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November 27, 2017

Claims and Exposure Data at Work: A Baseline to Establish ROI

Return on Investment baseline

It’s the time of year when strategic initiatives are being mulled over in conference rooms with pots of coffee and whiteboards. There’s a plan on the table followed by a moment of silence until someone asks the question: How can we demonstrate ROI? This question is a double-edged sword because to begin ROI discussions assume you have nailed down your baseline

Before you finalize any initiatives, add this critical task to the top of your list: create a baseline. This will allow you to measure the success of your strategy over time and unfold unique insight into areas of risk that might be unseen.

The Baseline Ratio

No need to buy data for these analytics! Take advantage of the dynamic duo when you combine your Claims and Exposure data. The math is simple, the set-up takes just a little elbow grease, and the payoff is fantastic. And, if the information is maintained, it can provide a near-real-time look into an organization (read about why this is an industry game-changer here).

Determine the average number of claims per unit of exposure—this is the key ratio—for each quarter of the past 5 years. By creating the baseline per exposure unit, this will automatically adjust for growth or retraction in exposure data moving forward. The resulting decimals represent the average claims per one exposure of your organization historically.

number of claims over units of exposure

 

 

Once this is in place, create a 5-year average. Use this value, as well as the quarterly values, as your baseline. If you have more than five years of data, use it to strengthen your baseline as you continue to measure this value over time.

Here’s Why You Need This Baseline Metric

Measure Success

There are two benefits to this information. First, you have created X years of trending data before the new year begins—this will allow you to measure success or recognize the need for change as the year progresses. The quarterly ratios provide a second benefit by making it possible to see who or what is driving positive or negative change.

Because you have created a baseline of expected claims, it will be easier to identify the change in claims compared to expectations. Overlaying this information with the expenses used to implement the risk strategy creates the basis to demonstrate ROI.

Take Your Organization’s Temperature

Where does your organization stand right now? Using the baseline, get an idea of how the organization is doing now compared to the average performance over the past X years.

Measure Progress

Measure the success of a new strategy, plan, service, etc. by tracking your point-in-time claims data/exposure ratio and analyze how it stacks up to trends from previous years. Don’t forget to consider other variables that may have affected the trend. A stellar example of solid ROI is when you can demonstrate that a new baseline has been set that saved more resources than the cost to implement the strategy!

Claims and Exposure Data Baseline Graph

Identify Blind Spots

The ability to spot unwanted trends allows for the opportunity to investigate its cause. When the ratio spikes in the first quarter and the trend hangs around into the third quarter, that’s a red flag calling attention to an area that needs some help.

Build on Strengths

On the other side of the coin, spot trends you’d like to see happen more often. Did the ratio drop for the first through third quarters? That’s great news! Now, what caused that drop, and can it be replicated and maintained?

The point-in-time claims data/exposure ratio is a powerful way to gain strategy-changing insight into your organization, proactively manage risk, and make informed decisions—all with information already available to you. As the new year approaches, it is the perfect time to consider a new way of measuring success and getting ahold of a solid way to measure your ROI this next year.

 

 

This article is also published here. Thanks, CIOReview!

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