Monthly Archives: December 2010

Looking Back On 2010 And Forward To 2011 In The World Of Claims

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Pop The Cork And Say Goodbye To 2010 And Look For A Brighter Future Ahead

I for one am glad 2010 is coming to a close. It’s been a tough year and just when you thought things wouldn’t get worse they did anyway.  Regardless, there is much to be thankful for including joyous family events, health and happiness.

Thanks For A Great First Year

I am so very proud of, and thankful to, the readers of the Claims SPOT for making our inaugural year so successful. Since our inception in January of 2010, we have been read in all 50 states and in over 100 countries. Our over 13,000 visitors to the site have looked at nearly 24,000 pages of 81 posts over they past year. The Claims SPOT received national recognition as the featured blog for Claims Magazine and was voted one of the top insurance blogs by Lexis/Nexis.  Thanks again to all who commented on our posts and helped to keep the discussion lively. We very much look forward to providing information that can truly help the world of claims in the coming year.

The year began with continued economic concerns, a poor job market and no recovery in sight. It has come to a close with a booming stock market, improved job numbers and a better outlook for 2011 (for the top ten insurance stories of 2010 check out National Underwriter’s). Looking back on the year in claims and looking ahead to the future of claims is always a fun exercise this time of year so here we go!

Staffing Crunches, Cut Backs And “The” Oil Spill

Global Recession and Staff Reductions. As with many businesses, the insurance industry was not immune to the economic crisis that began in earnest at the end of 2008 and continued so strongly in 2010.  Many claims departments cut back on professional and support staff as yet another victim of the recession. The “we need to do more with less” mentality seemed to dominate the landscape leaving claim managers scrambling to keep up with the normal pressures in claims.  More work for claims professionals meant relying more heavily on adjusters and attorneys to take on additional work increasing claim expense costs.  Trying to improve operations and take on projects to enhance the claims department needed took a back seat to the realities of the day’s needs. All this with a looming claims staffing crisis and decreasing talent pool in the industry (McKinsey study).

Deepwater Horizon. Really not much more needs to be said about this one. The tragedy surrounding the largest oil spill in US history dominated the headlines for much of the year. As we reported in June, the impact on claims will be extensive and even to this day have yet to be fully realized. What struck me as the most concerning was the public outcry that claims were not being paid quickly enough. As big a tragedy as this was, public pressure cannot create an environment for poor claims handling. Fraud and overpayment of claims will only result in increased premiums over time and will do nothing to help the consumers and those in need of compensation. I applaud the statement made by Kenneth Feinberg, head of the government led claims fund,  about paying “legitimate” claims. We in the industry must be reminded in CAT loss situations how important it is to pay those fair claims promptly, but to not just pay for the sake of paying (Leader on BP claims blames fraud for slow payouts).

Interestingly, despite no major hurricane hitting landfall this year, 2010 proved to be an active year for CAT losses worldwide (see Worldwide Insured Cat Losses Nearly Double In 2010).

Enough Of The Past, It’s Time To Look Forward

With the hope and belief that things are looking up this coming 2011 (2010 Now On Target To Be A Profitable Year For P&C Insurers), it is time for the claims industry to get back to work on improving their overall operations. Here at the Claims SPOT we are never shy about giving our two cents so here is what we feel are three key issues to be addressed in 2011:

Compliance Audits: Let’s face it – one of the reasons that the economic meltdown occurred was due to a lack of internal controls and compliance. Whether it has already happened, or is being considered, further regulation of the insurance industry is a certainty.  As a result it will require further diligence on claims departments to ensure claims are being appropriately managed and reserve and settlements that are put forth are accurate reflections of losses. Having the controls in place will not be enough. While it may sound silly, it will be important to have controls over the controls. What this means is it will not be enough to just perform an audit from time to time. Guidelines as to when and how those audits are done will be necessary to demonstrate to governing bodies that procedures exist and are being followed.

Whether you are a reinsurance company reviewing Cedent’s claims, a claims department looking at best practices, an excess carrier reviewing a primary carrier’s losses or the paper behind a MGA managed program, having a proper audit program in place will be a key element going forward.

Next Generation of Claims Professionals: We hear it again and again that the industry will be in crisis if they do not begin to address talent being attracted to claims. As the industry has matured, specialization has resulted in cost savings and better claim results. The same specialization has also contributed to stagnating the profession.  As the older generation of talent begins to leave claims departments, the cross-disciplined experience in claims is disappearing. This will need to be addressed if the talent needed for the next decade will be ready to handle even more complex claims.

Technology and Claims:  Used correctly it can save an organization tremendous amounts of time and money, used incorrectly it will cost it more.  While there is still a long way to go, and it still amazes me to learn how far behind many major claims organizations are, the use of technology in claims has been improving. Unfortunately many groups fail to grasp what these systems can do. Either they spend too much money to buy a system not designed for their organization, or they fail to adopt their process to the new technology, failure becomes inevitable.

For 2011 adopting new technology that can help claim professionals be claim professionals and not just create more work will be the imperative. Using the mountains of data contained in the modern claims system to help make better decisions, and assist the rest of the organization to benefit from the claims data, will be the wave of the future. Regardless, it will be important to know what you are, know what you need, be selective, and implement correctly to get the benefits that new technology can bring to an organization.

Of course there are more trends from the past and future. Tell us what you think the future will bring!

Getting Creative And Reducing Claim Costs Without Sacrificing Quality – Part II

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Building blocks on which to create a new foundation to improve processes

Last month, I discussed the building blocks needed to reduce claim and litigation costs, while still maintaining a strong focus on quality. Those building blocks included:

  • collecting current data about your claims and litigation
  • evaluating the claim and litigation work itself
  • settling on a carrier claim and litigation handling philosophy

These building blocks create a foundation on which to build new processes and procedures that will reduce your claim and litigation costs, and maybe even decrease you volume as well. I refer this building process as looking at What I Have, What I Want, and What I See.

What I Have – All This Data

The data you collected regarding the current state of your claims and litigation is an excellent starting point. Examine your data and identify the areas that you wish to improve.

For a couple of reasons, while the amount of your legal spend may a visible target for improvement, don’t spend too much time on rate-issues first.  This is because the impact of improved processes and procedures will likely decrease total spend naturally, without having to address rate issues. Focus instead on issues like overall litigated volume (the number of pending litigated claims), cycle time (the average amount of time litigated claims take to close from inception), severity (of your pending litigated claims), and other factors. Developing processes and procedures that improve these other factors is a good starting point.

What I Want – Creating The Benchmark

Look again at your non-dollar data. Think about what you believe those numbers should reflect. For instance, if the average time it takes a litigated claim to go from inception to closure is two years (730 days), you know that, on average, you will be paying panel counsel for two years to bring that matter to a close. Based on your knowledge and you your industry contacts, determine whether this number appears high. Do this for other non-dollar metrics that you have measured.

Look at each area you wish to improve and consider a practical benchmark and goal you would like to achieve. My advice is to not set arbitrary goals, as they bear no particular relation to what you will be able to achieve, and thus set your organization up for disappointment or worse. Instead, work with stakeholders in the process and think about how your metrics work together to form a complete picture.

Set incremental measurement points. Hypothetically, you may be starting with a two year cycle time and wish to set a benchmark objective of reducing that by six months, followed by a long-term goal of reducing it to one year. Again, always make sure that your objectives align with the other information you are obtaining. Do your objectives make sense in light of the jurisdiction, the severity of the portfolio, the type of case, and the claims handling philosophy of your organization?

You may have a very diverse book of cases and wish to develop benchmarks and goals first by line of business, or by stakeholder. In fact, when you start objectively considering all of the factors involved, you may end up with benchmarks and goals that look something like this:

  • Overall Litigated Claim Pend Time – Current Average: 730 days
  • Motor Vehicle Accident (simple): 550 days (benchmark); 365 days  (goal)
  • Product Liability 700 days (benchmark); 650 days (goal)
  • XYZ Claim Professional 680 days (benchmark) ; 600 days (goal)

These numbers are purely arbitrary for the sake of example, but they are illustrative of processes you may wish to consider when examining your current situation and deciding how you’d like them to look in the future.

What I See – You Have To Look At What Is There

A continual focus on quality is critical. Higher-quality claim and litigated file management results not only in lower indemnity payments, but in decreased costs as well. As someone who has managed thousands of files with bad faith allegations, there is nothing more expensive than trying to successfully litigate a poor quality claim file.

One of the core building blocks of the process are evaluations – evaluations of all professionals involved in your litigation life-cycle, from claims professionals to attorneys. In looking at those evaluations (whether through internal or external audit), identify those practices that need to stop and those that are more likely to extend the cycle-time of your cases.

A simple example — in reviewing a number of litigated claims last year, I noticed a consistent pattern of defense counsel granting numerous extensions to opposing counsel to respond to written discovery. These numerous extensions were causing files to last for months with no activity (other than counsel billing for those activities associated with granting the extension). During my review, I made note of such patterns and then developed ways of addressing them through new procedures and processes. In addition, I also considered what I discovered in these evaluations and my solutions for addressing these issues in my benchmarking and goal-setting.

In the next and final part of this series, I will explore the nuts and bolts of the procedures, processes and guidelines that can be used when moving forward with a revamp of your litigation management system.

Here We Go Again! CMS Postpones Deadline For P&C Mandatory Reporting Until January 1, 2012

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For The Second Time, The Department Of Health And Human Services Centers Gives Carriers More Time To Comply

In an alert dated November 9, 2010, The Department of Health and Human Services Centers for Medicare and Medicaid Services (CMS) announced that it will delay the implementation of the Medicare Secondary Payer (MSP) mandatory reporting requirements for property & casualty insurers until January  2012 for liability claims that do not involve on-going medical responsibility.

As expected, this is welcome news to the insurance industry as reported in the Insurance Journal:

“We are pleased that CMS decided to push back the reporting deadline again until more specific guidelines can be provided on several outstanding issues,” said Peter Foley, American Insurance Association’s vice president for claims administration and chair of AIA’s MSP Task Force. “The insurance industry will comply with the requirements, but complete and correct information is needed so that the industry’s data can be assembled in the most useful way possible for CMS.”

New Insurance Coverage to deal with potential reporting liability

Over the past year there as been much discussion about both the complexity and issues surrounding the implementation of mandatory reporting requirements. As The Claims SPOT previously reported on corrective legislation in Medicare Secondary Payer Enhancement Act Being Introduced in Congress Could Address Many Concerns of Section 111 Reporting, there are many legal concerns relating to reporting requirements (the bill currently remains in committee). In response to the risks for improper reporting, which include extensive fines, IronHealth (a division of Ironshore) created two new products called the Medicare Reporting & Secondary Payer Act Liability (MRSPAL) policy and the Government Billing E&O policy. These policies are designed to  protect companies handling claims and billing against liabilities that may arise for a failure to comply with these requirements.

As was reported in MyNewMarkets.com (Powered by the Insurance Journal), Josh Stein, chief underwriting officer for IronHealth stated  “the fines and penalties can add up…It’s got people very worried right now because it continues to evolve with how they put the meat on the bones of the legislation.” Uncertainty in how the government will enforce the rules, and the extent of potential fines, makes this new offering a welcome way to protect against potential risks.  What is known is the government has been testing the waters of enforcement in the past few years (see Warning – Medicare Secondary Payer (MSP): Government sends strong message and goes after non-compliance) and the risks are real.

Regardless of whether you feel coverage is needed, the rules are changing and it is important to remain up-to-date.  Help yourself and sign up for email notifications from CMS (sign up here) and stay informed.

Stay tuned as it’s all still evolving!

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Some background on the Medicare Secondary Payer Act and New Reporting Requirements

The Medicare Secondary Payer Act has been in place since the early 1980’s. The act allowed Medicare to seek reimbursement for money an insurance company or self insured pays on behalf of a Medicare beneficiary. MSP covers all carriers, self-insureds, no fault insurance, and workers’ compensation insurance.  In the past, Medicare’s ability to track and enforce these claims was limited. With the passage of the SCHIP Extension Act of 2007, Medicare was given new tools to track payments. The passage alone marked the start of new steps to increase enforcement by the Federal Government to collect on the Secondary Payer provisions. As part of the Act, the Responsible Reporting Entity (carrier or self-insured) must advise Medicare when a claim is received involving a Medicare beneficiary recipient. Responsible Reporting Entities now have an ongoing requirement to determine from time to time whether a claimant is a Medicare eligible recipient.

For more extensive information about the Medicare Secondary Payer Act and the new reporting requirements, please look to these valuable links: