The insurance companies have management that sets targets for the performance of their claims adjusters. A brief explanation of management by objectives is as follows:
Management by goals (MBO), also known as management by planning (MBP), was first popularized by Peter Drucker in his 1954 book The Practice of Management. Management by objectives is the process of defining specific goals within an organization that management can communicate to organizational members and then decide how to achieve each goal in order. This process allows managers to take work that needs to be done one step at a time to enable a calm yet productive work environment. In this management system, individual goals are synchronized with organizational goals.
An important part of MBO is the measurement and comparison of an employee̵7;s actual performance with the set standards. Ideally, when employees themselves have been involved in goal setting and chosen courses of action to follow, they are more likely to fulfill their responsibilities.
… the system of management by objectives can be described as a process in which superior and subordinate jointly identify common objectives, define each individual’s main responsibilities in terms of the results expected of him or her, and use these measures as a guide to run the business. unit and assess the contribution of each of its members. MBO refers to the process of setting goals for employees so that they know what to do in the workplace. Management by Objectives defines roles and responsibilities for employees and helps them to arrive at their future course of action in the organization.1
I thought about this when I read a white paper for the insurance claims industry, The analog to digital transformation of real estate claims management. The paper never mentioned a KPI that provided performance measures that ensured the customer received all benefits due in full and promptly. The discussion was instead about how to reduce the amount paid in compensation or claims management costs. Here is an example:
Some claims handlers try to reduce costs by trying to reduce severity. There is merit in doing this, for example when SIUs are fighting cases of fraud or overinflation of damages. No one would argue that this is a necessary aspect of limiting claims, but it is a losing battle to try to reduce the severity of legitimate claims with policyholders who need to be reimbursed. In these cases, severity is not the best metric to measure claims handling success. Instead, in many claims it may be more effective to fight the expenses instead.
Until claims management is willing to reward ethical behavior with immediate and full payment instead of reducing severity, unethical claims behavior will be encouraged. If you are interested in this topic, I recommend reading Thoughts on claims incentive targets – where is the target not to overlook all damages?
You need to change the incentives for good behavior as opposed to just discouraging bad behavior.
– Gavin Newsom
1 Wikipedia. Goal management. Available online at https://en.wikipedia.org/wiki/Management_by_objectives (last viewed 2022-09-09).