Category Archives: Claims Management

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10 Tips for Getting Claims Paid

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(The following is a guest post written by Robert M. Horkovich, managing partner and shareholder in the New York office of Anderson Kill & Olick, P.C.)

Getting claims paid can be difficult and often, the larger the claim, the more difficult the process can be. In many cases, it seems like there is an invisible “seven-digit” exclusion written into all insurance policies. If the claim is $1 million or more, there is greater resistance to payment, in part because insurance companies often refer larger claims for review by counsel. This often leaves the policyholder fighting for payment of claims that should not be disputed.

Set out below are 10 tips for getting claims paid. Although there is no guarantee that if all the steps are followed, the claim will be paid, following these steps may help minimize the resistance.

1. Give Notice Early, Broadly and Often
Some first party insurance policies require the policyholder to give notice of a claim within a fixed period, sometimes as short as a week. Therefore, when a claim arises, give notice as soon as possible under as many insurance policies as may be applicable.  And supplement that notice when information about the claim becomes more available and developed.

Risk managers sometimes fear giving notice, as they believe it may impact renewal. The loss should be identified anyway in the renewal application to prevent a misrepresentation/concealment defense.

Although almost all states require that the insurance companies demonstrate prejudice (or that the failure to give notice was a material breach) if they seek to deny coverage on grounds that the policyholder failed to provide timely notice, the better practice is to give notice early, broadly and often. This minimizes the chance that late notice will become a defense to coverage.

2. Assemble the Right Team
Your team should include people familiar with your loss and with your insurance coverage. In addition to people from risk management, consider who else might be needed to assist the risk manager: accounting firms, forensic accountants, actuaries, loss adjusters, insurance brokers, engineers, environmental consultants, insurance archaeologists, and maybe even policyholder coverage counsel.

3. Gather All Information

  • Gather and inventory your company’s insurance policies. Now (before you have to handle the loss) is a very good time to gather and inventory all of your company’s insurance policies. Index them. Your insurance broker may help.  Having this done before you have to handle the loss will make providing quick and broad notice easier.
  • Gather all information regarding the loss. Notify all company departments that have documents that may be pertinent to the loss to preserve those documents. Suspend document destruction procedures applicable to those documents. Scan them. If hard copies of company records have to be destroyed, have someone review the documents before destruction so they can certify no pertinent records were destroyed. The duty to cooperate means keeping and turning over pertinent documents. Again, prejudice rules generally apply, but doing it right may help eliminate the argument.
  • Remember reinsurance. You may think that your insurance company’s request for information is unreasonable, but try to remember that your insurance company may be trying to satisfy the information demands of its own reinsurance company. Try to accommodate reasonable requests. If the requests for information are unreasonable, write to your insurance company and ask what it really needs to confirm coverage.

4. Document Everything
Document all communications with your insurance company including all requests for information, all conversations, what the insurance company is doing and what you are doing. Always have the last word – even if it is to say that you disagree. Why? If the claim is denied, you will need this written record as evidence.

5. Avoid Open-Ended Standstill Agreements
Your insurance company may say it needs time to investigate the loss and wants a standstill agreement to preserve everyone’s legal position. Avoid these if possible. You give up leverage to force your insurance company to conduct a timely investigation.

If you have to enter into a standstill agreement – and they sometimes are necessary to minimize legal costs – set a clearly defined and realistic deadline. Anything later just gives the insurance company additional “float,” as Warren Buffet calls the time lag between collecting premiums and paying claims. Do what you can to get your money quickly so that you can invest it and make profits rather than giving an added bonus to Warren Buffet. Don’t give your insurance company a license to stall.

6. Quantify the Loss
Identify and document amounts spent on the loss or the liabilities. Include defense costs for liability matters, in-house time and expenses if they can be recorded, and past, present and future loss amounts. Consider using those with expertise in identifying all types of losses that might be included. For future losses, consider using a forecaster or actuary. Such losses then can be reduced by a present value discount and included in your negotiations. Try to consider all possible contingencies.

7. Value the Insurance Asset
Look to the policy limits. Examine all potential forms of coverage and all potentially applicable coverage grants within all potentially applicable policies. Don’t forget endorsements. Look at the ultimate net loss clause and supplemental payments clauses in liability policies and consider what costs your company has incurred that fall within those coverage grants.

On the negative side, consider deductibles and self-insured retentions. Look at potentially applicable exclusions and exceptions to those exclusions. This will help you shape your company’s loss.

When valuing how much you may get back to cover your loss, consider the financial viability of your insurance companies. Taking a discount and getting paid now may have value if your insurance company has a clouded financial posture.

  • Legal/policy analysis. Look at the loss valuation and compare it to all the forms of coverage available. Apply the losses as best you can to maximize coverage. Consider forum sensitivity. Does it make any difference if your claim is pursued in one jurisdiction or another? Compare state provisions and precedents regarding late notice prejudice, application of the pollution exclusion, consent to settle exhaustion of underlying coverage, or other factors as applicable. Consider which jurisdictions would suit your claim best. Is there a mandatory arbitration provision in the policy? A choice of law provision? These must be taken into consideration.

8. Set The Target/Demand
Calculate each insurance company’s maximum potentially applicable coverage separately. While you cannot obtain a windfall or double recovery, there is no reason why you should not start by explaining to each insurance company what its exposure is.

9. Negotiate the Claim
What do you want to achieve? Cash now? A payment stream in the future? A coverage in place agreement confirming coverage for future events? Take these factors into consideration.

Negotiate with each insurance company separately. Generally, negotiations that bring all insurance companies together at the same time do not result in prompt settlements. The insurance companies generally get together to share theories of defense to coverage. That does not promote payment of the claim.

Do not press weak claims. Weak coverage claims tend to hurt, not help, claim payment.

Try to get the right people to claim settlement discussions. Ask the broker to help make sure that the appropriate claim representative is there. Make sure you have appropriate settlement authority.

Remember to mind your manners. By the time you have gotten to this point in the payment of your claim, you rightfully may be very frustrated and even angry. Try to put that anger aside for purposes of resolution of the claim. It is harder for the insurance company to pay if there is personal anger and animosity.

10. Be Careful in Documenting the Settlement
Focus on the scope of the release. Try to limit the release just to the claim being paid. If the insurance company asks for more (tying is an unfair claims practice under the NAIC Model Unfair Claims Practice Rules adopted in most states), then make sure you can quantify the value of the additional coverage you are giving up.

Make sure the payment is net of retrospective premiums adjustments or any other charge back. The last thing you want is a bill from the insurance company.

Be very careful of indemnification provisions. They easily can eat up the claim payment proceeds you are getting.

To help you through the whole process, be persistent. Don’t give up. Above all, that will allow you to maximize the value of your claim.

Q&A With David Hollander, Ernst & Young’s Global Insurance Advisory Leader

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On the heels of Ernst & Young’s recently released 2012 Global Consumer Insurance Survey, I spoke with David Hollander, Ernst & Young’s global insurance advisory leader, to ask a few questions the report brought up.

The report states that, in regards to younger P/C consumers, the brand can command a higher premium. Do you find this surprising and why?

DH: Initially, yes. We thought many of the millennials would be active in price competitive shopping and that price would be dominant. However, when considering the findings, we realized that this segment is accustomed to massive ad campaigns focusing on the importance of brand across all industries and the finding became less of a surprise.

What do you see for the future of online P/C business? Will it eventually be completely online or will customers always demand face time?

DH: There are many products within the P/C spectrum. Many of those products will fit and move more quickly to a web-based sales mechanism. For some products, we do see a continued shift to more “direct to company” or “aggregator” usage over the next five to 10 years. However, in no way will consumer interaction be completely web based. Companies will counteract by bundling products prompting consumers to seek more info from a live person. Also, in our study, consumers resoundingly stated that when it comes to servicing, especially when making a claim or purchase they want personal interaction.

The report states that a mere 31% of P/C consumers in Brazil are satisfied with their claims experience, as compared to 71% in the U.S. and 68% in Mexico. Why do you think there is such a vast difference?

DH: The difference in Brazil can be attributed to several factors. While in the Americas the top three measures insurers can take to improve the claims experience were: Dealt with my claim more quickly (33%), provided a better level of communication with me during the claims process (32%) and provided a more personal service (23%).

In Brazil, the same top three measures were noted, but all were mentioned by more than 40% of the customers. For instance, more than 50% of the customers expect quicker service.

Additionally, as a response to the low interest rate environment in Brazil, some insurers directed their focus on efficiency gains. One of the steps some Brazilian insurers took was to tighten their negotiations with claims services providers resulting in a reduced quality of claims servicing to customers.

In your opinion, what was the most surprising finding of the Global Consumer Consumer Insurance Survey 2012?

DH: Actually, we found three. The first being the favorable position of the insurance industry overall as a trusted provider of insurance and other investment products. The second being the degree to which consumers desire to purchase multiple products from the same product provider. And the third is the degree to which the insurance industry is behind others in rewarding loyal customers and conducting customer retention programs.

Q&A on Post-Catastrophe Fraud

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According to a recent Munich Re finding, 2011 has become the highest-ever loss year on record due to natural catastrophes. Though most of the losses were caused by the earthquake in Japan, the U.S. has seen its share of cat losses and claims — some fraudulent. To learn more about the of post-catastrophe fraud, I questioned Gary Kerney of ISO.

After the Alabama tornadoes and the Missouri River floods, was there a dramatic increase in the amount of claims fraud?

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The recovery and rebuilding processes in many of the areas affected by severe weather this spring are only just beginning. There have been no claims fraud per se detected yet. There have been reports of fraud in previous catastrophes where property owners allegedly damaged buildings to pursue insurance claims. Such allegations were usually tied to lack of insurance. For example, much flooding occurred in areas of Louisiana caused by Hurricane Katrina. Some property owners who did not have flood insurance are alleged to have subsequently and intentionally inflicted damage to their own building to make the loss appear to be wind related because there was appropriate coverage for the wind peril.

Do you have any specific examples of claims fraud from these events that stand out in your mind?

Since there have been no large scale incidents noted yet, there are none that we can comment on specifically because it is still early in the recovery phase. As noted above, though, we can look back at other events, such as Hurricane Katrina, and find instances where reports of fraud were alleged.
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Again, much of such reported fraud activity was likely due to the absence of insurance that would normally provide money to pay for repair or replacement of damaged property. Another development that followed Katrina involved cases in which jurors reportedly felt sympathy for defendants accused of fraud – who were faced with the financial inability to repair a home or business. Some jurors were reported to have concluded they might have done the same thing under the extenuating circumstances.

Why were residents compelled to commit such fraud?

Property owners, both residential and commercial, may consider committing fraud when there is a lack of insurance or the amount of insurance is insufficient to provide for full and complete replacement or repair of the damaged property. There is a need for capital to replace the damaged structure and the lost contents. If insurance cannot fully fund the recovery, some people may consider resorting to fraudulent measures to obtain the money needed. Potential fraud activities are not only directed at insurers but can also involve attempts to obtain more money in assistance grants from government agencies such as FEMA.

How can insurers prepare for and deal with post-catastrophe claims fraud?

Insurers can anticipate some fraud activity in any kind of catastrophe ranging from a hailstorm to a hurricane. Sometimes the property owner is not aware of a fraud being perpetrated since it may in fact be the contractor or repairer who commits the fraud with inflated fees or by creating additional damage to the structure.

How can they prevent it?

Insurers take actions to reduce the impact of fraud. Adjusters are trained to identify what appear to be “red flags” for fraud. Insurers can have claims analyzed by an organization such as ClaimSearch to help identify fraud or parties to prior fraudulent schemes. Not all fraud can be prevented. However, much of it can be and is reduced through vigilance and the use of tools designed to help identity it.

What are catastrophe anti-fraud plans?

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Most insurance carriers include anti-fraud training as part of the company’s catastrophe response plan. The carriers use information developed by organization such as the National Insurance Crime Bureau to inform adjusters and others involved in the claims process regarding indicators of fraud.

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Adjusters are trained to be vigilant; however, adjusters are also expected to pay rightful claims as quickly as possible so that policyholders can begin their recovery efforts as quickly as possible. In addition, carriers often include Special Investigation Units as part of the first response to a disaster so that from the beginning the carriers can identify and react to potential fraudulent activity.
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Responses by Gary Kerney, assistant vice president of ISO’s Property Claim Services® (PCS®) division. ISO (www.iso.com) is the flagship subsidiary of Verisk Analytics (www.verisk.com).

Ken Feinberg on the “Two Types of Risk”

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Ken Feinberg, the "claims czar," says there are two types of risk that challenge leadership.

Ken Feinberg just might have the most difficult job out there. He has worked as mediator/administrator in the wake of tragedies and natural disasters such as 9/11, the shootings at Virginia Tech, Hurricane Katrina and the Holocaust slave labor litigation. He is currently serving as the administrator for the $20 billion BP oil spill claims fund.

It is Feinberg’s job to sit with victim’s families and to sift through claims from each disaster in order to figure out how much their personal and financial loss is worth. It is a job few envy.

But through his years of experience with mediation and dispute resolution, he has learned that there are two types of risk that challenge leadership:

  1. Risk as defined by the assignment that you’ve undertaken
  2. External risk — or in other words, the external pressures on you or the stress level factored into how you perform

“You have to define risk with each situation [you’re presented],” he said. “When I pay a fisherman, I find a payment that ends their concern, but what is the likely risk that the Gulf is safe? Have I factored into that reward a good understanding of future risk to fishing in the Gulf? Inherent is the notion of a substantive definition of risk.”

In relating that knowledge to his recent tasks as administrator of the 9/11 victim’s compensation fund and the BP oil spill claims fund, he noted:

“When administering the 9/11 fund, it turned out that my evaluation of risk was poorly done — I underestimated the support of the victim’s families and the public in general. I evaluated correctly with the BP case — I’m a human pinata.”

More so than knowing and incorporating the two types of risk that challenge leadership, those in charge should also incorporate certain characteristics. The following are those Feinberg truly believes in and which he has incorporated during his challenging assignments:

  • Convey a sense of certainty
  • Be transparent — “The more sunlight I let into the room, the easier it is,” he said.
  • Consistency — no bias or favoritism
  • Flexibility — keep an open mind
  • Use sound judgement — “Give the people impacted by your decisions a say.”
  • Delegate to good people — “Staff is the key.”

Feinberg’s job is not easy, but it has taught him a lifetime worth of lessons regarding leadership, risk and fairness.

Check back over the next several days for more posts relating to the amazing speakers I was fortunate enough to hear at the Wharton Leadership Conference, including Jane Golden, executive director of the City of Philadelphia Mural Arts Program; James Quigley, author of As One; and senior partner at Deloitte; and Colonel Jack Jacobs, NBC analyst and recipient of the Medal of Honor.