Measuring KPIs on Auto Physical Damage Claims
How many key performance indicators is the right amount? Veteran business travelers will recognize this question from the hotel check in process, but I want to direct this to auto physical damage claims managers. Most claims organizations will say they are data driven when it comes to decision making and performance measuring. Frequently, claims managers point to their key performance indicators (KPIs) as the means they use to measure performance and drive improvement. They usually unveil 30+ metrics from several sources. Measuring these many aspects of your business to understand the nuances of how your organization is performing is admirable. However, scaling performance metrics to a reduced number of true ‘key’ indicators will focus results on big impact areas that will drive significant improvement.
Limiting the number of metrics is the key to focusing improvement. These metrics should be easily measured from a single source, mathematically sound, take vehicle mix and age into account, and improvements should impact the accuracy of claims payments. A key performance indicator is defined as “a quantifiable measure used to value the success of an organization, employee, etc. in meeting objectives for performance.” Go a step further and add the word “accurate,” because auto physical damage claims personnel are dealing with a high volume of claims files and large data sets are boiled down to “average estimate” values rather than the gross savings dollars to help understand the impact per claim.
When using averages, we must understand and validate the numerator and denominator of these calculations to assure they are accurate, and you must understand any interdependencies. For example, if the auto physical claims department wants to measure improvement in the repairable severity of collision claims, a second measure should be set up to measure the frequency of total losses as well. I have encountered several auto physical claims organizations where the focus is solely on repair severity. They will point proudly to the reduction in the average repair cost, only to have the actuaries question why overall claim payments have spiked because of an increase in the frequency of total losses.
Parts metrics have been addressed in a previous article, showing that measuring the number of parts by part type in an auto physical claim is a better measure of performance than the percentage of parts dollars by part type, which rewards higher dollar alternate parts choices.
Additionally, repair versus replace decisions on high frequency items such as bumper covers are useful metrics to drive overall auto physical claim payment accuracy. Bumper covers are a line item in roughly 73% of repair estimates, and proper repair of a cover is truly win-win. However, with the increase in ADAS (Advanced Driver Assist Systems) in vehicles, repairing bumper cover damage in the area of a sensor may not be recommended by the manufacturer. It would, therefore, make sense to understand what your vehicle mix is versus the industry to allow for a lower repair volume in newer vehicles.
Should the KPI’s change or be static? The adage, “if you want something to improve, measure it” has always been true in auto physical claims. When it comes to KPIs, developing 4-5 consistently measured metrics that can be augmented by 1-2 performance areas, be rotated seasonally or annually, and focused on when a problem has been identified.
Who should have access to and be held accountable for these KPI’s? The beauty of a limited number of KPIs from “one source of truth” allows for the goals to be set at the individual level, through a team and region, and all the way up to the top of management.
Now, you can reflect on your current auto physical claims KPIs and ask yourself:
- Are there too many to focus on?
- Am I using a consistent source?
- Do my metrics consider the interdependencies like repair to total loss?
- Am I measuring correctly? (Think number of parts versus percent of parts dollars)
- Can the same goals be used throughout different levels of the organization?
The new year is a perfect time to set out new Key Performance Indicators and using the guidance above will hopefully give you a good place to start!