Claims Advisor Fall 2011

claims

FALL 2011

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advisor Information for today’s claims professionals

Head

Games Temperament and personality type play into how claims questions are asked and answered.

The Fraud Issue NICB’s Joe Wehrle TRIA Update PIP Fraud in Florida ELD in Europe Can You Keep a Secret? change service requested

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Contents 14

in this issue fall 2011

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8

26

8 NICB’s Joe Wehrle Talks About Fraud Trends State budgets are tightening, and fraudsters are still plying their trade.

Insurers will have to take on more responsibility to root out schemes.

Cover Story

20 Head Games Temperament and personality type play heavily into how claims questions are asked and answered.

By maureen latimer Claims advisor

By Taylor Smith and maureen latimer Claims advisor

12 PIP My Ride

12

26 Can You Keep a Secret?

Even in today’s world of social media, your fraud investigation can violate privacy. Use caution.

By Robert Luskin/ Goodman, McGuffey, Lindsey & Johnson, LLP and John J. McHale/ Erie Insurance

30 Backstopping Terrorism Coverage

The feds will help with big terrorism PIP fraud in Florida is creating red-flag claims, but restrictions have expanded districts across the state, but reform and the future is far from certain. efforts in the state legislature haven’t By Robert Hartwig , Ph.D..

Insurance Information Institute seen much action.

By Wes Strickland Foley & Lardner LLP

16 The European Onion As you peel back the layers of the Environmental Liability Directive in Europe, you might just want to cry.

34 Rock the House Damage to foundations can occur due to a variety of causes. How can you determine the culprit?

By Matthew G. Richardson, P. E. Donan Engineering Co.

By Simon Johnson, Ph.D.

EMEA, Aon Environmental Services Group cover: shutterstock

CLAIMS ADVISOR | FALL 2011

3

Contents in this issue, fall 2011

50

cont’d...

52 Chief Concerns MAPFRE’S Scott McAlindin

By Marc Lanzkowsky and Taylor Smith Contributing writers

38

34

48

Banking on Case Reserves Habitual under-reserving might result from individual deficiencies, but it could be systemic. Check each claim and your overall methodology.

38

By Donna J. Popow, J.D., CPCU, AIC The Institutes

42

30

42

Desktop Monitor Using new software and data, investigators can prevent and solve PIP insurance fraud right from their workstations.

By Dennis Toomey

LexisNexis Risk Solutions

42

46

46

Drip, Drip, Drip A look at the inside of a cabinet can reveal whether water damage resulted from a one-time event or a chronic leak.

in every issue Edit: Letter from the Editor Pulse Poll Slice Global View Write Stuff Letters to the Editor

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6 56 57 59 61 62

Story Cool Linx Event: Industry Calendar Source: Advertiser Directory Interview

62 63 64 65 66

By Brett Davis, Donald Rondy and Ralph Moon, Ph.D. HSA Engineers & Scientists

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By Bevrlee J. Lips

edit letter from the editor

9/11: Ten Years Later, Still Proud By now you’ve seen many stories and TV reports in remembrance of September 11, 2001. Looking back, we’re reminded of where we were when we heard the terrible news that day. I know of several of our readers who were near the World Trade Center or in the very buildings that came down. Firefighters, policemen and medical personnel rushed in at their own risk of peril to help others. For a moment, the only thing that mattered was people.

Our prayers go out to those who lost loved ones on that day, and to the responders who continue to suffer ill-effects.

The Sept. 11 attacks created the largest cumulative claims payout at the time. Losses are estimated by the Insurance Information Institute (I.I.I.) at $40 billion in 2010 dollars across several lines including aviation, business interruption, property, liability, life and workers’ comp. As those affected wondered how they would survive in the days that followed, claims professionals worked not only to make people financially whole but also comfort them at their most vulnerable moment.

Today, 10 years later, at Ground Zero a new complex is taking shape, including a stunning memorial to those who lost their lives and new buildings for businesses that will employ thousands of people (see page 60 for a glimpse), and the insurance industry will continue to undergird every aspect. Commenting on the new site, I.I.I. President Dr. Robert Hartwig said, “Insurers became the nation’s economic ‘first responders,’ and as construction progresses on the site of the former World Trade Center, insurance claims dollars continue to play an essential and highly visible role in rebuilding lower Manhattan.” He added, “The many billions of dollars in insurance payouts has also mitigated the overall economic impact of the 9/11 attack.”

A native New Yorker with firefighters in the family, that day is burned into my memory as I’m sure it is for many of you. The way in which people responded brings a lump to my throat even now. From each site of loss to Congress singing on the steps of the Capitol, we saw the very best of America in the selfsacrifice, generosity, camaraderie, strength and determination.

We can be proud of American resilience and proud of what we do as insurance professionals. Though popular opinion of the claims profession is skewed, you remain unsung heroes in those moments of need. Keep up the good work.

Until next time...

Bevrlee J. Lips / Publisher & Editor editor@claimsadvisor.com While visiting NYC on August 29, 2001, my party chose to go to the Empire State Building instead of the World Trade Center. It was a beautiful yet slightly hazy day in NYC, and the towers looked majestic in lower Manhattan as I snapped this picture. It’s not the best photo, but I can’t help tearing up every time I look at it. Never forget.

Information for today’s claims professionals

Fall 2011 VOLUME 5. NUMBER 3

Publisher & Editor Bevrlee J. Lips/editor@claimsadvisor.com Editorial Advisory Board Glenn T. Gibson

Crawford & Company International

Patrick Harmon

IMACC

Patrick Jeremy

PowerGen Claims LLC

James R. Jones

Katie School of Insurance and Financial Services, Illinois State University

Robert Kelso Thomas W. Mallin John McHale Donna J. Popow

Kightlinger and Gray Property Loss Research Bureau Erie Insurance American Institute for CPCU/ Insurance Institute of America

Claims Advisor Staff Managing Editor/Maureen Latimer Contributing Writer/Taylor Smith Contributing Writer/Marc Lanzkowsky VP Finance/Michael Marsh VP Information Technology/Michael Kay Web Site Associate/Chris Walters Project Associate/Amanda Pierce Warren Editorial Assistant/Paige Kay Database Associate/Sheila Hoyer Database Associate/Mandi Emery Design Assistant/Ashley Jones Design Assistant/Richard Shivers Human Resources/Shannon White Advertising Sales For advertising information, call 407.331.5477 or e-mail advertise@claimsadvisor.com.

Photography: Shutterstock Volume 5, Number 3, Claims Advisor (ISSN 1940-0993) is published in print four times a year in February, May, August and November by Claims Advisor, 186 Industrial Center Drive, Lake Helen, FL 32744. Printed in the U.S. Copyright ©2011 by Claims Advisor. All rights reserved. Reproduction in whole or in part without permission is strictly prohibited.

No charge for subscriptions to qualified property and casualty insurance claims adjusters and professionals. Annual rate for subscriptions to nonqualified individuals is $46 USD. Canadian $70 (in U.S. funds). For individual issues, $12 USD. For reprints, e-mail the editor at editor@claimsadvisor.com.

POSTMASTER: Send address changes to Claims Advisor, 186 Industrial Center Drive, Lake Helen, FL 32744.

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186 Industrial Center Drive, Lake Helen, FL 32744 office 866.276.7970 | fax 866.276.7972

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in focus | fraudly speaking

NICB’s Joe Wehrle Talks About Fraud Trends Joseph H. Wehrle Jr. is the National Insurance Crime Bureau’s president and CEO.

Quick Look CC Crime ring participants are real pros, and their activities span product lines.

State budgets are tightening, and fraudsters are still plying their trade.

Insurers will have to take on more responsibility to root out schemes.

CC Anti-fraud legislation prevailed in some states in 2011 and will be resurrected where it didn’t in 2012.

CC Fraud detection relies on educated claims reps who know when to speak up and where to go with concerns.

By Taylor Smith and Maureen Latimer

Claims Advisor: In a June 21 news release, you mentioned that professional crime rings and gangs are still a challenge in some parts of the country. How are they affecting insurance claims? Is it just that they are stealing cars and

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causing auto theft claims, or do they play a bigger role in insurance fraud?

Joe Wehrle: Professional crime rings and gangs play a much bigger role in insurance fraud. They have gone

beyond just making an auto theft claim and collecting payment. In many ways, they operate like a corporation. They still make the initial claim, but they also push for all policy limits by utilizing runners to recruit

additional participants, conspiring with auto body shop owners to enhance damages, co-opting medical professionals (medical doctors, chiropractors, physical therapists, acupuncturists, etc.) who provide unneces-

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in focus | fraudly speaking

sary medical treatments and/ or surgeries (durable medical equipment, diagnostics testing, etc.), and working with attorneys who bill and demand payment up to the policy limit. These groups are so sophisticated that they conduct counter-surveillance, verify new patients’ Social Security numbers, and know which insurance companies to submit claims to.

We hear a lot about vehicle claims fraud. What are the trends you’re seeing on the commercial and medical side?

Wehrle: We’re seeing a lot—commercial rate evasion, staged accidents with high-limit commercial auto policies, arson-for-profit rings, and inflated contractor invoices or fabricated damages. We’re also seeing factoring. Factoring occurs

when an attorney or medical provider sells a medical lien to an outside party (a factoring company). The outside party then pursues the full price of the bills, although they originally bought the lien for a cut price. The fraud comes from the medical providers, who inflate all the billing with the knowledge they will not be responsible for trying to settle the final bill. Through the use of referral networks for services, such as MRIs, pain treatment, possible unnecessary surgeries and the like, the medical providers can provide the patient with expensive and useless testing to create an astronomical bill. They sell the bill to the factoring company, which can then attempt to settle for the full cost of the bill regardless of what they actually paid for the lien.

These factoring companies

are shielded by the collateral source rule in civil court and can pursue the inflated total in some states.

rep or somebody else in the chain? Has any analysis been done on that and on how they spot the guilty?

NICB offers training for law enforcement personnel and others on fraud and special investigations for its members and governmental agencies.

You’ve got online and in-person classes. What specifically is covered in these sessions?

Wehrle: It is widely acknowledged by the industry that the frontline claims person is in the best position to initially detect any questionable aspects concerning the claim. They have the proof of loss and the supporting paperwork (application, policy, police reports, receipts, etc.), and they interact with the insured/claimant. As such, the frontline claims officer has the most complete picture of the claim’s details.

Acknowledging the crucial role the front line plays in detecting fraud, NICB publishes numerous job aides for them in which we identify them as the “first line of defense” against fraud.

Wehrle: In NICB training, the characteristics of the scheme are identified (e.g., upcoding medical bills, owner vehicle give-ups, inflated or fictitious property claims, etc.); the indicators pertaining to that particular scheme are identified as are specific action steps to resolve the indicators.

Who’s most apt at sniffing out fraud—the frontline claims

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We specialize in: • Property Claims > Business Interruption/ Extra Expense > Business Personal Property/Inventory Claims • Catastrophe Response United States

Europe

Asia Pacific

• Fidelity/Surety Bond

Claims

• Liability Claims > Product Liability > Personal Injury/

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NICB provides printed Indicators of Fraud (by scheme and line of business), an Interactive Indicator Guide (a software application), various investigative guides, and numerous training programs to assist them.

Knowledge is power.

How powerful are you?

Where do you see the states going when it comes to helping carriers shut down insurance fraud?

Wehrle: This year, several states have taken on legislation to address insurance fraud, namely in the personal injury protection no-fault states like New York, Florida, Michigan, Minnesota, Kentucky and New Jersey where we are seeing large questionable-claim increases. Other states, such as Pennsylvania and Texas, passed legislation to allow for greater exchange of information on potential fraud schemes among the insurance industry, law enforcement and the National Insurance Crime Bureau. It’s critical that state lawmakers provide law enforcement with adequate laws to help prevent the triple-digit increases in medical fraud that we are currently seeing. Although many of these laws this year did not pass, many of them will carry over to 2012.

Wehrle: With limited resources, state fraud bureaus can only do so much.

That is why we implemented the Fraud Bureau Reporting Program (FBRP) that allows the industry to report questionable claims to 45 state jurisdictions.

This allows state fraud bureaus to receive the information needed to promptly investigate suspected fraud and coordinate efforts with NICB and the insurance industry. This gets the information quickly into the hands of investigators and prosecutors, which cA we feel aids conviction efforts.

Taylor Smith is a contributing writer and Maureen Latimer is managing editor for Claims Advisor.

The Institutes’ proven knowledge will help you achieve powerful results with a variety of flexible, customer-focused options, including: © 2010 American Institute For Chartered Property Casualty Underwriters

There has been a push in the past couple of years to use Web-based case management systems in the states to improve reporting of suspicious claims. What’s your take on their success—not just in reporting, but in prosecution and convictions?

It’s really pretty simple. When you’re more knowledgeable you make better business decisions. And better business decisions yield measurable and meaningful results.

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Visit www.TheInstitutes.org/options for more information and videos.

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CLAIMS ADVISOR | FALL 2011

11

PIPMyRid in focus | auto know

Quick Look

CC NICB and state data support insurer anecdotal evidence that PIP fraud is escalating.

CC Legislators need to close loopholes that allow licensing of healthcare clinics run by and catering to fraudsters.

CC Some lawyers, medical providers and other participants have a vested interest in preventing reforms.

PIP fraud in Florida is creating red-flag districts across the state, but reform efforts in the state legislature haven’t seen much action.

By Wes Strickland

For many years, Florida’s auto insurance market has enjoyed stability in terms of availability and affordability of coverage with any number of solid insurers competing for business, including nonstandard

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risks. Now, though, Florida’s relatively stable market is in jeopardy due to personal injury protection (PIP) insurance fraud that has grown at an alarming rate over the past three years. PIP fraud has been a problem in the Miami area for many years, but the

problem is no longer localized to that part of the state.

Organized fraud rings that employ such tactics as staged auto accidents and fraud and abuse in medical billing have moved into other areas of the state, causing many carriers to tighten their underwriting standards and raise their rates to cover the increasing costs of battling PIP fraud.

Legislation that would have addressed this problem failed to gain traction in the 2010 legislative session, but there was momentum heading into the 2011 legislative session for meaningful PIP fraud reform. Reports coming from the National Insurance Crime

Bureau (NICB), Florida’s Office of the Insurance Consumer Advocate, and the Agency for Health Care Administration (AHCA) corroborated the anecdotal evidence that carriers had previously relied upon to support their efforts at PIP fraud reform. Unfortunately, PIP fraud reform once again was not prioritized, and the 2011 legislative session ended with the adoption of only a few discrete measures that are unlikely to resolve the problem.

The latest NICB report on vehicle collision questionable claims (VC QCs), issued April 11, 2011, shows that between 2009 and 2010 there was a 15% increase nationwide in the total number of BI/PIP claims and a 17% increase in the number of VC QCs. The most common reason

de reported for VC QCs was “Staged/Caused Accident,” followed by “Suspicious Hit While Parked,” “Paper/Phantom Accident,” “Jump In,” and “Solicitation (Chasers and Cappers).” Florida led the nation with the highest number of VC QCs in 2009 and 2010.

The cities with the most VC

QCs were New York, Tampa, Orlando, Los Angeles and Houston. The report notes that each of these cities already has an NICB Major Medical Fraud Task Force comprised of investigators and analysts from NICB, the

insurance industry and law enforcement. These task forces were established to target the growing fraud associated with auto policies and illegitimate bodily injury claims. That

means the number of questionable claims has increased in these cities despite the stepped-up antifraud efforts by the auto insurance industry and law enforcement.

The insurance industry is not alone in sounding the alarm. On April 11, 2011, the Florida Office of Insurance Regulation (OIR) issued a report on the results of a PIP data call to auto insurers licensed in Florida.

The results of the data call revealed that, in 2010, the pure direct loss ratio for PIP was 97.4%, which means for every dollar of premium that the insurer collected, over 97 cents went to pay for losses.

The OIR report also found that the frequency of PIP claims in Florida had generally decreased from the fourth quarter of 2005 to the fourth

CLAIMS ADVISOR | FALL 2011

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In focus | auto know

quarter of 2008. Since 2008, there has been a sharp increase in the frequency of paid claims. The OIR’s report states that, if the frequency of claims continues to increase at the same rate over the next year, OIR expects a 19% increase over 2010. The OIR report further revealed that the severity of PIP claims in Florida has generally increased since the fourth quarter of 2005.

If the severe claims continue to increase at the same rate that they have from the fourth quarter of 2008, OIR expects a 9% increase in the payment of severe claims in the next year. Over the next year, OIR expects to see a 29% increase in pure premium, which is the average premium per exposure needed to cover expected losses for that exposure.

Legislative and Regulatory Response It is important to note that the latest NICB report and the results of OIR’s PIP data call were not released until the 2011 session of the Florida legislature was already underway. This timing may have limited the usefulness of that information for advocates of PIP fraud reform.

However, prior to the beginning of the 2011 session, on November 3, 2010, Florida’s Office of the Insurance Consumer Advocate issued a report and recommendations to Florida House and Senate leadership on the results of a PIP roundtable conducted earlier that year. This report confirmed that Florida’s auto insurance fraud problem is not limited to questionable accidents, but also extends to fraud and abuse in billing for medical services. The Consumer Advocate’s recommendations incorporated a number of measures directed

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at tightening regulation of healthcare clinics and providing more tools and resources for law enforcement to combat staged accidents.

A number of the recommendations in the Consumer Advocate’s report are similar to those that had been included in the Comprehensive Insurance Fraud Investigation and Prevention Act of 2010 (HB 1447), a PIP fraud reform package that failed to garner much attention during the 2010 legislative session. The core provisions of HB 1447 were directed at cracking down on healthcare clinic licensure and exemption fraud; fixing glitches and loopholes that limit the ability of the Division of Insurance Fraud and insurance investigators to investigate fraudulent acts; and providing additional economic sanctions to deter insurance fraud.

HB 1447 never made it out of the House insurance committee in 2010, but the legislature did appropriate $1.2 million for dedicated insurance fraud prosecutors in Orlando and Tampa, demonstrating some recognition that there was a growing problem with auto insurance fraud.

There are a number of factors that contributed to the failure of HB 1447, the most significant of which was probably a lack of consensus among auto insurers in the state as to the severity of the problem.

Heading into Florida’s 2011 legislative session, the insurance industry identified a number of issues targeted at reining in PIP fraud, including: • Reducing attorneys fees by eliminating application of a contingency risk multiplier • Requiring insureds to

• •

•

• •

submit to a medical examination prior to receiving PIP benefits Requiring medical providers to submit to examinations under oath Expanding the use of the long-form crash reports by law enforcement and requiring the collection of the names of all parties involved in an accident Creating a Direct Support Organization to support the Department of Financial Services in prosecuting PIP fraud Creating enhanced financial penalties for PIP fraud Authorizing insurers to offer discounts to policyholders who choose a preferred provider network for PIP benefits.

A notable exception from this list of priorities was the healthcare clinic licensure loophole that had been part of HB 1447. This issue was probably omitted in order to minimize friction with the medical provider interests.

The issues that were pursued in 2011 were split into two sets of bills—one aimed at attorneys fees and medical provider examinations (HB 967 and SB 1694), and the other that dealt more broadly with PIP fraud (HB 1411 and SB 1930). All of these measures were strongly opposed in the House and Senate by trial attorneys and medical provider interests and ultimately died in committee. Some members of the legislature attempted to append some of the antifraud measures onto other bills, including those directed at attorneys fees, long-form crash reports, enhanced fraud penalties, and the Direct Support Organization, but only

two of them survived on bills that passed. SB 2160 includes language relating to expanded use of long-form crash reports, and HB 1087 creates civil monetary penalties for motor vehicle insurance fraud.

Both of these bills have been signed by the governor and enacted into law. However, it is unlikely that either of these measures will provide insurers and law enforcement with the tools necessary to stymie the growth of PIP fraud in Florida.

The legislature had an opportunity in its 2011 session to enact meaningful measures that could alleviate the growth of auto insurance fraud in Florida. However, PIP fraud reform efforts were effectively thwarted by the unscrupulous attorneys, medical providers and other special interests who capitalize on auto insurance fraud.

Auto insurance fraud will probably continue to grow unless the Florida legislature adopts comprehensive measures that will enable insurers and law enforcement to effectively combat the problem. It also seems likely that insurer underwriting standards will continue to tighten and rates will continue to rise, which will restrict the availability and affordability of auto insurance coverage in Florida. In the absence of meaningful PIP fraud reform, insurer claims professionals and law enforcement will have to continue fighting a losing battle against auto insurance fraud.

Hopefully, the Florida legislature will act before there is a full-blown crisis. cA Wes Strickland is a partner at Foley & Lardner LLP and a member of the firm’s insurance industry team. nstrickland@ foley.com

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Europe

o n t h e h o r i z o n | C o n t i n e n t al C r u d

The

Onion

As you peel back the layers of the Environmental Liability Directive in Europe, you might just want to cry.

By Simon Johnson, Ph.D.

The European Union’s Environmental Liability Directive (ELD) presents claims advisors and managers with a new set of adjustment complexities.

In a nutshell—if you mess the environment up, you clean it up; if you damage it, you restore it. If only it were that simple.

The ELD was drafted and passed “to establish a common framework for the prevention and remedying of environmental damage at a reasonable cost to society….” To achieve the objective, the ELD sets significant new liabilities for costs, damages and losses for operators and companies that cause damage to the environment, habitats and protected species (biodiversity). It applies across the European Union.

Administratively, the ELD is transposed into the national laws of

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each EU member state, all of which must meet the minimum requirements of the directive. Some countries have chosen to exceed the minimum requirements—for example, extending the definition of protected species.

Because each country is different, any insurance policy proposing coverage for these risks must respond to the specific national law implementing the ELD. According to the type of operation, liability may be

strict—for example, chemical manufacturing operations under EU environmental permits—or fault-based. The rules on strict liability and which operations

ean

Quick Look CC General liability, pollution, D&O— the ELD runs the gamut and could cost insurers big money as corporations and their key personnel look for cover.

n

are included and what is exempt are detailed in Annex III of the directive.

As part of the implementation process, the EU encouraged countries to voluntarily adopt mandatory financial security requirements for companies with strict liability to ensure that they have the means to cope with any damage they create. While the mandates differ based on the scope of covered operators and liabilities, recognized instruments for security in most

CC The directive’s requirements are retroactive to 2007.

CC A French study shows a 10% to 40% increase in ELD remediation costs over traditional clean-up.

cases include bonds and insurance.

Liabilities—Corporate, Individual and Retroactive There are three broad categories of liability: land damage with significant harm to human health; water damage as defined in Directive 2000/60/EC; and biodiversity damage, or harm to protected species and natural habitats.

For the first two liabilities, the EU already has a substantial body of regulation and law, which generally takes precedence over the ELD except where the ELD alone picks up the liability. The last area—damage to biodiversity—is new and includes non-pollution damage, for example, direct fire, flooding or similar damage where the cause of the damage is not

within normal insurance definitions of pollution. This is one area where the ELD departs from the United States’ Natural Resource Damage Assessment under the Oil Pollution Act of 1990.

For operations that are strictly liable, the ELD creates a range of new responsibilities and liabilities for operators. Where liability is not strict, there remains a fault-based exposure.

In this context, and relevant to insurance claims, the definition of operator is broad and includes any person or company that operates or controls the damaging operations. In many countries, this will also include a person that exerts decisive economic control over the technical functioning of the operations.

These responsibilities are broadly stated as (1) a duty to report environmental damage or suspected damage to the appropriate regulator and (2) a duty to prevent damage and take action when there is an imminent threat to the environment.

Where there is an “imminent threat” of environmental damage, operators must immediately take all “practicable” steps to prevent

CLAIMS ADVISOR | FALL 2011

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o n t h e h o r i z o n | C o n t i n e n t al C r u d

environmental damage and must notify relevant authorities if such actions do not eliminate this threat. If environmental damage has already occurred, further damage must be prevented and the relevant authority notified. Failure to do so or to comply with a remediation notice served by the authority is a criminal offense under the ELD, for which, in addition to the operator, a director or other responsible employee may also be held liable. This has significant implications in relation to “emergency cost” type clauses in insurance policies.

A September 3, 2010, judgment in the European Court of Justice (Italian case C-378/08) clarified that the ELD applies to damages caused by an emission, event or incident taking place after April 30, 2007, where such damage is from activities carried out after that date or were carried out but had not finished before that date. This holds irrespective of when the country actually completed implementation of the ELD into national law.

The court also went on to say that, while causal linkage must be established, fault or intent doesn’t have to be. Moreover, the competent authority in the country has discretion to determine how much investigation is actually required to allege causality.

Some of the Claims So Far The challenge in any ELD claim is to “return the damaged natural resources and/or impaired services to baseline condition.” Based on experience in the U.S., a preferred approach is us-

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ing Resource Equivalency Methods. This technique brings ecology and economics together; however, it’s not an exact science and is still young in terms of application. Just some of the problems for “early” ELD claims include: • Potential lack of experience in the methodology that could lead to unrealistic targets— ensuring equivalency between the debit and credit is conceptually quite simple but practically complex • Understanding ecosystems • Need for baseline data to define the extent of remediation • The practicality of calculating interim losses and applying compensatory remediation.

This means that significant expertise and professional judgment is needed. In a claims situation, such expertise needs to be brought into play as early as possible by the insurer to ensure that claims for loss and damage remain reasonable and controlled.

The ELD has the potential to significantly raise environmental liability loss costs. The French government produced a study in 2010 entitled La directive « Responsabilité environnementale » et ses méthodes d’équivalence (The ELD and Its Equivalency Methods), which used the EU recommended Resource Equivalency Methods to re-evaluate two incidents from the late 1990s. What was found was a significant spike in regulatory costs under the ELD—in the range of 10 to 40 times the

A Glance at the Environmental Liability Directive The ELD creates new liabilities that fall outside the scope of pollution claims.

• • • • •

• • •

•

•

New losses and damages have been introduced for the first time across the European Union.

Some liabilities created by the ELD include nonpollution environmental damage.

An assessment of coverage for ELD liabilities under general liability is needed.

The definition of “operator” needs to be reviewed and possibly restated in insurance policies.

Operators bear responsibility for actions taken regarding an imminent threat of environmental damage.

The ELD was implemented in 2007, and liability can be retroactive to that date.

Liability may be strict or fault-based. It depends on a company’s operations and other factors.

An at-fault party is responsible not just for clean-up but for remediation and restoration of natural habitats and species.

Some incidents may be cross-border. Complicating matters, different countries have implemented the ELD with differing definitions and broader mandates.

The monetary value of a loss and its concomitant restoration actions is very difficult to assess. Actuarial standards haven’t caught up.

original costs imposed by regulators in the 1990s.

Using the U.S.’s Natural Resource Damage Assessment, we can conclude that, when an incident damages the environment or threatens to, costs quickly can escalate and become more difficult to assess and control compared with a more traditional clean-up response. Such damage is also

likely to generate additional third-party claims—for example, from fishing groups affected by an event that pollutes a river, killing fish and threatening the aquatic environment.

In its review of the implementation of the ELD published in October 2010, the EU commented on around 50 cases to date since implementation. Since

TABLE 1 Defining the ELD Primary

Any remedial measure that returns the damaged natural resources and/or impaired services to or towards baseline condition.

Complementary

Any remedial measure needed to compensate for the fact that primary remediation does not result in full restoration of the damaged natural resources and/or services.

Compensatory

Any action taken to compensate for interim losses of natural resources and/or services that occur from the date of damage until primary remediation has achieved its full effect.

Interim Losses

Losses that result from the fact that the damaged natural resources and/or services are not able to perform their ecological functions or provide services to other natural resources or the public until the primary or complementary measures have taken effect. It does not consist of financial compensation to members of the public.

then, claims activity and values seem to have increased, typically totalling not less than â‚Ź250,000 ($356,600).

From an insurance perspective, the ELD creates a number of potential gaps in coverage where the existing or current program is limited to the usual general liability form found across Europe. The extent of these gaps will depend on the exact policy wording, specific exclusions, and legal jurisdiction.

A third-party liability policy may not provide any coverage for claims made under regulations by an administrator such as an environment agency, thereby automatically excluding all environmental damage and most clean-up costs. Other gaps exist where the nature of the damage is gradual or an on-site (own-site) loss. While these may be principally clean-up costs, some large sites may have protected habitats within their boundaries.

Claims are and will be complex in this area. Claims managers will need to develop environmental expertise along with knowledge of the Environmental Liability Directive and affiliated national laws across the European Union. It might be time to talk to the risk management side of the house, as well, to make sure clients are properly covered, even retroactively, for their cA environmental risks in Europe.

Dr. Simon Johnson is director, EMEA, Aon Environmental Services Group.

CLAIMS ADVISOR | FALL 2011

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Head Games ex libris | in the mood

Temperament and personality type play heavily into how claims questions are asked and answered.

By Maureen Latimer

Quick Look CC Each temperament and personality type has its traits that can clue you in to devious behavior.

CC Watch your strengths and weaknesses and the responses they elicit.

CC Know what to expect from each of the characteristics and how to spot a liar.

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An interview with a claimant or an examination under oath can be a critical factor in assessing the legitimacy of an insurance claim. With a 23% rise in questionable claims reported to the National Insurance Crime Bureau between 2008 and 2010, it’s worth taking a look at the role of temperament and personality type in the claims process. The methods used to investigate a claim can reveal deception or elicit suspicious behavior.

Going into a claim investigation with a pre-conceived notion can sour the interview, lead to spurious conclusions and/or motivate the claimant to pursue legal action. On the other hand, undertaking the process without any knowledge of the different personality types you might encounter can make you the victim of manipulation or outright fraud.

There are multiple methods that can be used to assess the type of person you

are dealing with in a claim.

Each one has its own strengths and weaknesses, but knowing the spectrum will help you better understand each participant and respond accordingly.

Moreover, knowing your own temperament can make you a better interviewer and professional.

Trying Temperaments Hippocrates had a medical theory about moods. He thought they were caused

Quick Look CC Hail damage may not match a storm’s path or other damage to a structure.

CC Severe thunderstorms are notable for their rotating winds of changing speed and direction.

CC Weather reports are valuable but do not provide reliable information about hail fall direction and related damage.

CLAIMS ADVISOR | FALL 2011

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ex libris | in the mood

by bodily fluids: blood, yellow bile, black bile and phlegm— that’s correct, the green sticky stuff. When Galen came along in the second century, he applied physiology to human personalities. He used hot, cold, wet and dry to formulate nine temperaments that reflected a mix of those four elements, some with balance and some with dominant characteristics.

Many people are familiar with the names Galen used for the temperamental categories: sanguine (blood), choleric (yellow bile), melancholic

(black bile), and phlegmatic.

These temperaments carry with them different, predominant (but not exclusive) personality characteristics.

Not to be outdone, more modern researchers came up with a psycho-sociological method of discerning personalities. You may be most familiar with the MyersBriggs Type Indicator, which maps 16 blended behavioral tendencies and is based on the work of Carl Jung.

In Myers-Briggs, personality is understood by the basic preferences of an

Myers-Briggs Type Indicator Preferences World focus

E = Extraversion, a focus on things external to oneself I = Introversion, a focus on things internal to oneself Information processing

S = Sensing, a preference for basic information N = Intuition, a preference to interpret or bring meaning

to a process Decision making

T = Thinking, a primary preference to use logic and

seek consistency F = Feeling, a leaning toward considerations of people

and circumstances Structure

P = Perceiving, a preference toward openness to new

ideas and options J = Judgment, a desire to get things decided or to

wrap things up These preferences are indicated through a series of questions on a test, known as a Myers-Briggs instrument.

Once a clear preference in each of the categories is identified and validated, a letter for each is assigned.

The four-letter “code” is known as a personality type.

Each has its own characteristics—both strengths and weaknesses. There is some overlap in the types, naturally, and all types are equal in quality. The goal is simply to know yourself and your society better.

Source: The Myers & Briggs Foundation and the MBTI Manual

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( (

The trick is to know the individual. For instance, one underlying personality person might prefer order and the overlying and become exceedingly stressed by disbehaviors’ consistency order, even by jumping from or incongruence. topic to topic in a conversation.

Another person situations? Do you focus on might perceive things primarthe basics or interpolate things ily through their senses, while you know or have experisomeone giving testimony enced into another event? on the same incident might When you make a decision, rely on previous experiences do you primarily rely on logic or “intuition” to put an event or first consider the people inwithin a comprehensible volved and the circumstances? framework—two people at Are you inclined toward getthe same event with two total- ting to the result, or are you ly different ways of perceiving almost always open to new and reporting. information and options?

Knowing yourself will Step One: Know Thyself help you prepare for an interIn his book The 4 Temperaview (and any interaction with ments, Conrad Hock says, a party to a claim, for that “Only if one knows [one’s matter) with an eye to modown temperament] can he erating your own preferences judge correctly himself, his and prejudices. moods, his peculiarities…”

A choleric has to conquer his Step Two: Know the Other darker characteristics, such Knowledge of the personality as obstinacy, anger or pride. temperaments and types also A sanguine must be aware of leads to a keener understandand control his talkativeness ing of the people you deal and inconsistency. A melanwith, both their weaknesses cholic must park his distaste and their strengths. Gaining for suffering and his timidity a basic understanding of a at the door. A phlegmatic will claimant permits you to deal have to force himself to purwith them at a more personal sue issues deeply and to care and effective level. It also more about getting results. allows you to spot a wheeler Please Understand Me, by dealer early in the process.

David Keirsey and Mari Hock points out that a lyn Bates, is a Myers-Briggs choleric person can be won primer that assists the reader over by quiet explanations of in understanding blended reasons and motives but can personalities. The strength of be embittered by harshness or Myers-Briggs is its validation strong-headedness. A melanprocess and generalized posicholic “is made suspicious and tive approach to the human reticent by a rude word or an mindset. It assesses personal unfriendly mien,” but by conperspective by determining sistent kindness he becomes how an individual prefers to “pliable, trusting.” work with what life offers. Do During an interview, you prefer external or internal if you can identify a cho-

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ex libris | in the mood

leric, you can calm yourself and better tolerate him if, for instance, he is severe, impetuous or obstinate. You can more easily exercise patience with the slow, undecided melancholic or a seemingly indifferent phlegmatic if you understand him upfront. Using your knowledge of Myers-Briggs, you might notice that your client greatly desires closure, even though not all the facts are in. Is this a

sign of someone who wants to get his money and bolt, or is it a signal that you are dealing with a “J”—someone who simply prefers getting things decided, or “judged.” You might encounter a person in an interview who wants to keep bringing in specifics about people who seemingly are not germane. Is this person trying to obfuscate, or is he merely an “F”—one who likes to consider the

United States Questionable Claims by Referral Reasons Top 10 Referral Reasons of 2010 Casualty: Faked/Exaggerated Injury 14,780 12,849 11,536 Vehicle: Questionable Vehicle theft (Auto, Boat, Heavy Equipment, etc.)

11,900 13,708 12,657 Miscellaneous: Fictitious Loss 8,656 7,901 6,198 Miscellaneous: lack of cooperation from insured 7,931 6,820 4,595

2010 2009 2008

Miscellaneous: Prior Loss/Damage 7,800 7,222 4,920 Misc.: Material Misrepresentation in recorded interview/deposition/suo/euo 7,303 6,092 4,244 Property: Suspicious Theft Loss (not vehicle) 7,026 6,427 5,590 Casualty: Excessive Treatment 6,861 5,309 4,549 Miscellaneous: application Misrepresentation 6,324 5,749 4,371 Miscellaneous: medical provider 6,098 4,690 4,611 SOURCE: NICB’s United States Questionable Claims: 2008, 2009, 2010 *Questionable Claims can list up to seven (7) referral reasons for a single claim

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people and special circumstances that impinge on an event?

When preparing for court, you could find you have a sanguine temperament with a Myers-Briggs “S”-type personality—a talker who loves sensory details. This person might pose a problem under examination, giving too much information that spawns distracting questions from opposing counsel.

Worse, he could divulge unflattering or misleading information that could negatively influence a jury.

On the seedier side, knowledge of personality types can alert you to a party’s attempt at manipulation, steamrolling or dishonesty. In his book Detecting Pinocchio, Christopher Dillingham teaches how to detect lying by comparing body language, speech and other clues to a person’s normal behavior. For example, if you are dealing with a Myers-Briggs “S”-type and you keep hearing, “I don’t recall,” or you are dealing with a sanguine who gives answers like, “Not really” or “Kind of,” you might be seeing a red flag that indicates further investigation.

Dillingham starts with establishing baseline behavior, then moves to analyzing storytelling and speech patterns—such as continuity, equivocation and expanded contractions (do not, are not, etc.); eye movement; timing of emotional displays; and involuntary indicators, like sweating and flushing.

Each has its own meaning, but each must be understood with reference to personality. A choleric may very well be red in the face when speaking and it wouldn’t indicate lying. A melancholic could easily be reticent, even seemingly evasive.

The trick is to know the underlying personality and the overlying behaviors’ consistency or incongruence.

Step Three: Work with What You’ve Got If you work with a party’s personality, you are more likely to get to the truth and avoid pitfalls generated by that personality. Combining the temperaments, personality types and some good lie detection can even disable a potentially fraudulent claim.

Phlegmatics can be passiveaggressive, so they might become non-responsive to turns of events they don’t like. Maybe it’s a settlement offer

Maureen Latimer is Claims Advisor’s managing editor.

Destination:

Your Customers’ Satisfaction

Service Quality Strengthens Your Bottom Line— We Can Help

© 2011 American Institute For Chartered Property Casualty Underwriters

or a document that needs to be signed that they aren’t happy with. Maybe it’s a question for which they don’t have a canned response. This passive-aggressiveness could be hard to handle since phlegmatics are also typically kind and even affectionate and the response is so contrary to the overt personality.

Cholerics, who often display competence and team spirit, can also be pushy and, if that doesn’t work, manipulative. They may also try to dominate all parties in a claim, from other witnesses to members of the investigative team. If you are dealing with a choleric fraudster, you might be thrown by such devious behavior from such an enjoyable, charismatic person.

A melancholic may turn his natural inclination toward independence into a real problem, initiating contact with others outside of the claim chain or working toward a separate solution beyond the established channel.

This kind of temperament can be exacerbated if the melancholic is also a Myers-Briggs “NT”-type, known for its questioning of authority. One error on your part, and your claimant might figure it’s better to go around you or over you.

To round out considerations on fraud, we can’t neglect the emotional sanguine temperament. They know how to make friends and influence people, but mix the sanguine with a “J”-type personality and you probably will have a tantrum on your hands. A sanguine who wants his way may resort to ranting and raving or, for females, crying. Be aware that not all emotion is genuine, though. Dissect outbursts, and measure them against the baseline personality characteristics. You may find disingenuousness lurking.

Using the four predominant temperament types, the 16 MyersBriggs personality types, and the systematic evaluation of speech and body language, you should be able to detect inconsistencies in claims and claimants. Knowing yourself and your clients will put you ahead of the game cA in your next claim.

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Can Y Keep Secre

Even in social m investiga privacy.

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You a et?

Quick Look CC In this age of information, you can find just about anything and anyone online.

What are the ground rules?

CC Some guidance on social networking privacy is seeping out of courts and legal associations.

CC Once you find the mother lode on your subject, you need to protect the data…or face your own lawsuit.

By Robert Luskin and John J. McHale

today’s world of media, your fraud ation can violate . Use caution.

The pervasiveness of social media, smartphones and advances in online surveillance has changed our ideas about privacy. What you had for dinner, where you went with your kids, and when you did whatever you did are now just a single “post” away from being public knowledge.

And you don’t have to be the one who posts it. Mrs. Kravitz might have seen you parasailing at the beach and tweeted it as a novelty, or your son’s friend might have commented about beating you at hoops when you were off from work.

Along with the change in sharing is a change in the understanding of what “privacy” actually means in today’s fast-

CLAIMS ADVISOR | FALL 2011

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paced technological world.

But will the new “understanding” hold up under a court challenge, or will your investigative methods be judged to have crossed the line?

Privacy is defined as “the state or condition of being free from being observed or disturbed by other people,” according to the New Oxford American Dictionary. While the definition hasn’t changed, the application and interpretation is now immensely different. Since the methods of communication no longer require any face-to-face contact, a feeling of invincibility and, for some people, anonymity has developed. As a result, they will post—or allow others to post—what used to be very private information in what is essentially a public forum. As investigators, adjusters, other claims professionals and lawyers, the main questions today are: How far can we go to get the information we need, and what do we do with it when we get it?

Invasion of privacy is still a very real concern during the adjustment and investigative process. Whether it is before or after litigation has begun, care must be taken regarding where information comes from and how it is used. You must make sure you are in compliance with state and federal laws and regulations, such as the Electronic Communications Privacy Act and the Stored Communications Act. In addition to knowing various laws and regulations (remember, ignorance is no excuse), you must also be aware of each website’s terms of usage. Many—e.g., Facebook, MySpace, and LinkedIn—will not allow the use of their sites for certain purposes. Creation of a fictitious page, for example, is

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prohibited. Facebook is clear that “content posted to pages is public information and is available to everyone.”

Protect the Investigation The first step in doing any type of investigation involving an insurance claim is getting consent forms signed and establishing what places can be searched. But what about gleaning evidence from public spaces? Before the popularity of search engines or the use of third-party programs that compile information from numerous sources, investigators had to log some miles on foot and by car. They went to courthouses to get records and local hangouts to talk to the subject’s friends (or enemies).

Most investigators knew where to draw the line and could approach the line without going over it. Placing a tracking device on someone’s car or entering their house and snooping in their bedroom while pretending to be an electrician would have raised red flags in former days. Knocking on neighbors’ doors, though, and asking if they had seen an individual would have been no problem.

Now, oddly, people let you into their bedrooms without your having to leave your computer or smartphone, and they provide you with the exact longitudinal and latitudinal coordinates of where they’ve been by the pictures they upload. The 21st century door knock is now known as a friend request.

The best advice for avoiding the sticky situation of having to explain yourself to authorities, supervisors, judge or jury is to use common sense. Let’s take the straightforward surveillance situation.

Imagine video monitoring is allowed in your state without

prior notification or consent, so you decide to tape someone who is suspected of fraudulently claiming a workers’ compensation injury. Predicting where an individual will be is often the toughest part of getting good information, but a simple Google search unveils a Facebook page and a Twitter account that your subject updates regularly.

Unfortunately, his Facebook privacy settings block access to most information, but Twitter is open for all to read. He also loves his smartphone and likes to post pictures through Twitter, including several of the locations he is working as part of the stage crew for a band. Essentially, he has not only told you what he was doing, but he has provided you with the exact locations of his work through his Tweets and the imbedded “tags” in the pictures.

So far, you have no concerns over privacy; he has posted all of this information in the public arena and, therefore, has no reasonable expectation of privacy. You track him down, get some nice video and are able to close your file with great success all thanks to his helpful updates.

The use of a restricted Facebook account is more problematic. The privacy settings are a lot like the front door to someone’s house. You can pick and choose whom you want to let into your house, and the same is true for Facebook. If you don’t care

who sees you or follows what you are doing, you may just as well take the door off the hinges. The New York State Bar Association’s Committee on Professional Ethics’ Opinion 843 on September 10, 2010, addressed just this situation. The committee determined that it is permissible for public pages of a party’s social networking websites to be used and viewed by opposing counsel. Open access is fair game, and this would include investigators during the pre-litigation or investigation phase. Such observations are the equivalent of the view from a public street of a person in a public park.

But when a person restricts access to their “friends,” they implicitly indicate a higher expectation of privacy.

Some information may still be available through standard searches, but it may not be all that an investigator needs.

Should an investigator request to be “friended” to gain access to the subject’s daily life? Is this the same thing as knocking on someone’s door and asking if you can come inside and look around?

Although there doesn’t appear to be a broad court precedent on this issue yet, the Connecticut Bar Association issued Informal Opinion 2011-4 on March 16, 2011, which was related to counsel’s hiring of a private investigator to friend an opposing party. It was the opinion of the committee that doing this would violate the Rules of Profession-

al Conduct. While the opinion deals with parties in litigation already, it is likely that the same would apply to pre-litigation investigations.

There are methods for obtaining what is often considered private information, but be forewarned: Much of that requires extensive legal proceedings.

Facebook and MySpace can be subpoenaed, but the process is lengthy, and any procedural misstep will find you starting over. Additionally, even with the consent of the user, the companies are hesitant to produce anything. Several courts around the country have issued orders requiring users to give Facebook consent to produce the content of that individual’s page, but Facebook has relented only on occasion. By the time you have gotten to this stage, much of the good information has probably been removed.

Overall, if you are a passive searcher and are not taking assertive steps to “get in the door,” you should be fine. The expectations of privacy have not changed merely because the method of investigation is sitting at a computer rather than pounding the pavement.

That’s Too Much Information Occasionally, you can get more information than you ever imagined receiving when you started your search. Some items that are obtained should be handled with caution. Medical and financial information should be handled with extreme care. Additional care must be taken not to divulge private information to third parties during a follow-up investigation or interviews with co-workers, employers, customers or vendors. Most of the problems and privacy concerns do not arise from viewing or obtaining the information but, instead, from the dissemination of the information to third parties by the investigator.

Information that is obtained during an investigation must be properly stored and protected. Courts recognize the need for information gathering, but they also insist that investigators and insurers properly control what happens to it once obtained. At the end of the day, an investigator will need to be able to justify how the information was collected, where it was stored once received and how it was used. During an investigation, it is also

very important that you confirm that the person on whom you have information is the correct subject. Since many investigations are done electronically, you might be getting great information on the right name for the wrong person.

The cloak of anonymity and disconnection allows for individuals to place all of their thoughts and ideas out in the world for public consumption.

Whether that is their intent or not, the world is watching, and investigations

have become easier to perform from a desk. However, with power comes responsibility. So much information is available that, if you are not careful, you may just find your company exposed to its own lawsuit. cA Robert Luskin is a partner with Goodman, McGuffey, Lindsey & Johnson, LLP. John J. McHale is a senior supervisor of the Investigative Services Section of Erie Insurance.

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Backstopping

Terrorism Coverage Editor’s note: The following contains, in part, material excerpted or reported from Terrorism Risk: A Reemergent Threat: Impacts for Property/Casualty Insurers. It can be accessed at www.iii.org/white_papers/terrorism-risk-a-reemergent-threat-2011.html.

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e

Quick Look CC Insurers’ retentions under federal terrorism reinsurance are higher now than in 2006.

The feds will help with big terrorism claims, but restrictions have expanded and the future is far from certain. By Robert Hartwig, Ph.D. For property/casualty insurers and reinsurers, the terrorist attacks of September 11, 2001, remain one of the largest losses in global insurance history—producing insured payouts of about $32.5 billion, or $40 billion in 2010 dollars. Losses were paid out across many different lines of insurance, including property, business interruption, aviation, workers’ compensation, life and liability.

Before 9/11, terrorism exclusions were virtually nonexistent in commercial insurance contracts sold in the United States. Soon after 9/11, however, insurers moved to exclude terrorism coverage from their commercial U.S. policies. Only when Congress enacted the Terrorism Risk Insurance Act (TRIA) in November 2002 did coverage resume on a consistent basis for terrorist attacks against commercial properties, utilities, and transportation networks.

TRIA established a public/private risk-sharing partnership that allows the federal government and the insurance industry to share losses in the event of a major terrorist attack. TRIA was modified and extended in recent years, with the current law, known as the Terrorism Risk Insurance Program Reauthorization Act (TRIPRA), due to expire on Dec. 31, 2014. However, the portion of the loss insurers would pay in the event of a terrorist attack has increased significantly over the years.

Where Insurers Are on the Hook Insurers are solely responsible for terrorism losses that impact non-TRIA lines, such as private passenger auto and homeowners insurance and group life. Less than half of property/casualty insurance premiums are written in lines of insurance backstopped by TRIPRA, and the program provides no coverage

for personal lines insurers, reinsurers or group life insurance losses.

Only commercial insurers and causes of loss specified in the underlying policies are covered under the program, and they are required to make coverage available to clients. Residual market insurers—such as workers’ compensation pools, captive insurers and risk retention groups—are also covered. Some specialty coverages, such as medical malpractice and crop insurance, were excluded from the backstop under the original legislation. Under the 2005 extension, certain additional lines are now excluded: commercial auto; burglary and theft; surety; professional liability, except for D&O; and farm owner multi-peril insurance.

The standard fire policy (SFP) does not exclude fire following terrorism, and prior to 2003, the SFP did not permit this exclusion; therefore, a policyholder who had rejected terrorism coverage under TRIA would still have coverage for a blaze resulting from an act of terrorism. However, since 2003, some states have revised their SFP statutes to permit exclusions of the coverage under certain circumstances. Insurers have sought to limit fire coverage resulting from a terrorist attack because commercial policyholders that choose to reject TRIPRA or other terrorism coverage are effectively paying no premium for the protection offered by fire-following coverage. Thus, for a policyholder who has rejected terrorism coverage, in those states that allow exclusions there might be no coverage (or only limited coverage) for fire resulting from an act of terrorism. Many states do not have a standard fire policy statute, or they have SFPs that unconditionally exclude fire following terrorism. In these states, there is no stipulated coverage for fire following terrorism.

CC Some states now allow fire-following exclusions for acts of terror.

CC Looming threats of cyber attacks are the next big definitional question.

The threshold to trigger federal backstop coverage rose from $5 million under the original act to $50 million after March 2006. In 2007, the triggering event threshold rose to $100 million and remained there under TRIPRA. Federal funds will be paid out only in the event of a terrorist act that produces total insurance industry losses above this threshold.

The program is capped at $100 billion per year for insured losses (federal and insurer combined). A provision in the law requires the U.S. Department of the Treasury to establish a process for the allocation of pro-rata payments in the event that terrorism-related insured losses exceed the federal government’s annual $100 billion cap.

The amount of terrorism losses that an individual insurer must pay before federal assistance becomes available rose to 20% of an insurer’s direct earned premiums for commercial property/casualty insurance in 2007, and that is where it currently stands (up from 17.5% in 2006 and 15% in 2005). The share of losses that insurers pay above their individual retentions rose to 15% in 2007, where it remains today, up from 10% in 2006.

What Lies Ahead TRIA and its extension legislation contain no provision for handling liability claims in the future. As a result, the impact of tort claims following another major terrorist attack on U.S. soil has the potential to be enormous.

Budget pressures will probably make reauthorization contentious. Even before the debt brouhaha, the Obama admin-

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istration’s 2011 budget plan included a proposal to scale back federal support for the program. A 2009 report by insurance broker Aon estimated that some 70% to 80% of the commercial property insurance market would revert to absolute exclusions for terrorism if TRIA were changed.

Some up-and-coming risks are not covered by the federal backstop. A major terrorism attack is increasingly possible, but losses from such an event are largely uninsured under many scenarios and, therefore, would not be included in federal reinsurance. Secretary of Defense Leon Panetta describes the threat of cyber terrorism as “the battleground for the future.” At a congressional hearing before the House Permanent Select Committee on Intelligence on February 10, 2011, then-CIA Director Panetta said, “When it comes to national security, I think this represents the battleground for the future. I think the potential for the next Pearl Harbor could very well be a cyber attack.” Moreover, not every cyber attack is terrorism, but how will they be defined and by whom?

Nuclear, biological, chemical and radiological (NBCR) acts are not covered under a standard policy, nor are they backstopped by the federal government’s program. The American Academy of Actuaries explored the insured losses that NBCR incidents might cause in four U.S. cities. It estimated that in New York a large NBCR event could cost as much as $778.1 billion, with insured losses for commercial property at $158.3 billion and for workers’ compensation at $483.7 billion. A loss of this magnitude is more than three times the size of the commercial property/casualty insurance industry’s claims-paying capacity.

However, a June 2010 report by Guy Carpenter noted that some two thirds of reinsurers surveyed are now offering coverage for NBCR events, reflecting a true evolution in underwriting appetite since 9/11. An increasing number of reinsurers have entered the market over the last few years and are offering new solutions for various large-scale risks such as airports, industrial plants, sports stadiums and shopping centers, Guy Carpenter said. It noted that costs of coverage vary depending on a number of factors, including geographical spread of risk, the location

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and type of exposure, proximity to other risks and the program’s structure (e.g., limits and deductibles).

Claims for Damages Not Backstopped Standard homeowners insurance policies include coverage for damage to property and personal possessions resulting from acts of terrorism. Terrorism is not specifically referenced in homeowners policies. However, the policy does cover the homeowner for damage due to explosion, fire and smoke—the likely causes of damage in a terrorist attack.

Condominium or co-op owner policies also provide coverage for damage to personal possessions resulting from acts of terrorism. Damage to the common areas of a building like the roof, basement, elevator, boiler and walkways would be covered only if the condo/co-op board has purchased terrorism coverage. Standard renters policies include coverage for damage to personal possessions due to a terrorist attack. Coverage for the apartment complex itself must be purchased by the property owner or landlord.

Auto insurance policies will cover a vehicle that is damaged or destroyed in a terrorist attack only if the policyholder has purchased comprehensive coverage.

Most people who lease or have loans on their vehicles are required by leasing companies and lenders to carry this optional form of coverage. People who buy only liability coverage are not covered in the event their vehicle is damaged or destroyed as the result of a terrorist attack.

Property damage to commercial buildings from a terrorist attack also could include claims for business interruption. Business interruption losses associated with acts of civil authority (e.g., closure of certain areas around the disaster) can be triggered only when there is physical loss or damage arising from a covered peril (e.g., explosion, fire, smoke, etc.) within the area affected by the declaration. The loss or damage need not occur to the insured premises specifically. Reductions in business income associated with fear of traveling to a location would not be covered by business interruption policies.

Workers’ compensation—a compulsory line of insurance for all businesses—covers employees injured

or killed on the job and, therefore, automatically includes coverage for acts of terrorism. Workers’ compensation is also the only line of insurance that does not exclude coverage for acts of war.

Coverage for terrorist acts cannot be excluded from workers’ compensation policies in any state.

The Role of the Feds in Claims Given the federal government’s essential role in providing a financial backstop for private-sector insurers that offer terrorism risk insurance, the U.S. Treasury Department has a lot to say about what constitutes a terrorist attack. State regulators may weigh in on disputes governing whether or not a specific policy covers a certain type of event; nonetheless, the federal government will have a major impact on the outcome of the claims process.

For terrorism coverage to be triggered under TRIPRA for commercial policies, the U.S. Treasury Secretary has to declare the attack a “certified act.” No such declaration is needed to trigger coverage under home and auto policies because there are no exclusions for terrorism.

War-risk exclusions reflect the realization that damage from acts of war is fundamentally uninsurable. No formal declaration of war by Congress is required for the war risk exclusion to apply. Nuclear, biological, chemical and radiological attacks are a prime example of catastrophic events that are fundamentally uninsurable due to the nature of the risk. Under the terrorism risk insurance program, if some NBCR exclusions are permitted by a state, an insurer does not have to make available the excluded coverage.

Stay tuned for battles on funding.

The argument that deficit reduction compels cuts in federal terrorism reinsurance is contested by proponents of the program who argue that expenditures occur only if an attack triggers the backstop and that cuts are not really savings unless cA such an attack happens.

Dr. Robert Hartwig is president of the Insurance Information Institute. For her contribution, the author would like to thank Claire Wilkinson, co-author of Terrorism Risk: A Reemergent Threat: Impacts for Property/Casualty Insurers.

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DEEPER DET A I L S | A L L CR A CKED UP

Rock the

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e House

Quick Look CC On-site digging; nearby alterations in supporting terrain; prolonged, heavy rains; and drought are some of the causes of foundation damage.

CC Alternatively, it could be homeowner neglect.

Damage to foundations can occur due to a variety of causes. How can you determine the culprit?

CC You could be dealing with a faulty construction claim, a claim against a landscaper or a concrete provider, or something that isn’t covered at all.

By Matthew G. Richardson, P.E.

The foundation is the initial element of a house or building to be constructed, creating a support structure for the remainder of the building. However, if the foundation is improperly constructed, built with subpar materials, or damaged by external forces, problems can arise. An adept investigator may find that the evidence indicates construction defect or property owner neglect regarding landscaping and water control. Cracks, leaning, nearby earth movement, untenable weight loads, bowing, sagging, and interior damage can all give clues as to the timing, sequence and cause of the problem.

Foundations can be placed into two categories: shallow foundations and deep foundations. Shallow

foundations include slabson-grade with turn-down footings, mat foundations, footings with piers, and footings with retaining walls. A deep foundation, such as piles and caissons, provides support well below grade. The type of foundation chosen for a building project will depend on the type of building, terrain, soil type, costs and many other factors. Houses and light structures are typically constructed with slabson-grade or footings with piers and perimeter walls.

A slab-on-grade foundation is a concrete slab placed directly on the grade where the turn-down footing provides support for the bearing walls in the structure. Crawlspace and basement walls are typically constructed of concrete

masonry units (CMUs), cast-in-place concrete, or insulated concrete panels.

Failure Modes Foundation failures occur for a number of reasons.

Excess moisture, drought conditions, fill material consolidation, and settlement due to differing foundation types are the most common causes. The root causes of the different failure modes will determine the difference between a covered loss and a non-covered loss.

Water—Water, in the form of excess moisture in the soil matrix, is the foremost cause of foundation displacement and damage. Excess moisture may originate from several sources, including: rooftop runoff, surface drainage, groundwater, leaks and

flooding. Some soils, such as expansive clays, are more affected by changes in moisture content than others. Settlement can occur due to the presence of periodic excess moisture in the soils supporting a foundation.

The key to loading earth with a foundation is to control the moisture in the soil.

Well compacted and maintained soil has two physical properties which allow it to hold together: cohesion and shear resistance. As the soil moisture increases to a point where the buoyancy overcomes the interlocking shape of the particles, the soil loses its ability to carry weight. In other words, as the moisture in the soil increases, the soil’s ability to carry weight decreases. Cracks resulting from excess moisture in the soil that supports that

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foundation are typically wider at the top than at the bottom.

The slope of the terrain around a building must be sufficient to effectively direct surface water, and thus groundwater, away from the foundation. A slope of at least 5% is recommended by good construction practices and most building codes. Gutter downspouts should discharge into extensions that conduct water away from the foundation. Grading and rooftop runoff collection are usually related to the original construction and are typically long-term issues. Investigation of the root cause can determine who is responsible for resulting damage.

Leaks can occur in the water supply or drainage plumbing. If a leak is present in the drainage plumbing, it will occur only when water and/or contents pass the leak site. If a leak is present in a water supply line, the leak will be continuous. The damage caused by a water supply line leak will typically be greater than the damage caused by a drainage line leak due to the ever-present water in the supply line. Localized damage is indicative of a point-source of water.

Flood events can be divided into two categories, rising floodwater and moving floodwater. Rising floodwater damages structures by wetting the building and soils that support them.

Typically, structural elements exposed to

a single water event will dry and retain their structural integrity; whereas, repeated or long-term exposure to moisture can cause deterioration over time. The surrounding soil is not as forgiving. The effect of water in soil can cause differential settlement of the foundation system even with a single exposure, depending on the grade of the land, soil type, volume of water, and other conditions. The differential results from a portion of the foundation being exposed to the water while other areas remain out of harm’s way. These distresses can take on the form of settlement-type cracks or movement of the foundation itself.

Moving flood waters are very damaging even at low speeds. They impart lateral and vertical forces on surfaces and structures. The forces associated with moving floodwater are hydrostatic, buoyant, hydrodynamic and frictional.

Hydrostatic and buoyant forces are in direct proportion to the weight of water and the material properties of the affected object. These forces apply horizontal and uplift forces onto the structure. Hydrodynamic forces are associated with the water’s momentum as it moves against structural elements.

Frictional forces along the ground surface cause the soil to erode and possibly undermine foundations. Any of these forces can cause localized or widespread failure in a building. Any substantial

FIGURE 1 Brick veneer cracked due to settlement/ consolidation of the soil beneath the supporting foundation. Problem caused by varying levels of moisture in the soil (both excess moisture and drought conditions).

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FIGURE 2 A settlement crack resulting from either drought or excessive moisture conditions.

Note that the crack is tight at the bottom and wider at the top.

movement of a foundation will require removal and replacement, while foundations that exhibit little to no movement as a result of moving water can sometimes be salvaged.

Drought—In the same way that excess moisture can influence the soil matrix, extremely dry conditions can adversely affect the ability of a soil to adequately support a foundation and its load. During an extended drought, the soils deep in the ground will begin to dry out. When this happens, clays and silts will lose water and shrink. In general, settlement due to the drying of the soil usually occurs irregularly. The corners of buildings are attacked from two sides and are apt to settle more than the long stretches of the foundation.

The moisture is pulled mostly from the exterior soil due to the exposure to sun and wind. This causes the footing to settle toward the exterior and hold toward the interior, creating a tilt outward. When the corner shifts, vertical cracks in the walls will form on either side of the corner.

Drought-induced settlement often affects those structures with foundations that vary in depth. Houses built on hillsides typically have foundations that are located several feet into the soil on one side of the structure but are relatively close to the surface on

FIGURE 3 Masonry cracking and displacement due to soil consolidation. At first blush, excess moisture and drought conditions were expected to be the culprit, but excavation of the soil revealed a trash pit beneath the foundation. As the organic materials in the trash decomposed, the soil elevation dropped.

the other. A drought will therefore affect the shallow portions of the foundation but not those buried more deeply. As the shallow foundation settles, the deeper foundation does not, creating cracks in the structure.

Construction Errors—A foundation system can incur damage as a result of the consolidation of fill material beneath the foundation. Fill material is used to level lots with sloping topography or to raise the elevation of the ground in a low-lying area. Most materials must be compacted in increments (lifts) to achieve proper soil densities. If the lifts are too thick or the fill material is not compacted until the end of placement, the fill material will self-compact over time. On occasion, organic materials or a “trash pit” are placed within the fill, with subsequent consolidation occurring upon decomposition of the material. Moisture variations in the soil exacerbate consolidation of the fill material and decomposition of organic materials. Most consolidation of fill material is considered to be construction-related.

If significant downward displacement of the supporting soil is observed, the soil is consolidating either due to lack of sufficient compaction or due to voids from the decomposition of the organic materials.

Differential settlement sometimes occurs when adjoining portions of the structure are built on different foundations. When the downward displacement is not equal, brittle components like masonry and drywall can be easily damaged. The root cause of the

settlement must be determined before proper action is taken.

Improper construction can cause nearly immediate or long-term problems for a foundation system.

Depending on its height and the amount of earth to be retained, a foundation wall may require steel reinforcement. Reinforcing steel and grout placed in the hollows of a concrete masonry unit wall will aid the wall’s ability to properly function. The placement of grout without the reinforcing steel will not provide sufficient resistance to a bending failure. The amount of reinforcement is dependent upon the pressures imposed on the wall, which are proportional to the unbalanced fill that the wall retains. If a wall is not adequately sized, it can fail.

A lack of sufficient steel reinforcement, improperly sized walls and/or footings, and improper attachment of a foundation wall to the footing are the most common construction issues. Cracks from lateral soil pressure in concrete block walls almost always take the form of horizontal cracks in the mortar joints that are open on the inside of the walls because of the inward bowing. As the horizontal crack approaches a support, like a corner, the crack normally transforms into a stair-step crack.

the country are the effects of Karst Terrain. Limestone can be dissolved by eons of water percolating through the soil, leaving a void. The presence of sinkhole activity should be verified by a specialist, such as a professional trained in the geological or geotechnical fields.

Property owners also express concern about damage to their property after experiencing ground vibrations from earthquakes, blasting events, or heavy construction activities. Humans can perceive vibration levels much lower than what is necessary to damage a structure.

Ground vibrations affect the more brittle components of a structure, such as drywall, before damaging a foundation.

The foundation is intended to move with the earth that supports it. Even the poorest quality concrete, brick, block,

and mortar are much stronger than drywall. Unless extensive damage is present to the brittle components, foundation damage due to vibrations is improbable.

One thing is certain: In an imperfect world, foundations will continue to fail.

Whether due to extreme variations in the moisture content of the soil, consolidation of the soil, construction defect, or faulty landscaping, damage to foundation systems is common. The key to properly diagnosing the failure is understanding different types of foundation construction and the ways a foundation reacts to different issues. cA Matthew G. Richardson, P.E., is a Senior Forensic Engineer with Donan Engineering Co. in Knoxville, Tenn. He can be reached at mrichardson@ donan.com.

Common Misconceptions Homeowners and tenants sometimes claim that their foundation problems are the result of sinkhole activity.

Holes in the ground may be classified into four categories or causes: rotted vegetation, animal, man-made and natural (geological). Of special importance in some areas of

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perfecting the art | Righting Reserves

Ha

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Banking on

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abitual under-reserving might result from individual deficiencies, but it ould be systemic. Check each claim and your overall methodology.

g

Quick Look CC Long-tail exposures need different reserve treatment from day-to-day claims.

CC Each reserve method has its strengths. Find the one best suited to each claim.

CC Bodily injury claims are a particularly sticky wicket.

By Donna J. Popow, J.D., CPCU, AIC

A claim representative can affect an insurer’s bottom line in many ways, probably none more substantial than activities relating to case reserving. Although an occasional inadequate or inaccurate reserve may have little or no effect on an insurer, habitual undervaluation of claim reserves can distort the rate-making process, eventually undermining a carrier’s ability to write business competitively and ultimately affecting solvency.

Reserving errors can be caused in several ways. Initial reserves may be inaccurate because they are determined based on limited information.

Alternatively, reserve inaccuracy can be the result of the claim representative’s poor planning, lack of expertise in estimating claim severity, or unwillingness to re-evaluate facts. In these cases, the claim representative may set a modest initial reserve but then raise the reserve by a few thousand dollars to issue payments. Later, the reserve is increased again when more bills arrive. This process is called “stair-stepping” the reserve.

On a claim that concludes in 30, 60 or 90 days, stairstepping has little effect except to reveal the claim representative’s poor claim handling practices. But if the claim remains open for several years, as many liability and workers’

compensation claims do, the incremental increases in reserves during those years would not be properly reflected in the insurer’s rate-making process.

This does not mean that claim representatives cannot adjust a reserve during the course of a claim. However, they should make those adjustments because of new information or changes in the circumstances of the claim, not because of poor planning or other poor practices. For example, if the estimate for car repairs is $5,000, the claim representative would set up a reserve of $5,000. If hidden damage is then found and the estimate is revised to be $10,000, the claim representative should change the reserve to reflect this increase in the repair estimate. Likewise, if an estimate to repair is lowered, the reserve should be changed to reflect the decrease. Because these changes are based on changes in the facts of the claim, they are not considered stair-stepping.

Reserves should reflect the ultimate cost of a claim and not the claim’s present value; therefore, the reserve should account for the claim’s future settlement value. For example, a catastrophic injury claim may take years to settle. During that time, inflation may increase the cost of medical care, or new and expensive medical technolCLAIMS ADVISOR | FALL 2011

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ogy may be developed. The reserves for such claims should anticipate those increased costs.

Claim representatives may underestimate the future settlement value of a claim if they are overconfident of their ability to conclude the claim for a lesser amount. Reserves should always be based on the value of a claim, never on the perceived likelihood of successful negotiation and settlement. Analysis of verdicts rendered in similar cases helps show the potential value of a claim and discourages the tendency to base reserves on negotiation expertise.

Some inadvertent errors in setting reserves can be detected using computer software that stores claim information. Some claim information systems provide a data entry check. For example, the software might require that the reserve amount be entered twice to allow the person inputting the data a chance to verify the amount. Additionally, claim managers can review reports of reserves from the preceding day for unusual entries or reserves established in excess of authority. For example, a report listing all reserves of $100,000 or more might uncover a $10,000 reserve that was incorrectly entered as $100,000.

Reserving Methods Although the exact timing may differ among insurers, the setting of the initial reserve(s) usually occurs early in the claim handling process. Claim representatives often establish claim or case (loss) reserves in conjunction with identifying the policy. An insurer’s claim information system often determines the types of reserves that are established,

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such as one reserve for property damage and another for bodily injury. Some systems require separate reserves for each claimant in a claim, and some systems require separate expense reserves for the costs of handling the claim. For example, in a claim for an auto accident, an individual reserve may be set up for damage to the insured’s vehicle, damage to the other party’s vehicle, medical expenses for the insured, and bodily injury for the claimant.

Insurers can establish reserves on claims using any of several methods. These are six common methods: • Individual case method • Roundtable method • Average value method • Formula method • Expert system method • Loss ratio method.

Reserving errors can occur when any of these methods are used inappropriately, but, because the method most influenced by the claim person is the individual case method, it can be the most problematic. Using this method, a claim representative sets an individual or case reserve for the claim or cause of loss based on his expectation of what the insurer will pay. That expectation is derived from the claim’s circumstances and the representative’s experience in similar claims.

Bodily injury claims are particularly susceptible to error under the individual case method because of the subjective nature of the evaluation and the vast array of factors that can be considered in these cases. (A sampling of those factors is shown in the sidebar.) Additionally, at the time the initial reserve is set, much of the information is often unknown. It is a best

Individual Case Method Considerations for Bodily Injury Claims 1. Claimant profile (factors in calculating economic loss) a. Age b. Gender c. Occupation d. Level of education e. Dependents, if any, their ages, and to what extent they rely on the claimant financially and for companionship 2. Nature and extent of the injury (factors in calculating general damages) a. Whether the injury is permanent b. Extent of pain and suffering c. Extent of disruption the injury creates in the individual’s lifestyle 3. Special damages (factors in calculating special damages) a. Anticipated medical bills incurred to date and for future care b. Type of medical care that has been or is being provided; whether it includes diagnostic care or treatment c. Whether the claimant will lose any wages 4. Claimant representation (factors in determining the likelihood of a lawsuit and predicting general damages that could result) a. Whether the claimant is represented by a lawyer b. If so, the lawyer’s reputation c. Typical value of local court verdicts 5. Liability factors (factors in calculating compensatory and/ or punitive damages) a. Whether the case involves ordinary negligence or gross negligence b. Whether the case involves any comparative or contributory negligence c. Any legal limits to recovery, such as a cap on certain types of damages d. Any other parties’ contributions to the loss or responsibility for contributing to the settlement 6. Miscellaneous factors a. General economic conditions in the geographic area (factor in calculating economic loss) b. Whether the insured’s conduct in causing the loss was outrageous (factor in calculating compensatory damages) c. Whether drinking or drug use contributed to the loss (factor in calculating liability) d. The insured’s credibility as a witness (factor in determining likelihood of successful lawsuit) e. The claimant’s credibility as a witness (factor in determining likelihood of successful lawsuit)

FIGURE 1 Loss Ratio Method of Setting Reserves practice for claim representatives to review the appropriateness of the reserve every time they see the file. Doing this will ensure that changes in the known facts will be reflected in a timely reserve change. Documentation supporting the need for an increase or decrease should be made part of the claim file.

Another method of setting claim reserves is the roundtable method, under which the file is reviewed by several other claim personnel. Ideally, at the start of this process, the reviewers should not know the reserves recommended by the primary file handler.

After evaluating and discussing the claim, they may reach a consensus reserve figure, or they may calculate an average of all the figures. Because this method is time-consuming, it is not appropriate for setting initial reserves.

However, for serious or prolonged claims, it is a suitable method to review initial and ongoing reserves.

Claim representatives may use the expert system method. The details of a particular claim are entered into the computer, and the program applies the appropriate rules to estimate the amount of the loss and the loss adjustment expenses (LAE). An expert system can provide greater consistency in reserving than the individual case method. While similar in operation to the formula method, the expert system includes more subjective information, such as loss location or the name of the treating physician, in creating the reserve. This and the roundtable method can minimize stair-stepping.

Claim representatives may also set claim reserves using the average value method. This method is useful when there are small variations in loss size for a particular type of claim and when claims can be concluded quickly. The average values are usually based on data from past claims and adjusted to reflect current conditions. Auto physical damage claims are often successfully reserved based on this method. In some cases, an initial reserve is made based on the average value method, but claim representatives are required to modify the initial reserve within a specified number of days to reflect each claim’s circumstances.

Minimum Annual Statement Reserves Minimum Statutory Reserve

50%

Earned Premiums

$40,000,000

Case Reserve

Annual Statement Reserve

Example 1

$16,000, 000

$20,000,000

Example 2

$22,000,000

$22,000,000

Another method of setting claim reserves is the formula method, by which the insurer determines and creates a formula for setting a reserve to be used by the representative based on the facts of a claim. For example, a formula may be based on the assumption that a certain ratio exists between the medical cost and the indemnity (or wage loss) in a workers’ compensation claim. Based on an insurer’s loss history with many similar claims, the indemnity reserve may be set at a certain percentage of the medical reserve. The formula method may also be used to set the additional living expense reserve under a homeowners policy if the home is destroyed by fire. The reserve may be set as a certain percentage of the coverage limit.

The loss ratio method of setting claim reserves is used to establish aggregate reserves for all claims within a type of insurance or a class of loss exposures.

The actuarial department uses this method when other methods of establishing claim reserves are inadequate. For example, in medical malpractice insurance for physicians and surgeons, claims are often reported long after the expiration date of the policy that provided the coverage. To ensure that the insurer has adequate reserves for those claims, the actuarial department may project reserves using the loss ratio method.

The National Association of Insurance Commissioners Annual Statement is another example of the use of the loss ratio method of setting reserves. The Annual Statement requires minimum reserves for certain types of insurance, such as workers’ compensation. The minimum reserve is a specific percentage of the earned premiums for the year.

For example, for workers’ compensation

insurance, the minimum reserve required by the Annual Statement may be 50% of earned premiums. If case reserves are lower than that amount, the Annual Statement uses the set percentage. If case reserves are higher than the set percentage, the Annual Statement uses the case reserves (Figure 1).

Additionally, insurers are required by law and good accounting practice to establish reserves for losses that have been incurred but not reported (IBNR).

Although the term refers only to incurred but not reported losses, unreported losses account for only a portion of the reserve in many cases. Often, the IBNR reserve also includes an amount for reported losses for which the case reserves are judged to be inadequate. A reserve for claims that have been closed and then reopened may also be included in the IBNR reserve.

Actuaries analyze the insurer’s experience by comparing paid losses to case reserves to determine whether the insurer typically under-reserves or over-reserves claims. If the insurer typically underreserves claims, the IBNR reserve will be set at an amount to cover the ultimate cost of the claim.

Regardless of the method used for setting reserves, the claim representative can have a positive or negative impact on the insurers’ bottom line due to their reserving practices. Following reserving best practices and the insurer’s own reserving guidelines will help ensure that the results are more positive than negative. cA Donna J. Popow, J.D., CPCU, AIC, is senior director of knowledge resources and ethics counsel for The Institutes in Malvern, Pa. She can be reached at popow@TheInstitutes.org.

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Desktop Monito

i n f o c u s | PIP P u z z l e s

Using new software and data, investigators c prevent and solve PIP insurance fraud right from their workstations.

By Dennis Toomey

From staged accidents to bogus billing, personal injury protection (PIP) fraud is big business for the ethically challenged, costing consumers billions each year in the form of higher premiums, pricier health coverage and lost wages. Additionally, schemed payouts put lives at risk with unnecessary medical procedures, arson and fake auto accidents.

Because it’s so pervasive and too often goes undetected, it’s difficult to determine the true cost of PIP fraud specifically, but the Coalition Against Insurance Fraud

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estimates $80 billion as the annual price tag on insurance fraud across the board, a large chunk of which is PIP deception. That’s enough money to pay the personal income taxes for 7.4 million U.S. citizens for a year, build 69 stealth bombers or fund all cancer research in the United States for 13 years. Sobering stats like these are listed on the Coalition’s website to help put the figure into perspective.

With so much at stake and anti-fraud legislation often mired in political debate at the state and national levels, insurers are recognizing the

need to take more responsibility into their own hands.

Finding evidence to reveal collusion and fraud is a driving force in the industry and shapes everything from the hiring process to organizational structure. Beefed-up special investigation units (SIUs), stronger training for claims adjusters and better fraud detection systems are all significant line items that chew into bottom lines, however.

Thankfully, innovative technologies exist that harness the power of the Internet and existing databases so that desktops can become a

primary weapon, saving both precious time and resources.

Today’s modern analytics and predictive modeling—in their infancy just a decade ago—can give companies the upper hand in a fight that for too long has seen them outgunned and outnumbered in every way. Now, with the right software and proper integration of it, insurers stand a better chance of hitting the trifecta of PIP fraud as it relates to them: detecting, investigating and deterring.

What follows is a “best of” list with data sources and technologies that are turning

Quick Look CC Scoping out fraud requires dovetailing data.

CC New software can bring public and proprietary records right to an investigator’s desktop.

or

CC Robust applications can even pinpoint problems on a virtual map.

can

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desktops into true detection devices, helping to maximize resources, improve identification accuracy and discover (and deter) fraud rings.

Data-Fill Heralding a new, more efficient day in the way claims information is gathered and suspect information is flagged, data-fill solutions top the list because of their

potential to positively affect everything from customer experience to investigations.

This is because data-fill solutions (or pre-fills, as they’re also known) allow representatives to quickly complete, or fill in, claims applications.

The best options provide extensive nationwide data through interactive tools that populate a call-center rep’s screen. Such ready information offers an array of virtually real-time advantages, including the ability to verify that the person calling is the actual claimant and the ability to get ID and policy information for the claimant as well as anyone else involved in the accident.

In addition to saving time

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and improving the customer experience, data-fill solutions raise early red flags, which can help expedite an investigation.

With the most robust data-fill applications, benefits multiply as the claim progresses. At each sequence, more information is automated and added without having to revisit what was already entered, and a comprehensive

technologies need to offer dovetailed approaches for searches. The best ones do this by isolating and prioritizing information from exhaustive databases of information that cover all things related to public record.

To uncover the shady claimant with dual coverage or posing as an insured, claims representatives and adjusters need applications that can quickly reveal carrier information. Those that draw from a contributory database of policy records can best detect fraud indicators about claimants as well as other individuals involved in an accident.

Likewise, software solutions that uncover feigned injuries resulting in lost wage claims are another exceptionally useful tool. If it’s discovered that Mr. X—who says he’s too hurt to work and must be compensated while he recovers—is actually working, his lost-time claim can be retracted, saving a company thousands of dollars.

unscrupulous medical providers are another arrow in the modern PIP fraud investigation quiver. Again, companies should look for well integrated technologies that pull from an exhaustive data bank and allow investigators to gather and compare information about medical providers, including names, affiliations, addresses, specialties and the various assigned numeric tags like tax identification numbers, unique physician identification numbers and DEA registration numbers. For example, when researching the named medical provider’s tax identification number uncovers several other claims, an SIU has stronger evidence that this may be a provider who is a member of a fraud ring or who is acting alone to fraudulently collect. Instead of running off on the proverbial wild goose chase, the investigator now has prioritized and logical information to research before deciding if it’s worthwhile to pursue.

picture begins to take shape.

Routine information, such as a vehicle identification number or a plate number, can ultimately turn into the key piece of a fraud puzzle.

New to the landscape, data-fill options promise to become a pivotal element in the way information is managed and investigations are kick-started.

Companies serious about improving efficiency as well as fraud investigations would be wise to seek out a robust datafill solution.

Public Records Crosscheck These tools allow investigators to crosscheck public records with businesses and dates of employment. The ability to quickly run an address can uncover interesting results, too, as one investigator discovered when an address turned out to house several businesses, including a medical clinic and a law office. Applications with user-friendly functions can make this happen even faster, saving more money and establishing a carrier as one on the cutting edge of fraud deterrence.

Mapping Applications In what might seem inspired

by Hollywood detective shows, mapping applications that search a geographical area via visualization technology are also available and can augment those that ferret out unscrupulous providers.

If a provider is red-flagged, investigators can use these applications to import all PIP fraud claims then show virtual map pins for a designated radius around that provider. If a 20-mile radius shows multiple pins, there’s more evidence to warrant an investigation into that already red-flagged provider.

Contributory Carrier Databases Because fraudsters’ schemes are seemingly infinite and often employ multiple tricks for one heist, investigative

Medical Provider Histories Similarly, applications that isolate billing to detect

Multi-Tasking Applications Of course, some of the most

exciting options available today can perform multiple investigative functions, linking several of the above techniques into one super hero-like desktop resource.

One-stop solutions that collect, analyze and leverage large amounts of information and intelligence save resources and time. Law enforcement has taken advantage of these types of tools to track criminals of all walks, which makes these natural choices for carriers interested in bolstering their own fraud departments.

When comparing these multi-tasking applications, companies should look for those that integrate internal real-time data then overlap that data to highlight how individuals, businesses and other entities may be connected. Visual displays, like the GIS mapping application

discussed above, can help investigators spot suspicious activity faster. Other visual tools include time-stamped aerial imagery. Additionally, applications that offer multiple formats to display, organize and analyze information significantly expedite an investigation because they can literally connect the dots for detectives.

General Trends Across the board, an automated fraud detection system that is customizable, flexible and cost effective is key. Many companies built in-house systems or consulted with vendors who created systems for them when analytics and predictive modeling were new.

Also, in too many cases, these rely on claims activity and business rules that use data from companies’

own data warehouses. As a result, public records that could highlight a financial or criminal motive, such as bankruptcy liens and judgments, go untapped. By accessing only prior claims history, basic rules and in-house data, investigative departments are missing out on a virtual world of information that can help them reveal fraud.

As recently as 1995, investigators and adjusters had to go to courthouses and dig through microfiche at libraries to piece together information. The ability to fire up desktop applications and add third-party information seems light years away from those days, yet too few are yoking investigations to the available.

Insurance fraud may be a costly fact of life, but at no time has the landscape for

discovering and deterring it looked more promising.

Technology is putting more control in the hands of the good guys and leveling a playing field that for too long has sloped in favor of criminals. Today’s antifraud departments have real options that save time and money. Instead of taking weeks, leads can potentially be pursued and connected to other actionable information in a matter of days and sometimes hours. In the end, companies that make the best choices will have a competitive advantage in detecting and deterring suspicious claims. cA Dennis Toomey is a national account manager with LexisNexis Risk Solutions. He can be reached at dennis.toomey@ LexisNexis.com

Online Resources.

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CLAIMS ADVISOR | FALL 2011

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d e e p e r d e t a i l s | DRIP DROP

Drip,

Drip,

Drip

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Quick Look CC Damage patterns inside cabinets can give pretty definitive clues about water losses.

CC Two new experiments test faced and unfaced cabinetry under various conditions.

A look at the inside of a cabinet can reveal whether water damage resulted from a one-time event or a chronic leak.

CC Long-standing leaks leave a different mark than abrupt incidents. Know what to look for.

By Brett Davis, Donald Rondy, and Ralph Moon, Ph.D.

As the kitchen cabinet doors swung open, the familiar odor of dampness and mold hit like a wet gym sock. “That damage just happened,” remarked the insured.

The particleboard cabinet base was sunken, and several fasteners had failed. The damage looked old, suggesting that it was a long-term leak—but how long?

An adjuster faced with a water claim should be prepared to assess the cause of loss, which often can be judged based on damage to cabinet bases. A one-time burst pipe will leave different decay than a chronic leak.

Some Basics The behavior of water released onto faced and unfaced cabinet bases is different, so the type of cabinet facing has to be considered in the assessment.

Water discharged onto un-

faced particleboard is absorbed with localized swelling. Water discharged onto faced particleboard migrates to adjacent walls depending on the pitch. Once moisture is absorbed and swells the exposed particleboard edge, a repeated water release will flow to areas of lower elevation of the base, and the consequential swelling will create a “bowl-like” appearance.

When water damage occurs inside a cabinet, it usually originates as a low-volume, intermittent leak from the drain or water supply. When kitchen and bath vanity damage is incurred, replacement costs can range from a hundred to a thousand dollars or more per linear foot, so there is an incentive to understand more precisely how cabinets respond to moisture.

In some cases, claimants inflate claims, listing cabi-

Photograph 1. Six cabinet bases (three unfaced, three faced) were stacked on a stainless steel cart with a watering system, all enclosed in 6-mil vinyl to sustain humidity conditions.

CLAIMS ADVISOR | FALL 2011

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d e e p e r d e t a i l s | DRIP DROP

Figure 1. Unfaced Particle Board Cabinet Base after 88 days

Figure 2. Faced Particle Board Cabinet Base after 88 days

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nets that were damaged by a chronic, unrepaired leak as part of a covered, single event. Sometimes it’s an honest mistake; stored contents can obscure a slow leak’s effect on a cabinet base.

Nevertheless, an adjuster is there to determine what damage occurred from the covered event and what didn’t.

Repeated-Exposure Experiment There are current testing procedures used to establish national cabinet performance standards; however, they test only modest moisture-exposure conditions. An “acceptable” performance requires that there be no visible delamination or swelling, and the finish should not discolor, blister, checker, whiten or show other film failure.

Though this test procedure is practical, cabinets must be tested under more severe moisture exposure conditions to reveal the impact of low-volume, longterm plumbing leaks.

Two new experiments have been conducted to address conditions more applicable to insurance claims: the first on faced and unfaced cabinet bases and a second on faced, whole cabinets.

In the first experiment—which evaluated the physical response of three unfaced and three faced cabinet bases to repeated water exposure—one faced and one unfaced cabinet supported no weight; the two others in each category held five or 10 pounds, respectively, representing contents.

The experimental cabinet bases were

Photograph 2.. Deflection and collapse of unfaced particle board cabinet base after 64 days of repeated moisture exposure and a 10-lb. weight.

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exposed to a simulated drainpipe leak that discharged 200 milliliters of water daily (a little more than half a can of soda) onto the middle of the cabinet base. The cabinets were constructed identically using commercially available cabinet screw fasteners to attach the cabinet walls and kick plate to the base.

(Photograph 1, p.47)

The discharge tube dispensed one drop every four to six seconds over the course of 90 to 120 minutes until empty. Plastic sheeting was placed under each cabinet base and stapled to the kick plates to prevent water from dripping onto the cabinet bases below.

Measurements of moisture content (using a Tramex non-penetrating Moisture Encounter Plus), dimen-

Photograph 3. Deflection of faced particle board cabinet base after 88 days of repeated moisture exposure and a 10-lb. weight.

sional changes (using a Westward Micrometer, Model No. 1AAU4), and base drop in millimeters were obtained 35 times during the 91-day experiment. Two Model U10 Hobo data loggers by Onset Computer Company were placed inside the enclosed cart to monitor humidity and temperature.

The first set of cabinet bases was made with 5/8-inch, unfaced particleboard; the second set was made from 5/8inch Limonene-faced particleboard.

Measurements at multiple locations on and around the cabinet base catalogued changes in thickness and moisture content. An aluminum bar measuring 34 inches long and ¾ inch wide was placed across the cabinet base to measure downward deflection.

Observations in Experiment One The largest decline occurred in the unfaced particleboard, with the 10-lb. weighted base collapsing after 64 days.

(Figure 1 and Photograph 2) The control base and the base that supported a 5-lb. weight deflected downward more slowly and did not collapse in 88 days.

The faced particleboard bases responded similarly whether they supported weight or not. (Figure 2) The cabinet base that supported the 5-lb. weight declined faster than the base with 10 pounds. After 88 days, the faced particleboard base that supported the 10-lb. weight formed a shallow bowl. (Photograph 3)

The dimensional change (swelling) reported for the unfaced particleboard was 40% (average of all measurements) from the initial to the final day. The average dimensional change of the faced particleboard was 45%. The response of the unfaced particleboard was uniform because water added to the cabinet base was quickly absorbed in the middle of the base and distributed via capillary action. The faced (non-permeable) particleboard had a non-uniform response because the direction of water movement depended on the slightest pitch of the cabinet base. During the first few days of the experiment, water flowed across the cabinet base surface to a side or back wall. Once water penetrated the wall joint, the particleboard swelled and directed free water to another area

of the base. After one month, several base sides were swollen, and free water was retained in the middle, simulating a “bowl-like” effect.

The entire unfaced particleboard cabinet base achieved saturation (>30%) after 35 days. Moisture absorption by the faced particleboard cabinet base was variable because the faced materials were not penetrated.

The moisture content in the faced cabinet base and walls varied because water flow direction responded to gradual changes in cabinet base slope.

As a result, fasteners located along some sides of the cabinet base were exposed to water for longer periods of time than others. This condition contributed to some bases exhibiting fewer declines than others despite supporting more weight.

Temperature measurements fluctuated between 64o F and 84o F; average daily relative humidity measurements were in excess of 80% RH during the study period. Temperature and relative humidity fluctuations were influenced by the daily addition

Wet Cabinet Facts • Faced and unfaced particleboard cabinets withstand interior, low-flow plumbing leaks for several months more before collapsing.

• Faced particleboard is more resistant to water damage than unfaced particleboard.

• When a leak occurs inside a faced particleboard cabinet, the water initially flows downhill to a joint; unfaced particleboard absorbs the moisture and prevents flow.

• High humidity (>90%) alone does not cause a faced interior cabinet base to sag after 150 days.

Other Observable Phenomena In the first experiment, all of the unfaced particleboard bases supported prolific microbial growth after Day 11. The extent to which microbial growth weakened the unfaced particleboard is unknown; however, previous experiments with unfaced particleboard documented swelling of up to 22% within 30 days when exposed to constant moisture (Moon and Price, 2009).

During the first 30 days of moisture exposure, swelling rather than microbial growth has the primary impact on particleboard strength. Once the particleboard becomes fully saturated, microbial oxidation imposes an increasing stress on board strength.

Some types of water damage often seen in the field were not observed in this experiment. In Experiment 2, among the unfinished, unfaced oak components, no cracking or joint separation was observed. This damage is consistent with moisture exposure followed by rapid drying efforts that can cause joint separation and cracking because the wood experiences both swelling and contraction during drying.

Fasteners are critical to the structural integrity of a cabinet. In a technical study, seven types of cabinet fastening methods (Lamello, dowel, blind dado, nailing strip, KD fastener, pocket screw, and staple) were tested for shear, tensile and parallel shear strength under dry conditions.

The study revealed the poor performance of KD fasteners, pocket screws, preglued dowels, and staples. The fasteners used in Experiment 1 were screws, while staples were used in Experiment 2. Fastener test results suggest that if a particleboard cabinet is constructed with dowel and glue or Lamello fasteners (tested to be stronger), the progressive decline in cabinet base height may be substantially more.

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d e e p e r d e t a i l s | DRIP DROP

Figure 3. Faced Particle Board Cabinet Base after 152 days 5 0

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Photograph 4. Three cabinets with control (ambient conditions) on left, control with humidity on upper right and test cabinet (elevated humidity, daily watering and 10-lb. weight) on lower right.

of water and the periodic removal of the plastic sheeting for photography.

Testing Whole, Faced Cabinets The objective of the second experiment was to evaluate the rate of cabinet base decline of commercially available faced cabinets exposed to repeated moisture under conditions of elevated humidity and a 10-lb. weight.

Three sink-base kitchen cabinets (Continental Cabinets, 36” wide, sinkbase) were purchased. The first cabinet was used as a control and exposed to test conditions of 75o F and 55% relative humidity. The second cabinet was exposed to elevated humidity using a fish tank aerator placed inside a container of water suspended in the cabinet. The third cabinet was exposed to elevated humidity, daily watering (200 ml) from the device described above, and a 10-lb. weight. A Hobo data logger was placed inside each cabinet to monitor relative humidity and temperature for 152 days. All cabinets were enclosed in plastic sheeting. (Photograph 4.)

Photograph 5. Test cabinet showing “bowl-like” appearance after 152 days of continuous exposure

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Experimental Days

Both non-penetrating and penetrating moisture meters (Tramex Moisture Encounter and Moisture Pro) were used to obtain percentage moisture content from 33 locations along the left side interior/exterior, front toe kick (particleboard), front face (solid oak) and interior base (faced particleboard).

Dimensional measurements were obtained at three locations along the left and right side panels and the center of the front face. The cabinet base was not measured. Measurements of cabinet base downward deflection were conducted as described above. Measurements of pH (using Merck pH paper strip) were obtained for the first 100 days to see if

Photograph 6. Similar “bowl-like” appearance observed in actual cabinet damage claim consistent with a long-term release

solutes extracted from wood extracts or biological activity changed the pH. Observations in Experiment Two The control cabinet and control cabinet with high humidity experienced no change in base height. (Figure 3) The test cabinet base gradually declined 34 mm after 152 days, and the base supported a pool of water.

(Photograph 5) This is characteristic of plumbing leaks that occur inside faced particleboard cabinets. (Photograph 6) Water accumulated on the impervious Limonene coating as was observed during the first experiment.

The cabinet bases exposed to ambient conditions or ambient conditions plus elevated humidity showed essentially no decline following months of exposure to elevated humidity (>80%).

Among the three dimensional measurements (left and right side panels and front face) obtained from the three cabinets, an average change of approximately 1% was measured throughout the duration of the experiment. Dimensional measurements were not obtained from the cabinet base materials.

A comparison between the initial and final moisture content revealed an average increase of 0.81% in the control cabinet (initial 9.05%, final 9.85%). The cabinet exposed to elevated humidity revealed an average increase of 3.9% (initial 9.6%, final 13.48%). The test cabinet (daily water, elevated humidity and 10-lb. weight) revealed an average increase of 6.1% (initial 9.5%, final 15.6%). Measurements of pH obtained from water discharged into the cabinet and water that accumulated in the cabinet base reported slightly alkaline measurements of 8.0 pH units throughout the entire test period.

Temperature and relative humidity measurements in the ambient control cabinet fluctuated between 70o F and 84o F with average daily relative humidity above 80% RH. The humidity control cabinet fluctuated between 70o F and 85o F and ranged 73% to 85% RH. The watered and humidified cabinet fluctuated between 72o F and 88o F and 60% to 88% RH.

These two long-term tests conducted on faced and unfaced particleboard cabi-

net bases under different environmental conditions revealed that a minimum of 64 days is required for an unfaced cabinet base to collapse following daily exposure to a low-volume water leak (200 milliliters). Cabinet bases constructed with faced particleboard and exposed to daily moisture releases did not collapse following tests conducted for 88 and 152 days; although, they did droop.

When confronted with a water damage claim, take a look at the cabinet bases and determine if losses were caused over a long duration. cA Brett Davis is a Certified Residential Contractor, Master Window Installer

and a Building Scientist with HSA Engineers & Scientists. Don Rondy is a Certified Indoor Air Quality Professional, Florida Certified Mold Assessor and Building Scientist with HSA. Dr. Ralph Moon (rmoon@hsa-env.com) is director of Building Sciences at HSA Engineers & Scientists.

Acknowledgements: The authors would like to thank the following colleagues for their editorial comments and technical assistance: Nicholas Albergo, P.E., DEE, Chin S. Yang, Ph.D., Bruce Bosserman, P.E., Robert Braun, P.E., Jeff Wilemon.

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CHIE F CONCERNS | S c o t t M c A l i n d i n / M A P F RE

Claims Exec

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cutive Focus: Scott McAlindin, senior vice president of Claims for MAPFRE USA.

By Marc Lanzkowsky and Taylor Smith

Where did you grow up?

Scott McAlindin: I was born in Newark, New Jersey, and am the oldest of seven children. My father was head of repair and maintenance for the Newark Board of Education. When I was five, we moved to Scotch Plains, a suburban community 20 miles southwest of New York City. We lived in a small, three-bedroom, split-level home with one bathroom for nine people. After my youngest brother was born, I was assigned to the couch in the family room because all the beds upstairs were taken.

What was your first job?

I started working at 13. I was a paperboy like many at

that time. When I was 14, I worked at a local confectionery store called Harold’s Corner, which was two blocks from my house. We sold ice cream, newspapers, cigarettes and candy. I worked there for a couple of years. Then, my first job in insurance was when I was a junior in high school, believe it or not. I was a file clerk at Allstate in Murray Hill, New Jersey.

I worked at Allstate after school (when it wasn’t baseball or soccer season) from 3:00 to 7:00 p.m. and then all day on Saturday. I worked in a huge open room with over 500 five-drawer file cabinets. They gave us what was called “drop filing,” which involved filing the billing records. We

took those pieces of paper, identified the policyholder, and then just dropped the paper in there. We did that for hours on end. When the drawers were filled, we’d purge them and take the old files to what we called the “morgue” in the basement.

I worked with a lot of my buddies, and we had a lot of fun. I would look at my bosses at the time—the guys in the office in white shirts and ties. I remember one day I turned to my buddy and said, “Shoot me if I ever turn out like that.” Forty-one years later, I’m still in the business.

Where did you go to college?

I went to West Chester State University, about 30 miles

southwest of Philadelphia.

I majored in psychology.

I didn’t know at that time what I wanted to be. I thought maybe a guidance counselor, but it wasn’t a passion. I just knew sooner or later I’d find a job and a way to make some money.

I worked both during the school year and in the summer throughout college to supplement loans I had taken out to get me through.

What was your first job after college?

When I graduated, I responded to an advertisement in the Newark Star Ledger for a claim adjuster job at Aetna Life and Casualty. They offered me the job, and the

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CHIE F CONCERNS | S c o t t M c A l i n d i n / M A P F RE

rest is history. I went from graduating college with very little money and school loans to pay off to having a job where I could work outside the office…how good is that. I was driving a purple 1964 Volkswagen Beetle I bought for $150. The floor in the back seat was rusted out, so if you sat back there you could watch the road under your feet.

When I got the job, it came with a company car—a 1976 Chevy Nova. I was on cloud nine. At that time, my family had one car, which my dad took to work every day. My mother did not have a car during the day, so I gave the Nova to her to use since Aetna allowed anyone in your immediate family who lived in the house with you to drive the car. I continued to drive the Beetle until the

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back seat ultimately fell out onto the road.

Was there a point at which you decided to pursue a career in claims?

Not really. In fact, I’ve been in and out of claims over the years. I’ve held leadership positions in IT and underwriting and was even out of the P&C industry while with Aetna. The reason I pursued the opportunity in IT was to learn that critical side of the business.

What do you think are some of the biggest roadblocks for new, young professionals?

You have to be a student of the business. You have to look outside your workstation to see what’s going on within your company and the industry at large. You

need to understand how what you do every day fits in with the strategy of the company. Don’t be afraid to take a risk. I think many of us are still trapped in a traditional career track that says, “I’ll be a claims adjuster, move up to supervisor, etc.” If you do that, you get contained in the department where you first enter. There are so many opportunities in this industry to do all kinds of things.

Just go with it, and it will take you on a great ride.

What advice would you give to executives?

You need to know the business and stay connected to all the things that are going on in the organization, particularly on the front lines.

Be in touch with people who interact with your customers every single day. If you want to understand how to improve processes, how to adjust workflow, and how to understand the constraints of the systems your people work with, you have to be in touch with your frontline staff. I advocate to my frontline leaders and middle managers to spend at least 15 minutes per day with each of the people on their team to understand how to make things better for customers and the employees who serve them. Your job is to support the people who work in the company.

When I speak to people who are entering the organization—new supervisors or managers—I never mention my title. I describe myself as someone who supports the 1,200 people who serve our customers. My job is to make it easier for them to do their job so they can better meet customer needs.

“ You have to be a student of the business. You have to look outside your workstation to see what’s going on within your company and the industry at large.”

Reach out and understand what’s going on in other areas of your company—underwriting, actuarial, etc.

Stay close to the metrics and data that are coming out of your claims organization. It gives you insight into how things can be changed for the better. You have to convert data into information and information into actionable opportunities to drive real change and innovation.

As a senior claims executive, what do you need that you don’t have?

I wish I had more time.

More time to spend with the individuals in my operation. More time to get to the locations outside of Webster, Mass. With the speed at which business is moving today and our significant reliance on technology, I wish I had more time to explore opportunities to better leverage the tools we use to

service our customers. And, ultimately, more time with my family.

How would you define a topnotch claims person?

They have to be smart, creative, analytical, have technical capabilities to use the tools we provide, and be a student of the industry and highly engaged with their teammates and customers. They must be adaptable and demonstrate the ability to look out from behind their desks. They must also have high emotional intelligence—be able to get along and connect with other people.

Is it more difficult today to find that kind of person?

I can’t say it’s any different today than it has been, but it’s becoming more difficult to attract some of the technicians. As I look out to the future, I’m concerned about where I’m going to get the next generation of real property and material damage experts. Our industry needs to do a better job of promoting the variety of opportunities that exist in our business.

MAPFRE is a Spain-based insurance organization. What are some of your observations about European-based operations as compared to domestic carriers?

It’s interesting. Generally, when you grow up in the U.S., you have a sense that nothing can be as advanced as what we know here, so it’s been a great opportunity at this stage of my career to have been exposed to MAPFRE, which purchased [Commerce Insurance] in

2008 to expand its presence in the U.S. market. MAPFRE really is an incredible organization. It does business in 44 countries around the world and has over 36,000 employees. When I’ve traveled to Madrid to see the operations, I have been amazed by the sophistication and innovation taking place there. For example, MAPFRE maintains a research and development operation where it explores new and innovative ways to repair cars, complete with its own crash center.

Another example is their salvage center, which is like nothing I’ve seen in the U.S. The salvage operation employs a technological sophistication that would have great applicability in our markets. Picture a process where cars are rolled in and torn down, and their parts are catalogued digitally and stored for electronic access.

It’s really impressive and not what we envision when we think of salvage operations here in the U.S. Is there anything about you that people would be surprised to know?

I don’t think so. I’m a fairly transparent person. I like to play golf, ski, and landscape.

I’m an avid Yankees and Giants fan which garners me a lot of ribbing from the Red Sox and Patriots fans in Massachusetts.

I’m lucky enough to have married my high school sweetheart, and we have three wonderful children.

My wife and I love to work in the yard designing beds and selecting plants. It brings me great joy to pull

profile Name: Scott McAlindin Current Position: Senior Vice President – Claims, MAPFRE USA Size of Claim Organization: ~ 1,200 U.S. claims employees Years in Current Role: 4 Years in Insurance Industry: 41 Degrees and Designations: B.A., Psychology, West Chester State University Other: CAR Claims Advisory Committee, Insurance Fraud Originally From: Newark, N.J. First Claims Job: File clerk for Allstate during high school

into my driveway and see the sanctuary we have created for our family. I also like to take hikes with my golden retriever, Buddy. He never leaves my side when I’m home. cA Marc Lanzkowsky and Taylor Smith are contributing writers for Claims Advisor. Lanzkowsky is founder of The Claims Spot—a Claims Advisor media partner and awardwinning blog dedicated to claims professionals. Smith is a contributing editor for The Claims Spot. Chief Concerns are interviews with C-suite and top-level claim executives that seek to give insight into the insurance claim industry’s highest leaders.

“When I’ve traveled to Madrid to see the operations, I have been amazed by the sophistication and innovation taking place there.”

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pulse Poll

Reader responses to monthly poll questions.

Claims Advisor Pulse Poll

— 2010 & 2011

Are reports of suspicious claims on the rise? If so, why?

Yes, people are getting desperate

23%

Yes, people are getting desperate

No, I haven’t see a significant change 15%

20%

Yes, possibly because we’re questioning more 11%

2010 Yes, for other reasons 7%

Yes, it’s likely people are getting desperate and we’re questioning more

I’ve seen a decrease 4%

Yes, possibly because we’re questioning more 9% No, I haven’t see a significant change 6%

2011

Yes, for other reasons 3% I’ve seen a decrease 1%

41%

Yes, it’s likely people are getting desperate and we’re questioning more

61%

Take this month’s Pulse Poll online at www.claimsadvisor.com

Chat Us Up There are more ways than ever to get connected with your colleagues and with us. @claims_advisor claimsadvisor claims advisor

Or e-mail letters and comments to editor@claimsadvisor.com

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What is that thing?

QR codes, those crazy looking boxes, are showing up everywhere these days—at restaurants, Home Depot, trade shows, in print ads (some in this issue!), and in our Advertiser Index. Are they a fad? Not likely.

These 2D codes store addresses and URLs that take you to information specifically created for your needs, often with special offers and content only available by using the code.

How can you read them? If you have a smartphone, you can simply download a reader—many are free—then scan away!

Get online and get social with cA!

The Claims Advisor website is loaded with the information you need to stay on top of today’s most challenging issues.

And now you can get “social” with Claims Advisor by following us on Twitter or LinkedIn. Or “Like” us in Facebook. Check out articles and news and share comments with fellow claims pros.

Visit www.claimsadvisor.com

Keyword categories that demand the highest cost per click and are the most competitive in terms of high search volume are “Insurance” (#1) and “Claims” (#10), according to Wordstream.

91,730+

Fun information bites, less fattening than pizza.

10

slice

September 11 marks the 10th anniversary of the terrorist on the years attacks U.S. that brought down the World Trade Center Towers, damaged the Pentagon and caused passengerheroes to aid in the crash of their own plane into a Pennsylvania field.

Nearly 3,000 people from 115 nations were lost that terrible day.

Our hearts and prayers go out to the families and friends of 9/11 victims and to the first responders who continue to suffer health issues for their heroic actions.

in 2010

The NICB released a new report that examines questionable claims from 2008 to 2010. California, Florida, Texas, New York and Michigan generate the most QCs. Referring companies reported claims increased 23% from 2008.

Check out www.nicb.org for the full report: U.S. Questionable Claims 2008-2010

Share of Annual U.S. Adult Travel by Month January February March April

5% 6% 7% 8%

May June July August

9% 10% 12% 11%

September October November December

8% 8% 8% 8%

Source: Travel Industry Association of America

85

Confidence in a more active, above normal storm season caused NOAA to increase its prediction from 65% in May to percent 85% in August. The number of expected named storms rose to 14-19 and expected hurricanes to 7-10.

Check out NOAA’s website for more information at www.noaa.gov

Top Ten States for Equipment Theft in 2010 STATE Texas Florida North Carolina Georgia South Carolina California Tennessee Oklahoma Alabama Ohio

THEFTS 1,894 1,211 1,161 794 674 597 542 522 423 388

Source: NER/NICB 2010 Equipment Theft Report

1

The Wall Street Journal reported that while Facebook’s use as a job-recruitment tool may be small, it is increasing and may percent rival its competitors by 2012. ...for now

TOP STORIES

The most popular articles over the past six months according to online readers when visiting www.claimsadvisor.com

1.

2.

3.

Chief Concerns: Claims Executive Focus. CNA’s George Fay, executive vice president, Worldwide P&C Claims, at CNA. Chief Concerns: Claims Executive Focus. Michael Prandi, National Claims Leader/Westfield Insurance

Managing the Costliest Drugs in Workers’ Secondary Payer Protection by John D’Alusio/ MEDVAL. Medicare as a secondary payer must be protected for all liability claims, in and outside workers’ comp.

4.

5.

6.

Claim Files That Blab by Gerard Harney and Peter Caltagirone / Cozen O’Connor. Your claim file may be papered with things that could hurt your case later unless you know what is and isn’t discoverable.

Workers’ Compensation: A Ticking Time Bomb

by Judith Vaughan, CPCU, AIC/The Institutes. Is the imploding economy blowing up the workers’ compensation system?

Colossal Cleanup by Annmarie Geddes Lipold.

Regulators prepare to examine insurer’s auto claimshandling software.

The Katie School of Insurance and Financial Services www.katieschool.org • Nationally ranked insurance program • Nearly 300 insurance majors and minors • Over 90 companies recruiting students • Excellent faculty/smaller class sizes • Scholarships/Honors program • Preparation for professional designation exams • Internships/domestic and international • Active industry involvement • Gamma Iota Sigma insurance fraternity • Highly successful career placements • Articulation agreement with Bermuda College

The Katie School attracts the best and the brightest students who are pursuing careers in the insurance and financial services industry.

To learn more about what the Katie School has to offer, contact: Deborah A. Babcock, Associate Director (309) 438-3368 Debbie.Babcock@ilstu.edu

Managing Repairs, Managing Costs Auto and contractor networks grow as insurers seek to improve results.

We are all aware by now that the recent Great Recession accelerated certain negative financial trends in the property/casualty insurance industry. Though some of those trends are starting to shift, the situation isn’t looking significantly better yet. Shaky financial and credit markets, stubbornly high unemployment and weak corporate results continue to dampen the economy.

As USA Today put it recently, “Don’t look now, but the economic recovery that barely exists in the eyes of many Americans is two years old.”

As this column has discussed on several occasions, insurers around the world are coming up with innovative ways to deal with cost control and capital management while still attempting to increase customer satisfaction.

Among the prime targets for new, cost-saving adjusting practices are low-severity, high-frequency claims— generally, those under $10,000 in value, though that definition can vary by the insurer.

Technology plays a key role in handling such claims, and that role will only continue to increase. Reporting and tracking claims online is commonplace, and smartphone applications with the same functionality are starting to appear.

However, another practice that can speed up claims closure and reduce costs on smaller claims is managed or direct repair services for vehicle and building damages.

Well established managed repair programs essentially work as follows: • Companies (sometimes insurers, sometimes third parties) screen and credential auto shops and restoration contractors that offer repair services.

• Claims representatives triage claims during the intake process and make referrals based on qualification criteria and policyholder interest.

• Work typically is tracked for performance measurement and, in some cases, backed by some type of warranty.

In short, managed repair provides an alternative solution for non-complex losses by offering a policyholder an option to work directly with a qualified and vetted repair service. Because vendors are screened, insurers have a level of confidence that the claimholder experience will be positive and costs fair and reasonable.

Interestingly, managed repair also can improve policyholder satisfaction, as homes and autos may be restored more quickly and easily with such services. This could be particularly important for homeowners, who typically are less satisfied with their claims experience than auto policyholders. In the end, managed repair can offer a total solution where sometimes simply cutting a check for a loss does not.

Managed repair is common in the United States and is spreading to other parts of the world. Insurance penetration in growing markets should accelerate this trend. The real growth could come in managed repair for building losses, as those networks are not as common or used as frequently as auto direct repair.

global view

By Jeffrey T. Bowman

With the growth of managed repair (and other techniques and technologies that focus on improved claims adjusting efficiency), we see the definition of low-end claims changing so that tomorrow’s $50,000 claim may be handled in much the same way as a $10,000 claim today. Adjusters, take note: Policyholders expect more when settling claims, and providing a repair solution will become more commonplace. With a greater percentage of claims handled by managed repair processes and new technology, the pool of claims assigned to field adjusters may shrink.

Opportunity still will exist for skilled adjusters, particularly those who can handle mid- and high-value claims. And claims representatives still will work inside to evaluate losses and suggest managed repair options when appropriate. However, it will be more important than ever for adjusters to take advantage of training and educational opportunities to upgrade skills, gain designations and seek the experience that will help ensure a long and rewarding career in the profession.

Jeffrey T. Bowman is president and CEO of Crawford & Company, the world’s largest independent provider of claims management solutions with $1 billion in revenues and 8,900 employees serving clients in more than 70 countries. He also serves on the board of directors of The Institutes, the organization that develops courses and confers the CPCU designation. He can be reached at info@us.crawco.com.

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Rendering of the future Manhattan Skyline First Freedom Tower Steel US Arrival September 2006

© dbox | Courtesy of Silverstein Properties

WTC Rendering, Site by Night - 2006

© Courtesy of Silverstein Properties

RISE OF THE AMERICAN SPIRIT The insurance industry has played and continues to play an integral role in the story of 9/11 and the rebuilding of the Ground Zero site. After 10 years, while claims complexities and policy coverages are still being refined, the lower Manhattan skyline is taking shape. It is a testimony to the resilience of not only New York but of the United States of America. Here is a small sampling of what has taken place at Ground Zero. Plans for the site include five new skyscrapers (1, 2, 3, 4 and 5 WTC), the National September 11 Memorial & Museum at the World Trade Center, a transportation hub, a retail complex and a performing arts center.

If you’d like to know more, a new TV series–from executive producer Steven Spielberg–tells the story of darkest moments, human determination and dreams coming to reality. Rising: Rebuilding Ground Zero premieres Thursday, August 28, on Discovery Channel with encore showings through September.

Glacial Rock Formation at Tower 4 Site - August 2008

7 WTC Park - September 2009

© Joe Woolhead| Courtesy of Silverstein Properties

© Joe Woolhead| Courtesy of Silverstein Properties

Memorial - August 2011

© Joe Woolhead| Courtesy of Silverstein Properties

Visit www.wtc.com for more on the plans and progress.

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© Joe Woolhead| Courtesy of Silverstein Properties

www.claimsadvisor.com © Joe Woolhead| Courtesy of Silverstein Properties

1 WTC August 2011

1 WTC - May 2011

© Joe Woolhead| Courtesy of Silverstein Properties

By Gary Blake, Ph.D.

Twenty Tips on Assuring the Success of a Claims Writing Training Seminar

1. Motivate the instructor. Be cooperative. Find out how the instructor wants the training room set up.

Make sure the room is well ventilated and free of distractions. Have the box of materials in the training room when the instructor arrives.

2. Give the trainees a say in their participation. Training works better when participants volunteer instead of being “volunteered” by their managers.

3. Check equipment. Make sure there are flip charts or white boards in the room. See if an overhead projector will help or if PowerPoint needs to be arranged.

4. Start on time. Make sure that breaks are taken when they are planned. The same is true with ending on time. Do not start on time if there have been severe weather or traffic delays or if more than one quarter of the class is absent. See if a supervisor can call each of the missing participants to give them a reminder that class is about to begin.

5. Review participants’ writing samples. Make sure the instructor knows which documents are critical, e.g., denials, physician letters, attorney letters, reservation of rights, letters to insurance commissioners. Be constructive, pointing out both positive and negative aspects of the document. Be prepared to distinguish and communicate to the group the difference between major and minor writing problems.

6. Encourage participation. Ask open-ended questions such as “Which common writing problems do you struggle with as you write your correspondence?”

7. Try group exercises. Participants learn a great deal from comparing and contrasting their answers with those of their team members in group exercises.

This way, participants teach each other. They don’t focus on one right answer from an instructor but, instead, find a solution from their team members’ contributions.

8. Be sure expertise is demonstrated to the class. An instructor should give a brief overview of his or her background, emphasizing experience in the class subject matter. An instructor’s own published works can underscore their authority.

9. Make smooth transitions. In a well designed course, there should be clear transitions from topic to topic.

10. Encourage questions. Sometimes a random question pops up that may be off the current topic being discussed. Answer the question briefly, and then segue back to the topic at hand.

11. Have tent cards and markers for all participants to display their name. Everyone should be encouraged to refer to their colleagues by name.

12. Have enough material to go deeper—or less deep—into a topic, depending on the consensus of the group. Perhaps you’re prepared to spend an hour on punctuation and grammar—be ready to take more time with the subject or to move through it at twice the speed.

write stuff

Tips below aid both the person planning the event and the seminar presenter.

13 Have a definite end to your presentation, one that includes thanking the participants and underscoring the positive nature of the training experience.

14. Offer participants telephone access to the instructor.

This helps reinforce the training by letting them know that the instructor will be available to discuss writing problems with them in the future.

15. Offer reinforcement by fax and e-mail. An instructor should be willing to review writing samples for a while after the training seminar has concluded.

16. Gain feedback from the participants. This can be done through an immediate evaluation sheet, an informal chat, or by an evaluation sent out several days after the class has taken place.

17. Ask the instructor for a short “memo” about how they felt the class went, encourage both positive and negative feedback on the participants.

18. Have the instructor be prepared to meet one-onone with any participant who prefers to review their writing in private.

19. The instructor should make sure that no piece of writing under discussion emerges with only negative feedback.

20. Smile. It helps make the day move along.

Gary Blake is director of The Communication Workshop, a company that offers on-site writing seminars throughout North America. For information about Dr. Blake’s claims writing seminars and webinars, call (516) 767-9590 or e-mail garyblake725@gmail.com.

CLAIMS ADVISOR | FALL 2011

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story

letters to the editor Vintage Employees: WOW – I’m one of them for 6 months out of every year.

I am the Claims Manager for a large agency located in Eugene, Oregon. I’ve been in claims roughly 35 years working most of that time at the carrier level. Approximately 6 years ago, [my current agency’s owner] came up with the idea of having a licensed claims person on hand to work with clients and handle claims under their deductible, and to be able to speak claims language to various clients. The idea was a hit and I am happy to be working directly with clients and with the various carriers we do business with.

Last year, I asked what the possibilities of working remote from our home in Arizona might be. [The owner] embraced the idea and I’m happy to say it has worked just fine. I’ve made a couple of trips back to [Washington] to be in the office for a week or so and during that time visited with clients. The best part of this arrangement is that our clients were all fine with it and it worked out well. Unless I tell people I’m not in the office, no one would know. Phone calls are transferred to me as if I’m sitting in my Eugene office. I can do everything from Arizona that I did in Eugene and there are no complaints.

I’m happy to continue working under these circumstances and will continue to do so.

Thanks for the article – I just wanted to tell you that it really does work!

Carole R. Claims Manager/Claims Department

“Ready to Rumble” Article This was a great interview to read. The best part, though, was the last paragraph by Mr. Horst talking about the negative stereotype that insurers don’t pay claims. Insurance adjusters receive negative comments about denying claims on a regular basis and it’s nice to hear someone stand up for us.

Thanks for the magazine.

Sincerely, Blake C. Branch Claims Representative

Send letters to the editor to editor@claimsadvisor.com

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www.claimsadvisor.com

Claims Adjusters have a million stories.

What’s yours?

Timing is Everything

Like you said, we have a million or more stories as a result of being in this industry. Here’s one near and dear to my heart. A manual labor employee never wanted to work on the hottest days of summer. His employer would schedule moving “dirt” for pipe laying during certain times of the year—the heat of summer being one of those times.

Seeing ahead, the employee claimed a back injury just prior to the scheduled dates for the project. The employer was suspicious—as was the adjuster—as to the particular injury claimed. Surveillance was initiated and video showed the employee at home on his horse farm digging post holes for his fence—with a hand tool no less! Once the treating physician was showed the evidence, the employee was immediately released to return to full duty work and ended up working on the dreaded project anyway. Nice try.

Vicki C., Staff Claims Adjuster/Appraiser Santa Cruz, CA Tell us your story at www.claimsadvisor.com/contactca/story

cool linx Ad-Aware Free Internet Security With a simple user interface, Ad-Aware Free Internet Security provides peace of mind for those who want to block malware with real-time protection or need to remove malware that has already wormed its way into the system. Full scans run relatively quickly and remove most malware. Among free antivirus products for non-commercial use, it has been rated as one of the best.

www.lavasoft.com/products/ ad_aware_free.php

ClaimsPages Careers Have you noticed the exorbitant price that websites are charging lately to advertise a job? At ClaimsPages. com, that cost is zero, zilch, nada. Although it previously listed jobs from an outside feed, ClaimsPages.com now allows employers to add jobs directly to its careers section where they will remain at the top of the list for seven days before merging into the regular job feed.

Although there is no charge to add a job, each submission must be approved before it will appear online. To ensure the quality of its data, ClaimsPages.com only accepts claims and risk management positions that are offered by an insurance carrier, independent adjusting firm, or company risk management department.

www.claimspages.com/careers www.claimspages.com/careers/suggest

Google +1 If you’ve already signed into your free Google account, you may have noticed the “+1” image that shows beside each search result as you hover over it. Similar to the Facebook “Like” button, Google +1 is a way to recommend a website to others. Although clicking it makes that website more relevant among your online Google “social circle” (in your profile), it seems to be more of a precursor to their new social networking website, Google+ at http://plus.google.com.

Spotify With over 15 million tracks, Spotify offers free streaming music from a variety of major and independent record labels including Sony, EMI, Warner Music Group, and Universal. You can search or browse by artist, album, record label, genre or playlist. Free accounts are supported by advertising while paid subscriptions offer higher bitrate streams and offline access. Perhaps the RIAA has realized that if you can’t beat ’em, join ’em (rather than sue ’em).

www.spotify.com

Google Chrome Remember how Microsoft killed off Netscape Navigator by bundling its free “Internet Explorer” with its Windows operating system in the face of anti-trust lawsuits? Well, the development of Google Chrome may be karma.

Although much of the insurance industry still uses Internet Explorer, Google has designed a clean, streamlined browser that has garnered as much as 20% of the market already and is well worth the effort to download and install. Testing suggests that Google Chrome is the fastest browser, both in startup and in navigation from Web page to Web page, and provides built-in malware and phishing protection to keep your system safe.

www.google.com/chrome

JiWire With close to 500,000 Wi-Fi hotspots in its worldwide database, JiWire’s smartphone apps identify free and paid public hotspots near you based on your smartphone’s current location. To use the database offline, just install the optional component from the app’s interface. Downside: It’s going to be harder to tell your boss that you don’t have Internet access wherever you are.

www.jiwire.com/iphone www.jiwire.com/android

www.google.com/+1/button

Square Need a credit card reader for your business? Just use your cell phone. With a free, pocket-sized credit card reader that plugs into your smartphone’s audio jack, Square provides a simple way to accept credit cards with no contracts or monthly fees. It’s only 2.75% per swipe using your Android, iPhone, iPad or iPod touch with automatic daily deposits to your bank account.

Just download the App! https://squareup.com

To receive Claims Advisor Live!, update your subscription to include your e-mail address at:

www.claimsadvisor.com /subscribe

CLAIMS ADVISOR | FALL 2011

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2011

9/7-8 Property Loss Research Bureau 2011 Central Regional Adjusters Conference, 630-724-2200, conference@plrb.org, Indianapolis, IN, www.plrb.org

event 10/11 Chartered Property Casualty

Underwriters (CPCU)

Handling Claims Complaints, Member Center, 800-932-2728, membercenter@cpcusociety. org, Online Webinar, www.cpcusociety.org

9/11-14 International Association of

Special Investigation Units

IASIU 26th Annual Seminar & Expo on Insurance Fraud, Dawn Lipsey, 410-9313332, IASIU@ManagementAlliance.com, JW Marriott San Antonio Hill Country, San Antonio, TX, https://www.iasiu.org

9/13-15 Haag Education Haag Certified Roof Inspector ProgramResidential, Kevin McCormick, 214-614-6550, kmccormick@haagengineering.com, Phoenix, AZ, www.certifiedroofinspector.com 9/14-15 RAA Association Reinsurance Claims and Loss Management, Ann-Marie Mwombela, 202-783-8385, mwombela@reinsurance.org, The New York Helmsley Hotel, New York, NY, www. reinsurance.org 9/26-28 Property Loss Research

Bureau

2011 Large Loss Conference, Registration, 630-724-2200, conference@plrb.org, Chicago, IL, www.plrb.org

9/27-29 Haag Education Haag Certified Roof Inspector ProgramCommercial, Kevin McCormick, 214-614-6550, kmccormick@haagengineering.com, Nashville, TN, www.certifiedroofinspector.com 9/29-10/2 Virginia State Claims

Association

Claims Leadership Conference, Lou Pugh, Conference Chairman, 540-537-3010, lpugh@ rockinghamgroup, Stonewall Jackson Historic Hotel, Staunton, VA

10/2-5 International Claim Association ICA 102nd Annual Education Conference, Chris Murphy, 202-452-0143, cmurphy@claim.org, Encore at Wynn Las Vegas, Las Vegas, NV, www.claim.org 10/2-4 Verisk Insurance Solutions Verisk Insurance Solutions Customer Conference, James Horner, 800-888-4476, meetings@iso. com , Disney’s Yacht & Beach Club Resorts, Lake Buena Vista, FL, www.iso.com

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10/11-13 Haag Education Haag Certified Roof Inspector ProgramResidential, Kevin McCormick, 214-614-6550, kmccormick@haagengineering.com, Salt Lake City, UT, www.certifiedroofinspector.com 10/20 Federation of Insurance Women

of Texas

FIWT Golf Tournament, 469-362-5780, Golf Club at Cinco Ranch, Katy, TX, www.fiwt.com

10/20-23 Federation of Insurance

Women of Texas

FIWT 2011 Annual Convention, Registration, 469-362-5779, Marriott Houston Westchase, Houston, TX, www.fiwt.com

10/22-10/25 CPCU Society 67th CPCU Society Annual Meeting and Seminars, CPCU Society, 800-932-2728, Caesars Palace, Las Vegas, NV, www. cpcusociety.org 10/22-10/25 Blue Ridge CPCU A Winning Strategy, Registration, 800-9322728, membercenter@cpcusociety.org, Las Vegas, NV, www.cpcusociety.org 10/23-10/26 Property Casualty

Insurers Assn of America

PCI Annual Meeting, Courtney Thomas, 815338-9668, pci@reallygreatmeetings.com, Sheraton New Orleans Hotel, New Orleans, LA, www.registration123.com

10/25-10/27 Haag Education Haag Certified Roof Inspector ProgramCommercial, Kevin McCormick, 214-614-6550, kmccormick@haagengineering.com, Charlotte, NC, www.certifiedroofinspector.com 10/26-10/30 Defense Research

Institute

2011 DRI Annual Meeting, Registration, 312-795-1101, annualmeeting@dri. org, Washington Marriott Wardman Park, Washington, DC, www.dri.org

11/1-3 Haag Education Haag Certified Roof Inspector ProgramResidential, Kevin McCormick, 214-614-6550, kmccormick@haagengineering.com, Kansas City, MO, www.certifiedroofinspector.com

11/3-6 National Association of

Insurance Commissioners

NAIC Fall 2011 National Meeting, NAIC Meetings Department , 816-783-8100, meetingsmail@naic.org, Gaylord National Resort & Convention Center, Washington, DC, www.naic.org

11/6-9 National Association of

Subrogation Professionals

NASP 2011 Annual Conference, 412-7068000, Gaylord Palms, Orlando, FL, www. subrogation.org

11/6-7 Texas Surplus Lines

Association, Inc.

TSLA 2011 Annual Meeting, Jean Patterson, 512-343-9058, jptsla@tsla.org, Four Seasons Hotel, Austin, TX, www.tsla.org

11/8-9 Property Loss Research Bureau 2011 Western Regional Adjusters Conference, 630-724-2200, conference@plrb.org, Sacramento, CA, www.plrb.org 11/14-15 National Society of Professional Insurance Investigators (NSPII)

2011 Advanced Insurance Fraud Seminar, Mary Beth Robinson, 888-677-4498, nspii@ nspii.com, Hilton Chicago Indian Lakes Resort, Bloomingdale, IL, www.nspii.com

11/15 Chartered Property Casualty

Underwriters (CPCU)

Becoming an Active Listener, Member Center, 800-932-2728, membercenter@cpcusociety. org, Online Webinar, www.cpcusociety.org

11/15-11/17 Haag Education Haag Certified Roof Inspector ProgramCommercial, Kevin McCormick, 214-614-6550, kmccormick@haagengineering.com, Tampa, FL, www.certifiedroofinspector.com 11/16-17 Workers’ Compensation

Research Institute

WCRI 28th Annual Issues & Research Conference, Sarah Murphy, 617-661-9274, smurphy@wcrinet.org, Boston Park Plaza Hotel & Towers, Boston, MA, www.wcrinet.org

12/7-9 Haag Education Haag Certified Roof Inspector ProgramCommercial, Kevin McCormick, 214-614-6550, kmccormick@haagengineering.com, Chicago, IL, www.certifiedroofinspector.com

source advertising directory 1-800-BOARDUP, Inc.

Property Loss Research Bureau (PLRB)

Copart

mdh@1-800boardup.com www.1-800boardup.com 800.585.9293

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CLAIMS ADVISOR | FALL 2011

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What makes you tick?

Claims adjusters have one of the most interesting and demanding jobs in the insurance industry. Here you get to tell us about the job and how you make it part of your life.

interview

health industry takes on the 24- hour coverage they have been talking about for years.

Vicki C., Staff Claims Adjuster/Appraiser Santa Cruz, CA How long have you been in the business? Since 1984.

Did you originally plan on getting into insurance?

Absolutely not! I thought it was the most boring subject growing up. Plus, it involved math which I absolutely despised in school, and I didn’t want a job that dealt with figures all day. But by the same token, I have always been kind of analytical in my decision making.

How did you become an insurance adjuster?

My husband at the time was stationed in San Diego. I answered an ad for a claims assistant for a self-insured, self administered employer and it just felt natural. I ended up moving to another company later on as a claims examiner and worked my way up the chain. I attended insurance classes and obtained various designations along the way. I am slightly a workaholic and so I enjoy what I do.

It is always interesting and no two claims are alike in this business.

How do you deal with the stress of the job?

I don’t consider it stress to adjust claims. Let’s just say the stress doesn’t come from the claims! I am organized and answer anything I can immediately and thoroughly as I don’t like to have to do things twice. If it’s done right the first time, then it is a closed issue and I can move on to the next one.

What do you do to stay on top of your e-mail?

I flag those items that need additional follow up and answer those that come in that I can do immediately. My clients are spoiled and get a response from me within 10 minutes or less, generally. If I can answer their questions or needs immediately, I do. If it will take more investigation or gathering of data, I let them know that and when I will respond to them, and I do respond within that timeframe. That’s the key to good customer service; you have to get back to someone when promised.

How has the nature of your work changed in the last 5-10 years and how do you foresee it changing in the future?

More electronic documentation and communication between parties. The number of forms required by the state and the timeframes involved to complete them. Software enhancements have made the industry more efficient. While I know some offices are entirely paperless, I anticipate this being the norm for all claims practices.

I also see workers’ comp becoming almost null and void if the

Do you have an example of a huge process change in your job and how you handled it?

New claims software...twice! Our claims practice was formerly with a third-party administrator and claims were handled via their software.

Approximately 10 years ago, we brought the process in-house and purchased software from one of the various companies out there.

While the software has been performing well for claims needs, it has not been so for the accounting needs in processing checks etc.

Subsequently, we have now purchased new software and are in the process of working with a new vendor to help develop and improve their product to meet the needs of not only our organization but other claims operations as well. This has required a lot of time meeting with developers and identifying gaps in the software to meet our needs.

What do you need to be more effective?

More hours in the day. Okay, so that’s not going to happen. But definitely a lighter workload or someone to handle some of the daily claim reviews and audits.

Where do you see the future pool of new adjusters coming from?

I’m not sure. In my day, they were home grown from within. Now everyone wants to start at the top and not “pay their dues.” I try to teach my new examiners that sometimes if it’s 4:30 p.m. or 5:00 p.m. the job does not stop because of the clock. There are times when you are going to have to stay later or come in earlier to keep your diary on track, or make sure that an injured worker is going to get the treatment they need in a timely manner. It is going to be interesting.

What is your typical routine on Friday afternoon?

Finishing up specific projects and responding to the clients I have promised answers to about specific requests. Checking the calendar to see what’s on next week’s agenda for projects, audits, meetings etc.

Anything you’d like to add?

In the many years I have been doing this it still surprises me what some people will file under workers’ compensation.

Are you interesting? Tell us all about yourself.

Be sure to fill out the complete form to be considered.

Visit www.claimsadvisor.com/contactcA/Interview

NEXT ISSUE:

In the winter issue of Claims Advisor, we’ll looking at a variety of growing claims issues you may not be aware of. It’s going to be very interesting, and you won’t want to miss a word! We’ll also continue to address the topics most important to you with new stories, new experts, and reader feedback that make each issue a must for every claims professional. Don’t miss it!

Read this issue online at: 66

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Everyday Is Friday the Thirteenth.

Exposure to large-scale casualty claims are a constant. Carriers must have major resources at the ready to handle these events in order to protect their clients’ assets. Crawford has the vast experience in large complex liability claims needed to handle your most complicated issues.

We have top tier senior casualty adjusters backed by a nucleus of more than 400 casualty adjusters nationwide. These highly trained professionals are supported by our Global Technical Services unit, one of the largest global networks in complex claims handling. We have adjusters specializing in: • • • • • • • •

General/Premises Liability BI & PD Auto BI & PD Product Liability BI & PD Product Recall Professional Services Indemnity (Medical Malpractice) Contractor’s Liability (Builder’s Risk & Construction D efect) Environmental Pollution

Find out how Crawford can add instantaneous depth and breadth to your casualty claims resources.

Call or click: Dester Terry Phone: 404-300-1047 Email: Dester_Terry@ us.crawco.com To learn more go to: www.crawfordandcompany.com/complexcasualty

www.thecrawfordsystem.com • NYSE: CRD-A, CRD-B Crawford & Company is an equal opportunity employer