Pencil Whipping

The other day I was doing my daily allotment of reading and I came across an article that used the term “pencil whipped”. It immediately perked me up and I remembered an old term we used at the Federal Reserve Bank years ago – “put the pencil to it”. This phrase meant that when you knew the bosses wanted the statistics to come out a certain way, we just “put the pencil to it”. In my analytic unit, we had all had plenty of statistical analysis classes in college and we knew we could make the stats show just about anything we wanted. So, in an effort to stay in good graces with the bosses, we made certain that any analyses they needed for district meetings made them look good. Dishonest yes, but we looked at it as keeping people happy and getting what we needed for the branch. We were very young and not aware of the results of our numbers rolling up the hill.

So, when I saw pencil whipping, I wondered if it meant the same thing. I googled the term and found that it had several meanings to all types of industries but was generally within the same meaning as my old line from the FRB. Wiktionary had two definitions which I thought pertained to this article; 1) to approve a document without actually knowing or reviewing what it is that is being approved; 2) to complete a form, record, or document without having performed the implied work or without supporting data or evidence. You know what it means – let’s just check off the boxes so that we can get through this stuff today or just initial it and move the paper. I began reading some of the new material on pencil whipping and found that this practice for the insurance industry fit in perfectly both the underwriting and claims sectors. I also realized now having been responsible for company results and in many cases insurance rates, the problems pencil whipping could cause the C-Level executive were worth writing about.

Let’s take a look at Underwriting first. The majority of insurance carriers and MGAs now work on an IT application that calculates rates for a customer based on the information a clerk places in the system. For example, if he/she does not check the box on the rater showing that the applicant has a swimming pool at their home, the rate will not be adjusted for the liability for that risk. However, that is an example that is extremely simple and most often will be exposed if the underwriter is requiring inspections of the property. But what happens in the case where there is no inspection required. Not only is the rate too low, but the carrier is opening themselves up to regulatory compliance issues relating to discriminatory rating. The fallout during an audit can cause major problems for the carrier.

The claims side can add even more headaches to your pencil whipping scenarios. Most claims administration software has a multitude of questions relating to the cause of an occurrence. Questions are asked that are related to weather, surface conditions, type of damages, severity of damages, etc. Every bit of information that is requested has a potential effect on the outcome and monetary value of the claim. This information will also eventually be used in Underwriting when renewal of this risk comes around. Also, actuaries use this data to complete their actuarial studies. The frequency of certain types of claims, in certain geographical areas, around certain types of terrains, all effect the analysis that the actuary does to develop the loss costs and rates for a carrier. Not having the complete picture could cause a carrier to lose tremendous amounts of money during a catastrophe. The results are a poor bottom line for stockholders.

Everything we read these days with regard to software and the rating of risks mentions data analysis, telematics, data mining and the like. But my question is what good is any of this if the information is pencil whipped. The answer is obvious; the data is useless. So, the next question is how do we avoid having our data pencil whipped?

The definition of insanity is doing the same thing over and over and expecting a different outcome. So, if you suspect this is going on in your operations, I would suggest that the first step be a close observation of the staff and the manner in which they are entering their data. There is nothing more enlightening then to sit with a staff member and ask them to train you on what they are doing. It is truly an eye opening experience.

I believe the first thing you will encounter is that a clerk has no idea why he is doing many of the tasks he carries out each day. It is simply what he was told to do and has no IDEA the reason behind it. In other words, what could be defined as trained “monkey” work. The next thing you will find out is that the clerk will have no idea what if any IMPACT their work will have on the outcome of the product or service that the company is selling. When I first realized that, it made me sad. There was no reason for this person to be motivated in his/her job because he saw no bearing his job had on the success or failure of the company. Then I got angry because I felt that it was not only the fault of the management under me that had not imparted to the staff the importance of their part in the success of the business; but it was also my fault for not making the persons responsible to me understand the importance of the training and motivation they must bring to their staffs.

The next item that will become apparent is the speed with which the data is entered with no regard to whether it is correct or not. More than likely there will be fields of data that the clerk was trained to skip or just “tab through” so they could get finished faster. What the clerk does not realize is that the field they just skipped may be one that is crucial in analyses for the actuary.

What all of this tells me is that no one has properly trained and educated these staff members as to the importance of the data they are entering each day. It is my belief that most employees would not knowingly do sloppy work. But when people are not educated as to the end result of their work product, can you hold them responsible for not doing their job?

Let’s use an example to illustrate the consequences of the above inaccurate data. A clerk is taught to enter applications for mobile home coverage. There is a drop down that is titled “Tie Down”. There are four options to choose from: 1) Full; 2) Chassis Only; 3) Overtop Only; 4) None. The application that is received by the clerk has nothing to explain the options to this question. The clerk has never lived in a mobile home and has never been exposed to these terms before so he has no idea what this means. His trainer told him to just skip what he did not have answers for. He tabs through the question. On top of his ignorance of this matter, the software allows him to tab through and does not make the field mandatory. What are the consequences of these lapses? First, because the risk is in an area prone to windstorms, the property would be uninsurable under the underwriting rules for this program without a “full” tie down in place. Consequently, because the data is not entered and the software does not catch the error, the risk is insured. A windstorm occurs shortly after the risk is insured for replacement cost and the mobile home is blown over and is a total. Here we have two failures; one caused by pencil whipping and the other caused by failure to test the application properly which could also be caused by pencil whipping, i.e. “to complete a form, record, or document without having performed the implied work or without supporting data or evidence”. Someone was supposed to have tested that software for accuracy in the gathering of the data and the rating process. Obviously one of the rating factors and insurability factors was whether or not the mobile home met the tie down requirements of the territory. If this was a requirement why was this field not made mandatory in the application? There are hundreds of combinations of data that make for an insurable risk. Making a mistake on just one can skew the results tremendously and cost the carrier a lot of money. In addition, the cumulative effect of these mistakes can carry through the claims processes, the actuarial processes and ultimately the loss ratios and profitability of the carrier. Without going into another detailed example, you can imagine the same results where information is left out of the reporting of a claim.

So we stated the first step in the solution to this problem was observation. That resulted in the instance above where the executive found out about the training issue. What can we do next? We have to solve the problem above and the solution to that is education and training. I would suggest that someone in the organization be tasked with the training of staff to not only know how to complete their immediate tasks but the impact of their results on the overall company picture. It is not enough to train a class of workers and then forget about it. This has to be an ongoing process where the clerk feels involved in the health of the company and their stake in the process. The staff needs to feel they can go to their superiors and get answers to their questions. If they do not understand why they are doing a task, they should be able to go to a trainer and ask why without fear of intimidation.

I’m sure everyone has worked with the supervisor that is always making one more checklist and making personnel get one more item approved. Here’s an example of one that had good underwriters ready to leave their positions because she ruled by intimidation without the product knowledge to back up her authority.

She never left her office to go visit with her commercial underwriters nor took the time to understand what they were dealing with on a daily basis. But come time that monthly report came out that showed the lag between receipt of an application and time of policy issuance, beware! She was an example of reading the results of pencil whipping and not understanding the consequences. She would then institute ridiculous checklists that were allegedly going to “fix” the problem when the trouble was she didn’t understand the problem to begin with. None of her “fixes” worked but did achieve the result of irritating every hardworking underwriter in the commercial unit. Why? Because, she didn’t understand the process of commercial lines and she was not supervisor material.

She grew up in a very rural agency where the majority of business was personal lines. She was placed as supervisor over all Underwriting; a tragic management error because she was a complainer and pushing for more money or she was going to leave. Management “thought” they needed her in personal lines, which was the majority of the book. She had no idea what process took place in commercial lines so there was chaos when she became involved. Left alone the commercial underwriters were perfectly fine on their own. They were all hardworking and knew their craft. The process to obtain an indication, bind a commercial policy, and then collection of all the necessary data prior to the carrier issuing the actual policy are time consuming and often time dependent on outside forces. Since her background was personal lines none of these processes were necessary. Instead of admitting her inadequacies, she attempted to cover them up by having more checklists. When counseled by her immediate superior, she refused to admit her shortcomings and refused training to learn the processes and ran to top management and complained about her superior. Because of management’s impression of her, the situation continued and made life miserable for everyone. The result: animosity and useless forms that were pencil whipped and created havoc within the commercial unit that no one paid attention to but gave her an excuse to raise havoc.

What is the solution to this dilemma? Management needs to recognize the inadequacies of the supervisor and proceed accordingly. She needs to be relieved of her supervisory responsibilities for the commercial unit and if they believe the compensation she is being paid is worth keeping her as the supervisor of solely the personal lines unit, so be it. But management’s intention of growing the commercial unit will never be attained under a supervisor whose profile fits this category.

So, what are the final results of pencil whipping and what can we do about it? Management has to KNOW what their workers are doing and they must train their workers as to why their jobs are important. Training and education of your staff will do more for your company than all the checklists you can think up. I am not saying that you should not have thorough audit trails in your company. Every successful company does. I am saying that should you have the correct software application and the proper training in your firm than manual or even automated checklists should be minimal.

Our ClickClaims application has extensive audit trails that we term “iLogs”. No action of any consequence can be taken in the application without the system automatically entering an “iLog” notation. If you are looking for a comprehensive claims management system, check out our website clickclaims.com and complete the “Contact Us” form for a marketing person to call and speak with you directly about our product.