Archive for March, 2011

I spy: Improving investigations is the key to driving claim results

In response to my recent news article on insurance fraud I have had a number of inquiries as to steps that insurers can take to proactively identify staged accidents.   As discussed in Re-Adjusted: 20 Essential Steps To Take Your Organization From Ordinary To Extraordinary, an effective investigation is the single most important tool an insurer possesses. 

While that paints the answer with a fairly broad brush, it is imperative to understand just how important a well conducted investigation is to bottom line results.   Keep in mind that this not only pertains to fraud, but every aspect of the claim!  Be it a staged accident, inflated medical bills, pre-existing medical conditions or missed subrogation, billions of dollars are overlooked as the result of ineffective investigations. 

What could your organization do with a 5%, 10% or even 20% improvement in indemnity results, expense reduction and/or organizational improvement?  

The proper investigation begins on day one, with the first question asked at the time a claim is reported.  Each and every question posed should be well thought out, with a logical sequence and a staff trained on not following a script, but rather interjecting appropriate follow ups.   This becomes even more important when the claim lands on the adjuster’s desk or an appraiser writes an estimate. 

Key elements of a claim include the who, what, where, when, why and how.    The attention to detail in answering these questions is what will ultimately give an insurer a competitive edge in the marketplace.  Consider the “how” of the loss.   In many instances, it may be a simple statement such as “the insured made a left turn in front of the claimant.”  As a result of such a generic answer, more than 15% of all claims are closed with a missed subrogation opportunity at a cost to the industry of over $15 billion dollars annually!

In this scenario, consider a few questions that that should be answered:

1-      What was the direction of travel of both cars?  What lane were they in?  Were they indicating a change in their direction of travel?

2-      What was the weather like, including the position of the sun?

3-      Who had control of the intersection?  Who had the green light?  Was there a turn arrow?  Was it leading or lagging?

4-      Where was the point of impact?   

5-      What was the speed of travel prior to the impact?

6-      What were the drivers doing prior to impact (on the phone, texting, changing the radio, etc.)?

7-     What were the duties owed by each driver?  What were the duties breached?  What was the degree of breach? 

While these are just a few of the myriad of questions that should be asked, they set the stage for a more robust investigation.   From a staged accident perspective, perpetrators of fraud won’t be able to answer them as this level of detail isn’t in the script that the capper provided to them.   From a subrogation perspective, a claim that is far too often assessed as 100% liability, often becomes one of shared liability, opening up the opportunity of recovering a portion of dollars paid out.  

Often, there is a perception that delving into exhaustive investigations is time consuming and often won’t yield positive results.   The reality is that this level of detail results in a more effective adjusting staff that will yield improved results, lowering costs and providing an environment where customers get the benefit of improved service and lower premiums.  

As a practical matter, taking a good statement and conducting a thorough investigation ultimately can cost an insurer less on a per claim basis.   By employing improved investigation tools, insurers can leverage a bevy of technology that can assist them in rooting out fraud.  This includes both predictive modeling and link analysis.  

The net result is that carriers employing such tools can streamline the traditional claims process with a high level of certainty that claims meeting certain parameters have been redirected.    Carriers with this type of robust approach gain intangibles as well, such as a reputation that may drive organized insurance fraud rings elsewhere. 

Underlying the entire process is the quality of the claims investigation.  By utilizing the best possible candidates, who have a demonstrated proficiency in investigative skills, carriers gain an edge of the rest of the industry.   By tweaking processes to ensure that certain claim characteristics are redirected, increased productivity for the remainder of claims will ensure.   Finally, leveraging technology to serve as the engine will drive results to record levels.

Christopher Tidball is a claims consultant and the author of Re-Adjusted: 20 Essential Rules To Take Your Claims Organization From Ordinary To Extraordinary!  With more than twenty years of insurance claims experience, his innovative tools and techniques are guaranteed to improve workflow, internal processes and bottom line results.  To learn more, please visit www.christidball.com

March 31, 2011 at 11:26 am Leave a comment

Staged Accidents and the rising cost of your insurance premiums

House Bill 967 has now cleared the Florida Legislative Committee as the sunshine state tries to tackle an exponential increase in staged accidents.    Having begun my claims career in South Central Los Angeles, the national hotbed for insurance fraud, I am all too familiar with the challenges that these claims can pose to an insurer.  

HB 967 will give more teeth to tools that can be used to combat fraud, in particular Examinations Under Oath (EUO’s) and Independent Medical Examinations (IME’s).  But the reality is that identifying staged accidents starts with the adjuster, who far too often lack the training or expertise to effectively ferret out this growing epidemic that costs American’s billions of dollars annually in the form of a “fraud tax”.

First, it is important to understand exactly what constitutes a staged accident.   From swoop and squats to stuffed passengers to left turn run downs, there is an endless supply of charades.    While many of these frauds involving innocent people being targeted, one of the most prevalent scenarios involves accidents that never occurred in the first place. 

 This type of accident begins with two vehicles, either having prior damage or being intentionally run together in an alley or parking lot.   A policy of insurance is taken out on the “at fault” or “bullet” vehicle.   A “capper” puts together the scenario, identifies the players, or “pawns” and gives them each a “script” of what should be said to the insurance carrier. 

The capper then sells the case to an attorney, who in turn refers the victims to a medical provider that will create the medical records and bills to support the claim.   The victims will all allege soft tissue injuries and, more often than not, will never see the inside of a medical facility.  

In no fault states, such as Florida, the problem is twofold.  Not only is there fraud against the third party liability carrier, but also against the first party PIP carrier.   In many instances, these are different companies.    In Florida, each injured party is entitled to $10,000 dollars in personal injury protection coverage plus they can sue for pain and suffering as the result of a loophole in Florida’s no-fault statute that should otherwise protect at fault parties from such frivolous litigation. 

For insurers, the ongoing challenge is to more effectively identify and prosecute such cases.   According to the Insurance Information Institute, Florida saw a 77% increase in staged accidents between 2009 and 2010.   Given this dramatic increase, a priority of all insurers should be to train their staff to be wary of claim with the tell tale signs of fraudulent activity. 

As discussed in my book, Re-Adjusted: 20 Essential Rules To Take Your Claims Organization From Ordinary To Extraordinary, there are a number of steps that can be taken.   First and foremost is a robust training program that details the red flags most common with staged accidents. 

From an investigative perspective it is often best to have the entire claim assigned to one person so that there is a uniform and consistent investigation.    At the outset of the claim, the adjuster should look for telltale signs, or red flags such as:

  • Assigned risk policies
  • Loss within 60 days of policy inception or cancellation
  • Vehicles registered to someone other than the insured
  • Older vehicles with diminished value
  • Insured’s who readily accept liability
  • Vehicles that were never inspected by the agent

These are just a few of the hundreds of red flags that may be present on a claim.   The concern is that recent quality audits that we have conducted showed that many of the flags weren’t being addressed, or even recognized.   By taking the steps necessary to properly train and engage the adjusting corps, carrier will see a dramatic improvement in quality and bottom line results.

A carrier’s business model also plays a key role in combating fraud.   Not only should adjusters investigating questionable claims take thorough statements, but these should be taken in person.   By meeting claim parties face to face, a visual observation can be made as to whether a script has been provided.   In the event that the parties are using scripts, asking to see the script while concurrently questioning the scriptless party often yields critical clues to involvement in a staged accident.  

As the claimants are often represented by attorneys, obtaining a statement can be challenging.  Many attorneys will simply refuse, forcing the carrier to make a determination as to whether the case warrants litigation during which depositions can be taken.  

Asking critical questions, such as a description of the other car, others in their car, the medical doctor, the accident scene and the route to the clinic are good indicators of the claimants veracity, or lack thereof.  

Visual inspection of all vehicles involved in the claim is of vital importance.   Often times, vehicles have prior damage or salvage titles.   In many instances measurements of the damages don’t correlate to a probable impact while visual inspection can yield clues such as mismatched paint transfers.  

Conducting background checks, looking for common bonds between parties and searching for prior claims are critical to the outcome.   Link analysis is a highly effective crime fighting technique that has gained popularity among insurers, as it ties together associations and creates a pattern upon which a winning case can be built. 

Another key to success is personally obtaining medical records.   When dealing with third party claimants, this will require a medical authorization from the attorney.   They can either voluntarily provide it or it can be obtained during the discovery process of litigation.   In PIP states, such as Florida, where first party claims are being abused, those making claims would be required to cooperate in the investigation.  

When visiting the clinic, take note of any abnormalities.   The sign in sheets often used by patients can be scrutinized to determine if they signed in all at once for many treatments, or as they visited.    Looking around for unplugged equipment, a lack of medical personnel or even arriving to an abandoned building or mail drop address should be considered major red flags. 

Effectively investigating these types of claims takes both time and effort, which is why carriers should implement predictive modeling tools to best identify the claims with the highest probability of fraud.   Another challenge is staffing, as the role of  fraud investigator isn’t for everyone.   It takes not only an attention to detail, but a significant amount of skill, savvy and intuition to effectively track down criminals.  

A few insurance carriers that have gained a national reputation for excellence in fraud investigation by marrying a winning combination of law enforcement experience with claims experience.    The unique paradigm that has emerged has resulted in some of the most effective fraud deterrence tools available. 

The reality for all Americans is that insurance fraud is an epidemic that causes everyone to pay significantly more for their insurance premiums than they should.   Now is the time to get engaged and push legislators for tort reform  while strengthening the tools of both law enforcement and the insurance industry to finally bring organized fraud to its knees.

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Christopher Tidball is a claims consultant and the author of Re-Adjusted: 20 Essential Rules To Take Your Claim Organization From Ordinary to Extraordinary.   He provides business with innovative training solutions and predictive modeling techniques to improve both quality and bottom line results.  To learn more, please visit www.christidball.com or e-mail chris@christidball.com

March 24, 2011 at 8:28 am Leave a comment

The implications of Florida PIP fraud on your premiums

With every spring comes the new legislative session in Tallahassee and the chance to have a dialogue pertaining to auto insurance no fault, PIP suits and the rising cost of auto insurance in the Sunshine State. 

Perhaps now is the time to provide an open forum pertaining to the complexities of the Florida No-Fault scheme, an often misunderstood concept that continues to drive up premiums for Floridians. 

Florida is one of thirteen “no-fault” states.   Vehicle owners are required to carry personal injury protection, or PIP coverage, to pay up to $10,000 dollars in the event of an accident.    Despite this requirement, Florida does not require motorists to carry bodily injury liability coverage for injuries that they may cause to others.   As a result, nearly one in five vehicles on the road is uninsured, further driving up the cost of insurance for responsible residents.

Conceptually, the no fault scheme was conceived to limit lawsuits.  The reality in Florida, and virtually all other no fault states for that matter, is quite the opposite.  Florida Statute 627.737 technically prohibits an accident victim for suing for pain and suffering except in the event of:

(a)  Significant and permanent loss of an important bodily function.

(b)  Permanent injury within a reasonable degree of medical probability, other than scarring or disfigurement.

(c)  Significant and permanent scarring or disfigurement.

(d)  Death.

The challenge routinely faced by insurers are questionable allegations of permanency, a highly subjective matter rarely agreed upon by medical professions.  The reality is that determination of whether a victim has met this rather low threshold is determined by a jury.   As a result, it has become the norm to simply settle cases to avoid the high costs and speculative outcomes associated with litigation. 

Further complicating matters is the abundance of PIP litigation associated with an increasing number of questionable claims, staged accidents, “pill mills” and suspect billing practices.   

In a recent article published in the Florida Times Union, it was suggested that insurers get sued because they reduce medical bills from doctors that are billing pursuant to the state mandated Medicare B Fee Schedule.  The reality is that many bills are submitted pursuant to the fee schedule, but for services that were either not rendered, not billed appropriately or unbundled; all of which drive up premiums for Floridians.

Dissecting this further, the Insurance Information Institute estimates that PIP costs associated with staged accidents in Florida increased 77% from 2009 to 2010.   As the name implies, a staged accident is one that did not occur, yet bills were submitted to insurers to pay.  

During this same period there was a 32% increase in billings for services not rendered.   This happens in a couple of ways.   In a purely staged accident, a “capper” will organize the scenario and give each of the “victims” a “script” of what to say to the insurance company.  The “case” is then sold to an attorney who works in conjunction with a doctor to create falsified bills that are submitted to an insurance carrier.  

Other challenges facing insurers are “upcoding” and “unbundling”.   In a recent article published in the Times Union, an attorney suggested that all amounts owed are clearly stated by Medicare Schedule B.  This is only correct to the extent that the bill submitted is for the services performed.   To circumvent the process, unscrupulous doctors may bill for a more complex procedure than was actually performed. 

An example could be a routine office visit which would have a specified code and reimbursement amount.  By billing for a more complex office visit, despite the claimed injuries not warranting such an extensive consultation, the reimbursement rate is substantially (often several times) larger.  

These challenges are by no means new, as Medicare fraud has been on the rise as the result of similar practices.   Because different codes or code combinations may produce dramatically different reimbursements from government programs, there is a financial incentive to “upcode” or bill for a more serious (and more expensive) diagnosis or procedure.

Another common example of improper coding is called “unbundling,” also known as “fragmentation.” Medicare and Medicaid often have special reimbursement rates for a group of procedures commonly done together, such as typical blood test panels by clinical laboratories. Some health care providers seeking to increase profits will “unbundle” the tests and bill separately for each component of the group, which totals more than the special reimbursement rates.

In the end, it is Floridians who are paying dramatically more for insurance than they should be.   According to the Insurance Information Institute, the “fraud tax” levied on Florida drivers was $549 million dollars in 2010.   This increase, paid for through higher insurance premiums is on pace to double during 2011.

Addressing this epidemic should be at the forefront of all concerned, but with so many competing interests it is a challenge to get a consensus on what can be done.   In my book, Re-Adjusted, particular focus is paid on the insurance industry and proactive steps that can identify and prevent insurance fraud. 

From a legislative perspective, requiring all motorists to carry bodily injury liability coverage not only makes sense, but could help in reducing the significant costs that responsible drivers pay for optional coverage, such as uninsured motorist benefits.   There should also be honest deliberation on both meaningful tort reform and the pros and cons of the no fault scheme, a costly proposition for Florida motorists that has not succeeded in reducing litigation in the way originally intended.    

Christopher Tidball has more than twenty years of insurance claims and executive leadership experience.  He is an insurance consultant and the author of Re-Adjusted: 20 Essential Rules To Take Your Claims Organization From Ordinary to Extraordinary.   For more information, please visit www.christidball.com

March 22, 2011 at 8:45 am Leave a comment

March Madness: The Cinderella Subrogation Process

March Madness is in full force, with the Cinderella’s beginning to emerge.   After last year’s great run, is Butler poised to do it again?   The ability of teams not often basking in glory to rise to the top is arguably what makes college hoops in March so appealing.   Seeing a #13 defeating a #4 brings a sense of parity to the field and humbles those of us whose brackets are now in shambles.  

It also reinforces that organizational success can often come from unexpected sources.   As I discuss in Re-Adjusted: 20 Essential Rules To Take Your Claims Organization From Ordinary to Extraordinary, one of those sources for insurers is subrogation.    So the question remains, what can be done to take the Cinderella of claims processes to the top of the industry? 

One of the first questions that should be asked pertains to judgments, and what percentage are effectively collected?  Nationally, more than 81% of judgments go uncollected.   When it comes to subrogation, this number rises to 92%.   Despite this, many insurers utilize counsel to obtain judgments without the benefit of a predictive modeling process to improve collectability results or a thorough understanding of effective post judgment remedies.    

One of the often cited reasons for obtaining judgments is that they are required in many jurisdictions to suspend a driver license.   While this can be a meaningful tool, more often than not the types of people that drive with no insurance aren’t likely to have much concern about a license suspension.   Rather, by focusing on the characteristics of the people who will care, insurers can dramatically increase recovery results. 

An even bigger challenge for insurers is how to best staff an organization.   There is no one size fits all approach, with variances depending on business model, types of business and complexity of claims.    Another consideration is the quality of staff that is being hired to fill critical roles.   Historically, subrogation roles have had limited advancement opportunities and at times were filled with personnel that struggled in other claims capacities.   By recognizing the key role that subrogation plays in the end to end process, developing talent that can investigate, negotiate and resolve often complex cases can pay big dividends.

Equally as challenging is the actual organizational structure, which can take on many variations.   From centralized and decentralized to outsourced or off shored, there is no limit to the creativity of insurance carriers.    In Six Sigma projects and quality assurance reviews, the results have increased to the extent that insurers focus on putting the right claim into the hands of the right adjuster.  

Insurers often show a core competency when dealing with other insurers, in particular on cases where liability is not any issue and the other carrier is a member of inter-company arbitration.   The challenges tend to rise when liability is an issue, as far more accidents than people realize have shared liability. 

According to Jury Verdict Research, a national organization that tracks such data, rear end auto accidents accounted for only 45% of auto cases adjudicated, with the remainder comprised of intersection collisions, lane changes, chain reaction and parking lot scenarios.  In other words, a lot of claims where there was a high probability of shared liability. 

As an insurer, you certainly shouldn’t expect to set a benchmark that high, as very few claims actually make it to trial.  But what you can do is bank on the fact that if fewer than 35% of  collision claims are closing without comparative fault,  money is being left on the table. 

Another challenge arises in the health care arena where insurers may be entitled to reimbursement when third party liability claims are present.   While there are tremendous tools available to proactively identify this subrogation potential, many insurers utilize a process by which a letter is sent to the insured in hopes that they may provide the information necessary to pursue these types of claims.  Unfortunately, these letters are often discarded with billions of dollars left on the table annually. 

Across the insurance universe more than 15% of all claims are closed with a missed subrogation opportunity.   Even when recovery potential exists, a significant number of additional claims are closed for a variety of reasons.  Having spent more than twenty years in various line, management and executive capacities for multiple Top 10 P&C insurers, I can attest to the challenges that can hamstring any operation.    From staffing and evolving case law to limited understanding of jurisdictional nuances and constantly changing organizational objectives, it is enough to make any manager’s head spin. 

Often, the best results are obtained with a well thought out, methodical plan that merges the best of all competencies.   By adapting a triage process that places the right claim with the right adjuster, be they an employee or a business partner, carriers are assured to dramatic improvement.  

But this is only the beginning, as the true success comes from creating an organizational foundation upon which core competencies are required; beginning with first notice of loss.   By improving the quality of the end to end claims process, implementing a claims focused quality assurance process and calibrating the entire organization, carriers have the ability to take their game to an entirely new level.  This unparalleled level of excellence results in higher levels of customer satisfaction, increased retention, improved investigations, reduced cycle time and most importantly accurate claim settlements. 

Christopher Tidball is an insurance claims consultant and the other of Re-Adjusted.    He provides insurers with proven methods to dramatically improve quality, performance and results.  To learn more, please visit www.christidball.com or e-mail chris@christidball.com.

March 21, 2011 at 9:22 am 1 comment

Diminished Value: What is your claim really worth?

Diminution of value can be one of the more complex aspects of the claims process.  While determining a fair market value for property in good times is challenging enough, consider the implications of the “great recession” and collapse of the housing, collectibles and commodity markets in recent years.  Another challenge is that there are very few governing state statutes, and even when present, they often are focused on automobiles. 

Diminution in value is a legal term used when calculating damages in a legal dispute, and describes a measure of value lost due to a circumstance or set of circumstances that caused the loss. Specifically, it measures the value of something before and after the causative act or omission creating the lost value in order to calculate compensatory damages.

Herein lies the challenge; what was the property really worth before the loss?   When dealing with an automobile, the value is readily available in resources such as NADA.   That said, if a vehicle is repaired back to pre-accident condition, has it sustained any diminished value.  My position is generally that is may have, but only to the extent that the owner sells the vehicle, discloses the loss and accepts a reduced sum when selling the car as a direct result of the disclosure of the prior damage.  

But what about property, such as a home?  Given the state of the housing market, it is not uncommon for homes to be insured for more than they are worth.   But is this what the insurer owes?  Generally speaking, the insurer will owe the fair market value or cost of replacement, depending on the terms of the insuring agreement.  

As a Floridian, I can attest firsthand to the “upside down” housing market.  Homes that were worth a half million dollars in 2007 are often worth less than half today.   This creates not only animosity between insurer and insured, but presents potential legal challenges.   The reality is that a damaged home is worth what it would have brought in its pre-claim condition, not at the peak of the market. 

This concept is certainly not limited to homes and cars.   Many commodities and collectibles including art, jewelry and boats have seen significant erosion of value over the past two years.   So how can an insurer obtain a fair market value?

Arguably, the best way to obtain fair market values is through reputable appraisers.   They need to also be wary of the few states, such as Georgia, that have statutorily weighed in on diminished value claims in certain instances and follow appropriate protocol in those jurisdictions.   Adjusters should also be cognizant of the precedent case law in the loss and/or contract state, which often precludes or limits the right to recover diminution of value.  

Ideally, an insurer will take all the necessary steps to properly evaluate a claim and provide those seeking coverage with voluminous documentation of the fair market value.  In the event of a dispute, many policies provide for an appraisal option, whereby the carrier and the insured obtain separate appraisals and any differences are mediated or arbitrated with an impartial third party. 

As I discuss in Re-Adjusted: 20 Essential Rules To Take Your Claims Organization From Ordinary to Extraordinary, many conflicts between insurers and insured’s arise as the results of shortcomings in the negotiation and settlement process.  To effectively resolve claims, it is incumbent upon the adjuster to educate all parties to the claim, be they a policyholder, claimant or attorney.  

Simply making an offer isn’t always enough.  That offer needs to have backup documentation that erases any questions about the value of the claim. 

In my dealings with those making claims over the years, the biggest challenge was often emotions, whereby someone thought that something was worth more than it truly was worth.  While these negotiations can be tricky, the key to success is in the delivery.   By empathizing with the customer, a positive outcome is far more likely than taking an adversarial approach. 

As many of my dealings over the years were in Florida, it was not uncommon for me to cite the case of Siegle v. Progressive Consumers Ins. Co., 819 So.2d 732 (Fla. 2002), whereby the Florida Supreme Court ruled against the concept of diminution of value provided the insurer complete a first-rate repair which returns the vehicle to its pre-accident level of performance, appearance, and function.”  Again, having a firm grasp of the diminished value case law in each state can be a tremendous advantage when negotiating these types of  claims. 

Diminished value aside, getting to the true value can be a tricky proposition in a down economy where there may be a temptation for those making claims to recover lost market value in addition to actual covered losses.   Absent proof that the loss of value was covered by the policy AND related to the loss, these claims don’t seem to warrant consideration.   Rather, focus on the basic blocking and tackling skills necessary to identify what is covered and document why, which provides the foundation for an effective resolution. 

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Christopher Tidball is a claims consultant and the author of Re-Adjusted: 20 Essential Rules To Take Your Claims Organization From Ordinary To Extraordinary!  To learn more, please visit www.christidball.com or e-mail chris@christidball.com

March 18, 2011 at 9:00 am Leave a comment

Leveraging economies of scale to maximize subrogation returns

Economies of scale are one of the single greatest leverage points when seeking a competitive advantage.   From lower overhead to maximizing efficiencies, this concept enables organizations, big or small, to do more with less. 

But, this concept doesn’t always work unless it is properly utilized on the correct functions.   Consider the traditional retail industry, and the implications of having only one Wal-Mart centrally located in Kansas?  Of course, when it comes to e-tail, this model actually makes incredible sense, as evidenced by Amazon’s central fulfillment process success. 

But what about insurance claims, and the need to balance profitability with customer service?   Business models have run the gamut from pure centralization to companies seemingly having a presence on every street corner.   What truly defines success? 

Simply stated, it depends on the function.   For agency based organizations, having agents with a local presence arguably promotes brand recognition.    For direct sales, centralized hubs can dramatically cut costs, which in turn can be leveraged into increased advertising dollars to promote brand.  

As for claims, there a number of functions that are best done in the field.    Writing estimates and getting agreed prices with body shops will improve cycle time, reduce supplements and generate a higher level of customer satisfaction.    From a fraud perspective, there is no substitute to having company adjusters meet face to face with claimants, attorneys or suspect medical facilities.   The costs saved when a claim is properly investigated in certain  geographic markets more than offsets the increased costs associated with decentralization. 

That said, there a number of essential claim functions that are best handled in a centralized manner.   From First Notice of Loss to Subrogation and Salvage, there are tremendous economies of scale that can be gained from a single process.   On top of those tangible benefits, comes improved consistency and a streamlined workflow that will reduce costs and cycle time.  

Consider subrogation, one of the single biggest opportunity areas for insurance carriers and self insured’s.    Due to a variety of factors, subrogation improvement initiatives often lag behind other organizational priorities.   In large part, this is due to the many complexities associated with a myriad of subrogation concepts.   While straightforward subrogation against another carrier may seem elementary enough, improvement can be challenging when dealing with product defect, joint and several liability, dram shop, medical malpractice, multiple tortfeasors, foreign defendants and empty chair assertions.  

It is also important to recognize that subrogation improvement begins on day one; the minute the claim is reported.   Having a uniform method to obtain and record information is critical, as is asking the right questions.   This attention to detail needs to be present throughout the claims process, with adjusters having the knowledge and skill sets necessary to proactively identify any probability of recovery.  

This should be coupled with a process by which identification of subrogation is both systemically tracked and immediately referred, even in advance of a claim file closing.   The most critical component of an effective recovery is time, with probabilities of recovering deteriorating in a matter of days.   The difference between referring a potential recovery to subrogation on Day 3 versus Day 10, 20 or 30 can amount to millions of dollars per year in missed opportunities.  

The benefits of subrogation centralization allow for a uniform and consistent process to take place with a minimum of oversight.   In addition, this model provides a larger staff to not only handle increased volume, but improving results by having the ability to contact people during times that traditionally show higher yields, such as evenings and weekends.   

This structure also allows for a higher degree of specialization, which can be critical in the often complex arena of subrogation.   A question that often arises is how to properly staff such an organization.   There is not a one size fits all model, as different types of claims require different areas of expertise and take differing amounts of time to properly resolve.  

That said, economies of scale in such an organization allow for an optimal triage process that puts the right claim in the hands of the right adjuster.   Fast track claims, or those that are resolved with relative ease due to clear liability and identified coverage, can be funneled through a less tenured group, capable of handling significant volume per day.    In many staffing models that I have developed, this figure could be 10 assignments per day.  

As complexities rise, the corresponding assignments per day decrease.   Comparative negligence, joint and several liability, product defect and workers’ compensation all require a higher degree of expertise and take longer to resolve.   Another potential workflow process involves uninsured and underinsured motorist claims, a rapidly rising segment of claims inventory.   Again, this is a very specialized aspect of the business, best left to those who have the tools and resources to not only track down tortfeasors, but have the tools in place to effectively litigate and pursue post judgment remedies.  

As mentioned earlier, the proper handling of subrogation begins on day one, so it is critical to recognize that a large portion of claims with recovery potential never make their way to subrogation.   Industry wide, this is roughly 15% of all claims.  In quality assurance reviews that I have conducted, the true number is close to 30%.    When designing the optimal subrogation model, it is imperative that a component be included to identify missed subrogation.   This should include both a data mining tool to find missed subrogation on closed files and a training component to ensure that there is adequate competency among all levels of staff, including first notice of loss, line adjusters and field appraisers. 

Lastly, one should never underestimate the importance of quality staffing.   Just as insurance claims isn’t for just anyone, neither is subrogation.   By properly assessing both new and existing staff, implementing best practices against which performance is measured and testing for core competency proficiency, carriers will gain a tremendous competitive advantage against those who lack such initiatives.  

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Christopher Tidball is a claims consultant and the author of Re-Adjusted: 20 Essential Rules To Take Your Claims Organization From Ordinary To Extraordinary!   His claims experience spans more than twenty years, running critical claims functions for multiple industry leaders including Progressive, AIG and 21st Century.   To learn more about maximizing your bottom line, please visit www.christidball.com or e-mail chris@christidball.com

March 17, 2011 at 9:53 am Leave a comment

The Big One: Preparing for the inevitable

For those who have never experienced an earthquake, suffice it to say the feelings of helplessness are indescribable.    For many natural disasters, there is often time to plan;  be it minutes for a tornado to days for a hurricane.   But not so for an earthquake, which strikes on a whim with no warning whatsoever. 

Imagine yourself standing still as the whole world shakes around you, sometimes so hard that you are brought to your knees, as you brace yourself in the nearest doorway, typically a dwellings strongest structural support.   Now magnify that exponentially, and you will begin to understand what happened in Japan.  

By many estimations, the damage from last week’s devastating earthquake and subsequent tsunami will top $35 billion dollars.    According to some sources, the claims from this earthquake may set new records, which will likely have a worldwide impact on insurance rates.  

Compared to the American market, the Japanese insurance market is very complicated.   While residential losses are covered by government reinsurance, commercial losses are not.   This is likely to translate into higher premiums across the globe, including the United States. 

Compounding matters is the potential radioactive fallout from the damaged nuclear reactors and the ongoing seismic activity that will likely produce aftershocks for the foreseeable future.    Even the most conservative estimates suggest that this disaster will have an unprecedented economic impact. 

Coming on the heels of record cold in North America and record floods in Australia, 2011 is shaping up to be a very troubling year for insurers and reinsurers; and it is only March!   Still unknown will be the extent of hurricane activity, in particular along the Florida and Gulf coasts, largely spared over the past few years.  

According to Standard and Poors, “World wide catastrophic events in 2011 may drain enough of the excess capital in the reinsurance and insurance markets to “spark a tightening of premium rates for many lines of coverage.”   In layman’s terms, get ready to pay more for your property insurance. 

Another intestesting aspect is the extent to which insurance coverage will be applicable.  Like earthquake coverage in the United States, this is an optional coverage in Japan.   According to the Japanese government, less than 50% of those insured by conventional insurance carriers to the option.  

In the wake of the catastrophe in Japan, Americans need to recognize both the economic impact and the probability that the “big one” could strike here next.   At risk are billions of dollars in potentially uninsured property owned by Americans who are unaware that a typical insurance policy excludes damage from earthquakes.   Despite the seismic activity in California, only 12% of homeowners have a separate earthquake insurance policy.  

Equally as concerning is the likelihood that the “big one” may not occur in California, but in zones that have the potential to create far greater damage than the San Andreas fault, such as the Cascadia Subduction Zone off the Oregon/Washington coast.   This area is at higher risk, given the chain of earthquakes that have hit the “Ring of Fire” in recent months.  

For Americans, the question isn’t if, but when the “big one” will occur.    It may strike in earthquake prone areas such as California, Washington or and Alaska.    Even more concerning, it may strike elsewhere, such as New Madrid, Missouri or Charleston, South Carolina, where two of the most devastating earthquakes in American history occurred. 

Regardless, the devastation in Japan should be a reminder of just how vulnerable we are and that all American’s should take the time to prepare, mentally, physically and financially for any potential catastrophic event.    When preparing, consider that you will likely be without power for several days or even weeks.   Food will be unavailable and water will be contaminated.   Having a supply of both should be considered the bare essentials for any survival kit, as should a generator, gasoline, flashlights, radios and batteries.   There will be no means of communication (landline, cell phones or internet) and roads will likely be impassible, so every family should have an agreed to reunification plan.   As for personal safety, keep in mind that local law enforcement will have priorities and perhaps the inability to reach you, and prepare accordingly.   

___________

Christopher Tidball is an insurance consultant and author of multiple books including Kicked to the Curb and Re-Adjusted.   To learn more, please visit www.christidball or e-mail chris@christidball.com

March 16, 2011 at 10:23 am Leave a comment

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Chris Tidball is a claims and revenue management consultant and author of the "20 Essential Rules" series of self and organizational improvement books. You can ask him a question at chris@christidball.com

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