POOLING KPIs FOR NEW BOARD TALENT

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From staff to top pool executives to longtime board members, a generation of pooling talent is moving on. In many instances, novices are filling their shoes. New board members, especially, may never have been exposed to pooling, risk management, or financial statements before. Yet they’ve become responsible for setting and monitoring the strategic and financial direction of a pool.

There are plenty of resources available to help plan your pool’s transition and acquire talent at all levels. This whitepaper is designed to help you educate that new talent once it’s in place. Specifically, it’s designed as an introduction to performance monitoring by way of Key Performance Indicators, or KPIs.

These indicators are discussed by functional area (governance, membership, finance, etc.). The specific measures we present were chosen because of their broad utility and applicability, and because they’re likely to be understood by a brand new, possibly uneducated board member. If you use any of these suggested metrics for your pool, be sure to consider unique factors (regulatory environment, whether or not your pool provides dividends, etc.) that might impact how the measure applies to your circumstances.

Finally, please note that this is a “quick and dirty” summation designed to get you thinking about the KPIs that might be most meaningful to your pool, your board, and your members. It tends toward the general and is not exhaustive.

INTRODUCTION

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Effective governance can sometimes be hard to gauge quantitatively, but it’s an important standard to establish and maintain with both new and seasoned board members. You might consider establishing threshold, full, and exceptional performance levels against which to measure each director and your board as a whole. (BoardSource has a great example to get you started.) Categories you could measure include:

• Director comprehension. In order to best serve your pool, directors should be well versed in the basics, including your pool’s mission, vision, programs, financials, and membership. A clear understanding of insurance basics, policies and processes of the board, the current strategic plan, and fiduciary responsibility is also essential. Comprehension level is especially important to monitor as unfamiliar new directors join your pool board.

• Interpersonal effectiveness. Directors should clearly know and respect not only each other, but also the roles and responsibilities of directors-at-large, board officers, the executive director, and staff. Effective and highly functional meetings should be the norm.

• Board composition. Measure categories like overall board diversity; functional competencies of directors; duration of known vacancies and substantive gaps (whether related to diversity or functional competency); director retention; and number, structure, and composition of board committees. Paying close attention to board composition can help you strategically fill gaps as new directors join. A more socially and cognitively diverse board will generally help your pool succeed.

GOVERNANCE

Regarding the first two points,

director comprehension and

interpersonal effectiveness, you

might say, “Sure, that’s important.

But how do you measure it?” For

some KPIs, there’s only one tool

available, but it’s a powerful one:

the survey.

Directors can be surveyed

about their own performance,

participation, knowledge, and

understanding. They can also be

asked to assess the performance

of the board generally and their

fellow directors specifically,

including any areas in need of

improvement. C-suite staff, too,

can be asked to conduct a

similar evaluation.

Of course, all of this will have to

be done delicately: Opportunities

should be given to provide open

feedback—even open feedback

about particular directors,

especially officers—but no

one should end up feeling

embarrassed in front of their

peers. Using anonymous and non-

anonymous survey instruments

as appropriate, and handling

response data with a delicate,

diplomatic touch should help

spare any feelings.

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Membership KPIs fall into four broad categories: who is staying, who is joining, how they are interacting, and how happy they are.

• Renewal or retention rate. This is the percent of members who stay with the pool year over year. To accurately report this number, you must exclude from your count any new members added over the past year. That’s because you only want to account for those who have stuck with you, not those who have recently joined.

• New members. This number is incredibly easy and straightforward, right? It’s just a simple count of how many members your pool has added over a specified time period (typically, a year). But keep in mind that if 98% of eligible members have already joined, your new member count probably isn’t going to be impressive to fresh directors. So, consider reporting on your market penetration rate over time instead, or in addition.

• Engagement. There are myriad ways to track overall member engagement. Pick the measures that will be most meaningful for your pool and illustrative for new directors. Potential metrics include, but are not limited to:

While engagement can be easy to quantify, its effectiveness can be tricky to assess. The American Society for Association Executives (ASAE) has great resources for helping organizations think about, manage, measure, and interpret membership engagement.

• Satisfaction. You should be able to quantify how satisfied members are with their interactions with staff, with pool programs and services, with the overall performance of the pool—really, any area in which member opinion matters. A simple way to do this is with a Likert scale response option to specific areas of interest. Typical Likert scales used in a survey include those below:

The possibilities are really endless.

Another commonly used member satisfaction measure is what’s known as the Net Promoter Score (NPS). NPS questions take the form of, “How likely are you to recommend X to a colleague?”, where the X could be the pool generally, a specific pool program or service, etc. The response is given on a 0–10 scale, from “not at all likely” to “extremely likely.” A participant’s willingness to recommend is directly and strongly correlated to their satisfaction.

• number and frequency of contacts (phone, email, in-person) with the pool;

• number of service requests and members served;

• loss control program utilization/attendance;• annual membership meeting attendance;

• participation in satisfaction surveys;• online education usage;• website page views;• email open and click-through rates;• landing page conversion rate; and• social media interactions.

• strongly agree• agree• neutral• disagree• strongly disagree

• very satisfied• satisfied• neutral• dissatisfied• very dissatisfied

MEMBERSHIP

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A pool must be financially viable to be successful. Here, we offer three metrics that even the greenest board member—with little understanding of finance or pooling—could readily interpret.

• Change in net position. This is an increase or decrease in your pool’s bottom line (assets minus liabilities). New directors can understand that an increase generally indicates a profitable year, and a decrease indicates an unprofitable one. Whatever the change, be sure you can readily and clearly explain what caused it.

• Combined ratio. This ratio can be rudimentarily understood as costs versus revenue. It is calculated by taking the sum of incurred losses and expenses and dividing by earned contributions, and then (typically) expressing the result as a percentage. A ratio above 100 percent may indicate that the pool is operating at a loss. (Dividends and premium holidays can artificially inflate a pool’s combined ratio, so be mindful of how these may impact your own pool’s results.)

• Surplus level. Appropriate surplus levels vary from pool to pool, and the right amount will fluctuate over time at the same organization. (Consult with your actuary to set the right target for your pool.) In all cases, though, surplus levels provide some indication of a pool’s ability to sustain a large, unexpected loss (maybe even that thousand-year event). An easy general rule for new directors is that a large surplus usually indicates a healthy pool, while a small or no surplus may indicate that some adjustments are needed to ensure long-term viability.

Two simple claims performance metrics for the newly initiated are loss ratio and overall claims costs.

• Loss ratio. This is a measure of profitability calculated by taking the sum of incurred losses and dividing by earned contributions, typically expressed as a percentage. Unlike the combined ratio, the loss ratio includes only claims incurred, and no other expenses. Most pools establish a target or expected loss ratio that they strive to operate at or near. How close your pool is to that target can be a readily understood measure of operational health.

• Overall claims costs. This includes actual dollar amount paid, average time to settle (longer usually means more expensive), and administrative overhead. It is generally understood that the lower the costs, the better the pool is performing.

FINANCE

CLAIMS

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Those unfamiliar with underwriting are still likely to appreciate the concepts of efficiency, accuracy, and price competitiveness.

• Efficiency. In traditional insurance, this metric is about how quickly an underwriter can turn a quote into a signed policy with the insured. It’s measured in number of days. While you can certainly use this metric, you could also determine how to measure overall efficiency during your pool’s renewal season (typically either January 1 or July 1). Possible KPIs include renewals processed per day, or FTE hours required per policy renewed. Efficient processing is important not only to meet renewal deadlines, but also for overall member satisfaction. And, new board members can readily interpret high efficiency as a good thing.

• Accuracy. Inaccurate underwriting can be costly to your pool and impact member relationships. Your loss ratio and cost per claim can be used to convey underwriting accuracy to your board—if policies are being written at the correct threshold (and there are no thousand-year events), losses and claims should be as expected.

• Competitiveness. It’s true that pools generally enjoy strong member loyalty. But sometimes even loyalty can’t overcome a low price tag from a competitor. Recognizing this, you should consistently be evaluating your pool’s rates in comparison with the market. If your rates are high, be prepared to use your pool’s unique value proposition(s) to explain why. Also, though, consider whether there are changes you want to make to be more competitive. (Reporting on competitiveness gives you a great opportunity to discuss your pool’s value, versus plain old cost. It may very well be that your board prioritizes upholding pooling’s ideals over offering the lowest market rate.)

UNDERWRITING

Many membership engagement metrics can apply to loss control, as risk mitigation initiatives are one of the major ways pools interact with members. When measuring your loss control efforts, you and your board can also use the following basic measures.

• Pre- and post-program claim severity. Let’s say you notice that lower back injuries for bus drivers are significantly driving workers’ compensation claims losses. You subsequently decide to implement a new loss control program designed to prevent these types of injuries. One easy way to report program effectiveness to your board is whether or not the severity of lower back injuries for bus drivers goes down over time in correlation with the program.

• Pre- and post-program claim frequency. Using the same example, you can track whether or not the frequency of lower back injuries declines following the launch of your program.

If you’re going to use these two measures, be sure to keep the post hoc fallacy in mind. In this case, that’s just a fancy way of saying, “The fact that lower back injuries declined after program implementation doesn’t necessarily mean they declined because of the program.” So, for example, imagine that simultaneous to implementation of your program, new bus driver hiring standards went into effect—standards that required a greater overall fitness level for drivers. As new drivers were brought on, it might be the case that the new fitness standards, and not your program, reduced injury frequency and/or severity.

How to deal with this possibility? Short of deploying expensive and complicated evaluation techniques, your best bet is to use your industry knowledge and relationships to try to rule out other causes of the change in your data. Additionally, you may want to consider whether your pool can improve its data analytic capabilities to produce more detailed, more sophisticated data and reporting. Pools with robust data analytics programs can often produce more conclusive measures to track and report on loss control effectiveness.

LOSS CONTROL

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Staffing is a vital resource for effective operations. It’s the job of the pool’s top executive to handle staffing and workforce performance as an operational matter without input from the board. However, while day-to-day HR and management are not in a director’s purview, a general awareness of overall staffing can be informative. To that end, here are some simple, useful measures:

• Average tenure. This retention metric is often viewed as a measure of employee satisfaction. Satisfied employees generally stay longer and produce better work. Plus, a high retention rate spares your pool the expense of frequently hiring and training new talent. A short average tenure may indicate things about a pool’s work environment that need adjusting.

• Average age. This metric is straightforward (simply average the age of all employees), but particularly important for any pool developing a strategic workforce plan. Which departments and competencies will experience the most turnover in the near future, and how can your pool promote, recruit, or restructure to mitigate those losses?

• Diversity rate. Keep track of how successfully your pool fosters an open and accepting community. Diversity is especially important to pay attention to as incoming workforce demographics change. Your pool may miss out on abundantly qualified candidates (for both staff and board vacancies) if your culture appears unwelcoming.

Finally, any and all of the KPIs referenced above can be used collectively to evaluate overall administration, regardless of staffing structure (fully in-house, outsourced, or some combination thereof). Pool boards can also measure operating expense—the percentage of income being used to pay for operating and administrative expenses—to evaluate administrative efficiency.

Use these five basic KPIs the next time you’re executing a project at your pool. They’re simple, effective, and easily communicated.

HUMAN RESOURCES

ADMINISTRATION

• Actual vs. budgeted cost. The sum of all project costs to date (including resources, time, and overhead) compared to the amount initially allocated to complete the project.

• Schedule variance. How far ahead or behind the planned schedule is your project running?

• Crossed deadlines. The number of project tasks that have not been completed on time. This is generally calculated as a percentage: the number of overdue tasks divided by the number of tasks to be completed. A high overdue percentage may indicate it’s time to rethink the project, improve project management, and/or bring on additional resources.

• Missed milestones. This is similar to crossed deadlines, except that it’s focused solely on major landmarks and milestones. If you are monitoring crossed deadlines, you will likely know well before you miss a milestone and can adjust course as soon as the need is apparent. If missing major milestones becomes the rule rather than the exception, consider reexamining your effort.

• Return on investment (ROI). This is a measure of whether the project’s benefits exceed its costs. Though it’s important to try to decide on ROI measures before launching the project, it may not be possible to calculate ROI until the project is completed and the results can be observed.

BONUS: 5 BASIC PROJECT KPIs

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WE MAKE IT SIMPLE FOR POOLS TO ACCESS EXPERTS AND FOR EXPERTS TO ACCESS POOLS

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