Good Times, Bad Times
The recent recession, spurred by the collapse of the real estate market, left the insurance industry exposed to the economic vicissitudes engendered by that event. The property/casualty arena was particularly impacted.
The P&C sector, mirroring the economy’s slow recovery incline, has been experiencing a minor renaissance. However, two notable CEOs, Evan Greenberg of ACE and Jay Fishman of Travelers, have recently expressed concern over evidence the industry is entering a phase of assuming a surfeit of risk as competition pressures companies to lower prices.
It’s dichotomous to operate in the insurance sector and be adverse to risk. Insurance companies accept and insure risk. The immutable underpinning of all insurance is to spread the risk and obtain proper premium. Both Greenberg and Fishman have voiced concerns over the premium piece of that equation.
Assuming risk at prices below projected loss costs is ultimately a death spiral. Many notable insurers have engaged in cash flow underwriting, and paid the ultimate price for it.
Competition has a way of leveling pricing to the buyer. In the P&C arena, many buyers view insurance as a commodity. As long as the policy limits are the same, the consumer is predisposed to choose the lowest premium price. This tempts some insurance companies to “buy” market share by lowering prices.
Assuming risk at prices below projected loss costs is ultimately a death spiral. Many notable insurers have engaged in cash flow underwriting, and paid the ultimate price for it. If the past has taught us anything, it is that it’s vitally important to maintain pricing discipline despite prevailing market conditions.
Logical decisions stem from pricing discipline. Sometimes these will be distasteful, such as shrinking a company to keep it fiscally healthy. However, doing otherwise is risking not having a company extant when the economic environment rebounds.
The Counsel of Insurance Brokers & Agents reported the commercial P&C market pricing continued to soften in Q1 of 2015, with large accounts seeing the biggest price declines.
In its annual domestic insurance market analysis, Marsh opined the commercial insurance realm is expected to continue softening into 2015. Buyers can anticipate competition for their P&C programs this year with price decreases averaging between 5 and 15 percent. Barring the occurrence of a major catastrophic event, increased competition is having the impact of reducing policy costs.
Greenberg and Fishman, respectively, have indicated they’re prepared to reject business that doesn’t meet profitability objectives. Fishman stated on a call with investors that he would “draw lines in the sand” to prevent underwriting criteria from assuming dangerous pricing.
A complicating dimension is interest rates remaining at historic lows. The return on investment on insurance company funds, typically a significant source of income, is far below what it once was. This places additional pressure on revenue objectives.
The discipline of market failure is supposed to act as the keel of conscience in the various “C” suites throughout America. Returning impressive profits for 12 or 16 quarters only to have the company melt down when the wave of losses overtakes it like a trailing financial tsunami, helps no stakeholder.
What Greenberg and Fishman are preaching should be the mantra of every insurance executive across the country. Underwriting discipline is always crucial, and should be the bedrock strategy of an insurance company.
Handling Claims Right, From the Start
One of the most important aspects of handling workers’ comp claims correctly is immediately determining the nature of the loss based on the employer’s first report of injury (FROI), and a phone call or two. Does the claim involve no compensable lost time, thus making it a medical only (MO) claim, or is there lost time in excess of the state waiting period, which would render it an indemnity claim?
At times, the FROI indicates there is no lost time. The case is then assigned to a medical only adjuster for cursory investigation, if any, and adjudication. However, even though the FROI may state there was no lost time involved, it is far from uncommon to find out the report was incorrect about the employee’s loss of compensable time from work. Conversely, the opposite also applies where a FROI might indicate lost time, assigned to a lost time adjuster, but the employee does wind up losing authorized time from work as a result of the injury or condition.
Clearly the level of investigation differs with each type of loss. Medical only claims normally have one or two point contact (the employer or the employer and the doctor), while lost time cases usually require three point contact (employer, employee, and medical provider) and involves more detailed fact finding. Or at least that is the way it supposed to work.
The proper determination of the claim type has financial consequences with third party administrator handling. TPAs charge more for handling lost time claims than they do for medical only cases. However, there is a double edged sword here. The overarching objective should be that a case is properly investigated regardless of type.
A typical scenario is that a claim is reported with no compensable lost time but involves an aberrant set of circumstances. This can be anything from occupation exposure, to an accident that takes place off-premises with the employee allegedly conducting the employer’s business. Should the case be classified as an MO and simply given to the medical only adjuster as if the exceptional circumstances of the alleged injury did not matter, or should it be assigned to a lost time adjuster for a full investigation?
The answer should depend on the claim particulars rather than a simple rote procedure strictly predicated on whether lost time is involved. For example, let us postulate that a FROI is received by a TPA. It states there is no compensable lost time involved, but the cause of the injury is inhalation of deleterious fumes. Is this a claim that should be simply assigned to an MO adjuster for one or two point contact and to confirm no lost time before simply processing the medical bills, or to a lost time adjuster for a full investigation on compensability and causal relationship?
The client may complain about being overcharged if an MO case is handled as a lost time claim, It is probably also a good wager that they would complain even more if the claim wasn’t initially properly investigated and then became more serious, eventually involving litigation, and significant exposure.
The obvious answer is to have the claim properly screened with a telephone call to the employer prior to assignment. If the employer believes there is something suspicious about the claim, they will usually impart this belief verbally. This will be the telltale that should influence how the claim will initially be assigned for handling.
Even if the claim is improperly assigned to an MO adjuster, there is still a chance of redemption as long as the MO adjuster performs some type of investigation that will yield information that strongly suggests the claim should be reassigned to a lost time adjuster. The salient point here is that the MO adjuster has to do something with the claim in fairly expeditious fashion. Based on the nature of the position, many MO adjusters are processing oriented and may miss a key issue, or simply not act on a piece of information as they should. The more seasoned individuals will make a few calls and ascertain if the nature of the loss should remain in their futurity, or reassigned by the supervisor to a lost time adjuster. I have even witnessed MO adjusters calling the claimant to find out the nature of the injury and if lost time is involved before making their investigative findings and recommendations, including reserve commentary. These individuals deserve the accolades for their initiative as well as analysis, but regrettably this does not constitute the norm.
Obviously, there is far more exposure if an MO adjuster does not properly alert management that a claim should be reassigned to a lost time adjuster than the opposite if a lost time adjuster doesn’t timely suggest that a case be “stepped down” from a lost time to an MO. Therefore the MO adjusters are the gatekeepers to some extent, and it is incumbent upon the supervisor to make sure expectations are established in the unit relative to investigative findings that commend a change of the type of claim from MO to lost time or vice versa. This involves training and active communication, both of which appear in short supply these days in many claims facilities.
At first blush, this topic may seem rather bland, but if the a claim is improperly assigned as an MO, and then contact is not made timely to determine the true nature of the issues, and simply placed on diary to await medical bills (that may not even be related to a compensable injury) being received and processed, there is trouble in the offing. That trouble will often come home to roost at the most inconvenient times.
It is far easier to make the correct assignment determination at the time the case is received. But that often takes work, as well as insight as to proper investigative needs. However, that is what claim professionals are paid to do. Clearly, the employer expectation is that it is done with accuracy and altered based on unique circumstances extant in each claim. Ultimately, if the MO adjusters are not properly performing their contacts and documenting analysis of their findings, there will be breakdowns of a more frequent nature than necessary. So be careful out there!
The Many Aspects of Fraud
I was recently reading an industry column on the ubiquitous subject of workers’ comp insurance fraud. The author of that piece postulated that there were essentially two types of fraud: premium fraud and claimant fraud.
Of course, claimant fraud is the usually the first thing people think about when they think at all about fraud. Most likely a far distant second thought to claimant fraud is premium fraud. That is usually the province of unscrupulous employers attempting to save on workers’ comp premiums by intentionally under reporting the amount of employees they have working, or misreporting the class code exposures of those workers.
If only life was so simple. Regrettably, there are various other strains of fraud that have plagued our existence at various times, for example, the California situation in the early ’90s. Anyone who was around and connected with workers’ comp insurance in California could not overlook that bane of existence for insurance carriers and employers during that time.
The impetus for this massive viral strain of workers’ comp fraud in California was that the workers’ comp law required employers/carriers to pay for medical exams for workers on contested cases such as continuous trauma and occupational exposure claims. With this incentive, clinics actually began to start law firms, which the clinics surreptitiously owned, with the overriding intention of feeding the clinics “patients” to examine. Applications to the Workers’ Comp Appeals Board were then filed by the law firms alleging various and sundry disabilities that required myriad medical exams to quantify the permanent impairment rating as well as future regimen of treatment recommendations.
A battery of medical examinations often yielded charges exceeding $10,000 in total. The applicants’ attorneys were more often than not willing to settle the claims on compromise and releases for a minimal amount of money to the claimants, because that was not the point of the entire endeavor. Once the case was concluded with the claimant, the medical liens had to be addressed. This resulted in a windfall revenue stream for the clinics that viewed the law as a license to steal, and did so with a frightening degree of efficiency and regularity.
Where did the clinic owned attorney firms obtain their workers’ comp “clients”? That was another innovation. It was basically the workers’ comp version of ambulance chasing. They would go down to the unemployment offices and “cap” them off the lines of people there to collect their unemployment check, or to make a claim. This one can be filed under doctor and attorney fraud. However, one must admit to the simple elegance of this system, which added incredible cost burdens to an already overwhelmed workers’ comp system in the state with the largest population base in the country.
There have also been cases of claims adjuster fraud in the industry. These involve “enterprising” claims professionals who typically devise methods to embezzle funds out of their employer in the form of fraudulent claim payments made to bogus medical providers. This scheme usually entails setting up a medical provider in the payment system that the adjuster has “founded.” Durable medical equipment is a favorite choice in this realm. The key is to spread the payments to the provider (whose address is invariably a post office box) over a group of files so as not to attract any undue attention of claim and/or financial auditors. Over the course of a year or two, these adjusters can accumulate tens of thousands of dollars. The ones that have been caught either were too greedy, and streamed a surfeit of payments over a short period of time to the “vendor,” or else were simply the victim of a serendipitous audit that discovered the fraud.
Another not entirely unknown adjuster-perpetrated fraud involves seeking willing accomplices to initiate false claims that the adjuster would most likely handle. The adjuster makes payments to the claimants, who then split the claim payment “proceeds” with the adjuster. Although this is more likely in a liability claim scenario than a workers’ comp case, there have been incidents of this nature in the workers’ compensation landscape.
Let us not overlook possible producer fraud. There have been a number of situations over the last several decades involving premium being collected by an agent for coverage, and then not being forwarded to the insurance carrier. This is an audacious form of fraud as the corrupt producer is gambling that there will be little or no claims turned in on the supposed in-force policy. Of course, in the workers’ comp arena, at least seven out of every 10 claims involves no compensable lost time (“Medical Only” in the vernacular), and these claims are usually minimal in cost. Moreover, in many instances, the accident reports are sent directly to the agent, who can then pay for the medical treatment out of the embezzled premium funds. One must have nerves of steel to engage in this type of fraud, but it has been done.
The medical community is also not entirely pristine in this area. I have seen several instances in my own career where bills for medical appointments that never took place have been submitted for payment. These are often most difficult to discover, especially if the modalities are many over an extended period of time. But it has happened.
As is evident, there are many more types of fraud than simply claimant and employer generated. As the aphorism goes, where there is a will, there is a way. Vigilance is always necessary.