How do I master my claims supply spend?

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  • Indemnity Outcome: Track claim outcomes (repudiated, paid, withdrawn).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.

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