A recent article in Risk Management and Insurance Review piqued my interest. In "The Loss of the Certainty Effect," authors Richard and Barbara Stewart, principals of Stewart Economics, Inc., assert that, "Recent changes in the commercial property-liability insurance business have made it unlikely that large claims will be paid promptly and willingly." They conclude that, "If insurance were seen by customers as less than fully certain and reliable, the resulting discounting of its value—and hence buyers' willingness to pay for it—would be much deeper than one would expect." They predict that unless the industry takes action to regain customer confidence, commercial insurance will spiral into a scenario of discounting premiums, denying claims, and losing both credibility and customers.

I think the Stewarts' article is on target in illuminating a fundamental problem with the industry that's worried me for years. Have insurers forgotten their product is not insurance policies, but the elimination of risk through the payment of claims? Has the basis for determining whether a claim should be paid or fought become the size of the claim rather than the policy language? If claims are the product, why does it seem that some insurers always look for ways to deny them or, if they must pay, drag their feet as long as possible? If claims are the product, shouldn't adjusters be the most respected and highest compensated people in the business? Unfortunately, I fear most professionals' answers would not reflect well on the commercial lines insurance industry.

I think the Stewarts have pinpointed what may be the most significant long-term threat facing the insurance industry. Too many legitimate claims are challenged or delayed for no legitimate reason. If insurance purchasers conclude the risks of collecting on legitimate claims are too great, they will reduce the price they are willing to pay for insurance. Over time, this could threaten the viability of the industry.

So what do you think? Is it becoming so difficult to get commercial lines claims paid that the value of insurance coverage is being significantly diminished? Would it be possible for an insurer to differentiate itself in the marketplace by adopting a more liberal claims payment philosophy? Or, are the Stewarts off base with their hypothesis? [See reader comments.]

Have a great day!

Jack

Jack P. Gibson
President
IRMI

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Risk Tip

Create Opportunities To Settle General Liability Claims. The mantra of the personal injury defendant is either "settle the claim or defend it; don't do both." The earlier a claim is settled, the lower the cost, so settle sooner rather than later. The problem is that often too few opportunities are created to encourage settlement. Especially when claims go into litigation, those charged with handling the defense must have clear instructions and incentives to create and take advantage of settlement opportunities.

When the lawsuit is served, the claim adjuster or other representative of the defendant can call the plaintiff's counsel and ask, "What will it take to get this settled?" If the plaintiff launches a huge trial balloon demand, respond in a way that does not foreclose the possibility of compromise.

No matter how fruitless prior settlement discussions have been, keep raising the issue when the parties or attorneys are meeting or communicating, such as at depositions and court hearings. Afraid the plaintiff will view the defense pursuit of settlement as a sign of weakness? Address the issue head-on: let the plaintiff know the defendant's policy requires that reasonable settlement opportunities be pursued, even in cases of questionable liability.

To make a policy of early settlement effective, make sure the adjusters and defense attorneys understand the policy and have incentives to get files resolved early. While some insurance companies and self-insureds use economic incentives (or disincentives) to support early settlement policies, some of the most effective rewards cost little—such as recognition for good performance.

By: Christopher Gullen
Executive Vice President
James E. Logan & Associates, Ltd.
West Bloomfield, Michigan
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New Expert Commentary

There are now 301 articles on IRMI.com, and many more are in production. Below you'll find summaries of some recent additions with links to the articles.

One Court's View of "Legally Obligated" under the CGL Insuring Agreement—In this article, Pat Wielinski examines a recent Kansas case recognizing the validity of the insurability of a contractor's work to repair property damage before suit is brought.
Writing Skills Training Provides Return on Investment—For insurance professionals, knowing how to write effectively is crucial to business success. Gary Blake explains why investing in training is money well spent.
Workers Compensation and Medicare Update—Jim Pocius provides an update of the problem of conflicting regulations governing workers compensation settlements to Medicare recipients.
Systems: The Realization and Sustainability of Change—In this final article in the change management series, Laura Markos discusses the last step—systemization—and making change a sustainable reality.
Everything You Don't Know Can and Will Be Held Against You—In this article, Sanford Warren looks at the front end of the process of applying for and acquiring an issued U.S. patent.
Removing Maritime Cases to Federal Court—Michael Orlando helps clear up the confusion and provides some cases to consult when confronted with removal in an admiralty context of separate and independent claims or causes of action.

New IRMI Insights

Predecessor Firm Coverage—In this article, answers are provided for many common, and not so common, questions surrounding this key coverage for predecessor firms under professional and E&O policies.

IRMI Construction Risk Conference

Recognize Exceptional Risk Management Programs—The newly renamed Gary E. Bird Horizon Award recognizes innovative risk management techniques and processes. Begun in 1998 as the Construction Risk Management Best Practices Award, this honor is bestowed annually on a risk management professional with an exceptional construction risk management or insurance program falling in one of the following categories: risk control, risk financing, risk transfer, or risk analysis programs. The winner will receive round-trip airfare, hotel accommodations, and a complimentary registration to the 23rd IRMI Construction Risk Conference as well as the award. The winner will be announced at the 22nd IRMI Construction Risk Conference in San Diego November 11-14, 2002. Don't you know someone who should be honored? Learn more about the Gary E. Bird Horizon Award.

IRMI Products & Services

Captive Questions? Get the Answers You Need!—With the hardening market, many are looking to captives to solve their insurance problems. But the concept can be so confusing!

How do wholly owned, group, and rental captives compare to traditional alternatives?
What's the difference between a risk retention group and an association-sponsored captive?
How do rent-a-captives work?
What is a protected cell captive?

IRMI has the answers in a new 2-day seminar, "Group Captives and Other ART Solutions for the Middle Market." Learn how group captives work and whether they can provide the help you need to solve your insurance dilemma.

Training & CE

Celebrate 200,000 CE Courses With $5 Off! Please join us in congratulating our CE partner, WebCE, on delivering its 200,000th CE course! The Training and Education section of IRMI.com is powered by WebCE, a nationwide e-learning company. With WebCE's help, we offer more than 50 courses and most are available in all 48 states that allow distance learning. We are happy to join WebCE's celebration by giving you a $5 off Party Favor for your next purchase. You can redeem this voucher online or by phone. Simply enter voucher number 11785 when you check out online or give it to the customer service representative if you choose to phone (offer expires on September 30, 2002). To order by phone, call 1-800-488-9308, or order online.

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IRMI Update—Issue #43

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