Claim: Track individual claim costs.
- Suppliers Involved: Identify involved parties (legal, TPA, etc.).
- Supplier Activity Category: Categorize their work (legal services, loss adjusting, etc.).
- Supplier Costs: Detail their fees (including multiple charges, if applicable).
- Indemnity Outcome: Track claim outcomes (repudiated, paid, withdrawn).
- Indemnity Cost: Record the actual claim payout.
- Spend by Supplier: Analyze total spending with each vendor.
- Claim Category by Business Type: Categorize claims based on your business areas.
- Peril Cause: Identify the cause of the claim (e.g., fire, theft).
- Time Metrics: Track key dates (notification, supplier instruction, claim closure).
- Geographical Location: Pinpoint where services are provided.
- Service Metrics: Monitor any complaints made.
Step 3: Analyzing Your Data
With your data set built, you can now unlock valuable insights:
- Total Supplier Fees: Determine the total amount spent on suppliers over the defined period.
- Supplier Spend Breakdown: Categorize this spend by supplier type (legal, loss adjusting, etc.).
- Individual Supplier Spending: Analyze your total spend with each supplier.
Step 4: Benchmarking Your Claims Spend
Now it’s time to see if you’re getting the most value for your money. Here’s how benchmarking helps:
- Fee to Indemnity Ratio: Compare legal fees to the actual claim payout. Aim for a ratio around 10% (industry rule of thumb).
- Supplier Rate Cards: Analyze these to identify:
- Price Discrepancies: Are you paying more for the same service from different suppliers?
- Industry Comparison: See how your rates compare to industry averages.
- Value for Money: Are you getting the expertise you pay for (e.g., senior legal partner vs. paralegals)?
- Correct Supplier Usage: Ensure claims teams are instructing the right suppliers for the job.
Step 5: Optimizing Your Claims Spend
By completing this comprehensive analysis, you’ll gain clear insights to streamline your claims process and generate cost savings. Potential areas for optimization include:
- Negotiating better rates with suppliers.
- Leveraging alternative service providers for specific tasks.
- Improving internal claims handling efficiency.
