Summarised Version March 2014
1. Executive summary 1.1 Background As part of the routine internal audit program, ICWA has requested Ernst & Young (EY) to undertake a claims management review of RiskCover s claims management, commonly reviewed to as a technical audit. The objectives of the review were to assess RiskCover s performance in respect of: The quality of the claims decision making The level of pro active decision making The strategic application of the legislation to achieve optimum outcomes The extent of claims leakage. In addition, ICWA has requested EY to consider the adequacy of the level of resources employed by ICWA to manage workers compensation claims. Claims leakage can be viewed as the quantified leakage estimated by the claims reviewer if improved claims management had been applied to the claim (i.e. the cost of claims would have reduced by this amount). Claims leakage is inherent within any insurance portfolio and is able to be reduced but not eliminated. 1.2 Approach Our approach in conducting the review was as follows: 1. Develop a consistent set of evaluation criteria to assess claims 2. Select claims files in accordance with the sample selection criteria 3. Review the claims files using the evaluation criteria developed in step 1 above and record the findings. The following is a brief description of the numeric scoring procedure for the technical elements: There is a degree of subjectivity and this is unavoidable when assessing personal injury claims The assessment is a comparison with other workers compensation insurers or the industry Historically a score in excess of 6.5 compares favourably with the industry Some assessments vary depending on the longevity of the claim. 4. Consolidate the individual review findings and discuss main issues emerging with ICWA staff. 5. Document our findings in this report. 1.3 Benchmarking against industry In undertaking our review of claims management we benchmarked ICWA s quality of claims management against private and government insurers. We adopted a benchmark rating system used for a number of claims reviews we have undertaken over the last ten years. The rating system designated a score based on the performance benchmarked to an industry standard for workers compensation and personal injury claims. The ratings used are set out in the following table. Table 1: Claims benchmarking rating Benchmark Description Rating Excellent almost no leakage 9 to 10 Exceeds industry standard limited claims leakage 7 to 8 Equivalent to industry standards claims leakage consistent with industry Falls below industry standards significant claims leakage 5 to 6 Falls well below industry standards substantial claims leakage 6.5 1 to 4 EY 1
1.4 EY point of view RiskCover s overall management of claims is better than our assessment of the industry average of insurers in an underwritten environment, which is at a higher standard than under government managed funds. The table below shows the scores on ICWA s sample of claims which we have provided a rating on the technical elements of the review. Table 2: Rating of technical claims management components Standard of claims management Rating out of 10 Accuracy of case estimates 6.2 Rehabilitation management 7.8 Medical management 7.5 Accuracy of payments 7.0 Legal management 6.4 Effectiveness of settlement strategy 7.0 Factual and surveillance 6.8 Recovery Action 6.5 Average rating 7.2 The arithmetic average in the above table is less than the average shown since: We have assessed the overall average by placing more weight on the tasks that are more important in claims management such as medical management and rehabilitation. Some tasks such as medical management and rehabilitation are much more prevalent in claims management than tasks such as recovery action and thus are given a greater weight in the overall average with the former having higher ratings. The results of the claims review indicate there is limited claims leakage in RiskCover s workers compensation portfolio. Based on the sample of claims reviewed our subjective estimate of claims leakage is about 5% or less. While this should be viewed as a favourable result we note: The nature of personal injury claims means a certain level of claims leakage is inherently subjective. There is always claims leakage in any claims portfolio. ICWA performance versus the industry The above rating of 7.2 compares favourably with our view of commercial insurers of 6.5. Even though ICWA s performance should be pleasing it should be borne in mind that the rest of the industry has scope for marked improvement. Additionally, the current rating of 7.2 highlights the opportunity to further improve performance and subsequently reduce the extent of any claims leakage. The above scores represent overall performance and there is some variance in performance within each of the key claims management tasks as shown in the following table. Table 3: Rating of technical claims management components against the industry Standard of claims management Accuracy of case estimates Rehabilitation management Medical management Legal management Low Acceptable Standard Accuracy of payments Settlement strategy Factual and surveillance Recovery action EY 2 High
ICWA/RiskCover Industry With the exception of case estimating, the scores on ICWA assessed claims were above industry standards. ICWA s performance relative to the industry was particularly good for rehabilitation management, accuracy of payments, factual and surveillance and recovery actions. The scores identified strengths and weaknesses in respect of various claims management tasks. The main strengths involved the early intervention in claimant s medical management and the prompt resumption of pre-injury or suitable selected duties. The main weaknesses arose when attempts to return the claimant to work were unsuccessful. There was also an identifiable need to increase case reserves on a number of claims. Resourcing and caseloads ICWA has a good mixture of experienced personnel and other personnel who have less experience but are particularly effective in the rehabilitation of injured claimants. In our experience an industry standard caseload level is considered to be between 90 and 100 claims (i.e. number of claims managed by a claims officer) for good claims management to be delivered for a workers compensation portfolio. A caseload above 110 claims increases chance of significant claims leakage. At present, we understand that RiskCover s average caseload is about 118. RiskCover has lower turnover of staff and on average have more experienced staff than other workers compensation insurers which should mean RiskCover can operate at higher caseloads than other insurers for a like with like claims mix. As noted above RiskCover has a different claims mix to other insurers in Western Australia with over four times as many stress claims. This offsets the more experienced workforce at RiskCover and our view is that RiskCover will struggle to improve claims management with its current caseload of 118. Recommendations There is scope to reduce the level of leakage referred to above. The main area where claims management performance can be improved and claims leakage reduced, in order of importance are, delays in initiating settlement negotiations, more proactive management of stress claims and the costs associated with legal providers. Our recommendations are: Increased attention given to settlement when claimants have been absent from work for more than twelve months. Increased attention given to stress claims. Additional rigour in examination of questionable claims. Implementation of case estimate reserving refresher course. Referral of more matters to Dispute Resolution Officers. Review of stress claim reserving. Implementation of milestone reviews. 1.5 Overall management comment It is pleasing that the RiskCover division's management of claims has been assessed as being better than the average of commercial insurers operating in an insurer underwritten scheme environment, and it is acknowledged that there is still room for improvement. Don Williams General Manager RiskCover EY 3
Liability limited by a scheme approved under Professional Standards Legislation. 2014 Ernst & Young Australia. Reliances and Limitations In undertaking this claims management review, reliance has been placed upon information supplied by the ( ICWA ). These include claim files listings, electronic claim files, and claims data contained in ICWA s IT claims system. In general, reliance was placed on but not limited to the information provided. Except where indicated, we have used the information without independent verification. However, it was reviewed where possible for reasonableness and consistency. The claims selected for review only constitute a very small proportion of ICWA s workers compensation claim portfolio, therefore it should be expected the review does not identify all potential issues and opportunities for improvement in ICWA s claims management practice. We have performed the work assigned and have prepared this report in conformity with its intended utilisation by persons familiar with the areas addressed and for the stated purposes only. Judgements based on data, file reviews and interviews contained in the report should be made only after studying the report in its entirety, as conclusions reached by a review of a section or sections on an isolated basis may be incorrect. Ernst & Young staff are available to explain or amplify any matter presented herein. Inherent Limitations We believe that the statements made in this report are accurate, but no warranty of completeness, accuracy or reliability is given in relation to the statements and representations made by, and the information and documentation provided by ICWA management and personnel. We have indicated within this report the sources of the information provided. We have not sought to independently verify those sources unless otherwise noted with the report. We are under no obligation in any circumstance to update this report, in either oral or written form, for events occurring after the report has been issued in final form unless specifically agreed with ICWA. The internal audit findings expressed in this report have been formed on the above basis. The summary of findings contained in this report are based on the findings of the claims management review prepared at the request of Insurance Commission of WA solely for the purposes of forming a part of the internal audit plan, and is not appropriate for use for other purposes. This summary is provided for information purposes only in order to provide an overview to our detailed report and should not be taken as providing specific advice on any issue, nor may this summary be relied upon by any party other thanthe Insurance Commission of WA. In carrying out our work and preparing this report Ernst & Young has worked solely on the instructions and information of the Insurance Commission of WA, and has not taken into account the interests or individual circumstances of any party other than the Insurance Commission of WA. Ernst & Young does not accept any responsibility for use of the information contained in this summary and makes no guarantee nor accept any legal liability whatsoever arising from or connected to the accuracy, reliability, currency or completeness of any material contained herein. Ernst & Young expressly disclaims all liability for any costs, loss, damage, injury or other consequence which may arise directly or indirectly form use of, or reliance on, this report. Liability limited under a scheme approved under Professional Standards Legislation. EY Assurance Tax Transactions Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 175,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve their potential. 2014 EY Australia All Rights Reserved. Liability limited by a scheme approved under Professional Standards Legislation. ey.com