How an Insurer Can Succeed With Professional Claims Handlers

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In search of profit, insurers have decimated their professional claims staff. They laid off experienced personnel and replaced them with young, untrained, unprepared people. A virtual clerk replaced the old professional claims handler. Process and computers replaced hands-on human skill, empathy and judgment. Money was saved by paying lower salaries. Within three months of firing the experienced claims people gross profit increased.

Insurance is a business. Corporate insurers must show their shareholders a profit that pays dividends and increases the share price of the insurer. For centuries insurers understood that catastrophes, firestorms, windstorms, hurricanes and tornados could not be predicted. Some years the insurer will make profits and some years it will incur a loss. The prudent insurer recognizes, because of the impossibility of predicting all possible losses, they measured profitability over a decade or several decades. No insurer can measure its profitability for periods of a quarter of a year.

Insurance is a service business. The insurance contract is a collection of promises made by the insurer to those persons or entities who face risks of loss pay for an insurance contract that promises to protect the insured against the risks of loss the insured faces. The person or entity insured relies on the professionalism of the employees of the insurer who are called upon to resolve the claims of the insured and provide the protection promised by the policy.

Insurance Claims Professionals

Insurers have developed over the last few centuries professional claims personnel who they trained to interpret the terms and conditions of the policy of insurance, investigate every claim thoroughly and assist the insured in the presentation and resolution of claims made by or against the insured. The promises are kept by the professional claims person: the adjuster or claims representative.

The prudent insurer understands that keeping a professional claims staff dedicated to excellence in claims handling is cost-effective over long periods of time. A professional and experienced adjuster will save the insurer millions by resolving disputes, paying claims owed promptly and fairly, and by so doing avoiding litigation.

The professional claims person exists to resolve claims to the satisfaction of the insured and the insurer. When the claims person does so the person insured will be satisfied that the promises made by the insurance policy were kept both the insured and insurer are satisfied with the interaction.

Satisfying an insured that the promises made by the policy were fairly and completely kept is the key fulfillment of the insurer’s desire to avoid the expense and bad publicity of litigation. There will never be a suit for breach of contract or the tort of bad faith. Only when claims professionals resolve more claims for no less than is necessary to satisfy the insured neither party will need to involve counsel. A happy insured or claimant satisfied with the results of his or her claim will never find a need to sue the insurer.

On the other hand, barely competent, incompetent or inadequate claims personnel will seldom resolve claims fairly and to the satisfaction of the insured or claimant. Inadequate claims personnel will often force insureds and claimants to public insurance adjusters and lawyers.

It is axiomatic that every study performed on claims establishes that claims with an insured or claimant represented by counsel or a public insurance adjuster, cost more to resolve than those where counsel or a public adjuster is not involved. Prompt, effective, professional claims handling is cost effective for both the insured, the claimant and the insurer, and saves money for because there is no need to pay the fees of a lawyer or public adjuster. When the insurer fulfills the promises made by the policy to the satisfaction of the insured when the insured acquired the policy.

Insurers who believe they can handle first or third party claims with young, inexpensive, inexperienced and untrained claims handlers should be accosted by angry stockholders whose dividends have plummeted or will plummet as a result. When an insurer compromises on staff, profits, thin as they may have been previously, will move rapidly into negative territory. Tort and punitive damages will deplete reserves. Insurers will quickly question why they are writing insurance. Those who stay in the business of insurance will either adopt a program requiring excellence in claims handling from every member of their claims staff or they will fail.

The Need for Change

The insurance business must change—this time for the better—if it is to survive. Insurers must rethink the firing of experienced claims staff and reductions in training to save “expenses” recognizing that the expense to train, educate and maintain a staff of professional claims handlers, is a small part of the money that flows out of an insurer’s coffers. The major expense is the cost to pay claims. When inadequate or inexperienced adjusters pay claims the insurer did not owe, refuse to pay claims it did owe, or pays more than is appropriate, the potential for an insurer to make a profit is reduced much more than is saved by reducing the expense incurred by paying a professional claims staff.

Insurers should, if they wish to succeed, adopt a program to promote excellence in claims handling. Only with a staff of claims handlers dedicated to excellence in claims handling can insurers promptly, fairly and in good faith keep the promises made by the insurance policy and avoid charges of breach of contract and the tort of bad faith in both first and third party claims.

Insurers must understand that they cannot adequately fulfill the promises they make to their insureds and their obligations under fair claims practices acts without a professional, well trained and experienced claims staff. An insurer must work vigorously and intelligently to create a professional claims department or recognize it will lose its market and any hope of profit.

Insurance claims professionals are people who:

can read and understand the insurance policies issued by the insurer.

understand the promises made by the policy and their obligation, as an insurer’s claims staff, to fulfill the promises made.

are competent investigators.

have empathy and recognize the difference between empathy and sympathy.

understand medicine relating to traumatic injuries and are sufficiently versed in tort law to deal with lawyers as equals.

understand how to repair damage to real and personal property and the value of the repairs or the property.

A Proposal to Create Claims Professionals

To avoid claims of breach of contract, bad faith, punitive damages, unresolved losses, and to make a profit, insurers must, in my opinion, maintain a claims staff dedicated to excellence in claims handling. They must recognize that they, as representatives of the insurer, are obligated to assist the policyholder and the insurer to fulfill all the promises made by the insurer in the wording of the policy. An insurer can create a claims staff dedicated to excellence in claims handling by, at least:

Hiring well trained, educated and empathetic insurance claims professionals.

If professionals are not available, train all members of the existing claims staff to be insurance claims professionals.

Train each member of the claims staff annually on the local fair claims settlement practices regulations.

Supervise each claims handler closely to confirm all claims are handled professionally and in good faith.

Explain to each member of the claims staff the meaning of the covenant of good faith and fair dealing from its inception in the 18th Century to the present.

Require that staff treat every insured with good faith and fair dealing.

Demand excellence in claims handling from the claims staff on every claim whether small or major, whether an individual or a corporate insured.

Explain to the claims staff that the insurer is ready to immediately dismiss any claims handler who fails to treat every insured with good faith and fair dealing.

If any experienced claims professionals exist on the insurer’s staff, the insurer must cherish and nurture them and use their experience and professionalism to train new claims people.

If none are available, the insurer has no option but to train its people from scratch using available materials produced by the National Association of Insurance Commissioners, the State’s Department of Insurance, Insurance associations, and professionals who have – for a reasonable fee – the ability to properly and effectively train claims personnel.

When the claims staff is made up of claims people who treat all insureds and claimants with good faith and fair dealing and provide excellence in claims handling litigation between the insurer and its insureds will be reduced exponentially. To keep the professional claims staff operating efficiently and in good faith they must be honored with increases in earnings and perquisites.

Conversely, those who do not treat all insureds and claimants with good faith and fair dealing should be counseled and given detailed training if they are willing to learn.

If less than professional claims persons continue with less than professional conduct they must be fired.

The insurer must make clear to all employees that it is committed to immediately eliminating staff members who do not provide excellence in claims handling and must be ready to fire publicly and quickly those who cannot or do not provide excellence in claims handling.

HOW TO CREATE AN EXCELLENCE IN CLAIMS HANDLING PROGRAM

An excellence in claims handling program begins with a statement in the insurer’s claims manual or statement of professionalism, that it is dedicated to provide excellence in claims handling to every insured who presents a claim. The excellence in claims handling program should include, at a minimum:

A series of lectures supported by text materials explaining:

A definition of insurance.

How to read and understand an insurance policy.

How to interview an insured, witness, or claimant.

How to assist an insured in the insured’s obligation to prove a claim.

How to repair or replace damaged real or personal property.

How to repair or replace damaged vehicles.

How to identify causes of loss.

How to recognize the red flags of fraud.

The duty of the claims person who suspects attempted fraud.

How to negotiate with an insured, claimant, public adjuster or lawyer to resolve a claim.

How to recognize when retaining counsel to represent the insurer is necessary.

How to retain counsel to represent the insured.

How to read and understand the contract that is the basis of every adjustment, including but not limited to:

The formation of the insurance policy.

The rules of contract interpretation.

Tort law: including negligence, strict liability in tort, and intentional torts.

Contract law including:

the insurance contract,

the commercial or residential lease agreement,

the bill of lading,

nonwaiver agreements,

proofs of loss,

releases and

other claims related contracts or documents.

In addition the claims professional needs to understand:

The duties and obligations of the insured in a personal injury claim.

The duties and obligations of the insurer in a personal injury claim.

The duties and obligations of the insured in a first party property claim.

The duties and obligations of the insurer in a first party property claim.

The Fair Claims Practices Act and the regulations that enforce it.

The thorough investigation:

Basic investigation of an auto accident claim.

Investigation of a construction defect claim.

Investigation of a nonauto negligence claim.

Investigation of a strict liability claim.

Investigation of the first party property claim.

The recorded statement of the first party property claimant.

The recorded statement or interview of a third party claimant.

The recorded statement of the insured.

The red flags of fraud.

The SIU and the obligation of the claims representative when fraud is suspected.

Claims report writing.

The evaluation and settlement of the personal injury claim.

How to retain coverage counsel to aid when a coverage issue is detected.

How to control coverage counsel.

How to instruct coverage counsel on the issue to be resolved.

Instruction, by lecture, documents, webinars on:

Dealing with a plaintiff’s lawyer.

Dealing with personal injury defense counsel.

The evaluation and settlement of the property damage claim.

The Appraisal process.

Arbitration and mediation and the claims representative.

Claims handling without excellence is both dangerous and expensive. Insurers should develop a professional claims staff and provide excellence in claims handling because by so doing they will profit more than if they keep an inadequate and unprofessional claims staff.

The training lectures must be supplemented by meetings between supervisors and claims staff on a regular basis to reinforce the information learned in the lectures.

To guarantee that the training and requirement for excellence in claims handling is effective the insurer must also institute a regular program of auditing claims files to establish compliance with the requirement to deal fairly and in good faith to the insured.

The insurer’s management must support the training and repeat it regularly.

The insurer’s management must audit claims files to determine the training has taken and is being applied to each claim.

There is no quick and easy solution. Training takes time; learning takes longer.

If the insurer does not have personnel with the ability to train its staff it should use outside vendors who can do so effectively. Many such sources are available from professional associations, independent claims adjuster firms, independent counsel, insurance related publications, insurance related podcasts, and continuing education providers.

I have created, to assist those who wish to create a professional claims staff dedicated to provide excellence in claims handling, a series of publications at my Locals community and at Substack.com.

In addition, at Illumeo.com I produced a short Excellence in Claims Handling program available at https://www.illumeo.com/courses/i