It is important to begin with the understanding that the claim subject to insurance, whether in whole or in part, is first subject to the reporting requirements specified in the "conditions" portion of most insurance contracts. As a result—and both by inference and explicitly—the provisions of insurance contractual commitments are conditioned on numerous things, including compliance with the reporting requirements of these agreements. The extent to which noncompliance could void, in whole or in part, the coverage obligations of the insurer central to the contract is subject to other terms and conditions both within as well as factors outside the contract.

Legal and Statutory Requirements

One of those external factors, and the one that can be as important or more so than the contractual reporting requirements, are those obligations imposed by law or statute. For example, most workers compensation (WC) statutes, of which there is one specific to each US state, codifies the requirements, where they exist, for when and often how new employee injury claims must be reported. Failure to comply with statutory requirements could result in a denial of the claim. Even if it occurs, however, such a denial would often be subject to administrative adjudication that typically occurs before a state-administered WC forum.

Insurable Interest

Unlike exposure areas that aren't insurable, insurable risks are in part "treatable" using insurance contracts that, by their very nature, create dual obligations among the two key parties to the contract: the insured (typically the "claimant" in a first-party claim situation) and the insurer (who takes the risk creating potential obligations to pay claims). The terms and conditions of these agreements include many that apply to making and resolving "claims" by the parties (or in a liability agreement, a third party against the insured) where the insurer commits to its obligations for paying specifically defined expenses and legal obligations of and/or to its insured when relevant contractual conditions are met by the respective parties.

For example, a very basic and early obligation of the insured is to report claims, ideally in a timely, accurate, and honest manner. This can be a defining moment when, in a "claims-made" policy, you have conditions that require (with some exceptions) that all claims be reported before the expiration of the policy term (typically one year). Failure to do so could lead to a denial of coverage.

More commonly, an "occurrence" policy allows for a much more liberal time period for reporting. In this type of policy, some claims may not surface until after policy expiration and yet may still be covered when reported even then (this latent emergence of claims is at the heart of what actuaries call IBNR or incurred but not reported claims).

So, something so basic as claim reporting, while seemingly simple and obvious on its face, can be a source of difficulty up to and including finding yourself without coverage. While this is much more controllable in first-party claims (e.g., a homeowners or personal auto claim situation), it can be much more challenging when claims may be significantly delayed by third parties (e.g., a product liability claim from a customer) who are not direct parties to the contract. In effect, these "claimants" have a much more flexible situation regarding claim reporting, the delay of which may affect their claim value, but less often risk a denial (delayed reporting can and often does create suspicions of potential fraud and the obvious implication of evidence spoliation).

Needless to say, good risk management calls for a disciplined claim reporting process so that the many sources of claims (customers, employees, or members of the general public) are enabled to support best efforts to affect coverage where applicable and to engender the fullest collection of evidence through rapid investigative response in support of the best decisions about claim resolution.

Claim Accuracy Matters

Beyond the importance of quick reporting, the other critical aspect of reporting is the thoroughness and accuracy of what are the basics of "what, where, when, how, and who." These essential basics and some of the detail that is sought in the investigatory process enable an early, if preliminary, answer to the question of whether or not insurance applies, or, in the absence of insurance, a legal obligation has been created typically as a result of some form of negligence causing damages.

Thorough claim reporting is a bit of a misnomer in that the "first report" is by its very nature limited in scope. Most insurers and self-insurers create a one- or two-page "first report" that captures the essential basics in answer to the five key questions noted above. For workers compensation claims, these will often be completed by supervisors of injured employees. If the claim involves a fleet auto accident, the fleet program manager or driver will submit the claim. To get the most reliable basics, you want this information provided by either the directly affected party of someone at the scene of the accident or at least someone with a clear view into the initial facts that are so important to informing and getting an investigation initiated and off to the right start.

These basics include the identity of and contact information for witnesses who can corroborate the report of the claimant. This element is the best example of how the combination of the time element and the sufficiency of first reported basics can be so crucial to the best outcome of an investigation. In short, the sooner you get to witnesses, the more likely it is you'll get an accurate view into what happened. Time is of the essence in terms of witness reliability, and so it is for those reporting the initial facts of the loss.

The best example of the importance of this seemingly trivial aspect of claims administration is what is seen in the WC world where accidental injuries can, under most WC statutes, be reported up to 30 days after the accident (though, later reporting often will not preclude an obligation to pay a claim). In the WC area, there is a direct, proven correlation between rapid, thorough reporting and the quality of the outcomes of the claim. Among other things, the following occurs when these qualities are met.

• The injured employee can be directed to the appropriate medical care sooner rather than later.
• The disability can often be shortened.
• The likelihood and severity of permanent injury can be lessened.
• Contributory safety violations can be more quickly remediated, protecting other employees.
• Fewer injured employees end up in legal disputes with their employers over the claim.
• The likelihood that fraud can be identified and addressed is improved.
• The total cost of claims and related insurance premiums is often reduced.

While all of these impacts are often found in statutory WC claim scenarios, they are even more evidenced in Texas where employers are legally able to "nonsubscribe" to the statutory WC system. Where the more responsible employers choose this option, studies of long-term loss trends have repeatedly proven that the related cost of claims are 40 percent or more lower than those covered by the Texas WC statute. These results in Texas nonsubscription may be the best evidence of the value inherent in rapid, thorough first reporting of claims and the first and not insignificant step to better claim outcomes.