An Insurance Claims Management Retrospective

Comparison

First, consider training. When I started, this is what I experienced:

• Eight weeks of training upon being hired, under the direction of a different supervisor each week, covering all aspects of the claims process, from investigation to policy interpretation.
• Home office week-long seminars.
• Attorneys assigned to a case would explain the issues and defense strategy.
• Attendance at liability and workers compensation trials.

There have been so many dramatic changes in the claims process, the people involved, and their attitudes. For instance:

• The adjusters were all men. During World War II, women were known as "adjusterettes," but relinquished their assignments at the end of the war.
• A sports coat was not acceptable; everyone wore a suit, a tie, white shirt, and was required to wear a hat, which I was directed to buy when I received my first paycheck.
• Postage stamps were $.03 each and it is hard to believe what a shudder was caused when the price of a postage stamp increased from $.03 to $.04.
• We were only permitted to appear in the office 1 day a week and were expected to spend the rest of the week in the field.
• Every workers compensation claim involving lost time, and any liability claim involving bodily injury, required a personal call on the claimant within 24 hours of assignment.
• It was only under extraordinary circumstances that surveillance would be hired from the outside. Every adjuster, when the need was apparent, was expected to conduct surveillance on his own.
• We had special units that handled the litigated workers compensation claims in a jurisdiction where workers compensation claims were handled before a compensation judge with little difference in the procedures of the civil courts.
• Claimants tended not to take a penny more than their out-of-pocket expenses for bodily injury claims. They insisted the most that they would accept in settlement would be reimbursement of lost wages and their doctor's bills—payment for pain and suffering was seldom in the mix. Today, it is hard to believe that such a situation existed, but believe me, it was true.

And, of course, the most obvious change has been in technology:

• We dictated on wax cylinders which were sent to a central stenographic unit for typing. This central stenographic unit would make as many as five carbon copies of a memorandum so typists had to be extremely talented; a mistake meant separating carbon paper from five sheets of paper to make corrections with an eraser.
• There were no recorded statements; they were all handwritten (commonly 2-5 pages) on lined paper using indelible pencils.
• The use of the copy machine was severely limited and required permission from one's supervisor before you could use it. The copies were incredibly primitive and cost the company about $.50 per sheet.

Other Insights

During my early days, we investigated cases with an incredible dedication to either confirming or disproving the allegations of the claimant; sometimes I thought we carried the extent of the investigation beyond any reasonable benefit. It was not until much later in my claims career that I recognized that during this early period, there was very little sharing of loss by policyholders. Almost without exception, even with very large policyholders, the coverage was written on a guaranteed cost as opposed to retrospective rating plans, large deductibles, or paid loss plans. Captives were unknown. Once a policyholder paid the premium, the risk was assumed by the insurer, and the policyholder had purchased peace of mind. As insurance plans changed dramatically with the introduction of the aforementioned rating plans, the policyholder became an active partner for sharing losses with the insurer.

Over time, it became more prevalent for even insurance companies to have their claims processed by third-party administrators who engaged in extremely competitive pricing. When comparing the claims responsibility during my early days with the practice of having claims handled by third-party administrators, one has to realize that third-party administrators have no risk of loss, and their only risk is the loss of business. It has been my experience when claims are handled by a third-party administrator, claims work either ceases or is severely limited when a claim goes into suit and the attorney representing the client takes over negotiations, trial preparation, and the actual conduct of the trial itself. It needs to be noted, while the underlying cost of the third-party administrators claim handling may be a bargain, the piling on of legal costs substantially increases the final expense factor and has a major influence on the final cost. When purchasing from a third-party administrator, the Latin expression caveat emptor ("let the buyer beware") should be a major consideration and should not be entered into without comparing the services of several third-party administrators and measuring their ability and performance.

Where Are We Today?

Rarely do we see personal contact on liability claims between a claims adjuster and a claimant. The enjoyment of creating a sense of a trust with a claimant suffers as a result of the nonpersonal contact and contributes to an increase in litigation.

Claims offices for many insurers numbered in the hundreds during my early years in the claims business; however, today we regularly find claims offices that have been combined, resulting in their handling large territories involving multiple states. This causes adjusters to depend on defense counsel to provide information on the law, the abilities of plaintiff's counsel, the identity of doctors who cooperate with attorneys, and the attitude taken by judges in civil trials in a given jurisdiction. This may work in some instances, but in my mind it will never replace the personal experience which comes from handling claims on a local basis with exposure to the same judges, doctors, and plaintiff's attorneys. It can never be a substitute for the personal experience of dealing with adversaries and the knowledge one accumulates relative to their specific skills.

Working as a consultant, I have found that it is not uncommon to have five or six different adjusters handling the same claim. This is caused by the turnover of adjusters and exacerbated by the consolidation of claims offices and the unwillingness of some adjusters to be reassigned to another area. More and more claims are being shifted to places like Arkansas, North Carolina, and Alabama where adjusters can survive very nicely on substantially less money.

With the era of electronic claims handling, I must admit that you can handle claims from any place, including your own home, but the quality of claim service and the controlling of loss has to suffer. Technology also permits adjusters to use wireless systems in the field to send notices of loss estimates and provide information on a timely basis. Customers can track their claims in real time and it allows claims managers to use more accurate and timely assignments for adjusters based on up-to-date information.

Electronic files are much more efficient than paper ones. I have been impressed by the fact that the file is always "in" as compared to my early days when policyholders complained because every time they called the office to get information on a specific claim they were told it was out of the file department. I spent hundreds of hours trying to convince policyholders that, despite their frustration, the very best thing that could happen was for their claim files not to be available. If the file was not in the file department, it meant that someone was working on it.

I am encouraged by technology improvements which include Web portals through which customers can alert insurers about losses as they happen which shortens the claims process and insures accurate information received by the insurer or third-party administrator. Having said that, it is imperative to complete the transaction by having adjusters respond to electronic notices of loss with the same alacrity and competence.

Many large risk management departments now employ seasoned claims people on their staff; those who don't should consider outsourcing this discipline to those who are competent to perform periodic audits of their claims service provider. Claims audits should be performed on a positive basis—not to find fault, but to improve claims results.