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Risk Insider: Allen Melton

Top 10 Tips for Submitting a Claim

By: | August 26, 2014 • 2 min read
Allen Melton is a partner and the leader of EY's Insurance & Federal Claims Services Practice. He has 20+ years of experience working for both policyholders and insurers in the claims process. He can be reached at allen.melton@ey.com.

Napa residents and businesses were awakened early Sunday morning to the ground swells of a strong 6.0 earthquake. Buildings crumbled, glass shattered, gas and water lines ruptured, and other destruction ensued.

Now begins the unfortunate task of completing the repairs and, in many situations, preparing an insurance claim.

Below is a top 10 list of items to consider when faced with an impending claim:

1. Read your insurance policy.

Understand what types of losses are covered (earthquake damage, fire damage, water damage), what is insured (building, equipment, stock and supplies, business interruption, extra expenses), what deductibles apply, and whether there are any coverage limits that might apply?

2. Assemble a claims team.

All areas of your business may be affected and you should get the details from all facets of your operations. Impact to building and equipment, operations, sales, finance, and logistics should all be considered when trying to understand how your business has been affected.

3. Establish procedures to capture expenses.

Develop charge codes, purchase orders, or accounts to capture all claim-related expenses.

4. Designate a single point of contact.

Information about a loss has a tendency to change as more facts are known. Having a single point of contact providing information to insurers can avoid confusion about the details of your loss.

5. Manage expectations.

Keep management apprised about the details of the loss such as claim estimates, and timeframe to rebuild/restore operations as well as details regarding the claims process including the amount of time and effort that is required to adequately document and support a claim.

Be cautious of loss estimates and recovery timeframes that are too low or overly optimistic, which can result in a false sense of security and mismanage expectations internally and externally.

6. Prepare for meetings.

Coordinate your claim team in advance of insurer meetings to set the agenda, assemble supporting documentation, and ensure that the right people are present to answer questions that might arise.

7. Explain your business model.

Don’t assume that others have a thorough understanding of your business. Explain your business model so that the adjuster and his/her team will have better context around the measurement of the loss.

8. Help the insurance adjuster set the loss reserve.

Explain the areas of loss and provide sufficient information to allow the adjuster to set an appropriate loss reserve. Setting a reserve that is too low or too high can cause issues down the road.

9. Document substantive discussions with insurers.

Confirm discussions or verbal agreements in writing to maintain a record of the loss.

10. Request a cash advance.

Once the magnitude of the loss is determined, request an advance from the insurance company to offset expenditures you already incurred. Obtain additional cash advances as claim items are agreed to. This will limit the amount of open claim items at the end of the process.

Read all of Allen Melton’s Risk Insider contributions.

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Black Swan

Sub-Zero Sucker Punch

A double dose of ice storms batters the Eastern seaboard, plunging 50 million people and three million businesses into darkness and desperation.
By: | August 4, 2014 • 9 min read
082014_01_cs_blackout_ice_storm

During the cold weeks that follow the winter holidays, a low-pressure warm front moves quickly into the New England region, along with a high-pressure Arctic cold front. The two masses collide, causing heavy rains that turn to ice by the time they reach the ground.

Layers of ice blanket an area from Maine to Maryland and as far west as Ohio, making it look like a world made of pure crystal.

Northeasterners shrug and hunker down for a few days of wild weather. A thinner layer of ice reaches west to St. Louis and south to Charlotte. Southeasterners grumble about the polar vortex interfering with their routine.

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By the second day, trees fall and rooftops groan under the weight of nearly 3 inches of ice. Dozens of transmission towers buckle and collapse. Local power lines fall, pulling utility poles down across roadways.

Utility companies shift into crisis mode to assess the damage, which has plunged some homes and businesses into darkness. Utility crews from Georgia and Tennessee are dispatched to help get repair work underway, which is slowed by treacherous road conditions.

The worst, though, is yet to come.

Three days after the first storm hits, a second storm arrives, about 500 miles south. It wallops the Southeast and moves on up the Eastern seaboard, dropping another 2-plus inches of ice over two days. Heavy ice puts a death grip on everything from Memphis to Atlanta and on up through Washington, D.C.

The aging utility infrastructure can’t withstand the ice and winds. The fact that at least half of the Southeast’s utility workers had been deployed north makes matters worse — far worse. Four million customers in Georgia and Alabama alone are without power.

Hartsfield-Jackson International Airport in Atlanta is virtually paralyzed, stranding travelers and causing massive delays across the country. Gas stations shut down because pumps are inoperable.

Retailers with backup generators press on as long as they can, but shelves empty quickly of food and other essential goods. Some stores operate on a cash-only basis because payment systems are down.

On the East Coast, more than 50 million people and 3 million businesses are without power. More than 200 transmission towers are badly damaged. Water supply across the entire East Coast is at risk, as treatment plants and pumping stations begin to lose backup power. Cell network circuits become congested, causing delays and weak signals. Some networks fail altogether.

R8-14p26-30_01BlackOut2.inddDespite icy roads, millions leave their homes, seeking warmth and shelter. Some die from carbon monoxide poisoning or from blazes caused by open fires in their homes, attempting to keep warm. Many fires burn unchecked, resulting in widespread property damage.

States of emergency are declared for affected major cities. The National Guard is brought in to help clear roads, escort people to emergency shelters, and help maintain civil order among the increasingly frightened and desperate public.

Trees continue to fall for weeks, making power recovery achingly slow. It takes three to four weeks to get to 90 percent recovery for urban centers. Some outlying areas go without power for as long as three months.

Businesses struggle to reopen due to damage and lack of workers, as many have not returned to the area from wherever they sought shelter, or can’t get through to certain areas due to safety hazards.

Hundreds die from hypothermia, starvation, fires, auto accidents and small, localized riots. Tens of thousands more suffer injuries or become seriously ill. The very young, elderly and the poor are hardest hit.

National Geographic’s harrowing docudrama American Blackout depicts the catastrophic repercussions of a 10-day blackout affecting the entire country.

No Escaping Loss

This scenario was created using the Blackout Risk Model, developed through a partnership of Hartford Steam Boiler and Verisk Climate, led by Robin Luo, vice president at HSB; Clifton Lancaster, senior risk analyst at HSB; and Kyle Beatty, president of Verisk Climate.

HSB and Verisk estimate that the frequency of each individual ice storm would be one in 150 years to 200 years. The two storms combined represent a frequency of one in 1,000 years or more.

Robin Luo, vice president, Hartford Steam Boiler

Robin Luo, vice president, Hartford Steam Boiler

This scenario loosely resembles a juxtaposition of two historic North American blackout events.

In January 1998, ice pummeled Ontario, Quebec and New Brunswick for six straight days, destroying 130 transmission towers and leaving more than 4 million people without power — some for up to a month.

The insured losses from that storm totaled $1.6 billion, according to the Insurance Bureau of Canada. The total economic costs were estimated between $5 billion and $7 billion.

The second event occurred in August 2013, when a simple circuit overload led to cascading blackouts throughout North America, leaving 50 million people in the United States and Canada without power for up to six days. The estimated total economic cost of the outage was between $6 billion and $8 billion.

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Combining the duration, ice load and frigid temperatures of the 1998 event with the coverage footprint of the 2013 event would result in a catastrophe exponentially more devastating than any blackout in North American history.

Some experts downplay the amount of property damage typical for an ice storm, but others say the level of property damage wouldn’t be far behind Hurricane Katrina or Superstorm Sandy.

Because of the duration of the power outage and the extreme volume of ice involved, homes and businesses left abandoned would likely succumb to frozen and bursting pipes. Collapsing roofs would lead to additional damage.

Overtaxed emergency responders likely wouldn’t be able to prevent damage caused by the inevitable looting and civil unrest. Fires started by those desperate for warmth could easily burn out of control, consuming neighboring properties in the process, especially in urban centers.

Contaminated water supplies would cause lasting problems that would take months to remedy. Lack of running water would create sanitation hazards.

Industries needing refrigeration, such as restaurants, supermarkets and pharmaceutical companies would suffer heavy losses. Manufacturing would also suffer due to a dependence on power and the difficulty and expense of temporarily relocating equipment.

Of course, that only scratches the surface of business income losses for companies up and down the East Coast, as well as key suppliers and customers across the country.

 Wes Dupont, executive vice president and general counsel, Allied World Assurance Co. Holdings.

Wes Dupont, executive vice president and general counsel, Allied World Assurance Co. Holdings.

“Whether you’re impacted directly from the weather or indirectly, I don’t know how anyone escapes some sort of tragedy or economic loss from this,” said Wes Dupont, executive vice president and general counsel of Allied World Assurance Co. Holdings.

Even with power mostly restored in three to four weeks, there would be several more months of clean-up before normal operations resume. Some companies would have difficulty luring back clients that had switched suppliers in the interim.

Small businesses would no doubt be hard hit.

“Small to midsize companies, those that are not able to invest [in a standby power system] … they’re going to struggle,” said Mark Madar, director of risk management and regulatory compliance at CBIZ Risk & Advisory Services. “The companies that do not have a multi-location presence, especially your mom-and-pop types of businesses, they’re the ones who are going to take the hit here.”

But Lou Gritzo, FM Global’s vice president and research manager, said it would be a mistake to downplay the vulnerability of larger companies in this scenario.

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“It’s the weakest link scenario,” said Gritzo. “The bigger effects are going to be these cascading failures where one or two pieces of the operation can’t recover and then the entire company experiences the consequences.

“That in turn affects other companies all over the country and all over the world. I think that’s where the biggest impact is going to be,” he said.

Mind the Gaps

For many companies, having a solid business interruption plan will make the difference in whether they make it through such a crisis. More than two in five (43 percent) businesses that experience a disaster and have no emergency plan don’t reopen, according to The Hartford. Of those that do reopen, only 29 percent are still operating two years later.

Even the most sophisticated disaster plan, however, will not shield companies from some degree of loss in an event of this magnitude. Unfortunately for some, the claims process is unlikely to be straightforward.

“The bigger effects are going to be these cascading failures where one or two pieces of the operation can’t recover and then the entire company experiences the consequences. That in turn affects other companies all over the country and all over the world.” —Lou Gritzo, vice president and research manager, FM Global

Blackouts can be a monkey wrench in the works. Companies may assume they’re covered for business losses in the event of a power outage because they have business interruption (BI) coverage — or time element coverage — on their property policies.

But in most cases, BI must be tied to physical damage to an insured’s assets. Several commercial property policies specifically exclude coverage resulting from a utility service interruption that originates away from the insured’s premises.

Standard BI coverage won’t be triggered for businesses that don’t suffer direct physical damage but were forced to close or relocate because of lack of employees or power, or orders from civil authorities to stay away due to safety hazards.

Some larger, sophisticated insurance buyers will have policies that include the necessary extensions needed to trigger the cover, but smaller firms may be left unprotected.

“I think [utility service interruption coverage] is spotty when it comes to small commercial businesses, who would need to ask for those extensions, as well as clients who are on standard boilerplate preprinted forms as opposed to a manuscripted form,” said Duncan Ellis, U.S. property practice leader for Marsh.

Another wording nuance to be aware of, he said, is that some language may provide for damage caused by a power outage, as in the case of a critical manufacturing load destroyed by loss of power in the middle of the process. But the BI side of the policy still may not have an extension for loss of income incurred after the outage.

Even for companies with the right coverage extensions, time durations vary. Some policies may not cover losses related to a service interruption that goes beyond a week or two. In general, many companies could find that their BI losses far exceed limits.

Insurers would see a high volume of contingent business interruption claims from those whose key customers or suppliers were compromised by the event. But the wording of CBI policies is similar to BI policies, and many insureds will find their coverage declaimed.

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Companies with a regional base also may face push back from carriers on business income claims, said Mike LoGiudice, managing director of insurance and litigation support for CBIZ Valuation Group. “I might say, ‘I should have done [this amount of business] but for the property loss.’ ”

But the carriers may argue that regardless of damage, your customers would still be out of business themselves, so you wouldn’t have had any income. “They would take into effect the negative impact on your customers,” he said. “It would be a battle.”

____________________________________________________________________

Additional 2014 black swan stories:

Bigger Than the Big One

When the 8.5 magnitude earthquake hits, sea water will devastate much of Los Angeles and San Francisco, and a million destroyed homes will create a failed mortgage and public sector revenue tsunami.

Toxic Tornado

When a nuclear reactor melts down due to a powerful tornado, deadly contamination rains down on a metropolitan area.

Michelle Kerr is associate editor of Risk & Insurance. She can be reached at mkerr@lrp.com
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Sponsored: Healthesystems

The Next Wave of Workers’ Comp Medical Cost Savings

Reducing WC claims costs in one area often inflates them in another.
By: | August 4, 2014 • 6 min read

Managing medical costs for workers’ compensation claims is like pushing on a balloon. As you effectively manage expenses in one area, there are bound to be bulges in another.

Over the last decade, great strides have been made in managing many aspects of workers’ compensation medical costs. Case management, bill review and pharmacy benefits management are just a few categories that produce significant returns.

And yet, according to the National Council on Compensation Insurance (NCCI), medical costs remain the largest percentage of workers’ comp expenses. Worse still, medical costs continue to be the fastest growing expense category.

Many medical services are closely managed through provider negotiations, bill review, utilization review, pharmacy benefits management, to name a few. But a large opportunity for medical cost containment remains largely untouched and therefore represents a significant opportunity for cost savings.

Ancillary medical services is a term used to describe specialty or supplemental health care services such as medical supplies, home health care, durable medical equipment, transportation and physical therapy, etc.

According to Clifford James, Vice President of Strategic Development at Healthesystems in Tampa, Fla., modernizing the process for managing ancillary medical services presents compelling opportunities for cost savings and improved patient care.

Source: 2014 Healthesystems Ancillary Medical Services Survey

“The challenge of managing these types of medical products and services is a cumbersome and extremely disconnected process,” James said. “As a result, it represents a missing link in an overall medical cost management strategy, which means it is costing payers money and patients the most optimal care.”

James singled out three key hurdles:

Lack of transparency

As the adage goes, you can only manage what you can measure.

Yet when it comes to the broad range of products and services that comprise ancillary benefits, comprehensive data and benchmarking metrics by which to gauge success are hard to come by.

The problem begins with an antiquated approach to coding medical services that was developed in the 1970s. The coding system falls short in today’s modern health care environment due to its lack of product and service level detail such as consistent units of measure, quantity and descriptors.

As a result, a meaningful percentage of ancillary benefits spending is coded as “miscellaneous,” which means a payer has little to no visibility into what product or service is being delivered — and no way to determine if the correct price is being applied or if the item is even necessary or appropriate.

Source: 2014 Healthesystems Ancillary Medical Services Survey

“It’s a big challenge. Especially when you consider that for many payers, it’s difficult to determine exactly what they are spending, or identify what the major cost drivers are when it comes to ancillary services,” James said. And when frequently over 20 percent of these types of services are billed as miscellaneous, payers have zero visibility to effectively manage these costs.

Measurement and monitoring

Often, performance that is monitored is given the most attention. Therefore, ancillary programs that are closely monitored and measured against objective benchmarks should be the most successful.

However, benchmarks are hard to determine because multiple vendors are frequently involved using disparate data and processes. There isn’t a consistent focus on continuous quality improvement, because each vendor operates off of their own success criteria.

“Leveraging objective competitive comparisons breeds success in any industry. Yet for ancillary services there is very limited data to clearly measure performance across all vendors,” James said. “And for payers, this is a major area of opportunity to promote service and cost containment excellence.”

Source: 2014 Healthesystems Ancillary Medical Services Survey

Inefficiency

If you ask claims executives about their strategies for improving the claims management process, a likely response may be “workload optimization.” The goal for some is to enable claims professionals to handle a maximum case load by minimizing administrative duties so they can leverage their expertise to better manage the outcome of each case.

But the path towards “workload optimization” has many hurdles, especially when you consider what needs to be coordinated and the manual way it frequently is done.

Ancillary benefits are a prime example. For a single case, a claims professional might need to coordinate durable medical equipment, secure translation services, arrange for transportation and confirm the best physical therapy plan. Unfortunately they often don’t have the needed time, or the pertinent information, in order to make quick, yet informed, decisions about the ancillary needs of their claimants.

In addition there is the complexity of managing multiple vendor relationships, juggling various contacts, and accessing multiple platforms and/or making endless phone calls.

SponsoredContent_HES“We’ve been called the ‘industry integrator’ by some people, and that’s accurate. We are delivering a proven platform connecting payers with providers and vendors on the ancillary medical benefit front. It’s never been done before.”
– Clifford James, Vice President of Strategic Development, Healthesystems

Modernizing the process

To the benefit of both payers and vendors, Healthesystems offers Ancillary Benefits Management (ABM).

The breakthrough ABM solution consists of three foundational components — a technological platform, proprietary medical coding system and a comprehensive benefits management methodology.

The technological platform integrates payers and vendors with a standardized architecture and processes. Business rules and edits can be easily managed and applied across all contracted vendors. All processes – from referral to billing and payment – are managed on a single platform, empowering the payer with a centralized tool for managing the quality of all ancillary providers.

But when it comes to ancillary products, the critical and unique challenge Healthesystems had to solve is the antiquated coding system. This was completed by developing a highly granular, product-specific coding system including detailed descriptions and units of measure for all products and services. This coding provides payers with the clearest understanding of all products and services delivered including pricing and all the necessary utilization metrics.

“We bring the highest level of transparency and visibility into all ancillary products and services,” James said, adding that the ABM platform uses an extensive preferred product coding system 15 times more detailed than any other existing system or program.

This combination of sophisticated technology, proprietary coding system and benefit management methodology revolutionizes the ancillary category. Some of the benefits include:

  • Crystal-clear transparency
  • A more detailed and comprehensive view into ancillary products and services
  • An automated process that eliminates billing discrepancies or resubmittals
  • Integrated and consistent processes
  • Strategic program management

Taken together, the system leapfrogs over the existing hurdles while creating entirely new opportunities. It’s a win for vendors and payers, and ultimately for patients, who receive the optimal product or service.

“We’ve been called the ‘industry integrator’ by some people, and that’s accurate,” James said. “We are delivering a proven platform connecting payers with providers and vendors on the ancillary medical benefit front. It’s never been done before.”

To learn more about the Healthesystems Ancillary Benefits Management solution visit: http://www.healthesystems.com/solutions-services/ancillary-benefits

This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Healthesystems. The editorial staff of Risk & Insurance had no role in its preparation.

Healthesystems is a leading provider of Pharmacy Benefit Management (PBM) & Ancillary Benefits Management programs for the workers' compensation industry.
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