All insurance claims must be "reported" to be investigated and
resolved. The timing of this most important first step in the claim
administration process is critical as it is well established that the more
quickly claims are reported, the more likely it is that all relevant evidence
can be secured, and the more efficiently the claim will be resolved. And,
often, doing so often leads to lower claim costs.
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.