where EO = earnings in initial year,
gj = growth rate in normal wages in industry, “j,” and “i” = normal rate of interest; “t” must have represented time.
This was certainly not the way I
addressed the evaluation of lost earnings in Casualty Insurance Claims, 4th,
(Thomson Reuters West), where reference is made to factors such as state
wrongful death statutes in the calculation of economic damages—something
the professors did not include in their
formula. Undoubtedly adjusters with
an MBA or mathematics and statistical
degrees will fully comprehend the good
professors’ reasoning. In the 1986 column, however, my criticism was that the
hurried casualty adjuster will probably
not use statistical analysis to evaluate a
lost income claim. He or she would contact the employer, obtain a report detailing earnings over at least the past 13
months or more, or in the case of those
paid in other ways, obtain income tax
records, and then investigate.
The Adjuster and STEMS
Yet each of the five STEMS factors do
have a significant role in the insurance,
claims adjustment and risk management
field. They help in determining things like
actual cash value and good faith offers.
Without math, actuaries could not provide accurate rates. Without engineering,
loss control would be useless. Scientific
analysis of loss tells us what went wrong
so that we can prevent similar loss in the
future. But statistics basically tell us about
the past; we need good brains, not computers, to use such data to predict what
will happen in the future.
Like medicine, multiple disciplines are
combined to provide cures in any field.
Businesses can use statistics to see what
has occurred and where there are trends,
but as I have pointed out several times,
Tom Peters’ “management by wandering
around” is generally superior to “man-
agement by objective.” Goals are needed,
but it is better to go and see what em-
ployees think, what the customers think,
and what the competitor is doing. Big
fancy conceptual words like paradigm,
module, and the whole business of de-
rivatives led us into bubbles that burst, as
did the dot-com bubble in 2000 and sub-
prime mortgages in 2007, and left busi-
nessmen and their banks in bankruptcy.
What statistical analysis generally cannot
take into account is the human emotion
of greed. If we keep our heads stuck in a
computer, we may be missing the boat.
The STEMS of Adjusting
Boiled down to the basic physical laws
that apply in any form of science, it is
six words that make up the nine steps of
claims adjustment: investigation,
evaluation and resolution or negotiation of first
the coverage, then the liability, and finally
TO FIRST VISIT, IN DAYS:
FIRST VISIT TO FINAL
UPLOAD, IN DAYS:
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52 JUNE 2013 60th Anniversary Claims Magazine PropertyCasualty360.com