Tag Archives: Claims Costs

Commentary – Expect Gulf Oil Slick Claims To Be Extensive And Impact Multiple Lines Of Business

Posted on by
2

As the losses in the gulf continue to rise, the true claims impact has yet to unfold

I don’t think the insurance industry has felt the true brunt of the horrific events of the April 20 blast on the Deepwater Horizon rig in the Gulf of Mexico. While losses have continued to come in, if some of the predictions about oil flowing up the Eastern Seaboard ring true, there will be significant claims and issues to follow.

Having been involved in a few claims involving lost oil platforms following the gulf hurricanes of several years ago, I remember the sheer costs involved in the loss of just one of these wells. From the business interruption, to the retrieval of the damaged well from the ocean floor, to the replacement of the rig itself, hundreds of millions of dollars will be spent. Operator Transocean has said the rig alone is insured for $560 million including total loss and wreck removal (see Deepwater Horizon oil rig continues leaking oil as claims rise). When the environmental and economic losses are added in, much of which cannot even be calculated yet, the numbers are sure to be astronomical.

What will the impact be?

What the impact will be is still largely unknown.  News reports of June 3, 2010 had a model showing the oil slick reaching around Florida, up the East Coast and out into the Atlantic (see Computer models show Gulf oil reaching East Coast). Oil, under this scenario, could be washing up on beaches in Virginia or New York by the middle of the summer. Add in the fact that hurricane season has just begun, which will only compound the potential damage and loss.

How much wildlife will be affected? How many fishing grounds will be shut down? Will the slick require booms and pontoons to drape the entire East Coast of the United States? No one really knows what will occur in the coming months, especially if efforts to contain the slick continue to fail.

With losses continuing to rise, does BP really have sufficient funds to pay for all the damages? There are estimates setting the cost between $30-$40 billion with all but a fraction of that covered by insurance (see Insurance Journal  – Oil Rig Tragedies Shock Insurers, Destabilize Market, Says Willis). Despite these high numbers being the responsibility of the self-insured BP, there will certainly be additional claims to impact the insurance industry as well.

Rising costs to the industry

Not surprisingly, the impact on insurance premiums is already being felt in the Reinsurance market – especially in the Energy sectors. Insurance Journal reported in BP Oil Spill Losses Hit Reinsurers; Premiums Jump that:

Reinsures have bumped up prices for offshore energy-related insurance premiums by 50 percent following insurance industry losses of up to $3.5 billion from the BP plc oil spill in the Gulf of Mexico, Moody’s Investor Service said in a report on Thursday.

Total insured losses from the worst oil spill in U.S. history are expected to be between $1.4 billion and $3.5 billion, although losses would be significantly higher if BP had purchased liability insurance instead of self-insuring its risks through its captive insurance program, said Moody’s.

As the true claims impact unfolds, it is likely that pricing could be affected in other parts of the industry, and across multiple lines of business, as well.

So what about the claims?

It is more than likely that claims for losses will extend beyond property and business interruption damages. Recently, the D&O Diary wrote Of Oil Slicks and D&O Claims and the soon to be expanding wave of D&O suits that will follow. Professional liability, property loss, business interruption, clean up costs, bodily injury claims, will probably follow affecting all manner of third parties yet to be impacted.

As losses develop, claim resources will be needed to manage a host of potential losses that, as noted, could spread up and down the US Coastline. Coverage disputes will likely be on the rise as homeowners, towns and businesses seek to recover for losses occurring hundreds of miles from the impact area. Pollution exclusions will almost certainly be debated again in the courts as claims are presented and challenged. And, like many massive disasters, the industry will deal with potential fraudulent claims and those set on taking advantage of a bad situation.

The problems and issues, from a claims perspective, are still being developed and only time will tell the true impact to the industry.

Let’s not forget the loss of life

As insurance people we are always dealing with tragedy and placing an economic impact on terrible situations. Let us not forget or diminish the personal tragedy for the loss of 11 well workers who were just trying to make a living and provide for their families like so many of us do.

As I have told family members in meditations – understand that as Insurance claims professionals we have to assess dollar values on things that truly can’t be valued such as the life of a loved one. It is easy to lose sight of the personal impact when dealing with a massive tragedy such as this.

2 Cost-Cutting Solutions To Get Work Done Without Overloading Claims Handlers

Posted on by
1

Too Many Tasks, And Hiring New Staff Is Not An Option? (Part One of Two)

Not every company can afford to hire dedicated teams to focus on cost-saving initiatives such as subrogation or Anti-Fraud. Sometimes there is simply not enough work to justify a full-time position internally. Regardless, failing to focus on cost-saving programs can increase loss and expense payments.

So how do most companies handle the situation? By adding those tasks to a claims handler’s already overloaded job function. The problem is, the more tasks they are asked to do, the less they can focus on being a good claims handler.  The usual result of overloading the claims handler is that they not only can’t focus on the core aspects of their job – to evaluate and settle claims – but they also can’t properly attend to the additional work. Both jobs end up suffering.

Tasks such as subrogation and legal bill review are the last things claims handlers want to do. Furthermore, these tasks are better performed by dedicated staff. Take a look at any department with dedicated subrogation specialists and you will see higher rates of recovery than those without. This is also true in the areas of Anti-Fraud and litigation review. So how can a claim department maximize results and lower costs, while also ensuring claim handlers can continue to focus on their core job functions? From my own experience, two recommended practical solutions to consider are outsourcing with on-site vendors, and hiring part-time employees.

Taking a page from my past, this post presents the first of two solutions that I implemented to secure successful results.

Outsourcing As A Solution – An Anti-Fraud SIU Example

Outsourcing certain aspects of the claims department can make good economic sense.  However, not every company needs a 30-person call center, nor do they need to invest the resources to build one. In those instances, partnering with a vendor can be an ideal way to provide the best of the best. One of the potential problems, however, is if your company has only a limited need, the vendor may not always give you the most attention. Additionally, completely outsourcing the task means that claims handlers lose the benefits of the expertise that the vendor provides, and often may not even be aware of the available services offered. I was faced with this very issue when dealing with managing an Anti-Fraud unit. My solution was to require the vendor to have their employee “on-site” in our office.

What Did Not Work

Looking for fraud is a key part of a claims handler’s job, and many states require fraud reporting to state investigators. The company I was working for had a substantial commercial casualty book, as well as other specialty lines of coverage. There was not quite enough work to justify a dedicated Special Investigation Unit, but still the work needed to be done. I decided to outsource the process to a Third Party Administrator who had an active SIU unit. The vendor was contracted to handle all the company’s SIU state reporting requirements as well provide any investigation services that our internal claim handlers needed. In addition they were to provide required Anti-Fraud training to our team, and perform audits of our claim handling TPA’s for compliance with Anti-Fraud reporting requirements.

The vendor provided Anti-Fraud training to the team at the onset of the relationship, and then visited the office from time to time to provide updated training and answer questions. After a year of working with this vendor, we discovered that fraud referrals to the state were no different than before the vendor was hired. In discussing the issue with the claims handlers I learned that, despite initial training, the interaction with the vendor was typically reactive, and there was minimal regular contact with investigators. As a result handlers were not aware of the vendor’s range of services, nor did they even know how to properly identify Anti-Fraud red flags. The process and the program weren’t working and I had to make a change.

How To Make It Work

I began to look for a new vendor who would provide a solution that would produce better results.  I determined that the only way I was going to get more fraud referrals was to have someone sitting in the office on the front lines with the claims handler. For the new contract, I found a vendor that would assign a dedicated SIU investigator to sit in our office several days a week. With the investigator on-site, I was able to produce a more proactive approach to looking for potential fraud. Because they were on-site, the vendor was able to use our claims system to review files and actively monitor claims for potential fraud. This was not possible with our previous vendor in an an off-site reactive model.

Once the new program started the difference was almost instantaneous. Claim handlers sought out advice about claims with possible fraud. Investigations increased and claim handlers became more proficient at identifying industry red flags. SIU state referrals increased over 200%, and due to new investigations, several files were able to have indemnity reductions. Handlers learned that sometimes something may not be an outright fraud but instead were exaggerated claims. With the assistance of the “on-site” investigator, handlers learned new ways to analyze damages and reduce loss costs. The program was a success.

Lessons Learned

Changing the way a vendor works with your company can have dramatic results. In this particular initiative I was able to learn:

  • If it’s broken, then fix it. Don’t worry about changing your approach; it’s sometimes the best thing. Too often, leaving a merely adequate solution in place is worse than starting over to make improvements.
  • Be persistent in thinking outside the box in an effort to find new ways to approach basic solutions.
  • Having your vendors work on-site with your team can have many advantages, including the “absorption” effect. Your vendors’ expertise, knowledge, and skills are transferred to your internal staff.

In Part 2, I will give an example of using a part-time attorney to review legal bills as a way to lower your legal expense dollars.

The 5 Essential Components of Defense Attorney Reports That Can Improve Claims Costs and Outcomes

Posted on by
7

Why Are Attorney Evaluation Reports Sometimes So Light?

I was recently conducting an audit of claim files and had the opportunity to review a significant number of Attorney Evaluation reports from a variety of law firms. Like many other things in life, some were better than others.  What seemed to be most glaringly consistent was the inability of counsel to truly provide an assessment of exposure and what the case is worth.

When asked to assess exposure, the typical response was to state that the insured had a 50% chance of winning the case. While I would agree that there are instances when this may actually be the case, often times it’s not. One report I read stated that the attorney felt the case was probably defensible, but with additional information they may not be able to defend the case. Why is it so difficult for some attorneys to give a comprehensive assessment? Is there a fear that if an attorney says one thing, they can’t change their mind later? When circumstances change, new information is developed, or issues are uncovered, it is perfectly reasonable that evaluations need to be adjusted accordingly.

I would submit that an experienced defense attorney, that has seen hundreds of similar cases, has a pretty good idea of what the issues are in a case. Claim handlers can, and should, expect their defense counsel to clearly evaluate liability and damages and express those evaluations coherently in their reports. Counsel should be providing full evaluations at least every six months or after significant changes in discovery.

At the very least, attorney evaluations need to provide the following 5 components in their reports:

  • Introduction – All reports should start with a few sentences outlining the facts of the claim, and should not require reading though 8 pages to find out what the case is about. An example of a concise introduction would be “This case is about the alleged wrongful death of a 29 year old stockbroker, father of three children, after he was struck by our insured’s vehicle being driven by an intoxicated driver.” In fact, that type of introduction can be used in every letter sent by defense counsel regarding the case.
  • Factual Summary – A summary is a summary (I know – never define a word with the same word – but it seems appropriate here). When line-by-line details are relevant, then they should be spelled out. Otherwise, a concise assessment of important facts, and how they impact the case, is all that is needed to explain all aspects of the file. Counsel should also describe pertinent testimony, how it impacts liability or damages, and state how the witness would present to a jury at trial.
  • Liability Assessment – An evaluation of liability needs to address all the parties in the case and not just the insured. Each of the plaintiff’s allegations should be discussed, and how the defense will be able to respond. Sometimes a defense would not serve to completely negate liability, but only serve as a way to reduce liability or damages. If this is the case it should be clearly stated so a proper assessment can be made.  An example of a concise statement on liability would be “I believe the insured has problems with liability as they were aware the driver sometimes drank at lunch to “calm his nerves.” While the 29 year old decedent was speeding, and may have ran a stop sign, it may only serve to mitigate a small apportionment of liability.” Another valuable tool is to list out all the defendants and show each of their percentages of fault.
  • Damages – This really should be the easiest section of the report to write up. A simple list of all the economic damages followed by ranges for potential non-economic recovery would clearly spell out the total extent of possible exposure. Additional information that could affect the outcome can also be clearly stated like this example: “Despite being unemployed, the decedent taught Sunday school and took care of his sick wife while raising his two small children on his own.” A great suggestion from a colleague is for counsel to base their report on the particular jury charge that would apply in the case. Verdict research is also helpful and readily available. In the end, counsel should come up with a damage assessment of the full value of the case and then factor in the liability apportionment.
  • Conclusions and Recommendations – Attorneys are being paid for their opinions and expertise, and they should be providing that experience in their reports. A clear statement should sum up counsel’s position on the case, and the relevant next steps.  Upcoming discovery expenses, as well as any out-of-the-ordinary expenses that may be incurred (i.e. investigators, experts, trial exhibits, etc.) should be listed to allow the claim handler to manage expense budgets better.

Good Reports Are Cost Effective and Allow Handlers to Make Informed Decisions

When reports include all of the potentially relevant and appropriate information, a claim handler can make a more informed decision. Reserves can be assessed and changed when needed, and expenses can be managed more effectively. I was able to see this in practice at another client I recently worked with. This client worked proactively and diligently with counsel to get them to follow the structure I outline above. The client’s Director of Claims told me that they “are paying for [counsel’s] evaluation, and wanted them to put their neck out.” He went on to say that they truly partner with their attorneys and acknowledge that they “win together and lose together.”  It was clear from reading these reports that counsel enjoyed writing them, and according to the client, also enjoyed the challenge of providing a complete evaluation.

A good report will tell the story of the entire case in a concise and comprehensive manner. Defense counsel and claims professionals need to work together to help resolve the claim using the most expeditious and appropriate approach. Good reporting will help the process. Sit down with counsel and come up with a format that works for everyone. Don’t be afraid to send a report back to counsel and ask them to state their position so a proper evaluation can be made.

What are your experiences with counsel reporting? How do you think the evaluation process can be improved?

Warning – Medicare Secondary Payer (MSP): Government sends strong message and goes after non-compliance

Posted on by
Reply

The Feds get serious about seeking Medicare recoveries

If you are an insurance company or self-insured, and make payments on liability or workers’ compensation claims, be aware that the Federal Government has filed a lawsuit signaling their intent to be aggressive in seeking reimbursement. As reported in Business Insurance, this “case breaks new ground because CMS simultaneously named insurers, settlement beneficiaries and plaintiffs attorneys all in one lawsuit.”  This case should alert all that if you make a payment on an injury claim, and fail to let the Government know about money they should be collecting, they will come after you.

Implications abound for attorneys and insurance companies in this first of its kind lawsuit

The lawsuit, brought in U.S. District Court for the Northern District of Alabama (U.S. v. Stricker, et al), seeks money and injunctive relief as result of a $300 million 2003 settlement of case involving injuries caused by PCB exposure (Abernathy v. Monsanto Co., et al.). The complaint names the defendants in the underlying case, the insurance companies (Travelers and AIG), the actual plaintiffs who received the settlement, and their various attorneys. The government alleged that over 900 of the plaintiffs that received compensation for medical expenses were also Medicare beneficiaries that had received medical payments. As part of the damages, the Government is seeking double the amount of Medicare payments plus interest (see Medicare Lien and Set-Aside Blog).

The crux of the government’s damage claim is to seek double the amount of payments made by Medicare as well as an injunction to force the defendants to reimburse Medicare prior to making any future settlement dollars to the claimants. As required by the Medicare Secondary Payer Act, the government’s complaint also alleges that the insurance providers failed to determine whether any of the settling plaintiffs were Medicare beneficiaries nor did they reimburse Medicare for payments that had been made to those beneficiaries. In addition to the insurance companies, the suit alleges plaintiff’s attorneys received $129 million of the settlement funds for claimants that they knew or should have known were Medicare eligible.

Implications and issues to be concerned about

  • Attorneys (and their Professional E&O Carriers) beware: By naming the attorneys, the Government is clearly signaling that they will be seeking recovery and fines from those that fail to follow the law. A plaintiff’s attorney that fails to make payments to Medicare on behalf of their clients, or fails to properly provide information to the defense, could be significantly exposed.
  • Costs to insurers will go up: The process to establish and update the reporting information will be costly. Those carriers with good claims systems will be ahead of the game and can lower their expenses, however, resources will need to be allocated to maintain the requirements.
  • Older cases may need to be revisited: While many believed that Medicare would only be going after future liability settlements, this case involves a claim that was settled in 2003. It is not clear how this aspect of the case will be resolved, however, it could be exceptionally expensive if carriers or self-insureds have to review closed matters from 7 years back.
  • Indemnity reserves may need to be adjusted: It is possible that plaintiff’s attorneys will be seeking higher amounts in cases where Medicare liens would significantly impact settlement amounts. If this trend takes hold then reserves on existing claims involving bodily injury may need to be adjusted to deal with increased claim exposures.
  • It’s time to get those systems in order: Given the potential risks, it is important to fully understand the rules and requirements established by the recent SCHIP Extension Act of 2007. There has been a push by insurance companies to ensure they are in compliance with these new notification rules, including new procedures and claims system modifications.  Failing to comply could be a costly mistake.

Clearly this case is a warning of things to come!

························································································································································

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:

What do you think? Join in the conversation. Post your comments, questions, observations, thoughts, suggestions, musings, ideas for future topics, or other feedback. Or email me directly.

Medical Malpractice report shows increased severity despite lower frequency

Posted on by
2

The Insurance Information Institute has just released a comprehensive look at Medical Malpractice outlining recent developments and industry trends (read more at Medical Malpractice: The Topic). This article breaks down the industry by looking at, among other things, market conditions and national developments.

Key highlights include

  • Damage caps can save $54 Billion in medical costs by reducing premiums by about 10%
  • Fewer claims are being filed as a result of tort reform, improved patient safety initiatives and better risk management
  • Claim values, despite decrease in volume, continue to rise
  • Tort costs for medical malpractice claims are greater than other types of tort claims
  • Defense and cost containment expenses rose in 2008 to 58.1% of incurred loss, up from 55.1%
  • Defensive medicine accounts for 10% of medical care costs

It appears that tort reform measures work to decrease premiums and alleviate the high cost of Malpractice on medical costs.