iconoclast by KeN brOWNLee, CPCu
CLAIMS AUDITING 101: PART 2
How Philosophy Shapes Outcomes
Before an auditor can fully understand what he or she is looking at—either in an insurer’s or self-funding entity’s overall loss data or in individual claim files—the auditor must understand that insurer’s or entity’s claims philosophy.
every insurer or self-funding entity has a basic philosophy to dictate how claims
should be handled. Some self-insureds are so paranoid that they believe every claimant is a thief and a fraud, even their own employees. They are ready to fight every claim
all the way to the Supreme Court if
necessary. A few insurance companies
follow a similar philosophy: lowball
everybody, stonewall to the bitter end,
and don’t settle until standing on the
courthouse steps. These tactics work
occasionally, wearing the claimants
or insureds down to the point where
the claim is surrendered out of sheer
frustration. Other times, the claim
ends up in court with the jury awarding punitive damages to the insured
or claimant for the aggravation they have sustained. Fear not; there will be an appeal!
Handling claims in this manner is not a good way to save money. It can, however,
result in the insurer saving some money and lowering premiums to remain competitive
with insurers that offer better service. This is also difficult on the adjusters who have to
fight with every insured or claimant in order to keep the boss happy. This can lead to
unhappy employees. examine any company in the risk business that has high turnover,
and one may find a punitive claims philosophy behind it.
it’s no wonder
The Big ‘Give-Away’
that adjusters feel
lousy. They work for
organizations with lousy
This results in higher
premiums for everyone.
Some companies seem to take the opposite approach. If they live up to their
advertising, then they may delight in getting claims and paying quickly and generously. Nothing is too good for their insureds; it is red-carpet service every day.
Well, not exactly, but such insurers and
self-funders often hold to the philosophy
that it is better to get rid of the routine
claims as quickly as possible with as little
effort as possible, because doing so avoids
litigation and perhaps makes some economic sense. Sure, it may result in a bit
higher premium for comparative coverages. However, that insurer or self-insurer is able to offer outstanding service.
When one takes a closer look, however, it may become apparent that the
claims are settled so quickly because the
claims staff is far too small and lacks the
time to examine each claim to the extent that common sense would suggest.
Claims are not “adjusted” in such companies; rather, they are “processed.” The
likely result is that a fair number of paid
claims were either fraudulent or not eligible for payment under the terms of coverage or liability. Instead, adjusters settled
such claims because of “get rid of it” philosophy. “Quicky claims service,” can be
very expensive claims service.
With such a philosophy, the adjuster
never learns how to investigate each loss
correctly. When a major loss occurs, the
adjuster has no real experience on which
to rely. As a result, the claim is more
likely to end up in litigation because the
adjuster did not understand what to do.
A complicated claim cannot just be processed. It must be adjusted, which means
an adjuster must investigate, evaluate,
and negotiate first the coverage, then the
liability, and finally the damages.
One time while adjusting storm claims,
I encountered a number of insureds in a
particular neighborhood who had claims
(or parts of claims) that clearly were not
covered under their policies. However,
an adjuster for another insurer also had
iconoclast p. 44 A