It is Time For Insurers to Require Excellence from Their Claims Staff
In search of profit, insurers have decimated their professional claims staff. They laid off experienced personnel and replaced them with young, untrained, unprepared people. A virtual clerk replaced the old professional claims handler. Process and computers replaced hands-on human skill and judgment. Money was saved by paying lower salaries. Within three months of firing the experienced claims people gross profit increased.
PROMISES MUST BE KEPT
The promises made by an insurance policy are kept by the professional claims person. Keeping a professional claims staff dedicated to excellence in claims handling is cost-effective over long periods of time. A professional and experienced adjuster will save the insurer millions by resolving disputes, paying claims owed promptly and fairly, and by so doing avoiding litigation.
The professional claims person is an important part of the insurer’s defense against litigation by insureds against insurers for breach of contract and the tort of bad faith. Claims professionals resolve more claims for less money without the need for either party to involve counsel. A happy claimant satisfied with the results of his or her claim will never sue the insurer.
Incompetent or inadequate claims personnel force insureds and claimants to public insurance adjusters and lawyers. Every study performed on claims establishes that claims with an insured or claimant represented by counsel cost more to resolve than those where counsel is not involved. Prompt, effective, professional claims handling saves money for both the insured and the insurer and fulfills the promises made when the insurer sold the policy.
Insurers who believe they can handle first or third party claims with young, inexpensive, inexperienced and untrained claims handlers should be accosted by angry stockholders whose dividends have plummeted or will plummet as a result. When an insurer compromises on staff, profits, thin as they may have been previously, will move rapidly into negative territory. Tort and punitive damages will deplete reserves. Insurers will quickly question why they are writing insurance. Those who stay in the business of insurance will either adopt a program requiring excellence in claims handling from every member of their claims staff, or they will fail.
Insurance is a business. It must change—this time for the better—if it is to survive. It must rethink the firing of experienced claims staff and reductions in training to save “expense.” Insurers should, if they wish to succeed, adopt a program to promote excellence in claims handling that can help insurers keep the promises made by the insurance policy and avoid charges of breach of contract and the tort bad faith in both first and third party claims.
Insurers must understand that they cannot adequately fulfill the promises they make to their insureds and their obligations under fair claims practices acts without a professional, well trained and experienced claims staff. An insurer must work vigorously and intelligently to create a professional claims department or recognize it will lose its market and any hope of profit.
Insurance claims professionals are people who:
- can read and understand the insurance policies issued by the insurer.
- understand the promises made by the policy and their obligation, as an insurer’s claims staff, to fulfill the promises made.
- are competent investigators.
- have empathy, and recognize the difference between empathy and sympathy.
- understand medicine relating to traumatic injuries and are sufficiently versed in tort law to deal with lawyers as equals.
- understand how to repair damage to real and personal property and the value of the repairs or the property.
An insurer whose claims staff is made up of people who are less than professional will find itself the subject of multiple instances of expensive, counterproductive litigation.
A Proposal to Create Claims Professionals
To avoid claims of breach of contract, bad faith, punitive damages, unresolved losses, and to make a profit, insurers must maintain a claims staff dedicated to excellence in claims handling. That means they recognize that they are obligated to assist the policyholder and the insurer to fulfill all the promises made by the insurer in the wording of the policy. An insurer can create a claims staff dedicated to excellence in claims handling by, at least:
- Hiring insurance claims professionals.
- If professionals are not available, training all members of the existing claims staff to be insurance claims professionals.
- Training each member of the claims staff annually on the local fair claims settlement practices regulations.
- Supervising each claims handler closely to confirm all claims are handled professionally and in good faith.
- Explaining to each member of the claims staff the meaning of the covenant of good faith and fair dealing.
- Requiring that staff treat every insured with good faith and fair dealing.
- Demanding excellence in claims handling from the claims staff.
- Being ready to dismiss any claims handler who fails to treat every insured with good faith and fair dealing.
If any experienced claims professionals exist on the insurer’s staff, the insurer must cherish and nurture them and use their experience and professionalism to train new claims people. If none are available, the insurer has no option but to train its people from scratch using available materials and professionals who have – for a reasonable fee – the ability to properly and effectively train claims personnel.
When the claims staff is made up of claims people who treat all insureds and claimants with good faith and fair dealing and provide excellence in claims handling litigation between the insurer and its insureds will be reduced exponentially. To keep the professional claims staff operating efficiently and in good faith they must be honored with increases in earnings and perquisites. Conversely, those who do not treat all insureds and claimants with good faith and fair dealing should be counseled and given detailed training. If they continue with less than professional conduct they must be fired. The insurer must make clear to all employees that it is committed to immediately eliminating staff members who do not provide excellence in claims handling and must be ready to publicly and quickly fire those who do not provide excellence in claims handling.
An excellence in claims handling program can include a series of lectures supported by text materials. It must be supplemented by meetings between supervisors and claims staff on a regular basis to reinforce the information learned in the lectures. To guarantee that the training and requirement for excellence in claims handling is effective he insurer must also institute a regular program of auditing claims files to establish compliance with the requirement to deal fairly and in good faith to the insured. The insurer’s management must support the training and repeat it regularly and audit claims files to determine the training has taken and is being applied to each claim.
There is no quick and easy solution. The training takes time; learning takes longer. If the insurer does not have the ability to train its staff it should use outside vendors who can do so available from sources like this publication, training from professional organizations, and continuing education providers.
The excellence in claims handling program requires thorough training providing each member of the claims staff with a minimum of the following:
- How to read and understand the contract that is the basis of every adjustment, including but not limited to:
- The formation of the insurance policy.
- The rules of interpretation.
- Tort law including negligence, strict liability in tort, and intentional torts.
- Contract law including the insurance contract, the commercial or residential lease agreement, the bill of lading, nonwaiver agreements, proofs of loss, releases and other claims related contracts.
- The duties and obligations of the insured in a personal injury claim.
- The duties and obligations of the insurer in a personal injury claim.
- The duties and obligations of the insured in a first party property claim.
- The duties and obligations of the insurer in a first party property claim.
- The Fair Claims Practices Act and the regulations that enforce it.
- The thorough investigation:
- Basic investigation of an auto accident claim.
- Investigation of a construction defect claim.
- Investigation of a nonauto negligence claim.
- Investigation of a strict liability claim.
- Investigation of the first party property claim.
- The recorded statement of the first party property claimant.
- The recorded statement or interview of a third party claimant.
- The recorded statement of the insured.
- The red flags of fraud.
- The SIU and the obligation of the claims representative when fraud is suspected.
- Claims report writing.
- The evaluation and settlement of the personal injury claim.
- How to retain coverage counsel to aid when a coverage issue is detected.
- How to control coverage counsel.
- How to instruct coverage counsel on the issue to be resolved.
- Dealing with a plaintiff’s lawyer.
- Dealing with personal injury defense counsel.
- The evaluation and settlement of the property damage claim.
- The Appraisal process.
- Arbitration and mediation and the claims representative.
I am working with Illumeo to prepare an excellence in claims handling program that should be available later this year that will allow each professional claims person to become a Certified Expert in Corporate Property Insurance.
Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 49 years in the insurance business.
Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.
Look to National Underwriter Company for the new Zalma Insurance Claims Library, at www.nationalunderwriter.com/ZalmaLibrary The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide
The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972
The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.