OPERATIONS

LEVERAGING QUALITY TOOLS

Session 30: February 28, 2006

Session Producer:

Loretta Jacobs, FSA, MAAA

Vice President & Actuary

CNA Insurance Company

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OPERATIONS

PANELISTS• Van Beach, FSA, MAAA, Consultant,

Towers-Perrin Tillinghast

• Alisa Murphy, RN, Director, Process Development & Audit,

CNA Insurance Company

• Shannon McLaughlin, Operations Leader, Genworth Financial

OPERATIONS

Van Beach, FSA, MAAAConsultant, Towers-Perrin

Tillinghast

Operations Benchmarks

for the LTC Industry

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Assessing operational performance

• SoA LTCI Operations and Technology Benchmark Surveys

• Operations benchmark samples– New business efficiency– Underwriting “leakage”– Claims efficiency– Administration efficiency

• Benchmarks presented here are reliant on data provided by respondents in 2004/2005 surveys

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LTCI Benchmark Surveys: 2004 SoA Operations and Technology

• SoA survey (Operations track)

• Point in time data as of June 30, 2004

• Annualized data based on period from January 1, 2004 through June 30, 2004

• 70% of the industry represented (as measured by annualized LTCI premium)

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LTCI Benchmark Surveys: 2004 SoA Operations and Technology

• Active writers and closed blocks • Individual and group• Functions surveyed include

– New business - Underwriting– Administration - Customer service– Claims

• A very useful survey– Good participation– Insightful responses

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LTCI Benchmark Surveys: 2005 SoA Operations and Technology

Good news and bad news• The good news…

– Improved questionnaire format– Several companies provided responses that did not in 2004

• The bad news– Many that provided responses in 2004 did not in 2005– Overall, insufficient participation for meaningful results

• What now?– Investigate reasons for lack of participation in 2005 vs. 2004– Carefully consider timing for next survey– Some limited results will be shared during this presentation

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Industry benchmark examples

• New business efficiency

• Underwriting “leakage”

• Claims operational efficiency

• Overall administration efficiency

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New Business efficiency:New Business budget

• Operational costs of underwriting

• Underwriting requirements

• Other new business administration and processing costs

• Does not include commissions or agency costs

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New Business efficiency: New Business budget per LTC policy

issued

2004 Total Policies Issued

NB Budget Per Policy

Issued

Average 15,495 435

25th Percentile 3,088 208

50th Percentile 9,170 386

75th Percentile 13,133 459

• 2004 total policies issued and new business budget were estimated based on the period from January 1, 2004 through June 30, 2004

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Underwriting “leakage”

• Cost associated with applications that do not result in issued policies

• Analyze as a subset of the New Business budget

• “Not taken or declined” =

total applications – issued policies

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Underwriting leakage: Costs of not taken and declined

policies

New Business Budget per Application

Percent of applications not

taken or declined

$ Spent on Applications not

resulting in issues

$ per Policy Issued Spent on

Policies Not Issued

Average 354 30% 1,058,365 99

25th Percentile 144 18% 42,579 64

50th Percentile 278 31% 932,308 65

75th Percentile 325 38% 1,495,905 108

•Total 2004 applications, policies, and new business budget were estimated based on the period from January 1, 2004 through June 30, 2004

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Claims operations

• Clearly a focus for 2005/2006– Over 50% of the 2005 survey respondents

identified improved claims systems/processes as a top operational focus

• Quality has direct financial impact– Apply eligibility rules– Support care management

• Efficiency also important– Claims volumes are increasing rapidly

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Claims Operational Efficiency

Open Claims New ClaimsOpen Claims / 1000 policies

inforce

New Claims / 1000 policies

inforce

2004 Claims Budget per open claim

Average 2,823 1,079 12.7 4.7 965

25th Percentile 63 8 2.1 1.0 397

50th Percentile 246 89 7.2 3.3 637

75th Percentile 2,217 863 16.0 4.9 843

•Total 2004 new claims per company were estimated based on the new claims per company through June 30, 2004•Open claims, and policies inforce were as of June 30, 2004

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Administration efficiency:Total budget per policy and per

$1000 premium

Total LTC Budget Per

Policy

Total LTC Budget per

$1000 Premium

Average 113 82

25th Percentile 48 31

50th Percentile 100 74

75th Percentile 167 110

•Total 2004 budget per company were estimated based on the period from January 1, 2004 through June 30, 2004•Premium inforce and policies inforce were as of June 30, 2004

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Summary• Quality improvement is a worthwhile pursuit

– Effectiveness is more meaningful when viewed in comparison with industry benchmarks

• SoA Operations and Technology Benchmark Surveys are a valuable tool– Provide context to evaluate company performance– Require an investment – broad participation– Benchmarks presented here are reliant on data provided

by respondents

• Rest of the session will focus on tools to improve your company’s performance

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Elements of a Successful Operational Review Program

Alisa Murphy, RN, Director,

Process Development & Audit

CNA

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Why we have an active operational review program

• Maintain compliance

• Mitigation of legal risks

• Enhance performance

• Identify and control or eliminate weaknesses.

• Streamline resources

• Promote industry leading practices

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Elements that drive our program.Collaboration

Collaboration with Division Team

• Annual Interdisciplinary planning session.

• Setting priorities based on risks and concerns.

• Share results across the disciplines.

Collaboration with Operations Units

• Active consistent presence.

• Leverage current controls.

• Seek opinions and listen to concerns.

• Meet resistance with a matter- of- fact approach.

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Elements that drive our program.Span

• Avoid broad topics that provide little practical value.

• Focus – Attempt to narrow the scope to the smallest element that is logical for a given process.

• It is important to be able to identify and validate the effects of any post-review changes.

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Elements that drive our program.Timeliness

• One to three month maximum.

• Old data is not usually relevant.

• Allows for immediate feedback.

• Reinforces the consistent and active nature of the program and delivers secondary gains.

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Elements that drive our program.Practical Recommendations

• Be specific/avoid broad instructions.• Ask for input from the operational area.• Consider the factors of Span and

Timeliness in the context of the recommendation.

• Drive for Industry Leading Practices – the old, the new, the best of all worlds.

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Final Thoughts

• Our success stories.• QI yourself! Improve while maintaining

consistency whenever possible. • Balance structure with flexibility.• Develop a program that meets the needs

of your business. - Don’t conform to a textbook method.

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Disclaimers

• The purpose of this presentation is to provide general information about CNA's current LTC operational review strategies. Given the strategies’ unique fit with CNA, they may or may not be appropriate for use by other companies.

• CNA is a service mark registered with the U.S. Patent and Trademark Office. Copyright © 2006, Continental Casualty Company. All rights reserved.

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QUALITY RIGOR DRIVING RESULTS:

Taking Tools & Best Practices to LTCI

Shannon McLaughlin, Operations Leader

Genworth Financial

Long Term Care Insurance

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Experts Developing Skill-sets Robust Training Offering

Quality Tools Six Sigma Project Management Facilitative Leadership WorkOut LEAN

Business Rigor Prioritization Resource Aligned to Support Priorities Release Management Disciplines

Drive

Business

Results

Quality Model- Setting Up for Success

Keep It Simple . . . Use the Right Tool for the JobKeep It Simple . . . Use the Right Tool for the Job

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How Does It Work?

Prioritize Initiatives Prioritize Initiatives

Identify Skill-Set Required

Identify Skill-Set Required

Identify Resource“Expert”

Identify Resource“Expert”

Execute LeveragingRight Tool

Execute LeveragingRight Tool

Determine the Type of Project & Skill-Set RequiredIdentify Methodology Approach

Business Priorities Impact/Results

Assign Skilled Resource Build Execution Team

Team Drive Project Tollgate As Required

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Where Does It Work?

New Processes:• Game Changers • Technologies• Product Introductions• Integrations

As Is Processes:• Core Operation Improvement• TPA Partnerships

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Examples – New Processes

New Processes:eQuick Request + Voice

– Improved App Received to Policy Issued Cycle Time– One Customer Touch by the Agent– Easy Process for the Consumer

New Group Product– Fast to Market– Simple Customer Processes

As Is Processes:Vendor Process Improvements

– Improved Accuracy– Improved Customer Response & Communication

Frequency

New Business – Improved Cycle Time– Improved Communication