What do you think of when you read or hear the word “Claims”? Universally, the Claims department (Claims) is perceived to have given the insurance industry a black eye. Even within the industry, Claims frequently find themselves in the hot seat – often through no fault of their own.
For most people (including those in the industry), their Claims experience hasn’t been favorable. Generally speaking, poor customer experiences can be attributed to a number of reasons – miscommunication, misunderstanding, claim denial, delayed processing, opposing perspectives on value and/or coverage, unexpected out-of-pocket expenses, unfavorable outcomes, poor customer service, etc. Essentially, the function of claims is to fairly and timely repair or compensate the policyholder in accordance with the policy.
In many cases, it’s the lack of communication from the Claims personnel to properly inform the policyholder of the process and claims status. It’s easy to forget that the policyholder is not an insurance expert, therefore their experience should always be treated as unfamiliar, which can cause confusion and stress. However, the policyholder does have the responsibility to understand the coverage and terms of their policy, and their role after a loss to help Claims to move as efficiently as possible.
From the insurance company’s perspective, Claims is measured by how well it controls the dollars spent on losses and their outcomes. The carrier has the responsibility to evaluate each and every claim filed. This includes verifying that the policy is in force, determining if the loss is covered, assessing fault when necessary, assigning third-party vendors for assessment and/or repair as needed, and settling the claim. It’s important to note that the insurance industry is heavily regulated, which ensures consumers are protected. Additionally, depending on the product line and extent of loss, claim administration can range from quick and simple, such as with personal lines, to time consuming and complex, as with large complex reinsurance related and/or type claims.
Insurance may be seen as a necessary evil, however the reality is that it should be considered as a financial vehicle protecting your assets when you have an automobile, property, healthcare, income or another type of loss. Without insurance, imagine how your world would look if you were involved in a car accident that totaled your car, left you liable for damages to another party, and exhausted all of your savings, 401K and possibly your home. The benefit of insurance is often overlooked. Ideally, the insurance coverage purchased is intended to protect you from such financial loss and make the policyholder “whole” subject to the coverage and terms of the policy. Just to clarify, by no means should an insurance policy ever financially enrich a policyholder from a loss. Believe it or not, there are policyholders who may embellish the value of their loss, and Claims can mitigate these attempts for the benefit of all consumers.
When it comes to your personal car insurance, most losses are transactional. Coverage is verified via the policy, fault is determined by various documentation such as a police report, repair estimates are obtained, the vehicle is repaired, and the claim is closed. While the process above is simplified, it did not include any extra investigation resulting in attempts to enrich oneself, uninsured accidents (namely the other party involved) and staged accidents to defraud the system (i.e. break checks). The sad fact is extra investigation is becoming more common due to the increased fraudulent activity.
To help Claims fight questionable losses, and potentially lower premium costs, you can become proactive with your risk management practices. Consider your car as an example… We all know it’s good practice to use defensive and safe driving tactics, but locking the car, installing a dash cam or alarm, and parking in well-lit areas are other methods to help mitigate a potential loss.
The Claims methodology gets more complex with commercial insurance due to the nature of their coverage. The challenge is further elevated with self-retention coverages such as excess (i.e. Stop Loss), self-insured retention (SIR) or reinsurance coverages. The reason why these types of claims are more challenging is largely the result on how’s they’re administered. The easiest way to describe these types of claims is to consider your retention as high enough to cover most, if not all, of your claims, which would be paid out of pocket, while insurance coverage is to cover unexpected catastrophic losses exceeding your retention (aka deductible or SIR) level. Therefore, unlike other insurance coverages where the insurance carrier would adjudicate the claim from dollar one, you or your designated party generally a Third Party Claims Administrator (TPA) would administer the claim up to the designated retention level and then transfer the liability (cost) to the carrier.
In my opinion, self-retention products are great for businesses that comprehend the relationship between losses and premium at a financial level rather than transactional. That is, such products should be considered similar to investments with an expectation of a return. Therefore, businesses should employ strict oversight on their risk management practices and alignment partner relationships to produce the best outcomes. They further understand the potential financial impact on cash flow, future liabilities and tax implications. Treating insurance as part of your business strategy, as opposed to the cost of doing business, may influence your perspective on how you can lower your premium rather than just spreadsheeting carriers for the lowest upfront price by strategically focusing on best long-term outcomes.
Unfortunately, the common weak link in excess insurance is failure to proactively include the carrier in the claims process, especially far before the claim exceeds the retention level. The norm is that the claim is administered and some point either triggers a notification requirement or more frequently, the business (or TPA) receives an invoice exceeding the self-retention limit requiring them to notify the excess carrier. Using Stop Loss as the example, the excess carrier will process the claim in accordance to their procedures, which will include but not be limited to verifying that the claim is covered by the employer’s Plan Document, the loss is not workers compensation, assess if there is any subrogation or liability to another party, and as appropriate, submit to a cost containment vendor. This vendor will then review if the charges and services are appropriate, costs are reasonable, services were medically necessary, and negotiate the cost as needed.
For any claims operation, whether via the employer, TPA or the carrier, employing a strong risk management program and accountability is essential for best outcomes. Risk management must include visionary leaders who, at minimum, challenge the status quo, assess solutions to the product line trends and patterns, evaluate the impact of legislative changes, encourage and implement innovative ideas, mitigate the company’s legal exposure and collaborate with all stakeholders. Risk management is heightened with self-retention programs, as the carrier must influence all parties of importance of proactively involving them sooner rather than later.
Unfortunately, some excess product lines, such as Stop Loss, tend to be reactive, which has adversely impacted the carrier’s and industry’s loss experience and reputation. The Stop Loss industry has been forced to take the path of least resistance. That is to say, the medical networks, providers, etc. will leverage the employer or claims payer to capitulate to the medical industry’s interest (aka costs, services, discounts, etc.). This leverage is then imposed upon the Stop Loss carrier, otherwise the employer or claims payer may lose the medical network or relationship.
To this end, it’s no surprise that employer and insurance carriers are overpaying for services rendered. This unfortunately, has placed the employer and claims payer at odds with the Stop Loss carrier, despite their goals being mutually aligned. Please refer to our article “Whose Money Is it?” for more details to the claims mechanics and challenges in Stop Loss. Therefore, it’s incumbent upon the excess carrier to actively assert itself as value to the employer’s and claims administrator’s risk management equation, as opposed to simply being a reimbursement mechanism. Make no mistake, effective and collaborative claims management can stabilize, if not reduce, future premiums.
Hopefully this article has successfully addressed perceived notions of Claims, by outlining the process, which can become complicated. Fortunately, good risk management practices can mitigate your losses and possibly favorably impact your premium, as well as the opportunity to reshape the landscape to the policyholder’s and insurance industry’s long-term financial interest. Most importantly, Claims should be seen as your ally, serving your mutually beneficial interests.
Joe Dore is president of USBenefits Insurance Services.
