Insurance litigation in the economic downturn

I heard a report on the news this morning that in a recent survey, lawyers have indicated that they expect a dramatic decrease in business in 2009 and do not anticipate earning income at the same levels they earned in 2008.  Really?

That may be true for mergers & acquisitions, and other similar purchase related transactions, but I do not believe the current economic downturn will have a similar affect on the insurance industry.  In fact, I believe it will have the opposite affect.

I think the upsurge in litigation stemming from the collapse of the credit markets and the mortgage industry could surpass levels ever seen before.  Litigation during these times could include some of the highest settlement amounts, parties sued, and parties suing.  Insurers are bound to get caught up, due not only to defending their interests, but also mainly due to their policy responsibility of defending insureds for litigation brought against them.

Some insurance carriers are gearing up for that increase in defense costs.  The Hartford is already battening down the hatches in preparation for a litigation hurricane.  As the insurer for The Peanut Company of America, they have gone to Federal court for clarification on the liability coverage in their policy, in preparation for the litigation defense costs and settlement payments for the over 1800 product recalls and related illnesses.

People are losing their jobs and can’t make their payments on their Lexus because they over extended in the boom of ’07.  So those vehicles end up on eBay, on fire, or in a chop shop.  Insurance SIU departments see a swell in claim counts.  The number of injuries in car accidents goes up.  These are times when an insurer’s Corporate Performance Management (CPM) and the ability to analyze their own data against their goals, along with incorporating automated processes can really pay off and keep expenses down.  The identification of fraud also becomes key to insurer’s weathering the storm.  Lawyers send people to the same doctors and vice versa.  I remember a case of fraud where a doctor was reported to be treating 1600 people in one day.  So, who gets involved in all these areas – lawyers.  Both on the claimant and on the carrier side.

Traditionally economic downturns are the biggest catalyst for increases in insurance claims and insurance fraud – people need money.  The decrease in policies written, coupled with the increase in policies cancelled for non-payment of premium, is not as dramatic a cost change as the increase in claims.  People still recognize the need for insurance and recognize the importance of maintaining that policy.  However, insureds, and claimants, feel they’ve been paying the premiums on their policies and now they need to get some money back.

I can’t see insurance lawyers experience that much, if any, drop in revenue during this recession.

It’s the End of the World As We Know It!

The Holidays are a great for watching “End of the World” shows on the History Channel. They were a great comfort, actually almost encouraging, because all of the prophecies target 2012.  “The Bible Code II”, “The Mayan Prophecies”, and the Big 2012 Special compendium of End of the World scenarios, covering Nostrodamus to obscure German prophets, all agree that 2012 is the big one (Dec 21 to be exact!)  What a relief!, the rest of the news reports are trending to canned goods, shotguns, and gold by the end of the year.  We really have almost a whole 48 months before everything goes bang (I wasn’t ready anyway, procrastination rules!).

Unfortunately, we need to do some IT planning and budgeting for the new year and probably should have some thoughts going out 36 months (after that see the first paragraph).  As I discussed in a prior blog, the reporting, BI/CPM/EPM, and analytics efforts are the strongest priority; followed by rational short cost savings efforts.  All organizations must see where they are heading and keep as much water bailed out of the corporate boat as possible.  Easy call, job done! 

Then again a horrifying thought occurred to me, what if one of these initiatives should fail? (see my nightmares in prior blog posts on Data and Analytics).  I am not saying I’m the Mad Hatter and the CEO is the Red Queen, but my head is feeling a bit loosely attached at the moment.  Management cannot afford a failed project in this environment and neither can the CIO in any company (remember CIO=Career Is Over).

The best way to ensure sucessful project delivery (and guarantee my ringside lawn chair and six-pack at Armageddon in 2012) lies in building on best practice and solid technical architecture.  For example, the most effective architecture is to use a layer of indirection between the CPM application (like Planning & Budgeting) and the source data systems (ERP, Custom transactional).  This layer of indirection would be for data staging, allowing transfer to and from fixed layouts for simplified initial installation and maintenance.  In addition, this staging area would be used for data cleansing and rationalization operations to prevent polluting CPM cubes with uncontrolled errors and changes.  In terms of best practice, libraries and tools should be used in all circumstances to encapsulate knowlege rather than custom procedures or manual operations.  Another best practice is to get procedural control of the Excel and Access jungle of wild and wooley data which stands ready to crash any implementation and cause failure and embarassment to the IT staff (and former CIO).  When systems fail, it is usually a failure of confidence in the validity or timeliness of the information whether presented by dashboard or simple report.

CPM, EPM, and Analytics comprise and convey incredibly refined information and decisions of significant consequence are being made within organizations to restructure and invest based on this information.  The information and decisions are only as good as the underlying data going into them.  So skimping on the proper implementation can put the CIO’s paycheck at serious risk (Ouch!).

The Fog Has Engulfed Us Captain! What Do We Do?

Sailing in fogThe current business environment reminds me of being socked in a fog bank in minutes, after being on a pleasant summer sail.  The entire episode puts the pucker factor meter in the red zone.  One minute clear sun and nice breeze, the next you can’t see your hand in front of your face.  Your other senses become more acute  — suddenly you hear the splash of the waves on the rocks you cannot see (funny I didn’t hear that a minute ago).  The engines of power boats are closer, seeming to come at your every quarter (PT109 how bad can it be?).

As you sit in the cockpit with your canned air fog horn and US Coast Guard approved paddle, you think that the portable marine radio you bought will not save your sorry carcass (at least you can get the Coast Guard to retrieve your drowned body as you go down).  You kick yourself for not buying that radar instead of the case of wine as a boating accessory (in fact, you think of downing some of that right now to ease your passing).  What you would not give for just a little visibility.

That’s what running a business feels like right now (makes you want to puke doesn’t it, what fun).  My Kingdom for some Visibility!  Sure, you can see what the others are doing; cut a few heads there, shut a facility there.  Is that the right thing to do?  Are you killing your future seed corn or bailing the water which will sink the company?  Ugh!  In this case, you really wish your company’s reporting could be that radar to tell where and where not to go (sure wish I got that CPM Package rather than that Sales meeting in Napa Valley).  With dashboards, planning and budgeting, consolidation, and operational BI, I would have a much better sense of what to feed and what to kill to take advantage of my competitors coming out of this economic fog (Aye Captain! in the Bay of the Blind the One Eyed Man is Admiral!).  Wishing and regrets won’t get you much, and capital investment at this point seems to be a dirty word (Yep, there it is on George Carlin’s list).

In the case of my sailing experience, the way I dug out of the fog and fear was to dig out the depth finder the former owner left behind and the charts I bought because it seemed like a good idea at the time.  I then proceeded to steer the sailboat in circles matching the readings on the depth finder with the depth readings on the chart based on my dead reckoning of my location (you reckon wrong, you’re dead).  Needless to say it worked, the fog cleared, and I was within a quarter mile of where I should have been (Cool!).  Just straightening out existing corporate reports and cleaning existing data is the equivalent of using the depth finder and charts already on hand (Yes! I know the difference between capital and expense).  In fact, that effort usually saves money by eliminating old unused reports (Oh, I feel so green!).

In any case, take a solid first step by getting those state-of-the-art visibility tools of BI/CPM/EPM when the current problems clear or things become so dire as to require dry dock repairs.  That way, the pucker meter won’t be buried in the red the next time this happens, and it will.

Image courtesy of Herbert Knosowski, AP

Why creating actionable information from your existing systems is so difficult

With all the easy to use business intelligence tools and technology we have today, why is it so difficult to create actionable information from the wealth of data in our organizations?

One needs to understand, at a high level, the systems we have built and how they got that way. Your core business systems have evolved over time, budget cycle by budget cycle with no eye towards the overall enterprise. Systems were built to support core business functions – Payroll/HR, General Ledger, Inventory, etc. They were transactional in nature; designed to meet the immediate requirements (e.g. cut payroll checks, track inventory, manage an assembly line, etc.) which did not include getting business intelligence out. Over time these systems became islands of data, popularly known as silos.

Add the fact that silos are structured differently and common data like product and customer is typically not standardized, answering questions across silos is difficult and labor intensive.

As these systems matured, the owners of each silo had departmental Business Intelligence needs. So as budget became available they added a data warehouse or data mart on top of their silo and created something like this.

The result is larger silos with larger sunk investment and still no ability to provide enterprise answers or actionable information. This approach worked for immediate departmental BI needs but if the business asks a question from data that resides in two or more of the silos, getting the answer usually involves a significant IT effort. By the time IT responds the business has gone onto a different question. The business analyst starts gluing spreadsheets together to provide some insight kicking off the next activity in the BI food chain – manual analytics.