Claims Advisor Premier Issue 2007

PREMIER ISSUE Fall 2007

Information for today’s claims professionals

You asked for it...

it’s here!

We’re NEW and ready to serve up resources for your success

Emotional Harm Claims: Meeting the Challenge

Interplay: Condo Association vs. Unit Owner Loss Occupational Hazards of the Claims Adjuster

Newton’s Laws of Motion And the Physics of Fraud Is Less More? Protecting Medicare Interests

ACS_folder_front

4/9/07

4:33 PM

Page 1

Corporate Office 8300 Pioneers Blvd, Suite 201 Lincoln, Nebraska 68506 Tulsa Regional Office 9726 East 42nd Street #203 Tulsa, Oklahoma 74146 800-354-5732 • 918-744-7926 Please fax or email new claims to: 800-255-9708 • claims@alternativeclaims.com 24-Hour Multi-Line and Catastrophe Claim Service

Contents 28

8

in this issue fall 2007

14

12

24 34

8

62

Emotional Harm Claims Meeting the challenge in today’s world By dr. Steven Carter, Psyd LP Expert advantage

14 Don’t Let Millions of Subrogation Dollars Go Down the Drain How management and technology can turn subrogation from a money pit into a bonanza By brian cohen clear technology

18 Safety First The occupational hazards of the claims adjuster

24 Less Is More How protecting Medicare’s interests can help settle more files at less cost

34

By richard schultz

Investigating the true cause of post hurricane property conditions.

fireman’s fund insurance company

28

By Ted Cleveland, P.G. and George N. Eustace, P.E.

Interplay

efi global

The condominium association policy deductible and the unit-owner policy loss assessment coverage

40

By thomas w. mallin, j.d., cpcu

Mining for Information Gold in Unstructured Claims Data

Property Loss Research Bureau

By Donna J. Popow, j.d., cpcu, aid American Institute for CPCU and the insurance institute of america

By steve holcomb full capture

CLAIMS ADVISOR | FALL 2007

The Path To Wisdom Just Got Shorter (and More Affordable) Introducing Crawford Online by Crawford University Crawford Online provides online access to a wide variety of claims education and wisdom in short, informative sessions.

Now you can get all of your adjusters on the same path, enhancing your quality and service, without travel costs and production downtime.

Choose your path: • Learning Modules Standardize your adjuster training with our web-based training modules. Our modules, rich in audio and visual content, deliver expert information on more than 100 topics in six major disciplines.

• Learning Management System Tailor both training content and tracking features to your business needs with your custom Learning Management System.

• Learning Management Content System Organize your current training into easy to use online modules with our user friendly learning management content system or easily change module content to reflect your claims processes.

• Blended Learning Classes Combine online concept training with hands-on instruction by our Crawford University trainers either at our facility or yours.

• On Demand Reference Tools Expand your knowledge base with access to comprehensive technical reference databases on demand.

To take a sample module, log onto www.crawfordonline.com or contact us today at:

is now

404.300.1526 curegistrar@us.crawco.com

ONLINE

EXCELLENCE IN EVERYTHING WE TOUCHSM An equal opportunity employer

Contents

44

in this issue, cont’d... fall 2007

48

44 Specialists Resolve Challenging Claims

52

A specialty niche comes of age By wayne wudyka

certified restoration drycleaning network

48

56

Classroom & Online A blended approach to claims training By colm keenan

64

70

Fire Expert Check List

Behavioral Adaptation

By glenn gibson, joseph toscano and guy E. “Sandy” burnettE, jr.

crawford & company

52

fireman’s fund insurance company

By Dave G. Curry, Roch J. Shipley, and David K. Hall

66

Newton’s Laws of Motion: The Physics of Fraud

Why safety features don’t always increase safety ITC Expert Services

Better Metrics, Better Vendors, Better Outcomes

By Brad Balentine DMA Claims Services

By taylor smith

56

caserev, inc.

Alternative Treatment Experiences Rapid Growth in Auto Injury Claims By david corum, cpcu

insurance research council

60 Challenges in Settling Business Income Loss Claims

in every issue

fall 2007

Edit: Letter from the Editor/Publisher

6

Pulse: Your Responses to Our Online Polls

55

Interview: What Makes You Tick?

74

Write: Tips for Writing Better Reports

75

Word: Definitions Explained

76

Source: Advertiser Directory

76

Event: Calendar of Industry Meetings

77

Story: Claims Adjuster Musings

78

By chris campos, CPA campos & stratis

CLAIMS ADVISOR | FALL 2007

Edit

Greetings!

We’re here! The long awaited launch of Claims Advisor magazine is finally a reality and we couldn’t be more pleased. Since our soft launch and introduction at the PLRB conference in Orlando last March, where there was more excitement than we could contain, we have been hard at work preparing and talking to claims professionals across the industry about what they would like to see in a new publication.

For years, claims professionals have been asking for a new magazine and resource to provide the information critical to their success, and provide it in a fresh new way. We’ve answered that call and this issue is just the beginning. However, for success we need you. This is your magazine and we want to hear from you in each issue. What matters to you?

What subjects interest you? What are the topics that you need more information about? What are your most memorable stories? How did you get into the business? Answers to those questions and more will help us to provide the best possible mix of topics and columns.

To become involved, send your ideas, requests and stories to editor@claimsadvisor.com. With your valuable input and the expertise of esteemed industry contributing writ-

Information for today’s claims professionals

Fall 2007

ers, Claims Advisor is sure to be your top resource for staying on top in this competitive and fast-paced industry.

Claims Advisor is FREE to qualified claims professionals and you’ve been selected to receive the premier issue. However, to continue to receive Claims Advisor, you must subscribe. Don’t worry, it’s fast, easy and we won’t use your name for anything else. So be sure to fill out your subscription online today at www. claimsadvisor.com/subscribe.

Not only is Claims Advisor in print, we’re online as well. Articles can be rated, forwarded to friends or printed.

While the print edition is quarterly, you’ll find late breaking news and more online so be sure to bookmark the site.

We hope you enjoy the premier issue of Claims Advisor and look forward to years of providing you with fresh content, useful resources, access to the best vendors and stories that will inspire you.

Until next time...

Bevrlee J. Lips Publisher/Editor

Don’t miss an issue!

If you want to be sure you keep receiving Claims Advisor, be sure to go online and subscribe today! www.claimsadvisor.com/subscribe

FALL 2007

|

www.claimsadvisor.com

VOLUME 1. NUMBER 1

Publisher & Editor Bevrlee J. Lips/blips@claimsadvisor.com Editorial Advisory Board Steven Carter Expert Advantage Glenn T. Gibson

Crawford & Company International

Patrick Harmon

IMACC

Patrick Jeremy

Hartford Steam Boiler Inspection and Insurance Company

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 VP Finance/Michael Marsh VP Information Technology/Michael Kay Information Technology/Lonnie Ellis Web Site Associate/Chris Walters Project Associate/Amanda Warren Database Associate/Sheila Hoyer Editorial Assistant/Paula Everett Design Assistant/Ashley Jones Design Assistant/Richard Shivers Human Resources/Shannon White Advertising Sales VP National Sales Phil Imbrenda/pimbrenda@claimsadvisor.com 833.276.7970 East/South Central/West Douglas A. Jones/djones@claimsadvisor.com 203.259.1232 North Central Barry Kingwill/bkingwill@claimsadvisor.com Jim Kingwill/jkingwill@claimsadvisor.com 847.537.9196 Claims Advisor is published four times a year in March, June, September and December by Claims Advisor, 537 Deltona Boulevard, Deltona, FL 32725. Printed in the U.S. Copyright © 2007 by Claims Advisor. All rights reserved. Reproduction in whole or in part without permission is strictly prohibited.

No charge for subscriptions to qualified claims adjusters and managers. 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, 537 Deltona Blvd., Deltona, FL 32725.

Claims Advisor

537 Deltona Boulevard, Deltona, FL 32725 office 866.276.7970 | fax 866.276.7972

www.claimsadvisor.com

CLAIMS ADVISOR | FALL 2007

Emotional

FALL 2007

|

www.claimsadvisor.com

l Harm

Quick Look C

Approximately 20% of the U.S. population has a mental disorder in any given year.

C

The Diagnostic & Statistical Manual of Mental Disorders provides an objective standard to use when analyzing medical evidence in emotional harm claims.

C

Distinguishing between Mental Distress, Disorder, and Disability is a key challenge.

C

Descriptions are not diagnoses. Be sure the claimant’s medical evidence meets published diagnostic standards.

C

Require the claimant’s medical expert to link symptoms to functional behaviors.

Claims

Meeting the Challenge in Today’s World

by Dr. Steven S. Carter, PsyD LP

Emotional harm claims are increasing in frequency and commonly constitute a substantial portion of the financial exposure in many contemporary insurance claims. Emotional harm claims often produce a bewildering array of esoteric jargon, diametrically opposed and seemingly unsupported medical opinions.

However, there is hope. The Diagnostic and Statistical Manual of Mental Disorders (DSM-IV-TR) published by the American Psychiatric Association can help you understand emotional harm claims and is available at most bookstores.

Mental disorders are the leading cause of disability in the U.S. and Canada for persons 15-44 years old.

Everyone Has Gone Crazy The U.S. Surgeon General’s most recent estimate is that about 20 percent of the adult U.S. population is afflicted by mental disorders during a given year. Research conducted for the DSM-IV-TR found that for a 1-year pe-

riod, 22 to 23 percent of the U.S. adult population has diagnosable mental disorders.

The Surgeon General’s lower number was derived from the finding that 19 percent of the adult U.S. population have a mental disorder alone, 3 percent have

both mental and addictive disorders, and 6 percent have addictive disorders alone. His analysis further concluded that about 28 to 30 percent of the population has either a mental or addictive disorder. Given these numbers, it is not surprising that the National Institute for Mental Health found that mental disorders are the leading cause of disability in the U.S. and Canada for persons 15-44 years old. It also means many claimants were mentally ill before the loss that constitutes the focus of their claim.

Moving from Distress to Disorder A claimant can allege an emotional harm solely by his or her own testimony.

There is no legal require-

CLAIMS ADVISOR | FALL 2007

i

ment of a proximally caused mental disorder, a formal diagnosis, or even medical evidence, but most claims contain all of those elements. Corroborating testimony by the claimant’s coworkers, supervisors, family, friends, and other persons with knowledge of the claimant’s functioning before and after the date of loss is helpful. A medical diagnosis is, however, the strongest evidence of emotional harm and moves the claim from the realm of emotional distress to that of a mental disorder.

Objective Evidence for Subjective Claims Once a mental disorder is alleged, then objective medical evidence is required. Usually, an emotional harm claim will include a diagnosis from the DSM-IV-TR. That’s good news for the claims examiner because the manual provides extensive help in understanding mental disorders. For most mental disorders, the DSM-IV-TR provides: • Features of the disorder • Associated descriptive features and mental disorders • Associated laboratory findings • Specific culture, age, and gender features • Course of the disorder • Differential diagnoses • Diagnostic criteria A thorough understanding of the DSM-IV-TR section relevant to the claimant’s alleged mental disorder is as critical to the claim’s examiner as it is to the claimant’s medical expert.

For this reason the DSM-

10

FALL 2007

|

A claimant can allege an emotional harm solely by his or her own testimony.

i

ficial diagnoses and are not published or accepted by the relevant scientific peer community. It is up to the user of these subjective and idiosyncratic diagnoses to demonstrate their scientific validity and when that cannot be done, the diagnoses may not survive a challenge as to their admissibility as medical or scientific evidence.

Depression is Not a Mental Disorder The term “depression” does not exist as a diagnosable mental disorder in the DSMIV-TR. What laypersons commonly call depression is referred to as a “Mood Disorder” in the DSM system. Twenty different mood disorders are listed and a depressed mood is a symptom or associated feature in over 200 mental and physical disorders.

A claimant alleging

IV-TR should be accessible to everyone who examines claims of emotional harm.

Descriptions are Not Diagnoses Medical experts commonly use a DSM-IV-TR diagnostic label without any attempt to assess the specific signs and symptoms required by the manual’s diagnostic criteria.

All of the DSM-IV-TR diagnostic criteria must be met for a valid diagnosis.

Descriptive phrases and allegations of causality are often presented as if they are diagnoses taken from the official nomenclature of the DSM-IV-TR. These will appear as “Depression secondary to sexual harassment” or “PTSD as a result of motor vehicle accident.” These are not DSM-IV-TR diagnoses.

They lack the empirical evidence supporting the of-

www.claimsadvisor.com

CLAIMS ADVISOR | FALL 2007

11

The Authority of the DSM-IV-TR.

The DSM-IV-TR provides a common language and conceptualization of mental disorders. It is the official diagnostic criteria and nomenclature used by clinicians and researchers in psychiatry, psychology, and other related fields. Consultations between developers of the DMS-IV-TR and the World Health Organization ensured compatibility with the International Classification of Disorders, 10th Edition (ICD-10). When a claimant alleges Posttraumatic Stress Disorder, the DSM-IV-TR tells you specifically what that must mean and supplies the diagnostic criteria that must be met.

Evidence Not Opinion

Any diagnosis not found in the DSM-IV-TR or the ICD-10, may not be legally admissible as medical evidence. The diagnostic criteria in the DSM-IVTR have an extensive empirical foundation as determined by 13 work groups, each of which has responsibility for a section of the manual.

The decisions of the work groups reflect the breadth of available evidence and opinion from members who were selected for their wide range of perspectives and experience and who were instructed to participate as consensus scholars and not advocates of previously held views.

The work groups conducted a systematic and comprehensive review of the relevant scientific literature. Input was solicited, especially from those persons likely to be critical of the conclusions of the review. When the review revealed that evidence was lacking or conflicting, data reanalysis and field trials were used to help in making final decisions.

Extensive field trials at more than 70 sites and utilizing more than 6,000 subjects helped bridge the boundary between research and practice by collecting information on the reliability and performance characteristics of each criteria set as a whole, as well as the specific items within each criteria set. No other nomenclature of mental disorders is better grounded in empirical evidence than the DSM-IV.

12

FALL 2007

|

www.claimsadvisor.com

emotional harm is often experiencing mental “distress” rather than a mental disorder.

Distinguishing these two concepts is not merely a word game.

A mental disorder is defined by published diagnostic criteria and marked by a cluster of signs and symptoms that, when taken together, impair the claimant’s ability to function in their educational or occupational roles.

Mental distress can be any combination of signs and symptoms regardless of whether or not the result is functional impairment.

A Disorder is not a Disability It is common to find claims in which “severe” mental disorder is diagnosed yet very few signs and symptoms of the disorder are documented in the claimant’s medical records. Often, the claimant’s medical expert has not assessed their social and occupational functioning. Instead, many appear to assume the mere presence of the diagnosis implies that the claimant is disabled. Rarely does a medical expert specifically explain how the claimant’s signs and symptoms impair their workrelated behaviors.

The claims examiner should look specifically for statements regarding the claimant’s: • Concentration and Persistence—sustain an ordinary workday and work week routine without special supervision • Pace and Endurance—perform at a consistent pace without an unreasonable number and length of rests, complete a workday without interruption from psychologically-based symptoms, etc.

• Social Interaction—ask questions, request assistance, accept instructions, maintain basic standards of behavior and cleanliness • Adaptation— tolerate unruly, demanding, or disagreeable customers,

coworkers, and supervisors; be aware of normal hazards and take precautions Do not assume the mere presence of a mental disorder excludes the claimant’s continued employment.

Most people with chronic mental and physical disorders are able to maintain their jobs. Continuing employment is a key component of effective mental health treatment because work is central to adult identity and provides structure and purpose to our days. Some mentally ill claimants will require reasonable accommodations in the workplace and those are sometimes required by the Americans with Disabilities Act. In nearly every case, continued employment is critical to the health of the claimant and the economical resolution of the claim for the insurer.

Points to Remember Premorbid mental disorders, many of which are recurrent, are common. Distinguish between mental distress, a mental disorder, and a mental disability. Use the DSM-IV-TR to ensure there is written evidence that the diagnostic criteria for the alleged mental disorder have been met. Do not equate a mental disorder with a mental disability. Instead, look for evidence of impaired concentration, persistence, pace, endurance, social interaction, and adaptive behavior that would preclude work. This process will ensure an emotional harm claim is substantiated by written evidence found in the claimant’s medical records that satisfies scientifically established diagnostic criteria rather than subjective speculation. cA Dr. Steven Carter, PsyD LP is a licensed psychologist and CEO of Expert Advantage. He specializes in clinical and forensic psychology and can be reached at 218.749.3107 or expertadvantage@mchsi.com.

Claims Advisor:Claims Advisor

7/6/07

10:13 AM

Page 1

Your Hotel Alternative

SM

Immediate placement into fully furnished homes, town homes, condos, apartments, mobile homes and hotels Over 100 local offices worldwide Customer service representatives available 24/7 Over 40 years of unparalleled experience

1. 8 6 6 . 5 9 1. 5 4 9 9 • www.Oakwood.com

CLAIMS ADVISOR | FALL 2007

13

Don’t Let Millions

o f S u br o gati o n

go dow

14

FALL 2007

|

www.claimsadvisor.com

Quick Look

D o llars

gation process. This can be a huge opportunity to improve bottom-line financial results and boost customer service.

wn the drain How Management and Technology Can Turn Subrogation from a Money Pit into a Bonanza

by Brian S. Cohen

The subrogation process is often the weakest link and the most time-consuming step in the lifecycle of a claim.

Nearly every carrier will admit that it could do a better job with subrogation. However, a successful subrogation outcome is critical to the policyholder’s satisfaction because it is the final step in making the customer whole again. Many insurance companies frustrate policyholders when ineffective manual subrogation processes

take months to recover their deductible. Lack of proper management control and automation results in inconsistent processes and missed opportunities, insurers often recover less than they’re legally entitled to.

This can result in millions of recoveries down the drain.

Throw in the ever-increasing use of vendors like lawyers and collection agencies and you have an out-of-control money pit.

But all these weaknesses can be overcome by applying basic management controls and the right technology to provide structure to the subro-

Why It’s a Problem Historically, subrogation has been a stepchild of the insurance industry, largely seen as something that insurers do as an accommodation to policyholders, but grudgingly. It has suffered from both management neglect and lack of automation.

But there’s big money in subrogation. Subrogation assets vary by line of business.

An insurer with $1 billion in claims reserves may have $100 million to $150 million in subrogation receivables outstanding (though few companies have any way to track it). While some of this money is owed to insureds, a good chunk will flow straight to the company’s bottom line.

The faster and more efficiently it can be collected, the better it is for both customers and the insurer.

Traditionally, subrogation has been handled by claims adjusters as an afterthought.

It’s a low priority for adjusters, who are often compensated by how fast and effectively they handle new claims. They’re more motivated to settle the next claim than wrap up subrogation on an old one and thus see subrogation as a distraction from their primary responsibilities.

C

Subrogation is one of the best opportunities to quickly improve bottom line financial results and contribute to competitive advantage.

C

Technology should replicate the skills, knowledge, and shortcuts of the most effective subrogation specialists, while enforcing best practices

C

Getting control over subrogation begins with making it a priority and assembling a skilled team with the right technology.

Furthermore, almost diametrically opposed skill sets are required in adjusting a claim and pursuing subrogation. A good claims adjuster is client-focused, working hard to wrap up the claim investigation to ensure that the customer will have a good experience when it finally comes for the insurer to fulfill its promise.

Subrogation is a longer process and more hardnosed.

Subrogation specialists must argue theory of liability with the responsible party, make a compelling demand for payment and negotiate settlements. And they often have to get “blood out of a stone” when the guilty party in an auto accident is uninsured and not exactly flush. It takes patience and persistence.

In this unstructured environment, claims adjusters tend to settle faster and for smaller dollars than they should. If the case becomes complex, they often automatically send it to a law firm or collection agency that takes up to a 33% cut of the net recovery amount. Lawyers often sit on the settlement, further delaying reimbursement to both the insurer and its customers, who are left wondering for up to a year when their deductible will be reimbursed.

Doing It Right The first step in getting control over subrogation is putting the right people on

CLAIMS ADVISOR | FALL 2007

15

Bottom-Line Benefits of a Subrogation System When used as part of a comprehensive approach to better management, a full-featured subrogation system can boost yields by 6% to 12%. First, it ensures that all cases eligible for subrogation are identified up front and put into the recovery process. A good system will also assure that the case proceeds quickly through the investigation steps to the demand step.

The system automatically will generate comprehensive demand documentation to support the specialist and speed the demand process. Reducing the cycle time also helps boost yield.

Cycle time is slashed when recovery potential is identified at the first notice of loss and the subrogation process is initiated as the file is adjusted and more facts are gathered. Making the process proactive, rather than reactive, eliminates unnecessary activity and delays.

Cost savings are achieved through greater productivity. By freeing specialists from paper shuffling that steals so much of their time, automation lets them handle more cases. A 40 percent increase in productivity is readily attainable. Fewer people can get more work done, with higher quality. Embedding best practices in the system ensures consistency and also simplifies training. This will helps insurers deal with the coming talent crunch as more experienced claims people retire.

Managers and executives get control over subrogation processes. A reporting mechanism can summarize results by individual, unit, company, jurisdiction and other criteria.

Standard reporting tools let managers view the data from many perspectives.

the job by creating a separate subrogation function—industry-leading insurers have done this. They’ve staffed the subrogation department with capable people who have the right skills. And they’ve created a profit center mindset, treating subrogation as a receivable or any other valuable company asset that is carefully monitored and managed. And they’re getting results.

But this is only part of the solution. Subrogation specialists need technology that provides automated support. Without an automated tool to help negotiate, track payments and monitor performance of the recovery effort, both subrogation specialists and managers are severely handicapped.

Automation Enables Subrogation Excellence Get rid of clerical busywork.

16

FALL 2007

|

Subrogation is the last bastion of manual processes in the industry. Insurers have spent fortunes updating their policy administration and claims systems and creating powerful, user-friendly Web sites.

But subrogation has been left alone—and the results, predictably, have been poor.

Less than 30% of insurers use software to identify and manage subrogation files, according to the National Association of Subrogation Professionals 2005 automobile benchmarking study. Thus, subrogation specialists spend a great deal of time on clerical work: sorting, gathering, photocopying and prioritizing files, manually preparing and mailing demand-package documents. But the vast bulk of clerical work can be turned over to a computer system, thus freeing the spe-

www.claimsadvisor.com

cialists to do their real work by using their judgment and negotiating skills.

Assigning new subrogation files to the best adjuster is another time-consuming job that should be automated. Without automation, the manager has to examine all new files, determine who’s working on what and assign the file to the subrogation specialist most capable of handling it or who has the lightest caseload. But the right subrogation system should be able to assign cases automatically, based on a score or other file criteria such as line of business, dollar size or geographic territory.

A good subrogation system and process should track the workload of each subrogation handler and spread the workload evenly. Most of the time, the assignment process should be hands off with no one needing to touch a file.

Separate the Wheat from the Chaff Only some claims merit an extensive subrogation effort and offer a good chance of recovery. How can an insurer reliably separate out the most likely winners from the almost certain losers without wasting resources on low-return files?

Using sophisticated algorithms and the right technologies, an insurer can separate the wheat from the chaff by identifying claims that have a high probability of recovery.

Each claim can be assigned a score. Those with scores above a certain threshold can be automatically assigned to a subrogation staffer; those

beneath the threshold may be outsourced to better match recovery costs with expected return. Different workflows can handle high-probability and low-probability claims.

With today’s advanced subrogation systems, identification and scoring can integrate with daily workflow to determine whom the case should be assigned to and the most cost effective next steps to pursue recovery.

These same algorithms and systems can be used from time to time to review closed files and unearth additional subrogation opportunities that should be pursued.

Develop and Enforce Best Practices Insurers can’t rely on good luck or even experienced subrogation specialists to ensure that every claim is handled properly or consistently. After all, not every staff member is experienced or has the same skill level. A subrogation system should provide ample tracking and management tools so that managers can measure results and determine what works and what doesn’t and proactively identify bestpractice activities.

Once these best practices are nailed down, the system should replicate the skills, knowledge and shortcuts of the most effective subrogation specialists. By ensuring that everyone takes the same steps and follows best practices throughout the recovery process, technology should enforce best practices to ensure subrogation claims

are handled consistently from person to person and office to office.

Get the Most Out of Vendors Vendor selection and oversight is the weakest link in the subrogation process.

This situation is ironic given the propensity of insurers to track every penny of premiums, investments and claim payments.

Few companies have any real idea how many subrogation files are outstanding with vendors, when they will be recovered or what they’re worth. Most cannot tell how many vendors they use or exactly who is handling a specific subrogation file.

There is seldom enough data to decipher which attorneys are holding judgments and how big those judgments are. This lack of control over company assets would not be acceptable to most CFOs and chief claim officers; however, many senior claims executives are not fully aware of this exposure. This lack of control can result in more than missed recoveries to carriers. It could lead to carrier liability, regulatory attention or a lawsuit if the vendor is sloppy or negligent.

The problem starts with no formalized vendor selection process and informal relationships with attorneys, collection agencies, cause-and-origin experts and investigative experts. For many carriers, vendor selection and assignments are made by the adjuster. The chief claims officer may not even be aware of who is being used or the qualifications of the vendors. There may not be a contract or service level expectations documented in the agreements. Even within the same office, you’ll often find the same vendor charging different specialists different fees or providing inconsistent services on similar files. There is little in the way of reports to monitor vendor performance or even the number of files that are being worked by a given vendor. Subrogation files placed with vendors are invisible to claims management and as a consequence cannot be proactively managed.

It’s an uncontrolled process.

Once again, technology offers a solution. Well-designed vendor relationship tools can control the entire process in one place. By automatically assigning files to properly qualified and approved vendors and maintaining a scorecard of vendor performance, managers then

have the information and tools to hold underperformers’ feet to the fire. Once an automated tracking system is in place, the technology should also quantify where all the files are and their dollar value. The subrogation manager can then get a clear picture at both the macro and case level.

Getting control over subrogation starts with making it a priority and assembling a dedicated team of specialists with the right skills. Next, the team must have automated tools to help negotiate settlements, track payments, monitor performance, enforce best practices, manage vendors and make assignments. The final

ingredient is a sophisticated reporting tool so managers can track every penny of subrogation assets and demonstrate to senior executives how much more money has been recovered expeditiously.

Instead of a money pit, subrogation can be a money bonanza for carriers and cA their customers.

Brian S. Cohen is president of Clear Technology, a software company in Denver, Colorado, that serves the insurance industry. He can be reached at brian.cohen@clear-technology.com

CLAIMS ADVISOR | FALL 2007

17

Safety F The Occupational Hazards of the Claims Adjuster 18

FALL 2007

|

www.claimsadvisor.com

First

Quick Look

by Donna J. Popow, JD, CPCU, AIC

Adjusters are ultimately responsible for their own personal safety.

C

Adjusters must proactively recognize how exposure to traumatic events can affect their emotional and physical well-being.

C

Protect your personal information as well as your physical well-being.

C

Follow your company’s safety guidelines.

physical and emotional harm and prevent an adjuster from becoming a victim, whether a field adjuster or an inside adjuster.

On December 6, 2004, a tragic story in the National Underwriter resounded throughout the insurance industry’s corps of claims adjusters. With a headline that read, “Man Charged With Killing Field Adjuster,” the article described the murder of a claims adjuster, who was inspecting reported hurricane damage inside a rented Tampa, Florida, house.

For years, claims adjusters have been swapping stories about the risks they face in fulfilling their job responsibilities. Under reported by the media and professional organizations, threats to adjusters, including physical assault, road rage, hostage-taking, stalking, verbal abuse, menacing e-mails and identity theft, are established risks. Prevailing health concerns, such as stress disorders, depression and exposure to environmental contaminants, are alarming short- and long-term issues.

Managing personal safety should be a key concern to claims adjusters as well as the companies for which they work.

Many companies do a terrific job of outfitting their adjusters with the latest safety equipment, and they are cognizant of the signs of stress disorder; however, the adjusters themselves are ultimately responsible for their own personal safety. There are specific measures that can be taken to minimize incidences of

C

Disaster Response Hurricanes Katrina, Rita and Wilma raised awareness of the emotional and physical hazards faced by claims adjusters and catastrophe (CAT) team members, many of whom were victims of the storms themselves and had constant worries about their own families while helping policyholders cope with the consequences of the storms.

On its Web site, the American Psychiatric Association states, “The number and scope of disaster-affected persons may be larger than realized and may include not only the individuals trapped in the immediate disaster situation but, also their family and close friends, peers and other acquaintances, rescue workers, disaster relief (e.g., Red Cross, mental health volunteers) and agency personnel (e.g., insurance adjusters), if not to some degree the entire community.”

Dennis Potter, MSW, BCSCR, an advisor to crisis response teams, writes in an article for the American Academy of Experts in Traumatic Stress, “One classification of the most neglected people in the aftermath of a

traumatic incident is often the team who went in to work with all the survivors.

They often fail to recognize the full impact the event has on their own lives.”

Adjusters must be proactive in recognizing how exposure to certain traumatic events in the field can affect their emotional and physical well-being, both to themselves and their coworkers. Some studies have shown that post-traumatic anxiety can produce immune system deficiencies in certain individuals who are then more prone to disease.

Also, being part of a disaster response team can trigger a form of post-traumatic stress disorder (PTSD). On its Web site, the American Psychological Association describes PTSD as “an anxiety disorder that can develop after exposure to a terrifying event or ordeal in which grave physical harm occurred or was threatened. Traumatic events that may trigger PTSD include violent personal assaults, natural or humancaused disasters, [and] motor vehicle accidents ….”

Those suffering from PTSD can have trouble functioning in their jobs or personal relationships. Many people with PTSD repeatedly experience the ordeal (especially when they are exposed to events or objects that

CLAIMS ADVISOR | FALL 2007

19

remind them of the trauma) in the form of flashback episodes, unpleasant memories, nightmares or frightening thoughts. According to the American Psychological Association, “The good news is research has shown that psychological interventions can help prevent these longterm, chronic psychological consequences.”

Potter teamed with clinical psychologist Paul

industry, notes that adjusters and disaster team volunteers returning from the Gulf Coast began “to develop a number of different, and in some cases, unexplainable health symptoms, ranging from what some have called the ‘Katrina Cough’ or ‘mold cold’ to antibiotic-resistant injuries, [and] meningitis.”

To take it one step further, according to The New York Times, New York City’s

program that had adjusters inspecting attics and crawlspaces during the time of the hantavirus outbreak in southwestern portions of the U.S. in the 1990s. In those instances, protective breathing apparatus were given to adjusters; however, think about how often adjusters go into buildings without consideration of what hazards may be contained within.

To help adjusters and

boosters and meningitis and Hepatitis vaccines 4. Be cognizant of personal hygiene—be reminded of the nature of the area (e.g. avoid scratching uncovered skin, rubbing eyes); carry first aid kits, antibiotic ointment, mosquito repellent, bottled water, etc.

5. Wear protective gear and practical tools—safety shoes, eye protection,

LaBerteaux to develop a structured debriefing process for members of disaster response teams so that they are prepared for “re-entry into the world” after working with trauma survivors. Debriefing techniques might be especially useful to claims adjusters and members of CAT teams who work directly with victims of loss. Human resource departments might take debriefing strategies and techniques, as well as individual and group intervention sessions, into account when developing employee assistance programs specifically for adjusters and CAT teams returning from disaster response assignments.

Beyond the disaster-related stress and emotional trauma faced by adjusters are the health concerns presented by environmental conditions. On its Web site, the Restoration Industry Association (RIA), an international trade association in the cleaning and restoration

Chief Medical Examiner, Dr. Charles S. Hirsch, recently amended the death certificate of a civil rights attorney, who developed significant respiratory problems after 9/11 and died five months later, to reflect that exposure to dust at Ground Zero “beyond a reasonable doubt” was “contributory to her death.”

The National Institute for Occupational Safety and Health continues to study the deaths of rescue workers, volunteers, and others who worked in the area of the World Trade Center after the 9/11 attack.

Adjusters are routinely called upon to enter buildings that may contain substances detrimental to their health. There is the obvious mold and mildew in basements and fiberglass insulation in attics, but what about the unseen dangers?

Douglas Jackson, president of the Society of Registered Professional Adjusters, recalls a court ordered reinspection

response team members do their work safely, the RIA developed the following hurricane cleanup guidelines, which are applicable to all types of losses: 1. Understand the dangers—unstable materials, possible gas leaks, high levels of bacterial growth, and airborne particles 2. Be aware of physical and emotional health hazards—antibiotic-resistant infections; rise in sinus infections, skin rashes, upper-airway irritations; increase in pests and parasites; psychological shock; physical exhaustion; secondary PTSD (or “compassion fatigue”) 3. Prepare and prevent—be prepared with the basics; partner with local organizations in navigating the area, securing resources, and identifying hazards; have appropriate current immunizations, such as tetanus

rubber gloves, hard hats, and appropriate respiratory protection 6. Stay safe— working in any hurricane damaged area involves real dangers for all involved.

Education and proper preparation can help reduce the chances of injury or illness.

20

FALL 2007

|

www.claimsadvisor.com

Outside Adjusters In addition to the environmental exposures, adjusters who work in the field also can be at risk for threats and incidences of confrontational exchanges, sexual assault, physical injury, car-jacking, road rage, verbal abuse and so forth.

Adjusters are often put in the position of having to deny claims, which may lead to verbal or physical conflict.

Training to raise awareness of the potential dangers is crucial. Role play, which would help an adjuster become familiar with responding to menacing situations or

CLAIMS ADVISOR | FALL 2007

21

individuals, should be practiced, and case studies about past company incidents should be reviewed. Precautionary measures to follow when working in the field include the following: • Share your day’s schedule with someone from the office or a family member. Schedule appointments for early in the day, as crime increases after nightfall. Call in or text message after each appointment. (This is especially important when you are inspecting premises alone in an unstable environment, a remote location or a cramped space.)

• If you do not feel safe—for any reason—take a photo of the area and leave immediately. Always trust your instincts and intuition.

Never put yourself at risk. You can always make alternate arrangements, such as returning with a partner or security officer.

• If you are unfamiliar with a specific location, stop by the local police department and ask about the area.

Find out prior to the visit if you are going into a rural area, a high crime area, or an area with poor cell phone reception.

• Always be alert to your surroundings and the actions of the individuals with whom you are working, as well as others who may be spectators. Always have an exit strategy, whether on the street or in a building. Don’t deny a claim from a roof top where the unhappy insured can remove the ladder. (You know that this has happened!)

• Learn to read verbal and nonverbal signals. This is especially true when venturing into the home of an insured or claimant. Behavioral signs and vocal tone can be indicators of potential problems.

• Make sure your cell phone is fully charged, quickly accessible and programmed to make 911 calls. Invest in a car charger for your phone.

Again, it’s important to know the locations of limited cell phone areas.

• Make sure your car is fully gassed and is working properly. Have your car keys readily accessible as you approach your car. Check the car’s interior before opening the door to make

22

FALL 2007

|

www.claimsadvisor.com

•

•

•

•

•

• •

•

sure no one is hidden in the back.

Check under tires to see if debris has been placed there to puncture your tire and make you a sitting duck.

Keep equipment, such as your computer, in the trunk. Don’t remove the computer or your briefcase until you are satisfied the area is safe.

Keep only the bare minimum of identification, cash and credit cards in your wallet. If possible, find a place in your vehicle to hide a small amount of cash and a credit card. Keep a few coins available in case your cell phone dies or is unusable in an area.

Protect your personal information.

Don’t put a home telephone number on your business card. Don’t use your personal cell phone to make business calls. Don’t use your personal e-mail address to send business-related messages. And Google your name to see what’s on the Internet about you.

Beware of the dog. Even dogs that appear friendly can bite. Carry some dog biscuits to distract a dog that comes at you suddenly. Don’t trust an owner who says the dog is tethered. One adjuster tells the story of needing to go into the backyard to inspect the garage. A large barking dog was tethered there. The dog owner said the dog was secure. But as the adjuster opened the back door, the TV antenna wire that was supposedly securing the dog to the rear of the property snapped and the dog came lunging at the adjuster.

Fortunately, the adjuster was able to retreat to the safety of the house before the dog reached him.

Learn basic self-defense techniques. Be prepared to use your briefcase as a shield or to throw it at an attacker.

Avoid using your cell phone and laptop while driving. Accidents occur when drivers are distracted.

Secure your laptop, briefcase and other equipment when driving.

Loose equipment can become dangerous projectiles during a panic stop or accident.

Don’t cut corners when performing

roof inspections. Make sure your footwear is appropriate. Secure the ladder according to your company guidelines. Ladders have slid out from underneath adjusters while coming off of roofs, causing fractured ribs, punctured lungs and fractured vertebrae.

Inside Adjusters No one should take personal health and safety for granted. During catastrophic disasters, inside adjusters are also under a lot of stress because they typically handle the caseloads of adjusters dispatched to the field. Because of the nature of claims handling, those who work inside an office can also become targets and victims of emotional and physical assaults, including verbal abuse, physical injury, harassment, identity theft, property loss and so forth. Unhappy insureds and claimants have been able to gain entry into claim departments, sometimes with tragic consequences. Some key reminders about office safety include the following: • Make sure your company has security measures in place for the protection of its staff. Always follow company safety guidelines.

• Do not let someone you do not know into the building without first confirming the visitor’s credentials.

• Always take down a caller’s phone information. If something doesn’t seem right, verify the information.

• If you are working late at night, do not walk alone to your car, including parking lots and garages. If you park on the street, try and park under a street light. Always have your car keys readily accessible.

• Before getting in the car, check the car’s interior and under tires.

• Protect your personal information.

Don’t put a home telephone number on your business card. Google your name to see what’s on the Internet about you.

• Shred documents containing personal information.

• Make sure your computer has a security password installed. Also, log out when you leave your computer. There have been instances where disgruntled employees have used unattended computers to

•

•

alter claim reserves and issue bogus payments.

Use care when reading e-mails and opening attachments. Make sure virus protection has been installed on your computer. Avoid using instant messaging.

Know who you are dealing with online.

Responsibilities of the Company In addition to the personal safety measures taken by adjusters, companies need to regularly reassess their role in ensuring a safe working environment for employees: • Evaluate the risk factors associated with company policies, procedures and guidelines • Mandate training programs for all claim staff, especially for new and inexperienced staff

• • •

•

•

members in the field Insist on communication protocols Initiate predisaster planning; develop effective policies and procedures Train managers and supervisors to recognize and identify indicators of acute stress and anxiety Provide staff with necessary equipment, including cell phones, pagers, GPS systems and protective gear Establish reasonable claim handling standards so that adjusters are not forced to cut corners

Adjuster safety is a shared responsibility between employer and employee.

Companies have to establish reasonable workplace safety guidelines, provide personnel with training and appropriate safety equip-

ment, preplan for natural and man-made disasters and be cognizant of the stress related to CAT duty. Adjusters need to act reasonably and responsibly and always take necessary precautions, whether they work inside or outside. To quote Sgt. Phil Esterhaus of Hill Street Blues, NBC’s highly acclaimed police drama of the 1980s, “Let’s cA be careful out there!”

Donna Popow is senior director of knowledge resources and ethics counsel for the American Institute for CPCU and the Insurance Institute of America (the Institutes). She has responsibility for all aspects of claims education including the Associate in Claims designation program and the Introduction to Claims certificate program. Ms. Popow can be reached at popow@cpcuiia.org.

6 I 6 I > B : A > @ : I = > H ! > I ¿ H < D D 9 ID =6K: 6 C6B: NDJ 86C IGJHI# L]Zc ndjg eda^Xn]daYZg ^h Y^heaVXZY [gdb i]Z^g ]dbZ! ÇcY^c\ i]Zb Xdb[dgi ^h l]Vi¿h bdhi ^bedgiVci# L^i] bdgZ i]Vc '% nZVgh d[ ZmeZg^ZcXZ ldg`^c\ l^i] i]Z ^chjgVcXZ ^cYjhign!

VcY WVX`ZY Wn i]Z bdhi igjhiZY cVbZ ^c ]dhe^iVa^in [dg -%

nZVgh! BVgg^dii :mZXjHiVn >chjgVcXZ =djh^c\ Hdaji^dch ^h i]Z dcZ ndj XVc gZan dc# BVgg^dii :mZXjHiVn l^aa bVcV\Z Vaa i]Z ]djh^c\ XdcXZgch VcY XddgY^cViZ i]Z YZiV^ah! Vaadl^c\ ndj id [dXjh dc di]Zg Xg^i^XVa cZZYh# LZ l^aa \aVYan gZhZgkZ V ]diZa [dg i]Z ^ciZg^b hiVn VcY ÇcY Xdb[dgiVWaZ iZbedgVgn ]djh^c\ [dg Vh adc\ Vh ^i ^h cZZYZY# L]Zc i]Z Xdb[dgi d[ ]dbZ ^h l]Vi¿h cZZYZY bdhi! BVgg^dii :mZXjHiVn ^h i]ZgZ# ;dg bdgZ ^c[dgbVi^dc dg id gZfjZhi V hiVn l^i] jh! XVaa &"-%%"..%".'.' dg k^h^i bVgg^dii^chjgVcXZ]djh^c\#Xdb#

CVi^dcVaan a^XZchZY VcY ^chjgZY0 EgdjY bjai^"nZVg hedchdg d[ C6>>6! C6B>8 VcY C686 EAG7 6[Ça^ViZ BZbWZg#

CLAIMS ADVISOR | FALL 2007

23

Less

is

How Protecting Medicare’s Interests Can Help Settle More Files

at Less Cost

by Richard Schultz

Over the last 10+ years, the workers’ compensation (WC) claims community has reluctantly accepted the requirement of protecting Medicare’s interests when settling a Medicare eligible claimant’s entitlement to lifetime medical care. Unfortunately, the association between WC claims professionals and Medicare has been strained as each has tried to understand the complexities and requirements of the other.

Tremendous effort has been undertaken by trade associations, like the American Insurance Association (AIA) and UWC-Strategic Services on Unemployment and Workers’ Compensation (UWC), as well as law firms, carriers and individual companies in our industry to try and bring about better understanding and more streamlined work flows when attempting to settle cases where Medicare has an interest. While much has been written over the years on this topic, here we’ll review the positive side of protecting Medicare’s interests, and how doing so can actually help to settle more cases at less cost

24

FALL 2007

|

www.claimsadvisor.com

Quick Look

than if a Medicare approved set aside trust is not used.

First, a brief background to understand why our industry must protect Medicare’s interests when settling a Medicare eligible injured worker’s entitlement to lifetime medical care. Historically, it was common for injured workers to

C

Protecting Medicare’s interests and settling life medical with the worker presents a challenge for the claims industry.

C

It pays to consider Medicare a party to the settlement of life medical.

C

Settling lifetime medical benefits with set aside trusts is a cost effective option and may bring all parties together.

settle lifetime medical benefits (in States that allowed the settlement) and if they were Medicare eligible, the injured worker would also submit their injury related medical bills to Medicare. This “double dipping” did not go unnoticed and the Government Accounting Office (GAO) reported

More that the Centers for Medicare & Medicaid Services (CMS) had paid billions of dollars in Medicare benefits when other insurance (workers’ comp) should have been primary. To enhance Medicare’s solvency by avoiding this cost shifting from workers’ comp (or any other primary coverage) to Medicare, Congress passed the Medicare Secondary Payer Act providing that Medicare be secondary to a private, primary insurance plan or coverage. As taxpayers, it is hard to disagree with this.

In response to the WC claims community’s desire to continue to settle lifetime medical benefits, Medicare published a number of advisory memorandums about how workers’ comp claims can

settle lifetime medical costs, while still protecting Medicare’s interests through the use of an approved set aside trust. The concept is simple.

The claims community and Medicare agree on an amount of money representing the reasonably expected cost of injury-related treatment for the person’s lifetime, and that amount of money is placed in a trust. The trust pays the injury-related medical bills so the bills do not go to Medicare. In return, Medicare agrees that it will pay injuryrelated medical bills if the trust is ever exhausted, and not seek reimbursement from any of the parties to the claim.

While the idea is simple, the reality of implementing this concept is difficult given

that in workers’ compensation, claims often involve denied body parts, denied medical complications, apportionment and other issues in dispute, that result in compromise settlements for partial value. To have a set aside trust proposal approved

by Medicare, those on the claims side have the difficult task of projecting lifetime medical treatment and costs and explaining how issues in dispute are resolved in the WC jurisdiction state. This has given rise to a multitude of companies that offer to project lifetime medical care expected for the work injury, separate out which costs are covered by Medicare, create and submit set aside trust proposals to Medicare and

follow the set aside trust application through the Medicare review process until there is an approval.

To understand how protecting Medicare’s interests can help settle more files at less cost, we must review the needs of the injured worker and carrier, and how these needs are actually met more easily when a Medicare approved set aside trust is involved. Here are three examples: 1. Guaranteed Payment of Future Medical Expenses What injured workers want— first and foremost, to know for certain that their medical bills will be paid.

What those on the claims side want—to be sure that

CLAIMS ADVISOR | FALL 2007

25

The Medicare approved set aside trust accomplishes the needs of both parties because the WC file closes.

26

FALL 2007

|

current reserves will be sufficient for the life of the claim, regardless of medical complications or inflation in the future. This is problematic given that while the overall Consumer Price Index (CPI) increased 63.2%, from January 1989 to January 2007, the medical component of the CPI increased 139.0% in the same period. In addition, new and invariably expensive treatments and medications are released.

Set aside trust solution— the Medicare set aside trust meets both needs. With the use of an approved set aside trust, the injured worker’s needs are met because if the trust ever runs out of money, Medicare steps in as primary coverage and will not seek reimbursement from anyone.

The claims community needs are met because the set aside’s lifetime medical cost analysis is based on the injured worker’s medical condition and treatment costs as of the date of the analysis. This eliminates from the analysis the cost of new treatments and unforeseen medical complications.

There is a trade-off in completing an analysis like this however. A worker’s medical treatment might diminish in the future and lifetime costs may be below the amount projected. Additionally, new and more expensive treatments and medications may be developed, or medical complications may occur, making future costs higher than expected. By funding a Medicare set aside trust, the claims community buys peace of mind and is able to close its file. This is the

www.claimsadvisor.com

most important and positive use of a Medicare approved set aside trust: to close out an otherwise unlimited and partly unknown lifetime medical expense.

2. Closure of the WC Claim What injured workers want—to settle the case.

They are often motivated because they want to escape the workers’ comp claim handling and adjudication system. In some states, WC law limits their choice of doctor, requires treatment plans to be processed through utilization review and may set other limits on their care. Additionally, many claimants become frustrated and angry with adjusters and may use them as an outlet for their frustration about being injured or their anger about how they feel they were treated by their former employer.

What those on the claims side want—to have a closed file so no more time and expense is incurred, and by having a closed file, the possibility of medically related disputes and litigation becomes moot.

Set aside trust solution— The Medicare approved set aside trust accomplishes the needs of both parties because the WC file closes.

3. Settlement Win/Win What injured workers want—to have some money come to them when they settle their entitlement to lifetime medical benefits.

What those on the claims side want—to value lifetime medical costs as conservatively as possible, potentially saving more than they could if the settlement did not include a Medicare approved set aside trust.

Set aside trust solution— settling with a set aside trust meets both needs; the claims adjuster can offer the injured worker the monetary value of non-Medicare covered medical costs, and the value of Medicare expenses the worker will incur, such as meeting deductibles. They can value the lifetime medical cost for the set aside trust by taking the following into consideration: • Brand name drugs going generic without worry about replacement drugs.

• Computations can be based on a rated age.

• Cost projections can be based on the assumption that medical care will occur as outlined in an independent medical examiner’s report.

• Treatment cost projections can be based on the assumption that the worker will comply with utilization review approved treatment courses.

• Medication costs can often be projected assuming that medications, harmful when taken over long periods, will be diminished or eliminated in the future.

Given the certainty of increasing medical costs in the future and knowing that as an injured worker ages the line between injury-related medical costs and medical care necessary due to age begins to blur, most claims professionals would settle lifetime medical costs if they could. The single best way to settle lifetime medical costs, on large exposure cases, is using the Medicare approved set aside trust. It meets the needs of both parties, costs the claims community less than paying medical costs for a worker’s lifetime, and brings the file to a close.

While there is significant frustration with CMS’ procedures and backlog, rather then wringing our hands in frustration, we should recognize that this is a small price to pay for the tremendous benefit to the settlement process. According to the Na-

tional Council on Compensation Insurance (NCCI), in the last 20 years, from 1986 to 2006, the medical portion of losses climbed from 45 percent of the total, to 59 percent. On more serious injury losses, this percentage is usually higher. If this trend continues, the Medicare approved set aside will not only be seen as a help to settling lifetime medical cases, but a necessity. cA

Arter InsurAnce Adjusters, Ltd.

Richard Schultz is workers’ compensation claims technical director for Fireman’s Fund Insurance Company. Shultz has 35 years experience in the workers’ compensation claims industry and is current chairman of the American Insurance Association (AIA) Workers’ Compensation Claims Committee. He can be reached at rschultz@ffic.com

ProPerty Damage

Homeowner ² CommerCial ² agriCultural

²

Fire

²

Water

²

Wind

²

Hail

²

ligHtning

John s. arter

² tHeFt ²

Vandalism

²

arson

²

Fraud

President

Property General Adjuster P.o. Box 1245 salem, oH 44460 serving all of oH & western Pa

Over 20 Years Experience

office

330.332.9082 fax

330.332.8327

Call our home office or fax claims for Outstanding Claims Service We guarantee satisfaction and look forward to serving your claims needs.

Service is our Talent

“ Congratulations to Claims Advisor on their inaugural edition. Good luck and we look forward to educational and informative articles.”

Central Adjustment Company, Inc. Home Office - Little Rock, AR Telephone: 1-888-227-5506 Claims Fax Hotline: 1-866-455-1777

www.centraladjustment.com

CLAIMS ADVISOR | FALL 2007

27

Interplay The Condominium Association Policy Deductible and the Unit-Owner Policy Loss Assessment Coverage

by Thomas W, Mallin, J.D., CPCU

Without a doubt, one of the most troublesome loss adjustment issues in dealing with first-party condominium unit-owner losses is whether the Loss Assessment coverage can apply to common elements losses not paid for by the association policy due to the application of a significant deductible under the association policy. Until the case of Grife v. Allstate Floridian Ins. Co. (see 1, p32), decided earlier this year, there was no known case law guidance on this issue.

Faced with, on the one hand, statutory or contractual requirements that the condominium association insure building property— sometimes including such property within the units— on an open-perils basis, and, on the other hand, the

28

FALL 2007

|

demands of unit owners to keep regular condominium assessments low, associations look for ways to lower their insurance premiums.

Insurers act as enablers by offering association policies with large deductibles since the state condominium statutes and governing documents do not usually specify a maximum deductible for such coverage.

Suppose a hurricane causes substantial wind damage to the Admiral’s Port Condominium complex in North Miami Beach, Florida.

In order to repair the damage to the common areas, the insured’s condo association levies a total of $845,801 in special assessments against the unit owners in the complex. The insured is assessed $1,226 based on

www.claimsadvisor.com

y

Quick Look

his percentage of ownership.

Most of the $845,801 in special assessments results from the association policy deductible of $719,080. The unit owner then files a claim for the $1,226 under the loss assessment coverage in his unit-owner’s policy. These were the facts in Grife.

Under the non-standard policy involved in Grife, the court held that the Loss Assessment provision’s total exclusion (see 2, p32) for such association-policy-deductible-related assessment charges was enforceable.

The Grife court admitted that the above-mentioned holding actually disposed of the case. But the court went further. In what can either be characterized as an alternative holding or mere nonbinding dictum, the court proceeded to analyze the effect of the excess clause of the association policy’s Loss Assessment coverage on the claim for coverage of the assessment, saying it was doing so because both parties had fully briefed this issue.

The excess clause stated:

C

Issue: Does Loss Assessment coverage of an HO-6 apply to assessments stemming from a large association policy deductible?

C

Recent Development: Grife v. Allstate Floridian, the first known decision addressing this issue, said no, but dealt with non-standard policy language.

C

Bottom Line: Whether the excess coverage of the standard HO-6 should “drop down” to cover association-deductiblerelated assessments remains uncertain.

“This coverage is excess over any insurance collectible under any policy…covering the association of unit owners.” The court read this to mean that the Loss Assessment coverage only covered losses that were incurred in excess of the association policy’s limit and which were not subject to the association policy’s deductible.

It is difficult to decide how much weight to give this excess clause discussion in Grife when deciding whether the Loss Assessment coverage should apply to claims for associationpolicy-deductible-related assessments under standard unit-owner forms. On the one hand: • Grife is the only known decision addressing this issue of whether the unit-owner policy’s Loss Assessment coverage can apply to assessments resulting from the application of the association policy’s deductible.

• While standard forms do not have an excess

CLAIMS ADVISOR | FALL 2007

29

A new decision means more questions than answers as to the interplay of the condominium association policy’s deductible and the unit-owner policy’s Loss Assessment coverage.

i

•

clause within the Loss Assessment coverage, the policy's general Other Insurance clause, which seems applicable to the Loss Assessment coverage, is similarly worded (see 3, p32).

The insured argued that amounts subject to the association policy's deductible should not be treated as “insurance collectible” for purposes of the excess clause. The insured argued that if this result was intended, the excess clause should have been worded so as to specifically make the Loss Assessment coverage "excess over any insurance collectible under any policy including any deductible provisions thereof." The court, however, relying on one prior case (Twin City Fire Ins. Co. v. Fireman’s Fund Ins. Co., see 4, p32), rejected the insured’s argument and concluded that the association policy’s deductible amount should be considered primary insurance, which first must be exhausted before the Loss Assessment coverage of the unitowner’s policy applies.

On the other hand: • Unlike the non-standard policy in Grife, the Loss

30

FALL 2007

|

www.claimsadvisor.com

•

Assessment coverage of the standard ISO HO 00 06 form does not contain a specific exclusion for assessments resulting from the application of an association policy deductible. The Loss Assessment coverage of this standard form is silent as to such assessments.

The ISO scheme clearly contemplates the possibility of Loss Assessment coverage being applicable to assessments resulting from application of the association deductible. Unit owners can purchase more Loss Assessment coverage by adding the HO 04 35 10 00 endorsement. That endorsement contains a Special Limit which says: "We will not pay more than $1,000 of your assessment per

unit that results from a deductible in the policy of insurance purchased by a corporation or association of property owners." Such a Special Limit has been present in all versions of this endorsement at least back through the 1984 version. The presence of this Special Limit indicates that, but for that Special Limit, any scheduled amount of additional Loss Assessment coverage would apply to assessments resulting from application of the association policy's deductible. It must be assumed that the same intent applies to both this endorsement and the underlying basic HO 00 06 form. Coverage is limited to $1,000 for any assessment under the HO 00 06, without

rating a particular association policy the underwriter takes into account the provisions of any state condominium statutes, condominium declarations or bylaws providing whether the association is prohibited from insuring the units, must insure the units, may insure the units but has not in fact insured the units, or may insure the units and has in fact done so. It is at least equally doubtful that a homeowner’s underwriter rating a specific unit-owner's policy will take into

•

•

•

account the presence or absence of insurance on the units in the name of the association, or the effect of state statutes and condominium declarations and bylaws on the necessity or legality of such insurance.

Thus, from the unit-owner insurer's standpoint, the unit-owner's policy is not a true excess insurance policy in that the premiums have not been calculated for the individual insured on the basis of whether and in what amount primary coverage exists in the form of an association policy.

any special limit for association-deductible-related assessments. Once the endorsement is added, any additional scheduled amount of loss assessment coverage is available, except that the most additional coverage the insured can get for association-deductible-related assessments is another $1,000.

To call the amount within the association policy's deductible "insurance collectible" or an "amount recoverable" seems contrary to fact.

By its very nature, the deductible amount applicable to a particular policy is not collectible or recoverable by the insured from that insurance policy.

As recognized by standard insurance texts (see 5, p32), the excess provisions typically found in insurance policies are to be sharply distinguished in effect from true excess insurance policies which never provide primary coverage.

The intent of an excess clause is to provide coverage when there is no other applicable insurance.

The policy only becomes “excess over” other insurance when other insurance applies to the loss. Thus, arguably, when dealing with a mere excess clause, the policy with such an excess provision will apply to the amount of any loss within the deductible of the primary policy since, as to that amount of the loss, there is no other insurance and the policy with the excess clause acts as primary insurance as to that portion of the loss.

It is extremely doubtful that in

CLAIMS ADVISOR | FALL 2007

31

•

Those who purchase a unit-owner’s policy covering a condominium unit not protected by an association policy probably will pay the same premium for that coverage as a unit owner whose unit is also protected by an association policy. The latter unit owner, however, has also paid his pro-rata portion of the premium for the association policy through assessments paid to the association.

If the unit-owner's policy is interpreted as providing no coverage for any amount of loss falling within the deductible of the association policy, the unit owner protected by the association policy will have paid more in insurance premiums and will have two policies covering the same property, but will be afforded less coverage than the unit owner without the association policy. This result is obviously unfair.

Key Information Points 1- Grife v. Allstate Floridian Ins. Co., No. 07-20160-CIVMORENO, 2007 WL 1847648, —F.Supp.2d—(S.D. Fla. 6/28/07).

2- From Grife, “Any reduction or elimination of payments for losses because of any deductible applying to the insurance coverage of the association of building owners collectively is not covered under this protection.”

3- ISO HO 00 06 10 00, Homeowners 6 - Unit-0wners Form, Section I - Conditions, F. Other Insurance And Service Agreement, 2., states: “If, at the time of loss, there is other insurance or a service agreement in the name of a corporation or association of property owners covering the same property covered by this policy, this insurance will be excess over the amount recoverable under such other insurance or service agreement.”

4- Twin City Fire Ins. Co. v. Fireman’s Fund Ins. Co., 386 F.Supp.2d 1272 (S.D. Fla. 2005), the only case relied on by the Grife court, dealt with other insurance clauses in the context of a dispute between a commercial general liability and umbrella liability insurer over contribution towards a settlement reached with the insured store and the injured party. In a footnote, the court considered whether the primary insurer (Liberty Mutual) and the insured (J.C. Penney) should receive contribution from the excess insurer (Twin City Fire) for the amount of the deductible under the primary insurer’s policy. The court concluded that they should not, saying:

The Grife decision thus seems to raise more questions than it answers as to the interplay of the condominium association policy’s deductible and the unit-owner policy’s Loss Assessment coverage. The issue remains a thorny one for claims handlers dealing with standard forms. cA Thomas W. Mallin, J.D., CPCU, is president and chief executive officer of the Property Loss Research Bureau and Liability Insurance Research Bureau (PLRB/LIRB). Mr. Mallin may be contacted at tmallin@plrb.org.

Don’t

Miss an Issue!

PreMier issUe FALL 2007

Information

You asked for it...

it’s here!

for today’s claims profess ionals

We’re NEW and ready to serve up resources for your success

Emotional Harm Claims: Meeting the Challenge

Interplay: Condo Association vs. Unit Owner Loss Occupational Hazards

32

FALL 2007

|

www.claimsadvisor.com

of the Claims Adjuster

Newton’s Laws of And the Physics Motion of Fraud

Go online today to get your FREE subscription. www.claimsadvisor.com

/subscribe

Liberty Mutual and J.C. Penney contend that they are entitled to receive their $1 million deductible back before Twin City is reimbursed for the excess portion of the J.C. Penney settlement that it paid.

However, it is a well-established principle that an excess insurer does not pay until the primary coverage is exhausted.

See supra p. —. Liberty Mutual and J.C. Penney have failed to present any compelling argument or binding case law demonstrating that this principle excludes the deductible.

Is Less More? Protecting Medicare Interests

386 F.Supp.2d at 1280, n. 5.

5- E.g., Williams, Head, Horn, and Glendenning, Principles of Risk Management and Insurance-Volume II, 211-213 (2d Ed. 1981, American Institute for Property and Liability UnderwritersCPCU text).

CONFERENCE November 26-28

REGISTER NOW!

•

for the LARGE LOSS CONFERENCE at the Renaissance Mayflower Hotel in Washington D.C.,

•

WHERE WE ’ LL FOCUS ON :

•

$100,000+ claims in three tracks: •

Commercial lines property claims

•

Personal lines property claims

•

Casualty claims

New and emerging strategies, technologies, and services that adjusters and experts can use to more effectively manage and control large, complex property and casualty claims Adjuster-led presentations, with extensive audience participation, and the opportunity to learn together with many of the industry's finest performers The Large Loss Conference is for Large Loss Supervisors and Managers, GAs, EGAs, Complex Case Managers, those who aspire to this level of claim handling, and service providers who work with these types of claims. Join us in November in our nation's capital!

Property Loss Research Bureau / Liability Insurance Research Bureau For more information, visit www.plrb.org or www.plrblargeloss.com or call 630-724-2200

CLAIMS ADVISOR | FALL 2007

33

Investigating the of Post Hurricane Property Cond Post-storm distress may be due to multiple factors.

by Ted Cleveland, P.G. and George N. Eustace, P.E.

the cause. Depending on the extent of the loss, the necessary professional may be an engineer, fire investigator or environmental professional.

In the weeks following a hurricane, other issues potentially affect the damage to the structure. Factors such as extensive mold growth, material deterioration and fire could change the condition of the structure from its post-hurricane state.

Standing water, high humidity and warm temperatures create a perfect environment for mold growth. Prolonged exposure to weather and human factors may also cause increased damage to the materials and structure.

One of the most common comments an adjuster hears after a catastrophic storm

event is: â&#x20AC;&#x153;My house was not like this before the storm.â&#x20AC;? In large measure, that is generally a true statement regarding the nature and extent of the distress for homes along the primary path of a storm where wind and water forces are the greatest. As one moves towards the outer fringes of the hurricane force winds and storm surge, the nature

120

FALL 2007

|

www.claimsadvisor.com

TS

TD

100

1

2

3

4

5

80 CATASTROPHIC

60 EXTREME

40

EXTENSIVE MODERATE

20 MINIMAL

0 0

20

30

40

50

60

70

80

90

100 110 120 130 140 150 160 170 180 190 200

SPEED (MPH) Source: EFI Global, Inc.

34

and extent of wind and water damage should be less.

This assumes that all the structures were built according to local building codes and properly maintained.

Homes that were not designed or built according to the building code or weakened by aging and weathering will be more vulnerable to damage at thresholds

WIND FORCE

FORCE (PSF)

Following a hurricane, damages to a residential structure can range from structural distress, to small areas of mold growth to a total loss of the structure. Storm damage can affect multiple components of a structure including the roof, windows, siding, foundation and interior finishes. Wind or water is often the most common cause of damage to residential properties; however, there are many factors to consider when assessing the various causes of damage.

Some of the factors include material use, age, condition and construction methods as well as type, location and extent of the damage. It is essential that a professional with hurricane damage assessment experience evaluate these factors to accurately define

True Cause

Quick Look

e

C

An examination of pre- and post-storm conditions is critical in determining the true causes of damage.

C

A timely inspection after storm or hurricane activity can reduce costs.

C

Identifying the cause and effect of damage requires expertise in various fields of engineering.

ditions The Saffir-Simpson Hurricane Scale divides hurricanes in five categories based upon the intensities of their respective sustained winds.

The classifications are intended primarily for use in measuring the potential damage and flooding a hurricane will cause upon landfall.

Category 1 Winds of 74 – 95 mph No real damage to building structures. Damage primarily to unanchored mobile homes, shrubbery, and trees.

Also, some coastal flooding and minor pier damage.

Category 2 Winds of 96 - 110 mph Some roofing material, door, and window damage.

Considerable damage to vegetation and mobile homes.

Flooding damages piers and small craft in unprotected anchorages may break their moorings.

Category 3 Winds of 111 – 130 mph Some structural damage to small residences and utility buildings, with a minor amount of curtainwall failures.

Mobile homes are destroyed. Flooding near the coast destroys smaller structures with larger structures damaged by floating debris. Terrain may be flooded well inland.

A hairline crack in the foundation of a home prior to a storm increased to a large crack with horizontal and vertical displacement when exacerbated by wind storm activity.

Category 4 Winds of 131 – 155 mph More extensive curtainwall failures with some complete roof structure failure on small residences. Major erosion of beach areas. Terrain may be flooded well inland.

i

below hurricane force winds.

When the nature and extent of damage present following a hurricane is not consistent with the reported wind speeds or storm surge, it is possible other factors such as pre-existing conditions from faulty construction or a lack of maintenance may be present.

The best indication of the conditions present before a storm event can be provided by photographs taken prior to the storm or recent inspections and/or repair receipts.

Homeowners should be encouraged to take photographs of their homes prior to an approaching storm to assist them in documenting storm related damage.

Property condition reports from the most recent

Category 5 Winds over 155 mph Complete roof failure on many residences and industrial buildings. Some complete building failures with small utility buildings blown over or away. Flooding causes major damage to lower floors of all structures near the shoreline. Massive evacuation of residential areas may be required.

(Source: National Weather Service, http://www.nhc.noaa.gov/aboutsshs.shtml)

CLAIMS ADVISOR | FALL 2007

35

36

FALL 2007

|

Homeowners may not notice imperfections before a storm.

Mortar in this brick veneer shows that the crack was there at the time the brick was laid and not caused by storm activity.

i

i

sale/purchase of the home are also helpful. After Hurricane Rita, a homeowner experienced a severe crack with both vertical and horizontal displacement in the concrete slab foundation that was being claimed as wind damage. An elevation survey showed that the foundation had settled in the direction of a row of large trees and voids were present along the lowest portions of the foundation. The initial indication was that the crack was due not to wind but to progressive foundation settlement over time. The homeowner provided a copy of the FHA report from an inspection just prior to the storm that reported a hairline crack. It was determined that the pre-existing crack had been exacerbated by the wind forces.

Very few houses are maintained in such a way that they have no conditions of distress as a result of normal aging and weathering—commonly referred to as “wear and tear.” Such conditions include cracks in the interior and exterior wall finishes, doors and windows that do not close properly, water stains, leaking pipes, ceiling stains and cracks, uneven flooring, out of plumb walls, loose siding, appliance failures, roof leaks and chimney tilting.

When such conditions are found following a storm event, it is a natural reaction for a homeowner to claim the conditions did not exist before the storm, particularly when the homeowner may not have noticed them until after the storm. A common example is a crack or separation filled with paint from the last time the house was repainted. Following Hurricane Rita, a Texas homeowner filed a claim

Incorrect nail placement causes shingles to slide out of position leaving the homeowner vulnerable to further wind damage.

www.claimsadvisor.com

citing cracks in exterior brick veneer. However, a close inspection of the cracks revealed the cracks were partially filed with mortar from the time the brick was laid.

Regardless of the claims being made, there are items of distress that may be present after a storm event that cannot be reasonably attributed directly or solely to the storm without a closer examination of the nature and extent of the distress, the material conditions and the direction, type and magnitude of force required to cause the distress.

Following Hurricane Charlie, a Florida homeowner told the inspecting engineer that his swimming pool enclosure was “not like this before the storm.” When informed that the purpose of the inspection was to measure and docu-

ment the existing conditions and evaluate them for recent movement, deflection or failure of structural members, the homeowner commented that had he known about the inspection, he would have taken a sledgehammer to the anchor bolts. In most cases such attempts to mechanically enhance damage fails due to the person’s lack of knowledge of engineering, physics and material science.

Distress may also be the result of a prior loss event, or a material, installation or design defect. Determining the scope of repairs that can be attributed directly or indirectly to a storm event requires expertise in the fields of building design, engineering and construction. Depending upon the nature of the distress or failure, a civil, mechanical, electrical or environmental engineer may be required.

A common installation defect for laminated style shingles on steep slopes that is often claimed as wind damage is actually due to improper nail placement. By placing the nail too far above the nail line, the nail misses the bottom tab.

Over time, the adhesive strip between the bottom and top tabs will fail and the bottom tab will slide down out of position. In this compromised condition, the shingle will be vulnerable to future wind damage below the performance threshold of 60 mph.

The misplaced nail is also

CLAIMS ADVISOR | FALL 2007

37

i An overdriven nail missing nail line punctures the top shingle leaving the shingle with no resistance to wind uplift.

more likely to be overdriven through the upper tab if the pressure on the nail gun is set for penetrating two layers of shingle. Once the nail head punctures through the top shingle, the shingle has no resistance to wind uplift and is more prone to damage.

With hurricane damage to roofs, windows and walls, water infiltration becomes a serious issue. Water infiltration, massive flooding and high humidity create the perfect environment for mold growth. Growth is further enhanced if the power is out and the space is not air-conditioned. If it goes undetected or no corrective actions are taken, the loss associated with mold can grow significantly.

The areas most vulnerable to mold growth are gypsum wallboard materials, insulation and carpet. In evaluating the extent of mold damage to a structure, the loss must be examined in a timely manner by a qualified professional.

Registration and certification of a mold professional is required in many states.

As a result of Hurricane Rita, the actual wind/water damage from the hurricane

38

FALL 2007

|

was major, but the fact that electricity was lost for several weeks increased the extent of damage. An issue that is often overlooked is the necessity to identify water-damaged materials that do not have visible mold growth. One of the biggest misconceptions is that if you donâ&#x20AC;&#x2122;t have mold growing on building components within a few days, the materials will remain in good condition. With the electricity off for weeks in the non-conditioned, hot and humid environment, mold is very likely to occur even when there are no apparent signs of growth in the few days following the event. Many areas were cleaned of visible mold only to have continual growth in weeks following the storm.

Contractors were required to return to the site multiple times to clean or remove materials. The overall cost and amount of downtime can be reduced if all water-damaged materials are identified and cleaned or removed in the early stages following a storm.

Other environmental concerns that affect a loss following a hurricane are asbestos, lead-based paint and

www.claimsadvisor.com

hazardous waste. Hazardous waste will generally be associated with spills from adjacent properties or wastewater impacting a structure.

A more common hazardous material that impacts damage assessments following a storm is asbestos. Asbestos is a natural occurring mineral that is found in many building materials that are commonly found in a residence or commercial building. Some Asbestos-Containing Building Materials (ACBM) include ceiling texture, wallboard joint compound, flooring, mastics, insulation and roofing materials. A hazard is created from asbestos only when it is airborne. Therefore, damage to ACBM from a hurricane can create potential for exposure.

Contact damage, delamination due to water and vibration, as well as abrasion, can create problemsâ&#x20AC;&#x201D;not only a risk of exposure for occupants, but also construction workers or consultants entering the building.

To reduce the risk of exposure, a thorough asbestos survey should be conducted as part of the evaluation process following a hurricane or fire affecting a structure.

Many states require that an inspection be performed prior to any repair or renovation work performed on any type of structure, and the EPA requires inspections on all commercial properties prior to this type of work.

Asbestos is a highly regulated and hazardous material with high public awareness that should not be overlooked following a major storm event. A certified, licensed professional with significant experience in performing ACBM surveys must perform the survey. In addition, ACBM must be handled, removed

and disposed of by qualified firms and workers.

Typically, the most vulnerable material to hurricane damage is spray applied ceiling texture. It is a material that is easily damaged and transported by wind and water.

In many cases, the material contaminates carpets, furniture and other finishes to the extent that the cost of ACBM removal significantly exceeds the cost of the original repair.

Identifying the cause of damage to a structure following a hurricane can be complex and requires specialized experience. Not only is it important to consider physical conditions present at the time of the investigation, but also it is equally important to evaluate the pre-storm condition of the structure and determine the damage that has occurred since the storm. Timeliness of the inspection will improve the professionalâ&#x20AC;&#x2122;s ability to properly analyze the gathered information and offer a sound conclusion. cA

Ted Cleveland, P.G. is the regional vice president of the Texas Gulf Coast Region and director of Catastrophe Response Services for EFI Global.

He has over twenty years experience with multi-disciplined engineering services specializing in environmental and industrial hygiene related projects. Mr. Cleveland can be reached at ted_cleveland@ efiglobal.com.

George N. Eustace, P.E. is a senior mechanical and civil engineer for EFI Global. He has more than thirty years experience in engineering, maintenance and construction.

Mr. Eustace can be reached at george_eustace@efiglobal.com

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

CLAIMS ADVISOR | FALL 2007

39

Mining for Inform

in

Unstructured C

by Stephen Holcomb

For decades, insurers have been amassing enormous databases of claim information. The amount of data available to insurers today is overwhelming. There are millions of untapped records, reports and documents currently lying in insurance data centers; enough information to actually foresee and predict likely claim outcomes. The big question for insurers is, “What exactly do we do with this data?” Significantly more important is, “How do we turn this data into knowledge that can be acted upon?”

The ability to effectively mine and analyze this data can result in faster claims resolution, better data modeling and forecasting and considerable loss cost savings for insurers. When you consider that a small number of claims cases constitutes a significant portion of a carrier’s total claims payout, it follows that small improvements in the claims payout process can offer

40

FALL 2007

|

significant financial benefits to insurance companies.

Claims professionals now have the ability to mine actionable information from both structured and unstructured data sources through the use of semantic technologies and text data mining, a first step in the effective use of predictive analytics. In fact, the primary objective of text mining is to create new information that has predictive value.

Characteristics of Claims Data Carriers have accumulated raw claim or loss data that equates into millions of text records. Examples of text data include claim description fields in claim files, the content of e-mails, underwriters’ written evaluation of prospective policy holders contained in underwriting files and responses to open-ended survey questions on customer satisfaction surveys. Until recently, this

www.claimsadvisor.com

mation Gold

Quick Look C

Executives are always looking for ways to reduce total loss costs for competitive advantage and better bottom line results.

C

97% of claims data is unstructured, which means strategic business decisions are traditionally based on 3% of available information.

C

New technology and analytic modeling makes it financially feasible for carriers to effectively mine and analyze unstructured claims data.

C

As a result, carriers can resolve claims quicker with considerable loss cost savings which improves profitability and industry competitiveness.

Claims Data information was available, yet extracting knowledge from it was not financially feasible.

Industry research suggests that 80 percent of any company’s data is unstructured and that 90 percent of that information is unmanaged. In the insurance industry, claims data is actually 97 percent unstructured with the richest information residing in the unique set of words, acronyms and abbreviations that comprise the adjuster’s notes. So, if insurers are not effectively using text mining, it can be implied that important business decisions are being made based upon only about three percent of the information available. When you consider the size of the insurance industry, that percentage is a staggering revelation.

While the richest information may reside in the adjuster notes, those notes are just a part of a claim department’s unstructured

data inventory. There also are e-mails with attachments, imaged documents, case manager notes, Webbased information, recorded statement transcriptions (or digital audio files) and digital photos. All of this valuable data content currently exists within insurance companies’ data inventories; the information gold that the industry has yet to mine effectively.

The Science of Text Mining While you might be unfamiliar with the “text mining” term, most of us encounter and use this technology in our daily lives through search engine technology.

A user types in a word or phrase, which might include misspellings, and the search engine searches through a vast repository of documents to find the most relevant documents and list the results—all within seconds.

Other popular text mining applications include spam identification pro-

CLAIMS ADVISOR | FALL 2007

41

grams associated with e-mail accounts, call center routing, analyzing open-ended survey questions and global monitoring for public health early warning such as SARS.

Software for analyzing text information was commercially available in the 1990s, although text mining is a relatively new science.

Early data-mining applications often yielded disappointing results and tended to be unnecessarily complex.

The lack of data-mining knowledge also contributed to speculation of overall effectiveness. However, continued technology innovations in recent years have expanded text mining capabilities and stature as a vital business tool for the insurance industry.

Current data-mining applications feature expanded analytics, user-friendly interfaces and powerful algorithms that allow researchers to analyze structured and unstructured data.

Structured vs. Unstructured Data Structured data is standardized, easily entered and handled information, such as numbers or company-designated codes for financial information, line-of-business abbreviations, causes of losses and the like.

In contrast unstructured data, which is what exists in the majority of current claims data, is non-standardized, freeform, explanatory information such as adjuster notes, imaged documents, telephone call transcripts and e-mail messages. This type of data is a gold mine of rich, but hidden, information. Unlocking it and extracting its actionable business value has been a daunting necessity.

Historically, companies

42

FALL 2007

|

www.claimsadvisor.com

have tried to gain access to this data in manually intensive ways, extracting hard copy files from departments and having teams of individuals review them for specific information. This was an extremely time consuming and expensive task because the effort required and difficulty of interpreting the unstructured data rarely led to the financial results that warranted the time and effort.

Automate and Expedite Information being automatically extracted from unstructured data is a significant achievement because it allows corporations to extract knowledge that can directly impact profitability. Text mining enables machines to do what scientists, researchers, lawyers, librarians and normal readers have been doing without conscious reflection for as long as text has existedâ&#x20AC;&#x201D;finding patterns and creating intelligence from text data. Text mining magnifies the human abilities to identify complex patterns that are typically indiscernible without the application of statistical techniques.

In the claims arena, text mining applications can extract information related

to a wide range of claims issuesâ&#x20AC;&#x201D;from identifying all claims with a particular body shop, attorney or treating physician to whether an auto accident involved an incidence of DUI/DWI or road rage. With text mining, insurers can quickly tackle this large volume of data and discern patterns that might group these claimants, or identify them as unique. Data can also be gathered to examine what is unique about these claims, what patterns exist within them and what new business opportunities may be opened up by adjusting new products to fit these groups of customers.

The use of text mining to collect, review and process unstructured data automates claim analysis by quickly doing the job of multiple workers scouring through online adjustersâ&#x20AC;&#x2122; notes and incident photos on a file-byfile, inquiry-by-inquiry basis.

Yet, text mining is unlikely to replace human researchers or supplant traditional research methods. Rather, it will augment existing capabilities.

Many organizations have found a hybrid approach compelling by exploiting the speed and capacity provided by text mining and automating processing to handle the

initial intake, filtering and processing steps while leaving final high-value analyses to human analytical experts.

Benefits for Claims Managers/Adjusters Text mining enables carriers to gather data and analyze field reports, notes and e-mails in order to respond swiftly to customer claims concerns and ensure ongoing customer satisfaction. This analysis allows adjusters and managers to quickly identify and understand unique characteristics in the claims by identifying patterns that may indicate special conditions or fraud. Identification of fraudulent claims or claims that are candidates for subrogation recovery enables carriers to mobilize data quickly, enhance workflow and ultimately streamline the claims management process.

When information can be gathered faster, claims processing time is reduced and carriers save money. For example, in the automotive industry, warranty claims cost the industry roughly $14 billion per year in the United States. It was found that by effectively text mining, the cost of processing a warranty claim from the time of problem identification to resolution is cut by up to 10 days and the number of overall claims is reduced by 5%.

Keep in mind that while text mining allows data to be transformed into insights for decision-making in the claim process, these insights must be delivered to claims handlers, investigators or recovery specialists in a useful form and early enough in the claims process to add significant value.

As new types of claims

or new patterns of claiming behavior begin to emerge, databases containing freeform claim description fields or narratives describing accidents could contain information that is not found in standard claims coding.

Using text mining, insurers will have the ability to identify suspicious claims that would never be found in standard database mining.

Improving Profitability The field of text mining is undergoing rapid development and the use of predictive analytics is helping to drive that growth. As data mining becomes more sophisticated, the knowledge it extracts from insurance information will be become more valuable to insurers and a key to sustaining a competitive advantage.

Technology innovation is

feeding the industryâ&#x20AC;&#x2122;s appetite as vendors are offering the technology expertise and industry experience that are helping the insurance industry leverage data resources.

Carriers have a real opportunity to harvest the knowledge from claims data and transform that knowledge into improved claims processes, a refocused effort on exception handling and the automation of routine claims. Carriers now have the ability to effectively streamline the claims process, improve profitability and retain their competitive advantage in the global marketplace. cA Stephen Holcomb is the founder, president and CEO of Full Capture Solutions. Mr. Holcomb can be reached at steve@fullcapture.com.

Like what you see?

Thereâ&#x20AC;&#x2122;s more online...

Up to date news.

Rate Rate your your favorite favorite articles articles and and forward forward them them to to colleagues. colleagues.

Subscribe Subscribe online. online.

Most Most comprehensive comprehensive list list of of events events

Go to www.claimsadvisor.com today!

CLAIMS ADVISOR | FALL 2007

43

Specialists Res Challengin

44

FALL 2007

|

www.claimsadvisor.com

solve ng Claims

Quick Look C

Content restoration goes far beyond the drycleaner as specialization and niche services increase.

C

Securing the right expert aids in avoiding fraudulent and costly claims.

C

New protocols to inventory a claim, particularly onsite, keep you from being left wide open to inventory disputes.

C

Cost savings dwarf replacement costs so it’s well worth making one extra call to tap an expert

C

6 Key Steps to secure the right textile specialist.

A Specialty Niche Comes of Age

by Wayne Wudyka

Did you hear the one about the man with 97 pairs of gloves? No, he only had two hands, and while it may sound like the lead-in to a bad joke this was part of an actual claim from a house fire. Naturally the adjuster on the claim was a bit skeptical, and rightly so. After all, who could anticipate a scenario reminiscent of Imelda Marcos. Remember the eccentric First Lady of the Philippines and her infamous 1,000 plus shoe collection?

Professional service providers who specialize in textile restoration witness first-hand a variety of less-than-typical situations, ranging from unusual and exotic items to large and unexpected quantities. Each case presents the potential for additional exposure or a challenge by the insured.

In the case of the 97 pairs of gloves, all it took to convince the adjuster was the review of several digital photos and a detailed inventory conducted at the loss site signed by the insured. What could have been a contentious situation was resolved easily thanks to standardized protocol followed by the textile restorer.

Just a few short years ago, this likely would not have been the case. Back then, the typical process for restoration of textiles damaged by a covered peril was handled in an inconsistent and often haphazard manner.

Affected items were dropped off at a local drycleaner and checked in like any other

retail item. An inventory would be developed from the cleaner’s internal “point of sale” system. The inventory then became the invoice.

Unfortunately, there was no documentation for what was taken or not taken from the property, resulting in potential for disputes.

Today, a much more detailed and thorough service-oriented process is what separates retail drycleaners from textile restoration specialists who focus on the insurance industry’s specific needs.

A textile restoration company’s service standards must follow those of contents companies. Specifically, including all vital components of textile restoration: • Around-the-clock access • Onsite room-by-room inventories • Nonsalvageable lists preand post-cleaning • Control sheets for valuables • Textile protection for transportation

• • • • • •

Pack-out materials Secure temporary storage Photographic documentation of the loss Rush orders (to reduce additional living expense or ALE) Customized cleaning equipment Ozone rooms

The textile niche even encompasses third-party administrators, electronic interfaces to pricing specialists and Internet-based claims assignment similar to the structural side. Ultimately, the quicker and more professional the response, the more the indemnity can be minimized and customer satisfaction can be improved. At an average cost savings of 84% compared to replacement, textile restoration also allows the insured to use more of their content coverage on other areas.

In today’s economic environment, contents have become the largest and fastest growing category on insurance claims, and textiles

CLAIMS ADVISOR | FALL 2007

45

(clothing, coats, shoes, belts, purses, hats, stuffed animals, window treatments, linens, towels, bedding, wedding gowns, tapestries, leathers and furs) comprise the largest component of contents, approximately 23%. Homeowners’ textiles can be surprisingly valuable; a typical family of four can easily accumulate $25,000 in clothing within a few short years. Additionally, heirloom-quality and one-ofa-kind specialty textiles have a high sentimental value for the insured. Without proper protocol, particularly with onsite inventory, there is no way to verify or document what was removed from the home and what condition it was in—the perfect scenario for disputes.

Look for a textile restoration specialist who has made a significant investment in full-service facilities and equipment (boilers, customized washers, drycleaning machines, specialized window treatment cleaning equipment, presses, ozone chambers, secure storage, etc.) for restoring garments and other fabric items. Highly-trained, skilled professionals operate in the field as well as in the plant; proper appearance and communication—namely uniformed representatives who are courteous, efficient and understand the claims process—are imperative.

Standards such as these result

46

FALL 2007

|

www.claimsadvisor.com

in better auditable inventory control, accountability, onsite and offsite efficiencies, and decreased ALE costs—resulting in overall excellent customer service and policyholder satisfaction.

Special Solutions for Special Challenges Beyond the uniform procedures in the field, a textile restoration specialist should also be technically sound when it comes to cleaning and restoring items. Applying a scientific approach, textile specialists utilize multiple cleaning formulas specifically designed for restoration and must be able to clean at relatively low temperatures and low pH (more acidic than alkaline). Such expertise can be invaluable, especially when specialty and high valued items are damaged during a loss, and the insured is faced with the unsettling prospect of losing treasured items.

In Santa Barbara, Calif., one textile restorer handled a loss that included more than 3,000 vintage garments infested with moths, many dating back to the 1940s.

They were faced with the challenge of handling each garment with extra care to preserve its admired quality, while removing all of the insects from the clothing.

Adding to the complexity, moths can reproduce quite rapidly, and frequently hide in inconspicuous places such as the collars and cuffs of clothing. Garments that are delicate, ornate, historic or vintage require special treatment, especially when they are affected by insects, because the clothing

typically cannot withstand intense cleaning solvents and insecticides.

In this case, the specialist was able to restore the items to their pre-loss quality.

The replacement cost of the wardrobe was estimated near $400,000, yet the items were restored for less than 10% of replacement. Even more impressive was the textile restorer’s ability to preserve the unique heirlooms, maintaining a rare collection that would be extremely difficult or impossible to replace.

Another key component of textile restoration is availability because fast response is critical for successful restoration. By reducing the effects of stains, odor and loss of fabric strength, as well as dye transfer, shrinkage and mold growth, textile restorers can achieve substantial success when they are able to begin work within 24 hours of the loss.

When a leading contractor in the Richmond, Va. area was turned down by a local retail drycleaner for assistance with a large loss, a textile restoration specialist was called in to handle the demanding job. As a result of an arson fire, more than 1,600 pieces of heavily smoke damaged military dress uniforms required immediate processing—almost all were needed for a ceremonial event scheduled to take place only four days later. Despite the majority of the order requiring secondary ozone treatment, a deodorizing process that breaks up the smoke molecule to prevent odor from being set in the fabric, the textile restorer completed the entire order within 72 hours. With a total of 1,644 pieces to restore, only 30 were deemed

non-restorable. The prompt turnaround and skilled restoration allowed all members of the local armed forces unit to attend the military ceremony in full dress uniform.

While retail drycleaners require customers to come to them and accept pre-determined turnaround times, textile restoration specialists respond to the needs of the individual customer, including response and service requests. Standard procedures such as operation outside of normal business hours, detailed onsite inventory, secure storage of restored goods and prompt delivery back to insureds have enabled textile restorers to set new standards for handling the textile portion of a claim.

The Value of a Third Party Opinion Textile restoration specialists also incorporate methods to satisfactorily resolve issues between adjuster and insured. Case in point, a textile restorer was called by an adjuster in New Jersey to inspect a Halston designer dress valued at $10,000. Another drycleaner in the area had told the adjuster the garment should be put on the nonsalvageable list, but the adjuster wasn’t satisfied.

The textile specialist noted that many of the problems with the dress were the result of age, not the loss itself and sent the dress to the leading independent source for textile analysis to determine the cause of the stains and damage.

Their lab confirmed the textile restorer’s evaluation and concluded that marks on the dress were old perspiration stains. The adjuster’s persistence and the textile restorer’s diligence saved the

Professional textile restoration encompasses several steps designed to serve and protect adjusters while improving customer satisfaction for the insured. They include:

insurance company $10,000 on the item. As a part of their industry specialization, textile restoration specialists have access to the foremost independent testing service, which has been used in many instances to provide an expert and valuable third party opinion.

The Evolution of the Claims Industry The insurance claims industry, facing a changing environment where specialization is increasingly common, now can turn to niche businesses that focus on providing expertise to create value. The previous practice of one source handling all aspects of a claim isn’t always practical, due to a variety of factors—from the pressure to reduce severity to an increasing complexity in property claims.

Insurance restoration service providers have evolved to include a variety of specialties that better meet the needs of adjusters, contractors and other groups.

Today’s claim landscape has broadened to include such niche experts as water mitigation, electronics recovery, flooring replacement, art restoration, independent testing and textile restoration. Fortunately, in many instances, the deployment of technology has positively impacted the ability to coordinate disparate claim resources without increasing work loads.

The increased complexity of the claims process and a heightened focus on customer retention created a demand for refinement, which led to these more sophisticated services. In turn, specialists serving the insurance industry have implemented enhancements

1.

24/7 Response—The job starts when the phone rings. A textile restorer must be available around the clock to respond to calls.

2.

Onsite Inventory—Textiles must be tracked like any other component of contents. The process starts with a detailed room-by-room inventory conducted at the loss site and is signed by the policyholder to ensure that what leaves the house is accurate and can be accounted for.

3. Rush Service—A textile professional is able to restore and return emergency needs clothing to the insured within 24-48 hours, which reduces ALE. 4.

Prompt Invoicing—Providing a detailed invoice/estimate within seven days helps the insurer accurately set reserves.

5.

Secure Storage—A textile restoration specialist often acts as the insured’s “closet” by storing restored items until the homeowner is ready for them to be returned.

Storage standards include an electronic security system; homeowners should be able to visit the storage facility with a 24-hour notice; a facility that is safe, well-lighted and properly insured to cover liability for visiting homeowners; and the facility must have proper insurance coverage to meet the value of items stored.

6.

Guarantee—A professional textile restorer will guarantee work; items that cannot be restored to pre-loss condition should be removed from the bill.

through training, education and testing, which created more advanced protocols to better meet the distinct needs within this changing claims environment.

The textile niche is an evolving example that truly is coming of age. As a result, a dedicated textile restoration service provider is in fact a specialty content company, with sophisticated

protocols to better meet the distinct needs of the insurance claims industry. cA Wayne Wudyka is CEO of Certified Restoration Drycleaning Network (CRDN), specialists in restoring clothing, textiles and fabric items.

For more information call 1.800.963-CRDN or visit www.CRDN.com.

CLAIMS ADVISOR | FALL 2007

47

Classroom Online:

A Blended Approa Claims Training

by Colm Keenan

Claims training is an integral part of any company’s operational requirements, bringing added value as better education typically creates enhanced employee performance. However, some companies have shied away from investing in employee training due primarily to budget considerations.

After all, training can be a significant expense and time commitment.

As the insurance industry changes, organizations are discovering that education is a critical aspect of success and quality. In addition to enhancing employee performance, formalized

48

FALL 2007

|

training can mitigate an adjuster shortage by providing a recruitment incentive. It can also be a helpful tool as companies face new challenges such as managing a multi-generational workforce. As the return on investment is substantial, companies are searching for ways to incorporate training programs while still being mindful of budget considerations. So what are the options today?

A New Way to Look at Learning In the past, classroom-style learning has been the primary training experience for many

www.claimsadvisor.com

claims professionals. A typical program delivered by experienced claims educators may have included two weeks in policy school, three weeks in auto physical damage training and three more weeks in property technical training.

Typically, trainees would arrive at their sessions with much more than a “zero” experience background.

Before entering a training program, they would have likely participated in ridealongs, claims office training and limited claims handling, which generally consumed both the time and resources of three and four person discipline training teams, in

addition to the expense of airfare, hotel accommodations, ground transportation, food and general operational expenses—a huge investment for the company. So how can the industry curb costs without sacrificing the quality of learning?

Fortunately, today’s technology affords companies the opportunity to offer the option of distance learning online, or e-learning. Online learning provides a quality educational opportunity without the expense of travel and time out of the office.

However, given the benefits of classroom learning, does this mean that progressive

m&

Quick Look C

Quality client service and organizational success require continual education and investment.

C

Formalized training enhances employee performance, mitigates adjuster shortages by providing recruitment incentives, and helps companies manage a multigenerational workforce.

C

Technology allows for e-learning, which provides quality education without the expense of travel and time out of the office.

C

By blending online education with faceto-face instruction, companies get a cost effective solution for training goals.

ach to training directors should convert classrooms to offices, disperse their trainers, and “distant learn” the whole lot? Certainly not. The answer lies in the blending of classroom and distance learning together.

Learning Management System Let’s assume for now that a claims department has access to a form of in-house or third-party classroom training. Where can blending begin? A good first step would be utilizing a robust and extendable learning management system (LMS).

Robust and extendable mean

that the LMS should not only meet today’s needs but also be flexible enough for unforeseen issues down the road.

An LMS is a software package that enables the management and delivery of online content, which is almost always Web-based to facilitate “anytime, any place, any pace” access to learning modules and administration.

LMS offers a strategic solution for managing and delivering a systematic means of assessing and raising competency and performance levels throughout the claims department.

It is like a virtual aircraft carrier platform able to launch strategic requirements in a

continuous and uniform manner. As a result, presentation and delivery are consistent, while at the same time there is verification that students have mastered the content. The system has numerous levels of authority so compliance can remain on a local, regional or national level.

But how does this help claims? An LMS, for example, could supply the solution in a compliance situation where it is important to confirm that everyone has seen and understood a particular regulation.

LMS also assists in just-intime catastrophe (CAT) training where technical or policy information must be dis-

seminated to address specific CAT issues—it’s immediate, uniform and trackable.

Storyboarding Having a good LMS is only half the battle; good content is also required. Ask anyone who instructionally designs distance learning and the word “storyboard” will be mentioned numerous times. Storyboarding is the art of design with specific outcomes in mind (skills, knowledge or behaviors) where the student is engaged and interactive. Lessons, modules and courses are designed through storyboards.

The storyboard should build

CLAIMS ADVISOR | FALL 2007

49

on prior knowledge and use appropriate media and technology to deliver the materials. Instructionally designing storyboards is a skilled and laborious job with three levels of intensity: • Level One: The instructional designer takes existing training content and converts it for e-learning in conjunction with programmers, graphic artists and Web masters. This is the least demanding on resources.

• Level Two: The second most intensive level is when learning content is available but there are no supporting objectives, quizzes, or learning design. The instructional designer takes this raw content and forms an enhanced distance learning program.

• Level Three: The third level involves starting with no content. The instructional designer must research, design and author the raw content and then create the enhanced program. This may take up to 120 hours for one hour of online learning.

Instructional Design The instructional design

50

FALL 2007

|

employed is primarily directive learning. Increased dependency on inside claims personnel and the training needs they bring has forced instructional designers to edit and shorten modules.

Adjusters are presented content in a simple format with audio narration and limited text to aid retention. Modules are designed to be completed in 40 to 80 minutes. At the end of a module, adjusters complete a series of study questions to test their knowledge. The following example of an instruction flow is consistent throughout the design: 1. Pretest 2. Lesson Objectives 3. Introduction 4. Content Presentation 5. Case Examples and Study Questions 6. Lesson Summary 7. Assessment The assessment presents a series of questions based on the content and the lesson objectives. Adjusters must achieve a passing score on the assessment before completion credit is given.

Course modules are designed as Web-based training and are delivered in an attractive Flash format, rich in

www.claimsadvisor.com

audio and visual content, and each module can be launched from the LMS. Blending While distance learning provides an effective environment for education, it has its limitations. For example, it is difficult to provide training for mechanical applications, e.g. teaching someone to ride a bicycle online is problematic. If a student has never seen a bicycle before or does not understand the concepts involved, an online module showing different bike models, their parts, and the dynamics of cycling could assist them before they ever get on a bike. By blending online education with faceto-face instruction, you get a cost effective solution for your training goals. In this scenario, the bike instructor spends less time on the basics and can teach the more complex aspects of cycling, while the student feels more comfortable with the subject matter from the outset.

Likewise, online learning also allows the claims department to deliver instructional information to new employees before they are given classroom training. They are able to arrive at sessions

better prepared and can learn more in the allotted time.

Property and auto technical learners can complete “know before you go” online lessons so that actual classroom instruction is more complex and shortened. For threeweek courses, one week can be transferred from classroom to online learning, resulting in significant savings on room and board expenses and time out of the office.

Claims adjustment is an industry focused on people.

As such, quality client service and organizational success can only come with continual education and investment in the professionals who comprise the organization and serve clients. By exploring the variety of learning programs now available, including distance learning, companies will improve client service, employee retention, and thus, cA the bottom line.

Colm Keenan is vice president of e-Learning Services for Crawford & Company. Mr. Keenan is a 20-year claims veteran with experience in classroom training and distance learning. He can be reached at colm_keenan@ us.crawco.com.

All Eyes are on YOU...

...with

Online Resources.

Claims Pages Reach over 110,000 claims professionals looking for your services by advertising with the largest circulated source for insurance claims adjusters.

Thousands of claims industry links, news articles, forms, events, discussion forums and adjuster tools.

Print Directories.

500 page directories sent free to all claims professionals.

Employment Listings.

Thousands of professional career opportunities. Search job listings and post resumes.

Claims Yellow Pages.

Over 1,000,000 claims services providers in print and online.

Visit us at www.claimspages.com or call 1.800.290.1347

Newton’s Law The

by Brad Balentine

Ever wish you had paid more attention in your high school physics class? Who knew that there would be more worth knowing about Isaac Newton than his having a fig cookie named after him. Okay, so that’s just a rumor but there was definitely more to know that many of

52

FALL 2007

|

us would gladly dive into later in life.

Sir Isaac Newton is one of history’s most important and influential scientists.

Among his numerous accomplishments is the formulation and description of the laws of motion. Today, over 300 years later, Newton’s Three

www.claimsadvisor.com

Laws of Motion are still major underlying principles in the subject of physics.

In any automobile accident, these laws are immutable—they are always in force. Fortunately for those of us who investigate suspected fraudulent claims, it’s safe to say that the vast majority of

people we investigate do not have a college degree in physics and probably didn’t even pay attention in high school.

Thus, the details they give in their statements are often at variance with what could have actually happened. Therefore, it can be helpful to be familiar with these laws, and keep

Quick Look C

In any automobile accident, there is always a “silent witness,” namely the laws of physics.

C

Knowing the physics of an automobile accident greatly improves your chances of detecting a fraudulent story.

C

Be sure to know Newton’s Three Laws of Motion to take a more effective statement in any auto claim.

ws of Motion

Physics of Fraud them in mind when asking questions about the movement of vehicles and bodies in an automobile accident. These laws act as silent witnesses that provide a form of testimony to help you assess the accuracy, and perhaps even the honesty, of a statement.

When people are genu-

inely in an accident, they will usually provide an accurate description of the motion of their bodies during the event, as well was the motion of the vehicle. If they are faking it, they are likely to guess at what would have happened, and such guesses are often wrong.

Having a familiarity with the

Laws of Motion aids the fraud investigator and can save money in undue payouts.

Newton’s First Law of Motion The first law of motion can be stated as: An object at rest tends to stay at rest and an object in motion tends to stay in motion with the same

speed and in the same direction unless acted upon by an external force. Using this law, one can learn something about the dynamics of an automobile accident.

According to Law One, the body of an occupant in a stationary automobile will tend to stay at rest. That’s no

CLAIMS ADVISOR | FALL 2007

53

i Dynamics of a Side-Impact Collision Would you have correctly guessed the final resting point of the blue car?

problem for the occupant, until another car comes along and hits the stationary vehicle, such as in a rear-end collision at a stoplight. The striking vehicle will tend to keep moving forward, and cause the stationary vehicle to also start moving forward. The hips and lower body of our unfortunate occupant are strapped in the seat and thus will move forward with the vehicle, while the occupant’s head and upper torso, which are not as constrained, will tend to remain where they were. The net effect is that the occupant’s head will appear to be thrown toward the rear of the vehicle when in actuality the car is being thrust forward.

Based on these dynamics, we can establish a rule that in any auto accident, the upper body and head of the occupant will be “thrown” exactly toward the point of impact. As an example, if a car is hit from

54

FALL 2007

|

www.claimsadvisor.com

the right side in a side-impact collision, the occupants in that vehicle will be thrown toward the striking vehicle to their right. Of course, the occupants of the striking vehicle will be thrown forward as their point of impact would be at the front of that car.

Many times when an adjuster takes a statement from someone who claims to have been in a side impact auto accident they are told that they were thrown forward by the impact. The stories get even more amusing when multiple occupants in the same car each give a different version of which way their bodies were thrown.

Countless doctors bemoan how their poor patients were thrown violently forward by a rear-end impact. In reality, the rear impact would send the occupants’ bodies into their cushioned seats and headrests as the primary motion. Unfortunately for the doctor, the truth of this situation makes for a less than dramatic medical report.

When taking a statement, it helps to know the points of impact on each vehicle and to ask detailed questions about the motions of each body. If you keep this rule in mind as you go along, you can quickly see whether their version of the facts agrees with Mr. Newton.

Newton’s Second Law of Motion The second law of motion can be stated as: Force equals mass multiplied by acceleration. This law is evident when we observe that although a bullet doesn’t weigh very much, it certainly transmits a great deal of force when discharged at a high speed from a gun. Similarly, a freight train has an enormous amount of

mass, but it has no force when it’s at a standstill. A car has a lot of mass. If it is moving at any sort of speed, it will impart a significant amount of force in any collision.

In one example, an attorney was obviously unaware of this law when he elected to represent a burly school bus driver who claimed significant soft-tissue injuries. His client’s school bus was rear-ended by a small Toyota. The Toyota was traveling at a low speed, sustained only minor damage and its driver was not injured.

Thus, we have the relatively small mass of the Toyota, compared with the much larger mass of the bus, plus the factor of low speed. Taking all this into consideration, there would not be much force transmitted to the school bus, according to this second law of motion. Therefore, it’s hard to believe that this claimant was injured, especially since none of the children sitting near the rear of the bus sustained any injuries—despite sitting much closer to the point of impact, and without benefit of seatbelts.

Newton’s Third Law of Motion The third law of motion can be stated as: For every action there is an equal and opposite reaction. Knowledge of this law is useful in the analysis of photographs of vehicles supposedly in the same accident.

If two vehicles are of comparable size, then the extent of damage to each one should be roughly equivalent.

If you take the time to do a side-by-side comparison of vehicle photographs in an accident claim, you may be surprised at what you find.

In one case, a pickup truck allegedly rear-ended a Chevy van. The rear of the van was

flat in shape, as are most vans, and had little visible damage.

The damage to the front of the pick-up was only in the center of the bumper and it ran from the top of the hood to the bottom of the bumper, about two feet wide. Essentially, it was a perfect imprint of a telephone pole. You could almost imagine seeing the reverse lettering of “Property of AT&T” embedded in the dented grill of the truck. Anyone could see that there was no “equal and opposite reaction” in this case. There was no pole shaped protrusion on the back of the van that could have accounted for the shape of the damage to the truck.

It was almost disappointing that they didn’t try harder to fool us. Unfortunately, we regularly see cases which are almost this blatant. Possibly they figure that too many of us just won’t bother to thoroughly examine each case.

One area that can sometimes be overlooked in taking statements involves the movement of the vehicles in a collision after the impact.

Experience shows that when people are making up a story about an accident, they don’t work out all the details. They will often have a picture in their mind about how the “accident” happened. They

will know what street they were supposedly driving on, where the other vehicle was coming from, and where the vehicles collided. As far as they are concerned, that’s all the story they will need.

They don’t often think about how the vehicles would move after impact.

If a person genuinely experiences an accident, they will generally be able to give an accurate account of the movement of the vehicles after impact. A person who is making things up might be surprised and become nervous about such questions. Chances are they have not thought ahead of time about all the questions they would be asked. This is especially true in the case of side impact accidents.

In one side impact case, the person claimed that both vehicles stopped dead immediately after impact.

Of course, that would be completely inconsistent with Newton’s First Law of Motion. In actuality, both vehicles would tend to continue moving.

In another case, a claimant was in a vehicle which had been struck on the side.

When asked what direction her vehicle went after the impact, she claimed that it

continued going straight.

She “didn’t remember” what the other vehicle did after the impact. Based on actual crash tests of side impact collisions, a vehicle hit on its left side would start moving to the right while also continuing to move forward.

This accident showed the result of both cars having an equal and opposite reaction to the impact while they also tended to stay in motion.

In one such test, the car hit on the left side immediately started moving sideways to its right while also turning counter-clockwise as it moved across the pavement. It ended up with both cars facing each other, nose to nose, about two car lengths away from the original point of impact.

The nose of the car that was hit in the side was exactly facing toward the spot where the original impact occurred.

I doubt that anyone would be able to accurately describe such a scene unless they had experienced it themselves.

And, of course, that’s the whole point.

I would hope that if Sir Isaac Newton were alive today, he would be pleased to see the myriad of uses that have been found for his discoveries, including fighting insurance fraud. I’m not sure what he would think about the fig cookie thing, though. cA Brad Balentine is director— Special Investigations Unit for DMA Claims Services. He has over 20 years experience as a fraud investigator and manager. Mr. Balentine is a licensed private investigator and certified as a continuing education instructor. He can be reached at bbalentine@ dmaclaims.com.

~ pulse ~ What does your Workload lOok like?

Our first Pulse Poll shows that claims adjusters have more than enough work on their plates with 68% feeling challenged to overwhelmed. In the next issue, we’ll look at ways to help you keep up with the load.

Keeping My Nose Above Water

27%

Manageable, but Challenging

25%

Overbearing / Overwhelming

16%

Desperately Need More Work Just Right / Want No Change

15% 8%

A Little Bored / Not Challenging 7%

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

CLAIMS ADVISOR | FALL 2007

55

Alternative Treat

Experiences R Growth

in Auto Injury C

by David Corum, CPCU

It may not be news to experienced claims professionals that a significant portion of auto injury insurance claim payments go to pay for (or reimburse) treatment that is not considered to be part of conventional medicine. Chiropractors, for example, have been treating injuries from automobile accidents for years, and often with good results. What appears to have escaped attention, however, is the fact that the utilization of alternative treatment, includ-

56

FALL 2007

|

ing chiropractic, has grown to the point where, by 2002, more than one-third of all claim payments for treatment were associated with alternative care, as one out of three auto injury claimants countrywide received some form of alternative treatment.

Also largely escaping attention is the fact that most of the recent growth has been driven by the emergence and expansion of forms of treatmentâ&#x20AC;&#x201D;primarily acupuncture and massage therapyâ&#x20AC;&#x201D;

www.claimsadvisor.com

tment

Quick Look

Rapid

C

The utilization and cost of chiropractic treatment and other forms of alternative care in auto injury claims are growing.

C

Approximately one-third of all auto injury claimants countrywide whose claims closed in 2002 received alternative treatment.

C

Most of the recent growth in alternative treatment has involved acupuncture and massage therapy.

C

There is wide variation across states in the utilization of alternative treatment.

that previously were rarely associated with auto injury claims. While chiropractic care still dominates alternative treatment overall, other forms of alternative treatment have secured a firm foothold in the auto injury compensation systems of some states.

Reviewing the role of alternative treatment in different states reveals another fact that raises important questions about the appropriateness of treatment received by many auto injury claimants.

Claimants in some states are two or three times as likely as claimants elsewhere to receive alternative treatment.

Extreme variation in the use of alternative treatment across states is unlikely to be explained by differences in the nature and severity of injuries and suggests either that there is substantial disagreement about how best to treat auto injuries or that the treatment standards that do exist are not being uniformly applied.

In either case, extreme variation in treatment indicates that many auto injury claimants are likely receiving inadequate, excessive, or otherwise inappropriate care.

Claims

The Cost of Alternative Treatment In 2004, automobile insur-

CLAIMS ADVISOR | FALL 2007

57

Figure A

Alternative Treatment Utilization Rates & Costs

35%

36% 32%

Percentage of claimants receiving alternative treatment

31%

Alternative treatment charges as a percentage of total provider charges

Bodily Injury Coverage Personal Injury Protection Coverage

ance companies paid out more than $23 billion dollars countrywide under the coverages that normally pay for the treatment of crash injuries. A recent study by the Insurance Research Council (IRC) found that 36 percent of all charges for treatment under bodily injury (BI) coverage in 2002 came from providers of alternative treatmentâ&#x20AC;&#x201D;up from 32 percent five years earlier. The experience under personal injury protection (PIP) coverage was similar, with the proportion of charges from alternative treatment providers rising from 27 percent to 31 percent. The increasing cost of alternative treatment tracks closely with an increase in the utilization of alternative treatment. In 2002, 35 percent of all BI claimants and 32 percent of all PIP claimants countrywide received some form of alternative treatment. (See Figure A.)

According to the IRC, auto injury claims involving alternative treatment are more costly than claims that do not involve alternative treatment. Additionally, the average cost of claims involving alternative treatment, particularly PIP claims, are increasing more rapidly than

Source: Insurance Research Council

claims that do not involve alternative treatment. While claim cost data does not measure or reflect all dimensions of treatment outcomes, they are clearly of great importance to the auto insurance and claims community, and for consumers of auto insurance products who ultimately pay for the entire auto insurance system.

Average total claim payments for BI claims with alternative treatment were 4 percent higher than for BI claims without alternative treatment in 2002, and had grown 19 percent from five years earlier, compared with 15 percent for BI claims without alternative treatment. The differences were much greater for PIP claims. Average total payments for PIP claims with alternative treatment were 88% higher than for PIP claims without alternative treatment, and grew much more rapidlyâ&#x20AC;&#x201D;32 percent compared to 15 percent.

Higher claim payments could simply be a reflection of more serious injuries, but, in fact, injuries involving alternative treatment actually appear to be less serious than injuries that do not involve alternative treatment. Two indicators of the seriousness

of injury are whether the claimant experienced restricted physical activity after the injury, and whether the claimant, if employed, lost time from work as a result of the injury. According to the IRC, 2002 claimants with alternative treatment were less likely to experience any days of restricted activity or days away from work following their accidents than were claimants receiving only conventional medical treatment.

By these measures, claimants with alternative treatment were less seriously injured, on average, than claimants receiving only conventional treatment.

Acupuncture and Massage Therapy The most common form of alternative treatment is chiropractic, accounting for more than 90 percent of all alternative treatment. But most of the recent growth in the use of alternative treatment in auto injury claims has involved forms of treatment other than chiropractic.

Between 1997 and 2002, the utilization rate for chiropractic treatment increased from 32 percent to 33 percent for BI claims, and from 27 percent to 29 percent for PIP claims. In contrast, the percentage of PIP claimants receiving non-chiropractic

alternative treatment more than doubled, from 3 percent, in 1997, to 8 percent, in 2002. For BI claimants, the utilization rate doubled, from 2 percent to 4 percent.

Acupuncture and massage therapy are the most common forms of alternative treatment after chiropractic, and the growing utilization of these services is driving much of the overall growth in alternative treatment utilization and cost. Countrywide, 3 percent of all PIP claimants and 1 percent of BI claimants were treated by acupuncturists. Two percent of BI claimants and 4 percent of PIP claimants, in 2002, received massage therapy.

Unexplained Variation in Treatment The treatment provided to a person injured in an automobile accident may depend as much on where the person lives as it does on the nature and severity of their injury.

The IRC has found surprising variation in the utilization of alternative treatment in different states. For example, utilization rates for chiropractic services in 2002 ranged from 13 percent in Michigan and 15 percent in Indiana to 67 percent in North Dakota, 64 percent in Minnesota and 50 percent in California. Utilization rates for massage therapy

Figure B

Alternative Treatment Utilization Rates in Selected States Bodily Injury Coverage Claims 64%

Minnesota

52% 52%

New york California West Virginia Mississippi Michigan

17% 16% 14%

Personal Injury Protection Coverage Claims 46%

Washington

42% 40%

Minnesota Texas

19% 16%

Kansas Maryland Michigan

14% Source: Insurance Research Council

58

FALL 2007

|

www.claimsadvisor.com

ranged from one percent or less, in more than half of all the states, to 13 percent in Washington and 37 percent in Hawaii. For acupuncture, utilization rates ranged from less than one percent in most states to 23 percent in New York. (See Figure B.)

Wide variation in the utilization of alternative treatment is prima facie evidence that many accident victims are receiving inadequate, excessive, or otherwise inappropriate treatment. To be sure, some variation in treatment can be explained by differences in the physical characteristics of those injured, or by differences in the seriousness of injuries. These factors, however, are unlikely to explain much, if any, of the variation in utilization described here. Either too few claimants in Michigan and Maryland, for example, or too many claimants in Minnesota and California are receiving chiropractic care. And either New York claimants receive too much acupuncture or injured claimants in other states receive too little.

Wide variation in the treatment of auto injuries that cannot be explained by differences in the nature and severity of injuries is a consequence of either a lack of universally-accepted standards and guidelines defining appropriate treatment or a failure to apply existing standards and guidelines.

The treatment of back and neck sprains and strains has been a difficult and contentious subject for guideline development efforts. However, guidelines for the treatment of these injuries have been developed by a number of organizations, including, among others, the American College of Occupational and

alternative treatment as are non-represented claimants.

(See Figure C.)

Figure C

Percentage of 2002 Claimants Receiving Alternative Treatment

52%

50%

23%

21% Bodily Injury Coverage

Personal Injury Protection Coverage

claimants represented by attorneys claimants not represented by attorneys Source: Insurance Research Council

Environmental Medicine and the Council on Chiropractic Practice. Unfortunately, these and other guidelines differ markedly in their prescription for treatment and, therefore, are not universally or consistently applied. In many instances, the past practices and traditions of local provider communities govern treatment decisions, and guidelines are either ignored or injudiciously applied.

A final complication is the litigious and adversarial nature of the auto injury compensation insurance system in some states.

Strategies for maximizing insurance recoveries may influence treatment decisions, including the utilization of alternative forms of treatment. Indeed, injured claimants represented by attorneys are more than twice as likely to utilize

An Uncertain Future Newtonâ&#x20AC;&#x2122;s first law of motion states that an object in motion will continue to move in the same direction and speed unless and until an opposing force is applied. In a similar manner, the utilization and cost of alternative treatment are likely to continue growing unless steps are taken to slow or reverse these trends.

Extreme variation in the treatment of similar injuries also is likely to continue until widely accepted treatment standards and guidelines emerge and are judiciously applied.

The auto insurance claims community faces a difficult challenge. The ability to control the growing utilization and cost of alternative treatment is limited by multiple treatment standards and guidelines which often prescribe different treatment paths, as well as an uncertain legal basis for responding when treatment deviates from whatever standards are applied. The overall current health of the private passenger auto line of business may minimize the importance of confronting these trends at the current time. However, as utilization and costs continue to grow, and offsetting trends begin to wane, the urgency to act will also grow. cA [The views and opinions expressed here are solely those of the author and do not reflect the positions or views of the Insurance Research Council or its member companies.]

David Corum is vice president with the Insurance Research Counsel, a division of the American Institute for CPCU. Mr. Corum can be reached at corum@cpcuiia.org.

CLAIMS ADVISOR | FALL 2007

59

Challenges in

Business Incom Loss Claims

60

FALL 2007

|

www.claimsadvisor.com

n Settling

Quick Look

me

C

Period of restoration-time that an insurer will pay to repair, rebuild or replace damaged property with reasonable speed and similar quality.

C

Comparability of calculations-calculated production in units needs to be applied on a comparable basis.

C

Mitigation-the insured needs to employ whatever means to minimize or eliminate the loss.

C

Insured can spend amounts over and above normal to mitigate but no more than what loss would have been otherwise.

by Chris Campos, CPA

There are many problems and challenges encountered on a day-to-day basis in the settlement of business income claims. Our purpose here is not to cover the method of determining a business income claim, but primarily the challenges which are encountered in the settlement of such claims by adjusters and other involved parties.

Essentially, the principal problem exists in that most persons involved in a business income loss misconstrue the axiom that the policy will do for the insured what the business would have done had there been no insured peril which caused the business interruption.

That principle is mistakenly interpreted that you take the profit you would have made during the time operations were interrupted, measure it against the profit (or operating loss) you did make, and you collect the difference.

Not so. There are many instances in which this description of the coverage does not fit policy provisions.

In a business income loss involving a gross earnings policy, many uninitiated insureds fail to understand why

they pay a premium on gross earnings, yet collect less than expected, i.e. less discontinuing insured expenses. The policy clearly defines gross earnings, but the phrase “discontinued expenses” is one which is all encompassing.

Even though persons familiar with the insurance policy and the procedures normally utilized in considering discontinued expenses will understand this, the uninitiated person is often left to try to comprehend the phrase.

The coverage is for the actual loss sustained; therefore expenses that are not actually incurred (although insured) are not recoverable. It is rare that the amount collectible is measured to be the same as gross earnings. This would happen when the period of interruption is very short and, as a result, no expenses would be abated.

at the time of the loss is not normally covered by the property insurance policy.

The reference to improvements in repairing or replacing damage is distinguished here, from the improvements a tenant makes in occupying leased or rented property.

It follows that if the period of time taken to repair or replace the improvement or betterment exceeds the time

The key phrase in the business interruption insurance policy is “Actual Loss Sustained.”

Measuring the Loss: Interruption or Indemnity To measure a business interruption loss, the primary need is to determine the period of indemnity. It is generally known that the cost of any improvements or modifications in repairing or replacing existing property

it would have taken with due diligence and dispatch to repair or replace the property to its “as was” condition, that additional time element is also not compensable under the normal business income policy, since it is then beyond the period of restoration as defined. To measure the period of indemnity, the “as was” due diligence repair period would be subject to

CLAIMS ADVISOR | FALL 2007

61

62

FALL 2007

|

Figure A

Claimed vs. Actual sought guidance as to which would be covered and which would be discontinued. The adjuster wisely answered that normally the problems encountered in adjustments of a business income claim do not result from whether or not certain expenses are continued or discontinued, or whether the percentage of business interruption loss as related to total sales or revenues is, say 38.3% or 32.7%. Any such differences are usually resolvable between reasonable parties. The problem in loss adjustment is usually the period of indemnity (as opposed to the period of interruption) or in what might be termed the “multiplier,” or projected rate of sales or production increase.

In the above cited case in which the company changed its equipment, the period of interruption was the basis for the claim by the insured, whereas the adjuster looked upon the period of indemnity as being somewhat shorter.

Those two terms are quite often inappropriately used interchangeably, but actually have different meanings in the pure sense of the words.

The period of interruption, or suspension, is that period of time in which the insured’s operations have been interrupted or suspended. The

www.claimsadvisor.com

3500

claimed Actual

3000 UNITS PER DAY

credit for those times when operations would not have been carried on. Examples might be vacations, Sundays, holidays, employee strikes or time to repair uninsured damage events. No actual loss would be incurred on those days.

An example would be a case in which, after an explosion and fire, the insured changed all of the equipment involved in a manufacturing plant and made various improvements and betterments to such equipment in order to, among other things, reduce the risk of explosion.

These changes were being contemplated and were in the planning stages at the time of the explosion. The loss merely accelerated those plans and caused a forced interruption of the operation, as opposed to a planned and orderly shutdown, which would have been incurred when the changeover was made. The insured required several months to design the necessary changes, manufacture and install the new equipment. A claim was submitted for the entire period of interruption; i.e. from the date of the explosion to the date that the insured commenced production with the new equipment.

For this particular loss, the insured called the adjuster immediately after the loss and requested guidance as to how he would handle the business income adjustment. What the insured had in mind was more along the lines of which expenses would be treated as discontinued by the adjuster to arrive at the business income claim. The insured had a presentation drawn up whereby they listed various expense categories and

2500

cLAIMED

2000 1500 1000 ACTUAL

500 0

2,880

period of indemnity is the time the insurance company will pay to repair, rebuild or replace the damaged property with reasonable speed and similar quality.

The problems relating to the multiplier are usually those revolving around either the rate of increase or decrease in production or sales projections for the period following the loss, which may or may not have any relationship to the prior experience and may reflect excessive optimism. Another multiplier problem is when the production per hour is calculated on the basis of operation hours, but multiplied by the total hours on the clock including those hours that the machinery is nonproductive. This is the proverbial “comparing

1,200

apples and oranges.”

For example, the insured normally produces 1,200 units per day in 10 operating hours, or 120 units per operating hour. However, 120 units (per hour) is applied to a full day (24 hours), instead of applying only to operations hours (10 hours) during the day. The miscalculation by the insured accounts for an additional 1,680 units per day—they more than double their claim with this calculation error (See Figure A).

Some insureds have removed the days they felt were not “good” production days, and the resulting good days were used to calculate the daily production experience. (This is akin to a Chamber of Commerce for a resort excluding the rainy

and cold days from its calculation for the average daily weather or rainfall). In these cases, it is the insured’s contention that the interrupted days of production would all have been “good.” It is those types of situations that cause the road to settlement to be a rocky one.

The key phrase in the business interruption insurance policy is ACTUAL LOSS SUSTAINED—set forth either in bold print or capitalized in most policies for emphasis. It is intended to indemnify the insured for actual losses within the policy provisions. The indemnification principle is one on which the entire insurance concept is predicated, in that the insured should not profit from a loss. There are situations, however, where the insurance contract permits a so-called profit, but this is usually in a manuscript-type policy where both parties (the insured and the insurer) have negotiated such terms.

In line with the indemnification principle, the usual business income insurance policy requires the insured to reduce the loss resulting from the interruption of business by: 1. Complete or partial resumption of operation of the insured’s property, whether damaged or not.

2. Making use of merchandise, materials, or other property or production facilities at the loss or elsewhere.

In this connection, it is expected that, in the event of a loss, the insured would utilize the other plants owned or controlled by it, facilities of a competitor, subcontracting part of the production

process, use of temporary facilities, existing inventory and any other feasible means to reduce its loss. By doing so, the carrier agrees to reimburse the insured for such expenses in excess of normal operating expenses, which are necessarily incurred for the purpose of reducing the business income loss.

It should be noted that the additional expenses incurred would be limited to the amount of the loss that would otherwise have been payable by the insurer, had the additional expenses not been incurred. It is assumed, for purposes of this discussion, that there is no extra expense coverage under which there is no such limitation. The theory involved here is that the insurer is not obliged to pay any more than would have been payable had no action been taken by the insured; i.e., the insured cannot be paid $1.50 if their recovery would have otherwise been $1.00.

In this connection, adjusters and claims professionals inquire as to whether or not the insured has other plants or other machinery, which could make up for lost production. Inquiries are also made with respect to gaining lost production through use of overtime, Saturday or Sunday work, additional shifts, recalling laid-off personnel, utilizing periods that would otherwise be idle, such as vacations or holidays, or switching around periods of shut-down for such things as boiler maintenance or turnaround. Adjusters also look to make up lost production through the use of existing inventories or the possibility of stockpiling partially completed production during the period of interruption, once

operations are resumed.

In one case involving a multi-million dollar loss this procedure was used very successfully to minimize production of the final product (for resale to the customer). There was a vast differential in the capacity of two departments of the manufacturing facilities. Because the department that had been interrupted had approximately twice the capacity of the department which preceded it in the manufacturing operation (the affected department normally operated at 50% capacity because of the bottleneck in the preceding department), the insured was able to drastically minimize its loss through use of existing finished goods, inventories and stockpiling work-in-process inventories. There were additional expenses involved, which were, obviously, reimbursed to the insured. The insured maintained their sales and avoided the consequence of losing customers, which is not covered under the normal U.S. business interruption policy.

The concept regarding business income policies referred to above is not unique to any particular company. It is universal among standard, normal business income policies found in the United States. Exceptions to these policies are the Gross Profit, British LOP (Loss of Profit) or consequential profit forms, manuscript policies, or in recent years a provision has been added to the normal United States business income policy to cover an extended period of indemnity. That period is usually for a specific period of 30 days. A longer period may be purchased.

Apart from those poli-

cies, most business income policies cover only the actual loss sustained by an insured from physical damage to the described property which results in loss of revenues. The period of time covered is only until the damaged property is or could be restored, repaired or replaced with like kinds of property, exercising due diligence and dispatch.

If, as a result of the loss, the insured suffers a loss of customers or a loss of sales after its operations are resumed, such loss is not usually covered unless other types of policies or extensions, referred to above, are in force.

Under the misconception that business interruption reimburses the insured for all the profit lost as a result of the insured peril, many insured and insurers become at odds over this issue. This is much more easily explained before a loss. When an economic loss, which is not covered under the policy, is suffered by the insured, difficulties often arise in settling the loss. Whatever can be accomplished to prevent misconceptions either before or shortly after the loss will make the road to settlement less rocky. cA Chris Campos, CPA, is a senior partner with Campos & Stratis, a multi-national certified public accounting firm which focuses exclusively on forensic accounting. He has over forty years of diversified international business and accounting experience, and has given expert testimony in legal proceedings involving loss claims and lawsuits. Mr. Campos can be reached at ccampos@campos-stratis.com.

CLAIMS ADVISOR | FALL 2007

63

Fire Expert Check List

By asking the right questions, you’ll hire the right fire expert the first time

by Glenn Gibson, Joseph Toscano and Guy E. “Sandy” Burnette, Jr.

In today’s legal environment, the selection of a properly qualified expert witness has become a critical step to ensure the success of a case when it enters the litigation phase. The failure to effectively screen and select the right expert in your case can doom your efforts before they even begin. Worse yet, it can have secondary effects which have far more serious implications, notably exposure to a bad faith claim.

More than ever before, insurers must use great care in selecting the experts used in a claim investigation to make certain the job is done right and the results of the expert’s analysis will be admissible at the time of trial. In fire claims this is particularly important, since the decision to pursue an arson defense, defend a liability claim or seek a subrogation recovery will hinge upon the findings of the fire expert. Thus, an insurer must approach the decision to hire a particular fire expert as perhaps the most important decision to be made in the handling of the file.

To make the selection of the “right” fire expert, consider these questions in evaluating a prospective candidate: 1. What is the full educational background of the investigator?

2. What is the entire working-life experience of the investigator?

3. What specific technical experience do they have relating to the field of fire investigations?

4. What professional licenses do they carry? How long have they been licensed and is the license still current?

64

FALL 2007

|

www.claimsadvisor.com

5. Have they ever had their license suspended or revoked, or been the subject of a professional investigation?

6. What professional certification(s) do they have? Who granted the certification(s) and how were they attained?

7. What knowledge and training do they have in building construction, HVAC systems, electrical systems and contents to understand how those areas might impact burn patterns or fire spread?

8. Do their professional licenses or certifications require continuing educational credits? Have they maintained those requirements?

9. What seminars have they attended in their careers? Were they tested seminars? Will they provide copies of their certificates?

10. Do they generally recognize and follow the recommended procedures as outlined by NFPA 921?

11. Are they fully qualified as a fire investigator under the standards of NFPA 1033 (professional fire investigator qualifications)?

12. Do they follow the “scientific method” in reaching a conclusion on a fire cause? Can they explain the process?

13. What associations do they belong to? For how long? Date of last meeting? Attendance record? What roles have they played in these associations—as a member or did they serve on any committees or in executive/leadership positions? Are

there publications put out by these associations?

14. Have they ever published any articles? Will they provide copies of the articles?

15. Have they ever been qualified in court previously as a fire expert or as any other kind of expert? When and where? Is there a transcript?

Was it civil or criminal court? Did they act for the plaintiff/prosecution or defense?

16. Have they ever been rejected by a court when seeking to be qualified as an expert witness? Has a court ever failed to qualify them as an expert or limited the scope of their testimony?

17. Have they ever conducted live testburns to support their fire theories and collect data? Was that data used in any analysis of a fire or in any fire modeling?

18. Have they ever done any laboratory work? Who do they use for forensic analysis of evidence?

19. Have they ever served as a firefighter or had any training in fire suppression? Do they have an understanding of how fire suppression efforts can impact the determination of the fire cause?

20. How many fire scenes have they investigated where they served as the prime fire investigator? What has been their record for determining fire causation? How many arson fires? Electrical? Undetermined?

21. How would the investigator handle a situation where they felt subrogation might exist based on initial findings at the scene? Are they aware of spoliation issues?

22. Have they ever offered expert testimony from simply reviewing photographs or laboratory exhibits?

23. What is their reputation with public authorities? How would they deal with situations where they were kept out of a scene until the authorities had completed their investigation? Has that happened to them and what did they do?

24. Does the investigator work alone or for a company? Do they have Errors and Omissions insurance? Who is the insurer and how much coverage

do they have? Have they had any claims filed against them and what was the result?

25. What methods do they use to eliminate accidental causes in conducting a fire investigation?

26. Does the investigator work for a firm that has in-house resources in fire specialty areas such as electrical, chemical, propane etc.?

27. Are they knowledgeable on state or local fire ground hazards? Are they familiar with requirements relating to the handling of hazardous materials? Are they certified in hazardous materials investigations?

28. Do they have secure management and control of their evidence in storage? Where and how is it stored?

29. Have they had any formal training in interviewing techniques and note-taking?

30. Can they provide at least three professional references?

31. Are they knowledgeable of the use and limitations associated with fire modeling and fire models such as Consolidated Model of Fire and Smoke Transport (CFAST), Nuclear Regulatory Commission (NRC) Spread Sheets, Fire Dynamics Simulator (FDS) and Smokeview?

This is only a sampling of the questions that should be asked and is by no means a complete list of all you need to consider when selecting a fire expert.

The specific facts of a case may require further inquiry into other areas and the selection process should be tailored accordingly. But unless the selection process is a deliberate and in-depth inquiry, the right expert may not be hired—and the consequences may be severe.

This article was authored by Glenn Gibson, Joseph Toscano and Guy E. “Sandy” Burnette, Jr. Mr. Gibson is the CEO of The Americas for Crawford and Company International. Mr. Toscano is a fire investigator and consultant for Chilworth Technology. Sandy Burnette is an attorney engaged in private practice with Guy E. Burnette, Jr. P.A. handling fire litigation cases.

CLAIMS ADVISOR | FALL 2007

65

Better Metrics, Better Vendo Better Ou

A New Way to Think About Managing Costs,

cA

66

FALL 2007

|

www.claimsadvisor.com

Quick Look

ors, utcomes

C

Improved management of claims vendor referrals and assignments is a high-payoff opportunity waiting to be explored.

C

A shared platform to make all vendor assignments can generate powerful metrics while simultaneously streamlining processes.

C

Create immediate reductions in overall vendor cost, increase transactional efficiency and drive stronger vendor relationships in one easy step.

C

A vendor management platform must be as easy to use as e-mail but offer significant flexibility to be successful.

by Taylor Smith

, Vendors, and Results As seasoned claims professionals know, the ability to demonstrate claims management effectiveness does matter to the prospective insured or client. It does make the difference between landing a new deal and watching business get placed with a competitor down the street.

This perspective changes how new technologies and processes that enhance claims management effectiveness should be viewed— not as cost reduction tools, but as revenue and opportunity drivers.

The Opportunity One area of the claims management process that remains untilled in terms of opportunity is vendor management. Claims executives can take steps to realize quick ROI, distinguish their organization and gain a competitive advantage.

Specific aspects of vendor management claims executives can use to their benefit include: • Management of claims vendors selected by adjusters on individual claims.

• Management of legal vendors selected by staff and outside counsel on litigated cases.

Some studies suggest that up to 60 percent of a claims organization’s allocated expenses are spent on vendors in categories that range from aircraft repair to workers’ compensation consultants. One estimate states that there are 44 million vendor referrals across the industry annually.

Every claims organization uses a different mix of vendors, from independent adjusters to engineers to mold remediation specialists to copy services—and another 500 plus categories in between. The use of vendors is prolific. For example, the Web site ClaimsPages.com alone provides access to over one million service providers.

The Current State of Play Despite its universal use of vendors, the industry has been slow to implement the types of controls and systems it uses in other areas.

Most claims organizations cannot easily identify the basic metrics required to affect change and create improvement.

Some of the very simple questions claims organizations find difficult to answer about the vendor selection process include:

CLAIMS ADVISOR | FALL 2007

67

• • • • •

How many vendor referrals they make In what service categories To which providers From which adjusters On which types of claims

Few organizations capture qualitative data about their vendors’ work, either through surveys or other tools. This includes a failure to capture, except perhaps anecdotally, information about timeliness of work product, overall quality and responsiveness.

In the litigation arena, vendor management is even more problematic. Generally, the law firms with whom a claims organization has partnered with select the vendors—from court reporters to medical records retention to exhibit preparation specialists—leaving the costs to be paid by the claims organization.

On what basis are these vendors being selected?

Who are they? Are the same providers being selected by multiple firms? Are there opportunities to aggregate the firms’ selection of key providers and leverage cost reductions in return for the volume being provided? Sadly, few

68

FALL 2007

|

claims organizations can answer those questions.

In select service categories, some organizations have implemented lists of “preferred” or “panel” vendors (drawing from their success in doing so with law firms).

However, without the right tools and processes in place, these organizations find it difficult to enforce the use of panels and to control the maverick spending associated with a claims handler who has a personal preference for someone not on the list or a law firm that chooses a court reporting firm based on their own desires.

Why is it Like This?

The reason these metrics are so difficult to create stems from a much broader problem; claims professionals, attorneys and the vendors they use are fundamentally limited by their disconnected systems.

Because vendors and their clients do not share a common platform to make and receive assignments, claims professionals rely on the tools available to them, e.g.. e-mail, fax, phone, letter, and very frequently express mail or overnight delivery, which can be quite

www.claimsadvisor.com

expensive. None of these mechanisms, however, create the ability to track referrals, leverage data or create metrics. With these tools there are no metrics, no enforcement and no process.

Moreover, these inconsistent methodologies for assigning tasks to vendors are inefficient and expensive.

When paper and express mail costs are factored into the equation, some claims organizations estimate that the process of making referrals costs between $25 and $45 per transaction.

These inefficiencies represent significant opportunities for all concerned.

Disconnected systems and inconsistent referral processes create costs for vendors as well. As a result many have established Web-based forms that allow their customers to make online referrals easily and quickly. Unfortunately, however, the primary benefit of such tools is not to the claims organization since any metrics the intake process can produce pertain only to that specific vendor.

Creating a Solution The opportunity facing claims executives and professionals

is to use a shared platform to make vendor assignments across all claims, both litigated and non-litigated, and by claims handlers and law firms.

The platform must be easy to use. It should be Web-based so that it is accessible by customers and vendors. It must have the ability to transmit documents, pictures and invoices (just like e-mail) and capture referral due dates and assignment details.

The platform should have a list of vendors in every service category the claims organization uses. Adding a new vendor to a claims organization’s list should be as easy as sending an e-mail from within the platform. A subset of these vendors should be labeled, when applicable, as “panel” vendors for each specific claims organization.

When claims professionals search for a vendor, they should be able to search based on expertise, geography, cost and a community rating system that speaks to the vendor’s quality and responsiveness. When a non-panel vendor is selected, the user should be asked to identify why a non-panel vendor is being utilized so that these metrics help to continu-

ally refine and improve each organization’s panel lists.

Vendors should be able to review, accept or decline assignments easily and quickly within the platform. They should be able to ask questions and upload reports, pictures, work product and invoices just as easily as attaching them to an e-mail.

Claims professionals, law firms and vendors alike should be able to see at a glance all outstanding vendor assignments and sort them by their vendors or customers.

What Can I Accomplish What would the use of a shared platform that overcomes the disconnected systems of claims organizations and vendors accomplish?

The immediate cost control benefits include: • Improved Spend Controls—through the creation, management, and enforcement of vendor panels, as well as improved volume leveraging to the tune of 10-15 percent reduction in vendor spend • Improved Efficiency Gains—as much as $25 to $45 per transaction.

Viewed more strategically, a shared platform also means better: • Guideline compliance • Performance rating systems • Data and analytics • Panel enforcement • Referral tracking • Uniform referral processes However, it is in the area of metrics that the vision is truly realized. Better vendors mean better work product, which means better case outcomes.

And that is the pinnacle of success, the distinguishing

factor that differentiates claims organizations and realizes competitive distinction.

With a shared platform that tracks every assignment, metrics can be created in three key areas:

demands and juggle competing priorities. They need every advantage they can find to succeed. Improving the management of vendor referrals and assignments is an opportunity waiting to be explored. Improvement is possible with just a few steps, is easy to implement and immediately yields better metrics, better vendors and better outcomes. cA

Spend and Assignment Metrics • How much are we spending?

• On which vendors?

• For what services?

• What claims professionals and outside lawyers are driving certain referral activity?

• Are there vendor assignment trends?

• Which vendors have what percentage of my business?

• Can I leverage my spending for greater discounts?

Taylor Smith is vice president of Business Development for CaseRev, Inc., an online community of virtual teams bridging claims professionals, attorneys, and vendors limited by disconnected systems.

Mr. Smith can be reached at 847-317-9167 or tsmith@ caserev.com.

Governance and Task Management Metrics • Which vendors are my staff and outside firms using?

• Should I have panels?

• Are my panel vendors being used? If not, why not?

• How much maverick spending do I have?

• Am I re-assessing panel scope and types?

• Which tasks are pending?

Which are overdue?

Reach your audience by

advertising Reach new or experienced adjusters Connect with your target audience.

Qualitative Metrics • Which vendors perform the best?

• Which are the most responsive?

• How do my panel and non-panel vendors compare?

• Are my service guidelines being followed?

• How do my claims professionals and law firms rate the vendors we are using?

National distribution of over 20,000 claims professionals - Our readers seek the best for their clients.

No guess work - Grow your market share.

You simply reach the right people with the right message.

Moving Forward Today’s busy claims executives and professionals work constantly to meet customer

GET YOUR MEDIA KIT AT

www.claimsadvisor.com/advertise

CLAIMS ADVISOR | FALL 2007

69

Behavioral Adapt

Why “Safety” Features Don’t Always In

Following an accident, there is often a contention that if only the product, process or apparatus had been designed differently, the accident in question would not have occurred. While superficially attractive, such a perspective is simplistic at best. In many (if not most) cases, the design of a product influences the way individuals interact with it, as well as the way that they perceive the product and the level of risk associated with it. Safety interventions introduced into a system often produce secondary effects (behavioral adaptations). Individuals often react to perceived safety enhancements in a compensatory fashion and adopt riskier behaviors based on

70

FALL 2007

|

the perception that the environment has become safer.

Unfortunately, the perceptions of increased safety due to a design change may not match reality. Such perceptions may lead to behavioral changes that result in a net decrease in overall safety.

A simple example of this concept is the behavior of many operators of fourwheel drive vehicles during the winter. When the roads become icy or slippery, the majority of vehicle operators reduce their speed. It is not unusual, however, to see operators of four-wheel drive vehicles simply engage the higher traction system rather than slowing down.

Their perception appears to be that with four-wheel

www.claimsadvisor.com

drive, their vehicles are protected from the affects of reduced traction and that a decrease in speed is unnecessary. While this may be true to some extent regarding their ability to go, it ignores the fact that their ability to stop or turn on such surfaces is largely unaffected by the presence of the system. More accidents than would otherwise be likely seem to occur in such scenarios. Had the four-wheel drive operators reduced speed, as did their two-wheel drive counterparts, they would have experienced a net increase in overall safety. However, their behavioral change negated many of the positive benefits of the system.

Other examples from published literature include evidence that: • For every foot a road lane is widened, speed on the roadway increases by an average of 2 mph.

• Shoulder widening/paving is associated with decreases in crashes, and also with increases in road speed—the net result is that paved shoulders are only marginally safer than unpaved ones.

• Painted lane edges are associated with decreases in accidents on lighted roadways, but with 10% increases in vehicle travel speeds in low/no-light situations.

• And similar to the auto scene, use of personal

tation:

ncrease Safety

protective equipment by loggers results in a decrease in injuries to the protected portions of the body, but an increased injury rate to parts of body that are unprotected due to increased risk taking.

Research has postulated three different types of negative behavioral adaptation potentially associated with safety features introduced into a product. These include: 1) misuse as a control system (e.g., hitting the safety edge of an elevator door to stop the door from closing); 2) misuse in kind (e.g., putting safety devices to uses that are the opposite of what was originally intended); and 3)

Quick Look C

Despite the best efforts of designers and engineers, accidents using both consumer and commercial products often occur.

C

Added safety features in many cases do not eliminate these accidents due to changes in user behavior.

C

Behavioral changes in many cases may result in a reduction of overall safety.

by David G. Curry, Roch J. Shipley, and David K. Hall

misuse in magnitude (e.g., operating a system or device beyond its rated performance because the operator knows that a safety factor is built in). Any of these three types of adaptation may result in reducing or eliminating the benefits produced by a safety augmentation.

One potential reason for behavioral adaptation is the concept of risk homeostasis.

In general, an individual subjectively compares the risk associated with any particular task to the benefits derived from undertaking the activity.

Individuals then guide their behavior based on the balance between the two. If the level of risk associated with an activity is assessed as being greater than an individ-

ual’s acceptable level, greater levels of caution are exhibited. However, the flip-side of this is also true; if the level of risk is assessed as less than that considered acceptable, individuals may increase their risk-taking as long as there is perceived benefit in doing so. Individuals tend to regulate their behavior to maintain a homeostasis (balance) between risk-exposure and risk-avoidance at what they perceive as an acceptable level.

A critical issue is that the risk-exposure level is subjectively, not objectively, determined and may change depending on time or circumstances. Consider the example of drivers who normally drive 5 to 10 mph

or more over the speed limit (don’t we all?). The drivers benefit from decreased travel time, while risking a ticket, an accident or an injury to themselves or others. The subjective perception of risk associated with this action decreases the longer the driver does not experience negative consequence, and speed may further increase the longer the negative consequence is avoided. If the driver eventually does experience the negative outcome (e.g., a ticket), his subjective assessment of the potential likelihood of that event increases, normally resulting in a reversion to the speed limit (for at least some period of time.) Objectively, the risk associated with speeding

CLAIMS ADVISOR | FALL 2007

71

has not changed over time, though the driverâ&#x20AC;&#x2122;s assessment of it has, and a change in risk-taking behavior has resulted. The same process occurs with other circumstances and products as well.

The concept of behavioral adaptation can be used to evaluate traffic regulations in an attempt to predict their outcome on traffic safety. For example, many municipalities are enacting legislation requiring drivers to utilize

affect performance, they may not be aware of the nature of the affect (i.e., mental rather than physical.) Potentially, the effect of imposing such a safety measure upon individuals that (unknown to them) does not affect the most important safety aspects of the activity in question, would be an increase in the use of cell phones, under the assumption that the safety measure had compensated for the negative consequences

ers tend to drive faster, follow more closely and brake later in vehicles equipped with the system. In at least one of these studies, the incorporation of antilock brakes was accompanied by an increased, rather than decreased, likelihood of accidents over a multiyear period. In yet another example, studies of the safety benefits derived from mandatory seatbelt laws have shown lower benefits than originally projected by their advocates,

with the children of the subject mothers; their results also showed an increase in likely risk-taking, but much less than the increase which would have been allowed by the mothers. The results of this study support the view that increases in safety, beyond a particular point, are not necessarily valued by either those exposed to the risk, or by those in charge of the risk takers.

In short, while potential-

Individuals often react to perceived safety enhancements in a compensatory fashion and adopt riskier behaviors based on the perception that the environment has become safer. Unfortunately, the perceptions of increased safety due to a design change may not match reality.

â&#x20AC;&#x153;hands-freeâ&#x20AC;? kits while using cellular telephones when behind the wheel. Almost all researchers agree that the use of cellular telephones while driving has some negative impact on reaction time to unexpected events (though they often differ with regard to its degree or relative importance.) Researchers also agree that the critical element impacting driver performance with cell phones is the level of mental dissociation from the driving task.

While the use of a hands-free kit does allow the driver to maintain both hands on the wheel (how many of us actually drive this way under normal circumstances?), it does nothing to reduce the cognitive impact of performing multiple tasks simultaneously. Worse yet, while it is likely that the average driver is aware from media coverage that cell phone use behind the wheel may negatively

72

FALL 2007

|

of the act. If cell phone use behind the wheel is actually related to an increased probability of accidents, the incorporation of the hands free safety requirement would thus, more likely than not, result in more, rather than fewer, accidents.

Research supports the likelihood of this type of adaptation. Many drivers are under the impression that antilock brakes result in shorter braking distances for vehicles. This is incorrect; antilock brakes are designed to increase vehicle control during heavy braking by modulating brake pressure.

They have either a negative or no affect on stopping distance under normal conditions.

Not surprisingly from a behavioral adaptation perspective, at least three different studies (Canada, Denmark and Germany) investigating driver response to antilock brakes have shown that driv-

www.claimsadvisor.com

largely due to increases in driving speed and reductions in car-following distances.

Nor is this type of adaptation restricted to only the individual actually exposed to the risk. One interesting study involved exposing mothers of schoolage children to photographs of potentially risky play activities (e.g., jumping a bicycle various distances off a ramp, using inline skates to ride down hills of varying steepness, climbing a tree various distances to retrieve a kite, etc.), and then asking them what level of risk they would allow their own child to accept with and without safety equipment. Results indicated that mothers would allow their children to accept significantly greater levels of risk-taking when such equipment was used (interestingly, more so for male than female children.) The same comparisons were also performed

ly laudable in concept, the incorporation of safety-related design changes is not always valued by product users, nor does their incorporation always result in a reduction of injuries to those using the product. In many cases, changes in user behavior will have an ameliorating effect on the overall outcome. If the user is aware of the modification, behavioral adaptation may result in changes in the way the product is both perceived and used. Such adaptations may result in either reducing the positive benefits of change or even producing a negative impact on overall product safety. cA David G. Curry, David K. Hall, and Roch J. Shipley are principals of ITC Expert Services (www.itcexperts.com), a Chicago-area firm specializing in engineering forensics and accident investigation.

CLAIMS ADVISOR | FALL 2007

73

interview

What makes you tick?

Claims Adjusters have one of the most interesting and demanding jobs in the insurance industry. In “Interview,” you get to tell us your story.

What prompted you to become an insurance adjuster?

Can you give a recent example of where you saw outstanding leadership in your company?

Insurance adjusting found me. In 1989, I was asked by my first mentor to go to Myrtle Beach, SC to handle Hurricane Hugo claims. Previously, I had performed some estimating for insurance companies on a limited basis, but was not considered an adjuster. My mentor was aware that I could estimate building damages and he needed people to do just that. He could teach me to apply the policy. My first week, I rode with another adjuster. The second week I received my adjuster number and inventory of files. I inspected them and wrote them up. At that time we were handwriting estimates using carbon paper and attached adding machine tapes. More than three white outs per page and you rewrote the entire page.

By the third week, I corrected all I had written in the second.

After that, I had it down. It was very exciting; I fell in love.

During the 4 in 4 (the Hurricanes of 2004), the person in charge of operations in my territory performed in an outstanding way. Repeated challenges—problem files, storm adjusters with little to no knowledge—did not shake his ability to handle it all with a smile. He did not have a heart attack, a nervous breakdown or develop a stomach ulcer. I believe he should have. He was simply awesome.

What type of adjuster are you? How long have you been in the business?

From 1989-97, I was a storm adjuster and today, I am a multiline field general adjuster. I handle every type of claim except workers’ compensation and auto appraising.

What is the greatest challenge for you in dealing with the Insured?

When a named insured has committed fraud. I do not like fraud investigations. It upsets me to look into a person’s eyes and deal with them when I know they have committed a crime and we cannot prove it.

How do you deal with the stress of the job?

Stress is self-imposed. Learn not to impose it upon yourself, which is hard to do. Once there, take it as it comes, handle the situation and leave it at the office when you go home.

What type of training do you feel would help you perform more efficiently?

Every adjuster requires ongoing training. I attend all the classes that I can, especially the legal hours. Even if I have attended a subject three years ago, I re-attend. I have discovered retention of information is limited in the average person. The State of Florida mandates that you attend 22 hours of continuing education within a two-year period. I now have 68 hours for the two-year period I am currently operating in.

74

FALL 2007

|

www.claimsadvisor.com

Do you work on Friday afternoon?

I am here now, it’s Friday afternoon. However, I do like to have everything wrapped up and done by lunch. But if not, I may have to come in on Saturday and Sunday to get caught up.

What is your typical routine?

Arrive at the office an hour or two before it opens. So much can get done when the phones are not ringing. Then I am ready for the phones until lunch. Eat a good one and then return for the afternoon and usually stay about an hour after closing.

What is your favorite or funniest claims story?

One day, I learned the definition of a “bog down.” On a poultry farm, 30,000 chickens are grown inside of a building that is generally 50 ft. by 380 ft. Food and water is completely automated. The floor level rises several feet while the baby chicks grow into adult chickens due to their droppings. If a plumbing leak occurs, the raised floor becomes very soft— almost swamp like. When a person steps in it he becomes “bogged down” to his knees. So, as I was walking backwards inside a poultry house to capture the roof/ceiling damages from within the interior, I hit a bog down. I was lucky I did not land on my rear and managed to stay upright; however, my wife sure looked at me funny when I got home that night. I now wear big boots and look to the ground with a flashlight when inside a poultry house claim.

—Tom R., Pensacola, FL

Would you like to be the next “Interview”?

Send an e-mail to editor@claimsadvisor.com for more information.

write

by Gary Blake

Eight Tips for Writing Better Claims Poor writing doesn’t just cause you embarrassment—it costs you customers.

Use these eight quick tips to shape up your claims and loss control letters.

1. Avoid stuffiness.

Eliminate antiquated phrases such as “per your request,” “very truly yours,” and “please do not hesitate to contact me.” In general, use conversational language.

Instead of: “Should you have any questions, please call me.”

Try: “If you have any questions, please call me.”

Instead of: “If you would be so kind as to review your files.”

Try: “Please review your files.”

Instead of: “is in receipt of” Try: “has” 2. Avoid Wordiness.

Instead of: We are the insurance company for Twin Lake Properties Try: We insure Twin Lake Properties 3. Avoid Hedging.

6. Emphasize Reader Benefits.

Before you make requests, ask yourself: What’s in it for the reader? Try to find a reason for the reader to comply before making a request.

Example: To speed settlement, please send us the information within a week.

7. Keep Your Opinion Separate From The Facts.

This is hard to do, especially with investigation reports. Steer clear of editorial judgments.

Example: We are not very optimistic No doubt in our minds For reasons unknown 8. Avoid Antiquated Phrases.

Instead of: We understand Mr. Smith was arrested...

Try: Mr. Smith was arrested...

Instead of: Deem it advisable Use: Suggest

Confirm your facts and then write. Be specific and get rid of “Dear Sir/Madam” forever!

Instead of: Kindly Use: Please

4. Don’t Assume.

Avoid phrases like “Thank you for your anticipated cooperation.”

Instead, motivate the reader to take action. Save “thank you” for things that have already been done for you.

Instead of: Enclosed please find Use: I’ve enclosed Instead of: Under separate cover Use: Separately

5. Use Active Language.

Instead of: We request that notice be placed in the permanent record.

Write: Please place this notice in the permanent record.

Gary Blake is director of The Communication Workshop, an author and presents seminars on effective business writing for claims professionals. He may be contacted by visiting www.writingworkshop.com or e-mail garyblake@aol.com.

NEXT ISSUE: In the Winter 2008 issue of Claims Advisor, we’ll take a look at technology, education best practices and communicating across multigenerational lines. New stories, new departments and new feedback from readers will make this issue a must for every adjuster. Don’t miss it!

Be sure to fill out the online subscription form to make sure you keep receiving Claims Advisor magazine.

go to www.claimsadvisor.com/subscribe

CLAIMS ADVISOR | FALL 2007

75

word In Word, learn more about some of the terms used in this issue, new technology definitions or just some interesting words defined. Your vocabulary and knowledge will grow with each issue.

Fraud over Internet Protocol FoIP, short for Fraud over Internet Protocol, is the act of taking advantage of VoIP security vulnerabilities to steal network capacity. The term was used after a well-known criminal case where two men tapped into corporate and service provider networks and routed millions of minutes in calls illegally. One of the first uses of the term FoIP as an acronym for Fraud over Internet Protocol appeared in an article on Datamation. (Datamation is owned by the same parent company as Webopedia.) [source webopedia.com]

NFPA 921: Guide for Fire and Explosion Investigations This guide is published by the National Fire Protection Association (NFPA). They state the purpose of this publication is “to establish guidelines and recommendations for the safe and systematic investigation or analysis of fire and explosion incidents” (section 1.2).

Fire investigators are not required by law or professional regulation to follow the guidelines of NFPA 921; however, there is an expectation of familiarity and compliance with the standards set forth.

From the nfpa.org Web site: “Based on established scientific principals, NFPA 921: Guide for Fire and Explosion Investigations is trusted as the benchmark for safe and systematic investigations by fire investigators as well as by attorneys and insurance professionals. It’s important that most certification programs for fire investigators use material from NFPA 921.” [source www.nfpa.org]

source

NFPA 1033: Standard for Professional Qualifications for Fire Investigator This standard identifies the minimum job performance requirements necessary to perform as a fire investigator in both the private and public sectors. Topics cover the full range of investigation issues encountered on the job, including: Scene examination; scene documentation; evidence collection and preservation; obtaining information through interview and interrogation; post-incident investigation; and, presentation of findings. [source www.nfpa.org]

Advertising Directory

ADVERTISER

PHONE

WEB SITE

E-MAIL

1-800-BOARDUP, Inc.

800.585.9293

www.1-800boardup.com

ALE Solutions, Inc.

866.885.9785

www.alesolutions.com

rowena.zimmers@alesolutions.com

Alternative Claims Services, Inc.

800.354.5732

www.alternativeclaims.com

claims@alternativeclaims.com

Arter Insurance Adjusters, Ltd

330.332.9082

PAGE 11 back cover inside front cover

arteradjusting@aol.com

27

Blue Goose Technology Solutions, Inc. 828.478.7381

www.bluegoose.us

kaderhold@bluegoose.us

7

Campos & Stratis

800.800.2798

www.campos-stratis.com

lmitchell@campos-stratis.com

21

Central Adjustment Company, Inc.

501.227.5506

www.centraladjustment.com

cac@centraladjustment.com

27

Claims Advisor Advertise

203.259.1232 847.537.9196

www.claimsadvisor.com/advertise

djones@claimsadvisor.com bkingwill@claimsadvisor.com

69

Claims Advisor Contribute

866.276.7970

www.claimsadvisor.com/interact

editor@claimsadvisor.com

78

Claims Advisor Subscriptions

866.276.7970

www.claimsadvisor.com/subscribe

Claims Advisor Web site

866.276.7970

www.claimsadvisor.com

editor@claimsadvisor.com

43

Claims Pages

800.290.1347

www.claimspages.com

info@claimspages.com

51

Certified Restoration Drycleaning Network (CRDN)

800.963.CRDN

www.crdn.com

contactus@crdn.com

17

Crawford & Company

800.241.2541

www.crawfordandcompany.com

info@crawco.com

EFI Global, Inc.

281.358.4441

www.efiglobal.com

heather_reynolds@efiglobal.com

Frontier Adjusters

877.392.6278 x 23

www.frontieradjusters.com

ashley.myers@frontieradjusters.com

31

Katie School of Insurance and Financial Services

309.438.3368

www.katieschool.org

debbie.babcock@ilstu.edu

39

Marriott ExecuStay

1.800.880.9292

www.marriottinsurancehousingsolutions.com

chris.graves@marriott.com

23

Oakwood Worldwide

866.249.9675

www.oakwood.com

tandell@oakwood.com

13

PLRB - Loss Conference

630.724.2200

www.plrblargeloss.com

Project Time & Cost, Inc.

800.486.5752

www.ptcinc.com

joanne.helmke@ptcinc.com

13

Simsol Software, Inc.

800.447.4676

www.simsol.com

sales@simsol.com

21

WebPro America

877.757.1010

www.webproamerica.com

sales@webproamerica.com

73

76

FALL 2007

|

www.claimsadvisor.com

37

4 inside back cover

33

Event

2007

10/4-6 Society of Claim Law

Associates

SCLA Claims Conference & Designation Reception, Jerry Chiara, jchiara@aeiclaimslaw. com, 908.766.5920, Paris Hotel, Las Vegas, NV, www. societyofclaimlawassociates.org 10/4-7

National Truck & Heavy Equipment Claims Council NTHECC Fall Meeting, Tom Fergus, 603.569.8910, Hyatt Regency - Riverwalk, San Antonio, TX, www.nthecc.org 10/07-10

Excess/Surplus Lines Claims Association ESLCA 2007 Annual Conference, Andy Anderson-Executive Administrator, andy@slca. org, 903.693.5357, Hyatt Grand Champions Resort, Indian Wells, CA, www.slca.org 10/14-16

Southeastern Claim Executives Association

SCEA Fall Meeting, nmt@canalins.com, Montgomery Marriott Prattville Hotel & Conference Center, Prattville, AL, www. southeasternclaimsassoc.com 10/17-18

California Association of Independent Insurance Adjusters, Inc.

CAIIA Annual Convention, Peter Schifrin, pschifrin@sgdinc.com, 818.909.9090, Disneyâ&#x20AC;&#x2122;s Grand Californian Resort, Anaheim, CA, www.caiia.com 10/21-24

Society of Insurance Research

37th Annual SIR Conference, Workshops & Exhibit Fair, Candace Thornton, cthornton@ claritas.com, 818.386.0011, Gaylord Opryland Hotel, Nashville, TN, www.sirnet.org

10/23

Katie School of Insurance and Financial Services

17th Annual Insurance Executive Forum, katie@exchange.cob. ilstu.edu, 309.438.3021, Union League Club, Chicago, IL, http:// katie.cob.ilstu.edu 10/23-27

Restoration Industry Association

RIA 2007 Fall Conference & Exhibition, info@ restorationindustry.org, 443.878.1000, Hyatt Regency Orange County, Garden Grove, CA, www.restorationindustry.org

10/28-30

11/26-28

ISO

ISOTech 2007, meetings@iso. com, 800.888.4476, New Orleans Marriott, New Orleans, LA, www. iso.com/conferences 10/30-31

Property Loss Research Bureau/Liability Insurance Research Bureau

2007 Western Regional Adjusters Conference, Claims Conference Hotline, 630.724.2265, Hilton Costa Mesa, Costa Mesa, CA, www.plrb-lirbregionals.com 10/31-11/03

ASA

10/24-25

Workers Compensation Research Institute

WCRI 2007 Annual Issues & Research Conference, wcri@ wcrinet.org, 617.661.9274, Boston, MA, www.wcrinet. org/conference 10/24-27

Society of Accredited Marine Surveyors

SAMS Annual Meeting and Education Symposium, info@lossexecutives.com, 800.345.5050, Kona Kai Resort, San Diego, CA, www. marinesurvey.org 10/25-26

Pennsylvania Association of Independent Insurance Adjusters

PAIIA Annual Claims Seminar, Peter J. Schreier, Executive Secretary, pschreier1@aol. com, 302.239.6404, Sheraton Harrisburg-Hershey, Harrisburg, PA, www.paiia.com 10/28-31

Property Casualty Insurers Association of America

PCIAA 2007 Annual Meeting, Bernie Rouse, bernie.rouse@ pciaa.net, 847.553.3633, Boston, MA, www.pciaa.net

International Autobody Congress & Exposition, 888.529.1641, Mandalay Bay Convention Center, Las Vegas, NV, www.NACEexpo. com 11/04-07

National Association of Subrogation Professionals,

NASP 2007 Conference, Kate Cantu, kate@subrogation. org, 888.828.8186, Hilton New Orleans Riverside , New Orleans, LA, www.subrogation.org 11/06-08

LRP Publications, Inc.

16th Annual National Workersâ&#x20AC;&#x2122; Compensation and Disability Conference & Expo, conferences@lrp.com, 800.727.1227, McCormick Place, Chicago, IL, www.wcconference. com 11/08-10

Investigative Engineers Association, Inc.

Investigative Engineers Association Convention 2007, Arianne Ciarlo, aciarlo@ienga. net, 800.523.3680, Rosen Plaza, Orlando, FL, www.ienga.net 11/11-14

Casualty Actuarial Society CAS Annual Meeting, 703.276.3100, Marriott Downtown Magnificent Mile, Chicago, IL, www.casact.org

Property Loss Research Bureau / Liability Insurance Research Bureau PLRB/LIRB Large Loss Conference, 630.724.2265, The Mayflower Renaissance Hotel, Washington, DC, www. plrblargeloss.com 12/01-04

National Association of Insurance Commissioners

NAIC Winter Meeting, Cathy Weatherford, Executive Vice President, cweather@naic.org, 816.783.8009, Fontainbleau Resort, Miami, FL, www.naic.org

2008 02/04-07

Windstorm Insurance Network, Inc.

2008 Windstorm Insurance Conference, Michelle Griffin, mgriffin@windnetwork.com, 850.473.0601, Hyatt Regency Riverfront, Jacksonville, FL, www. windnetwork.com 02/10-13

Adjuster Training & Education Conference

Adjuster Training & Education Conference 2008, 800.483.5710, The Caribe Royale Orlando Hotel and Convention Center, Orlando, FL, www.atecgroup.org 03/11-15

Restoration Industry Association

RIA Annual Convention & Exhibition, info@ restorationindustry.org, 443.878.1000, Gaylord Texan Resort & Convention Center, Grapevine, TX, www.ascr. org/omnisam 03/28-04/01

National Association of Insurance Commissioners

NAIC Spring Meeting, Cathy Weatherford, Executive Vice President, cweather@naic.org, 816.783.8009, Gaylord Palms Resort and Convention Center, Orlando, FL, www.naic.org

CLAIMS ADVISOR | FALL 2007

77

story

Claims Adjusters Have a Million Stories.

What’s Yours?

Every Dog Has His Day A Public Adjuster, we’ll call him “Joe,” was making life a royal pain.

Joe would listen to fire department scanners ready to commission chasers to the scene with the intention of signing clients sometimes before the fire department arrived. Once he signed a client, the first thing he would tell us was to “back off!” We knew our policyholders were being told that we’d cheat them if we could. (Indeed they attested to that fact!) Every claim Joe represented took forever to settle and often the entire loss scene would be cleared out and in a dumpster before we could get in and take a look. We always ended up in appraisal and his high demands were often averaged against our figures even though we were certain the claim was being inflated. Something had to be done.

One day, we added a new adjuster to our claim department. She had worked the tough terrain of an inner city as an independent adjuster and rumor had it she had worked for a PA once when she was between jobs. She added just the experience we needed to deal with this underhanded opponent. We also started working with an experienced law firm and management involved them

Are you an

insurance claims industry expert?

Industry thought leaders and experts are welcome to submit content for consideration. Claims Advisor welcomes well-developed articles and ideas targeted to educate and inform claims professionals and the claims industry.

For writer guidelines, visit www.claimsadvisor.com/interact

immediately when we received a loss notice in Joe’s territory. That’s when everything changed for the better.

On the very next claim in that area, we anticipated Joe’s involvement. We immediately gave our policyholder a personally delivered detailed explanation of their “Duties Following a Loss.” The letter spelled out the fact that they had to immediately show us everything without alteration or face a denial of their claim for failure to meet their duties.

The letter further explained that any unjustifiable delay could be interpreted as a failure to cooperate, also resulting in a denial of their claim.

Joe could not offer a justifiable reason to delay giving us access to inspect the loss. Our new adjuster took charge and went into the loss scene with a team of adjusters quickly making a detailed inventory of every item in the home, complete with indexed photos. We worked with a reputable restoration contractor who helped us establish whether or not inventory items could be cleaned satisfactorily. We also followed this procedure on the building restoration and repair estimate. The restoration contractor also documented the fact that the window of opportunity to successfully clean the contents and dwelling was only a matter of three days and any delay would make the loss worse. Joe claimed nothing could be properly cleaned so we explained that his assertion needed to be tested with sample cleanings of several garments and a few rooms of the dwelling. Any refusal to allow us to make this determination would be interpreted as a failure of the insured to meet their duties following a loss.

Most of the tested contents and nearly all of the building cleaned up completely with no evidence of damage from the loss. None of our work interfered with the cause and origin investigations of our expert or the authorities—we made certain of that. While the claim did go into appraisal, we prevailed at nearly every point. The cause and origin investigations were inconclusive in terms of absolute certainty so our immediate work establishing the value of the claim proved to be the key factor. Having the right people in the right position proved critical in dealing with the situation.

Now, when we get a serious loss that involves Joe, he offers less resistance and is much more cooperative. Our claims settle faster and much closer to our figures!

--Sarah James, Independent Adjuster Do you have an interesting or funny claims story?

Tell us all about it! Send an e-mail to “Story” at editor@claimsadvisor.com. Your tale may be the next story featured in Claims Advisor.

78

FALL 2007

|

www.claimsadvisor.com

Catastrophe Services

Hurricanes, tornadoes, hailstorms, floods, lightning strikes, earthquakes. No matter the magnitude or type of catastrophe, we recognize that response time is critical. As a widely recognized professional Catastrophe Responder with an extensive network of offices across the U.S., EFI Global has the resources and expertise to mobilize quickly and efficiently.

EFI Global’s Catastrophe Response Services include: • Structural Evaluations • Wind vs. Flood Assessments • Roof Damage Investigations • Electrical Concerns • Wind Induced Failure Analysis • Fire Investigations

• Asbestos Consulting Services • Indoor Air Quality and Mold Services • Airborne Contaminant Testing • Business Interruption Analysis • Repair Cost Estimating • Restoration Management and Oversight

Our dedicated Catastrophe Response team is on-call and available for 24-hour response to your emergency situation. We are prepared for challenging conditions and remain committed to assisting you with your disaster recovery efforts.

Corporate Headquarters: 2218 Northpark Drive, Kingwood, TX 77339

Catastrophe Response Team 24-Hours: 1-888-888-2467 • www.efiglobal.com

Forensic Engineering • Fire Investigations • Environmental Consulting • Specialty and Consulting Services

CLAIMS ADVISOR | FALL 2007

79

(866) 885-9785 www.alesolutions.com

                               

80

FALL 2007

|

www.claimsadvisor.com