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IRMI Update—Issue #185

An E-mail Newsletter for Risk and Insurance Professionals
ISSN: 1530-7948
June 4, 2008

In This Issue

Message from the Editor

Colleague,

"If you can only afford one risk management reference service, you should subscribe to Practical Risk Management." My first business mentor provided this testimonial on behalf of an IRMI competitor soon after I joined IRMI. His endorsement of their product was particularly painful to me because I agreed with him. This publication covers the waterfront of risk management and insurance in easy-to-understand—and brief—topic discussions. Since IRMI acquired PRM, oftentimes called "the Green Book," from the previous publisher a couple of years ago, my friend's endorsement of the publication no longer stings. I can openly and proudly agree.

When IRMI acquired PRM in 2006, we also brought Millie Workman, CPCU, CRIS, aboard to take the helm as editor of that publication. If you don't personally know Millie, you probably recognize her name because she is a former Business Insurance Risk Manager of the Year and is a recent past president of the CPCU Society. We knew Millie was uniquely qualified to improve this already great publication, and she set upon the task with zeal. In the past 2 years, she has expanded and updated 41 topic discussions, calling on an impressive panel of practitioner advisers and her fellow IRMI research analysts when necessary to assure she was giving our readers accurate and practical advice.

While Practical Risk Management is not as detailed as the other IRMI reference publications, it provides solid advice for identifying, controlling, retaining, and transferring risk. It also covers the administrative side of risk management like no other publication available anywhere. It is the perfect reference for a financial manager, insurance buyer, or risk manager who can't afford or doesn't have a need for an expansive risk and insurance library. It will also equip agents, brokers, and consultants with practical advice they can pass on to their clients.

If your firm subscribes to IRMI publications on Sage or IRMI Online, you may already have access to PRM, so check it out. If you don’t already have access, learn more about Practical Risk Management.

As expected, my last message, on claims service, drew a large number of responses from readers, and many are included below. I also promised a special article from a 40-year claims veteran who is concerned about the lack of adjuster training and various other problems in the industry. His article is the first in a planned series of special white papers we are calling "IRMI Insights." Read "Analog Adjusting in a Digital World."

Thank you for subscribing to IRMI Update and for your confidence in IRMI as your risk information provider of choice.

Have a great day.

Jack

Jack P. Gibson, CPCU, CRIS, ARM
President
IRMI

Risk Tip

Choose the Right Insurance Professional—Selecting the right insurance broker is the number one factor that determines if you have the right coverage and pay the right price for your insurance coverage.& Yet, it always amazes me that buyers try to buy insurance based on premium prices and are disappointed year after year with the results. They don't know which policy to buy for the right coverage, and they can't get good advice on the differences between offers. It reminds me of the famous Einstein quote deriding the expectation of different results with the same efforts.

Think of your broker selection in the same way you select your accountant. Don't go for the cheapest; go with the professional who you think will do the best job and follow the right IRS guidelines. You wouldn't think of using three accountants and later choosing which tax return to submit to the IRS. Too much work with no gain!

The right broker will be able to best represent you to underwriters due to their specific experience in your industry. If they're true experts in their fields, they will have access to all the key players and can focus on steering you toward the best products for your needs. Once you chose the right advocate broker to procure your coverage, sleep well knowing you are paying the right price to get the right coverage.

By: Uri Gutfreund, RPLU, Business Development Manager
Singer Nelson Charlmers
Teaneck, NJ

SUGGEST A RISK TIP: Send us a practical tip (less than 300 words) for identifying and managing risks, buying insurance, managing claims, or filling gaps in insurance coverages. Submit your tips. We'll acknowledge your contribution as we did for Uri.

What's New in Your IRMI Library

We have recently updated a number of the reference manuals in the IRMI library and published new issues of The Risk Report and Captive Insurance Company Reports. To make sure you don't miss any of this new information take 30 seconds to scan the "What's New" summary page.

For IRMI Online and Print subscribers

For SilverPlume Sage subscribers

New Expert Commentary

There are now 1,060 risk management and insurance articles on IRMI.com. Below you'll find summaries of some recent additions with links to the articles.

  • Surprise: Insurance Is Not a Service—Barry Zalma reviews a California case concluding that insurance is neither a good nor a service, but only for the purposes of the Consumer Legal Remedies Act.
  • "Associational" Discrimination Claims a Growing Concern for Employers—Paul Siegel explains why human resources professionals must consider the potential for claims by employee spouses, relatives, and partners.
  • No Right of Reimbursement for Insurer Defending under Reservation—Kevin Merriman describes a case where the court held that permitting reimbursement retroactively would erode the insurer's duty to defend.
  • Workers Compensation Issues and Trends 2008—Christine Fuge relates the topics covered at the recent National Council on Compensation Insurance Inc. symposium.

Cutting Edge Analyses for Risk Financing

Many Fortune 1000 risk managers and the nation's leading insurance professionals use Risk Financing. This indispensable and easy-to-understand reference explains the traditional insurance rating plans and alternative funding options for your organization's risks. See a detailed list of the risk financing topics covered and how it can eliminate risk financing uncertainty.

Your View—Claims Service

IRMI Update 184 examined the ever-controversial subject of claims service. Jack Gibson discussed the complaints he has heard over deteriorating claims service in spite of the technical advances of recent years, and readers responded. Has it improved over the years, with technological and policy advances? Have intermediaries and specialization in claims management helped or hurt? Has the claims process itself become an adversarial nightmare? Who's to blame? The opinions vary greatly, and some may surprise you.

  • In my 17 years on the broker side, after having handled claims for a company that required we be out in the field most of the time, I have watched the quality of claims handling decrease despite all of the advances in technology. The insurance companies have invested so much in technology to "stay ahead" of the competition that they have actually hurt claims service in that they cannot hire as much staff, and they cannot afford to have adjusters out in the field anymore. Office consolidation has succeeded in fattening the insurance companies' bottom line but has killed claims service. You'd figure with all the new technology, more adjusters would be equipped to get out in the field and actually see a claimant face to face for a change. It is in the minority nowadays that an adjuster actually go to a trial, mediation, or a workers comp hearing on a regular basis. As claim handling has become more impersonal through phone and e-mail contact only, it has suffered. That is just one of the problems.

    Training in today's world is obviously lacking based on our experience. I can count numerous occasions just in the last 6 months where we were successful in reversing the adjuster's original coverage stance simply because they did not read the policy in its entirety. It's almost as if the insurance companies have an internal cost reduction strategy to deny as many claims as possible and hope most people won't challenge it. We were trained to find coverage rather than ways to deny it. Also, too many times I speak with adjusters now that cannot argue a coverage stance without them backing out and running to an attorney for a coverage opinion. It is obvious too many adjusters simply do not know their product, even as specialized as it is these days with adjusters handling just one line of coverage. We were expected to handle GL, auto, WC, and property, and know our coverages. Insurance companies must get back to a culture where product knowledge is mandatory, and personal contact is encouraged. Risk managers demand that you get only adjusters with excellent product knowledge and experience and that your insurer will commit to some real field, face-to-face adjusting on the difficult cases.

    —Mike Rogers, Claims Manager, Wells Fargo Insurance Services of Texas, El Paso, TX

  • Insurers have, for the last 20 years, cut corners in the training and maintenance of their claims staff. They forget that the most profitable part of an insurance company is a competent claims staff.

    Insurers only sell promises—they promise to pay all legitimate and covered claims. If they do not have a staff of competent claims people who know how to read and interpret an insurance policy, know the law relating to insurance, know how to investigate a claim, know how to value damaged property or injuries to persons, and know how to negotiate a settlement, they cannot fulfill the promise.

    Until insurers develop a professional claims staff, well trained and well paid to provide excellence in claims service, plaintiffs' lawyers will continue to get rich suing insurance companies.

    —Barry Zalma, Esq., CFE, Barry Zalma, Inc., Culver City, CA

  • I have been an agent since 1964, and my opinion is that claims handling has improved. I remember the days when an insured was required to run around getting estimates for auto damage, calling on several contractors to get estimates for property damage, etc. Now the companies are sending claims people to the insured. Many claims are now settled by phone, and in most cases, to the satisfaction of the insured. In my opinion, the worst thing that has happened over the years is that insurance companies are rolling over to pay claims that have little or no merit simply because they can settle for less money than it will cost to win in court. In the long run, they need to bite the bullet and accept the extra expense to get to court and win. Attorneys know how to play the game and insurance companies play right into their hands. Insurance companies need to start standing their ground to show the attorneys they no longer are guaranteed some type of payment simply because they file a lawsuit.

    —Gary Ashburn, Vice President, Robert M. Galligan & Associates, Marysville, CA

  • Yes, I totally agree with your assessment of the claim services available from TPAs and insurers alike. We have found that it is essential to have in-house dedicated claims staff to manage the claims and to manage the TPA or insurer claims people and processes. I think the main reason for lack of good claims people is the way that people move through the ranks in the claims departments. There are very few veteran claim handlers working the files either because of pay issues or burnout or movement into management positions. Once you find a good one, you have to hang on for dear life, but eventually they move up or out. Bottom line: because it's a loss-sensitive program, no one is going to watch our dollars better than ourselves, so we have to micromanage the claims day in and day out.

    —Nora Vrakas, Risk Manager, Construction Resources Management, Inc., Wisconsin

  • I hear the carping over degraded claim service but, in my view, most risk managers pay lip service to this. When you try to sell them on the superiority of claim service, 9 times out of 10, it still comes down to a bit of a gasoline price war and who delivers the lowest quote. Sometimes the price is cheaper for a reason! If risk managers predominantly make price-driven decisions on insurance placements, they cannot feign surprise when they get substandard claim service. In claims service, as in other realms, you get what you pay for. Risk managers too often pay lip service to the primacy of claim quality, but their actions speak louder than their words, abandoning this mantra too often in chasing "the cheaper quote." You can't pay a Chevy price and then expect Lexus service.

    —Kevin Quinley, Vice President, Council on Litigation Management, Fairfax, VA

  • Our agency mails a questionnaire to each insured who has had a claim 30 days after reporting. In this, we solicit their comments as to how their claim was handled, both by our staff and the company adjusters. Any criticism of claim handling by any of our companies is very rare. I do not agree, from our perspective, there has been a drop in claim service, although it is certainly less personal than it used to be. We are fortunate that our primary carrier is Cincinnati Insurance which still gives excellent personal attention to both the customer and us. However our experience is that we can be very proud of the service our carriers are providing.

    —James P. Tice, Producer, Capitol Insurance, Indianapolis

  • Yes, claims services have been crunched in the ever-increasing search to lower the cost of claims. All attorneys I know that specialize in insurance defense complain that they cannot properly prepare and defend cases because of the "cost crunch" placed on them. It is no wonder that cases are lost because adequate resources were not used to pursue them. In the end, the insurers get what they pay for.

    —Richard Masters, Vice President, Andreini & Company, Oxnard, CA

  • I agree completely with your assessment of the deterioration in claims handling. While we still find companies that do provide an adequate amount of service and a few outstanding individual adjusters, proper handling has fallen off substantially. As a risk management consulting firm, we have hired a claims consultant whom we keep very busy watching over clients' claims and assisting them in negotiating settlements and closures. Work ethics have changed and companies, more than in the past, are expecting more for less from their employees. The difference is that now, they are not getting it!

    —Arlene Petersen, President, T.E. Brennan Company, Brookfield, WI

  • I fully agree with notion that insurance company claims handling and adjusting has generally deteriorated over the years. While education, training, and lack of experience are undoubtedly part of the problem, I suggest that these are only symptoms of the problem. As I see it, the true problem is lack of senior management leadership in terms of the mission and obligations of insurance providers. Many insurers view themselves almost exclusively as sales and marketing organizations, which is certainly admirable, but this approach seems to increasingly result in insurers paying too little attention to fulfilling the very promise they are selling and marketing. In other words, too often the focus is on selling and not on setting high standards for performing on the contract being sold.

    Unless and until senior insurance company executives place greater importance on how well they respond to demands to perform (i.e., pay, investigate, and defend claims), this problem will likely remain or even worsen. On the other hand, to the extent that insurance company executives take initiative in promoting excellence in performance of their obligations on the insurance products they sell, they will set themselves apart and have a distinct advantage marketing advantage to those policyholders to whom they want to sell their product—policyholders who understand and care about the quality and not just the price of their insurance program.

    —Craig Stanovich, CPCU, CIC, AU, Principal Consultant, Austin & Stanovich Risk Managers, LLC, Douglas, MA

  • I am currently a 24-year-old sales rep. I sell commercial policies for Liberty Mutual. Our biggest policy is workers compensation. Before I came to Liberty, I spent a good year at a TPA handling workers compensation claims for Fortune 500 companies. The reason I left was because I saw in the industry where the money was going. People in my office were making a lot less than any sales producer I knew. I learned a whole lot about WC claims, and it has helped immensely when servicing and soliciting new customers and prospects. They do not pay enough money at TPAs, and the workload is too great. The training was mostly on the job, which is good, but takes a lot longer to get up and running. When sitting in the claims office, I looked around the office, and I saw no one making the kind of money I wanted to make when I was promoted. Basically, what I am trying to say is there is not enough money in claims for the amount of work you put in.

    —Paul M. McShane Jr., Sales Representative, Liberty Mutual, Media, PA

  • In response to the issue of degraded claim service, my observation is that it has degraded. It is primarily due to the increased caseloads and internal procedures to which adjusters must comply. There is a lot of good talent in the claim departments—the caseloads and procedures hamper the ability to provide good service.

    —John Hanna, AVP Claims, Wachovia Insurance Services, Charlotte, NC

  • I agree wholeheartedly with Jack's perspective. Your insurance policy is only as good as your claims handling services because, at the end of the day, the realization of insurance only comes to fruition when a loss occurs and a claim is made.

    Most of my career has been centered in claims management and loss control, having spent my first 14 years in this industry on the claims frontline of a large international TPA. Back then, we had to have a college degree to be considered for a claims position, and we had to go through boot camp, which entailed 4-5 weeks of intense classroom training before we ever set foot on a claims desk. And we learned all casualty lines giving a broad perspective that helped us to be really good at what we do. It was truly a profession.

    Now, we see people with barely a high school education, sitting behind a desk and a computer, with no other training than what they get day-to-day on the job and who do nothing more than "process" a claim. We've stripped the profession of the very things that made it so. We pay insufficient salaries to attract well-educated and highly qualified people to the profession, we focus them on very narrow aspects of claims handling so they have so called expertise in a very limited area, and we've taken the personal touch out of the equation.

    Getting an optimum outcome on a claim isn't just about knowing the laws and dotting the 'i' and crossing the 't' in the claims handling process, it's about managing people and expectations. Once we took the personal touch out of the claims handling process, litigation rates rose rapidly, fraud became much more prevalent, claimants were left disappointed and lost trust in the profession, and costs spiraled, resulting in higher premiums that cost us all. Until we put the "professional" back in the profession and put the personal touch back into the claims handling process, we will continue to see claims march out of control.

    But this will take an investment in the profession and the services rendered. But where would you rather your money go; to the claimants, their attorneys, and the claims support systems and services that drain the claim dollars from your very own pocket, or to the "professionals" whose primary focus is to pay claims timely and equitably, and care deeply about doing it right?

    We can blame the "system," and we can blame "society" and all its ills, or we can take charge and put our investment in the very people who can make a big difference. We have squeezed the claims administrators' fees such that they can no longer deliver to these expectations. I see a few companies beginning to put training back into the equation. But we've got a long way to go.

    Life is full of choices, and this is one area where you get what you pay for. Put your money on the front end in hiring, training, and supporting the true claims professional, and you will see claim costs and the whole claims experience improve.

    —Kathy A. Kukor, Senior Consultant, Risk International Services, Inc., Charlotte, NC

  • Your view about claims probably applies to most areas of the insurance business.

    My experience with claims is the observation of a change in philosophy over the years from one that looks for coverage to one that looks for the exclusion of coverage. Insurance is nothing more than a contract that transfers risk from one who has it to one who is willing to accept it for a fee which we call premium. Since my entry into this business in 1964, I have seen deterioration in the hiring and training process that in my judgment is borne out of a heavy concentration on the immediate performance of the bottom line. This philosophy results in an increase in reservation of rights letters and denial of coverage and an unfortunate drift away from a good-faith practice of the insurance profession. Warren Buffett is correct in his pronouncement that the five most dangerous words in business are "Everybody else is doing it." It is therefore somewhat ironic that the conviction of Gen Re executives occurred as it did. We may see more of this unless and until we see a return to good-faith practices in the management of all areas of insurance.

    Without profits, risk takers cease to exist. However, a short-term view of the art of risk-taking inevitably results in failure on a number of different fronts. The best of all outcomes is an environment in which the insured obtains the protection needed for a fair price. It seems odd that such an environment went away with rating bureaus and other forms of price regulation.

    —James W. Edwards, President, Bailey Special Risks Inc., Hendersonville, TN

  • I have worked at the Municipal Association of South Carolina as an MASC employee and a contract employee for the last 8 years. Our workers compensation fund is staffed by adjusters that handle only workers compensation claims and that for the most part have strictly workers compensation backgrounds. This works well for this fund. Our property and liability fund is staffed by adjusters with varied backgrounds and various levels of experience. With the P&L fund, I have noticed that adjusters who come from multiline backgrounds that have adjusted claims in all lines (both personal and commercial) are the most successful adjusters. Unfortunately, I think that in today's market, many insurers train their adjusters to handle one type of claim, and the number of true multiline adjusters is decreasing. An adjuster might be able to handle an auto claim but not a property claim. Or, they might be comfortable dealing with personal lines but be overwhelmed by the various coverages and endorsements available in commercial lines. I do not have any data to back this up, but it seems to me that we are crippling the "claims handling industry" by pigeonholing adjusters to only be able to handle one type of claim. Then, when they seek employment elsewhere, it can become a matter of trying to teach an old dog a new trick. Because of their lack of knowledge and experience, they are unable to provide the appropriate level of customer service.

    — Cindy Martellini, Claims Manager, Municipal Association of South Carolina, Columbia, SC

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