The Art and Science of KPIs

All businesses today strive to identify Key Performance Indicators (KPI) which help them understand how successfully their operations are performing.  The nature of the business will help dictate what KPIs are meaningful to any given organization; sales companies for example may look at activity in a sale funnel or individual win/loss ratios, while a customer service-based organization may focus on customer satisfaction scores and average longevity with clients.  Regardless, businesses identify and track KPIs as a means to quantify some intangible metric they deem meaningful.  There is a downside to this practice, however: surrogation.

Surrogation by definition is a psychological phenomenon in which the measurement of a construct of interest evolves to replace the construct itself.  In other words, the measurement becomes more meaningful than the thing being measured.  This is a slippery slope which can lead to business practices that serve to undermine the original goal of the metric.  Take sales funnels for example.  If a company pressures its sells staff to maintain a robust funnel and report solely on volume of opportunities within that funnel, staff may divert their efforts from focusing on identifying realistic targets and put more time and energy into filling the funnel with improbable placeholders.

Organizing the data which speaks to a business in a concise and consistent way provides that business with invaluable reporting capabilities that allow KPIs to be tracked and understood.  This is the science of KPIs.  The ability to measure the abstract strategies and attributes that make any given business unique.

The art of the thing is understanding how to use these measurements to the advantage of the organization without inadvertently allowing them to steer the company in the wrong direction.  Data for the sake of data can be as much harmful as it can be helpful.  When data is understood and interpreted properly, however, it is exceptionally powerful.

In insurance, we use many KPIs to understand how a given set of exposures have preformed historically regarding premiums and losses, and use this data to try to understand how these exposures will continue to perform moving forward.  Taking the data at face value, however, can be risky.  This is why we have actuaries; individuals who have spent their lives learning to see past the numbers.  Artists capable of taking the science that is the data, and turn it into a lens which illuminates a reality we would have otherwise overlooked.  For a PEO, nothing can be more valuable in understanding past, present and future performance of their book of clients than an actuarial review.

For additional reading see:

Articles

Don’t Let Metrics Undermine Your Business

Books

Thanking, Fast and Slow by Daniel Kahneman

California Workers’ Compensation Written Premium Continues to Decrease in 2019

Source: Insurance Journal

Premium decreases in California workers’ compensation may have escalated in 2019, a new report shows.

The Workers’ Compensation Insurance Rating Bureau of California on Wednesday released its quarterly experience report, an update on California statewide insurer experience valued as of Sept. 30.

The report shows decreases in written premium since 2016 are primarily driven by decreases in insurer charged rates more than offsetting increases in employer payroll.

Written premium for 2018 was 4% below that for 2017 and 6% below that for 2016, according to the WCIRB report.

Highlights of the WCIRB report include:

  • California written premium through the third calendar quarter of 2019 is 7 percent below the same period for 2018, suggesting that premium decreases are escalating in 2019.
  • The average charged rate for the first nine months of 2019 is 11 percent below that for 2018 and 32 percent below the peak in 2014.
  • The WCIRB projects the ultimate accident year loss ratio for 2018 to be three points above that for accident year 2017, driven by higher claim severities for 2018 and lower premium rates.

The full report is available in the research section of the WCIRB website.

Thanks For Joining Us @ NAPEO 2019

Libertate Insurance wanted to thank you for joining us at NAPEO 2019 in Austin! I hope everyone had a great time and learned a lot from the breakout sessions!

We hope you gathered some valuable information about the impact that Big Data and AI/ML can have on you and your PEO! We look forward to a great year ahead!

Big Data – How Can It Help You?

“Big data” is present in every part of business and society in today’s world. Every medication that hits the shelves goes through extensive study and comparison utilizing big data. Every intersection with a traffic light uses big data to determine the length of time for each color. Gas prices, food prices, utility bills, EVERYTHING undergoes analysis using big data.

But you may ask, “but David, how does this affect my PEO?”

Answer your own questions and many more at 3:45 today at NAPEO featuring our CEO Paul Hughes!

Big Data – AI/ML Predictive Analytics and the Potential for PEO
Sheldon Brechtel, Jr., Executive Vice President – CIO, CCMSI
John Harman, SVP PEO Solutions Group, Aon
Paul Hughes, CEO, Libertate Insurance, LLC
Chase Pettus, Predictive Analytics, Gradient A.I.

 

If you’d like to know more about what is going on at NAPEO, see the schedule here!

Big Data – AI/ML Predictive Analytics and the Potential for PEO

We hear it all over the news “BIG DATA”, “MACHINE LEARNING”, “ARTIFICIAL INTELLIGENCE”, but what does it really mean and more importantly, what does it mean for your PEO?

Big data is a phrase used to describe an extremely large data set. Take NCCI for example, they are what we would consider “big data” for the PEO industry due to sheer amount of claims and exposure data they posses for the states they administer.

But what does big data mean to you? Find out more at the NAPEO breakout session on Tuesday from 3:45-4:45!

Big Data – AI/ML Predictive Analytics and the Potential for PEO
Sheldon Brechtel, Jr., Executive Vice President – CIO, CCMSI
John Harman, SVP PEO Solutions Group, Aon
Paul Hughes, CEO, Libertate Insurance, LLC
Chase Pettus, Predictive Analytics, Gradient A.I.

 

If you’d like to know more about what is going on at NAPEO, see the schedule here!

History Repeats Itself, Are You Prepared?

The organization of exposure performance for a PEO is found in its ability to predict and benchmark against the historic results of peers and the industry as a whole. Historical performance is a metric a lot of people lose sight of. We tend to look at current, or maybe past year performance most often, but come time to forecast losses, promulgate a mod or re-price our business 3, 5, 7, or even 10-year performance comes into play.

We’ve seen time and time again from PEO’s that come time for actuarial review, they are misunderstand or are even surprised with the numbers they are presented. RiskMD bridges the understanding of potential issues within a given portfolio of business entirely. On the fly, you are able to create an accurate Loss Development Triangle with corresponding link ratios for multiple measures. From total incurred, to ‘Loss Time Only’ incurred claims, you can create an accurate triangulation based off your data, for any development interval you would like!

A loss triangle and its corresponding link ratio are the primary methods in which actuaries organize claim data that will be used in an actuarial study. The reason it is called a loss triangle is that a typical submission of claim data from a client company shows numeric values forming a triangle when viewed. The triangle allows you to track loss data at set valuations (development periods) so you can see development from valuation to valuation. The difference between each valuation is known as the link ratio. True development is represented typically in a pure dollar figure, where as a link ratio is represented as the growth between periods.

Within RiskMD you can view a plethora of Loss Triangles. The first selection you need to make is whether you want to organize your triangulation based on accident or policy year. We have taken into account that not all our clients have the same effective dates, so we give you the option to select your program effective date. The next thing you need to think about is what type of triangulation you would like to look at? Below is what’s available in RiskMD:

Total Incurred – A pretty standard triangulation, a measure of development for total incurred (total paid + total reserved)

Total Paid – Measure of development for total paid

Total Reserve – Measure of development for total reserves

Med Only – Measure of development for total incurred if the claim is marked ‘Medical Only’

Lost Time Only – Measure of development for total incurred if the claim is marked ‘Indemnity’

Medical Paid – Measure of development for all medical paid

Medical Incurred – Measure of development for all medical incurred (medical paid + medical reserved)

Indemnity Paid – Measure of development for all indemnity paid

Indemnity Incurred – Measure of development for all indemnity incurred (indemnity paid + indemnity reserved)

Number of Claims – Measure of development for claim count. Will show outliers for claims reported late

% Closed Claims – Measure of development to show your claims closure rate and number of claims still open in correspondence to the accident or policy year it occurred in

Example dynamic Loss Development Triangle

RiskMD worked with a pricing actuary who has been in the field for the past 20+ years to create this dynamic model. Powering the visualization is YOUR data. No matter if you want to see the development on a month-to-month basis, or on an annual development, as long as RiskMD has the data, the visualization can be rendered.

Knowing that, if you are having issues producing year end reports, or if you want to stay ahead of the game and know where you sit prior to your next actuarial study, contact us today! We will get you squared, or need I say triangled away!!

Big Data was a BIG Deal at NAPEO’s Risk Management Conference

Last week’s Risk Management Conference hosted by our friends at NAPEO was a huge success! For those that weren’t able to attend click here to access the Big Data presentation that was presented by the following individuals:

  • James Benham / JBKnowledge
  • Paul Hughes / Libertate Insurance Services
  • Kristin Meeker / CCMSI
  • Chase Pettus / gradient A.I.

NAPEO’s Risk Management Conference Ready to Invade Nashville on March 6th and 7th!

NAPEO’s annual Risk Management Conference is right around the corner! It’s a must see conference for those interested in risk management and other related areas of focus. Click here to access the agenda. Below are presentation topics:

  • Workers’ Compensation Rate Update
  • Crime Insurance
  • Big Data
  • Cyber Security
  • PEOs and Cannabis
  • Payroll Fraud

Libertate is proud to be a sponsor of this wonderful conference. We hope to see you there. If attending, we would love to buy you a drink and talk about insurance, data and the PEO industry!

Paul – phughes@libertateins.com

David – dburgess@libertateins.com

Sharlie – sreynolds@libertateins.com