By MATTHEW BRODSKY, senior editor/Web editor
The session on how to handle a mega property loss started out as any other. The speaker methodically pushed through his PowerPoint presentation. The audience sat attentive, or at least quiet. Folks scurried in late, snuck out early. If you were sitting in this session at this past June's AIRMIC conference in Edinburgh, Scotland, you'd have no inkling of the furor about to come ... when the speaker asked the audience if they had any questions.
Then a session became an ambush. Below was the speaker, an adjuster by the name of Peter Shaw from Crawford & Co. Above him, in the padded amphitheater seats, were the risk managers, coverage attorneys and others.
To be fair, Shaw didn't see it coming when the audience lobbed accusations like pots and pans. All the adjuster could do was duck, cover and deny. And again to be fair, in his denials, he looked honestly hurt, like someone had accused him of breaking his favorite commandment. But no matter how firm Shaw was in his replies, the audience members were even more strident in dismissing him as some sort of corporate lackey, a pawn of the insurance powers that be.
The incident, though messy, was powerful evidence of a claims communication breakdown, but also proof that airing differences can be healthy.
At Risk & Insurance®, we'd like to do our part for the latter by repeating some of the accusations made by risk managers on that misty-then sunny-then rainy day in Edinburgh--then allow long-time risk consultants, adjusters and insurers address them in full.
Insurance companies are out to bleed commercial claims, and they come into the claims process contentious to begin with.
"It certainly isn't a friendly process. Seldom are expectations met," says Gary Marchitello, property practice leader at Integro.
For good reason. Insurance companies have faced stiffer competition and greater pressures on their bottom line, much as the airline industry has experienced since deregulation, according to Marchitello.
Claims is one of the largest expenses, so it's natural that insurers want to minimize it and shortchange resources and training in the process.
Bill Oklesen, vice president and manager of claims for Lockton, also sees insurers cutting back on claims, both in staff and training, but for reasons more related to public companies as a whole: they are all more cognizant of their stock price these days.
There's less training, as well as different training. The industry has stopped training people on a multiline basis like the old days. Now the industry is expert focused, based on line, says David Siesko, principal at Siesko Partners, a New York-based insurance and claims services firm. Yet everyone can still get involved in a property claim.
You could have three claims people sitting in on a property claim, one a liability person, one from comp and the other property. The property person might not be able to dismiss questions and challenges from the liability person, who isn't familiar with how property claims are done--like the liability guy asking for another expert opinion, which is common in liability but not necessarily in property, according to Siesko.
The end result, long story short, is that the claimant is not getting the same treatment they used to.
Before, when an insured signed a proof of loss, that was considered a near sacrosanct event. Just by signing it, the customer could expect to be deemed worthy of advanced funds or claims paid. Yet now, the credibility of the proof of loss is lessened, says Siesko.
More questions are getting asked. But perhaps more questions are necessary. Business interruption claims are perfect examples of why. BI calculations can be so speculative, says Siesko.
"It's routine that projected BI losses are inflated because policyholders worry that carriers will come in with a lower number," he says. "So that adds to the entire contentiousness of the process."
Michael Mayers, senior vice president of risk management at CBIZ, has seen BI claims in which clients threw out stuff that had nothing to do with the event and then said, "Pay us."
So insurance companies "are more scrupulous about what they look for these days," he says.
Not to say that all risk managers are involved in "shenanigans," as Mayers puts it, but they do share responsibility for the contentiousness.
"It appears to be almost adversarial right from the start. I don't think it is adversarial right from the start. But it appears to be the perception of clients and the companies," says Mayers. "Somehow in this whole process it became us versus them.
"Right at the beginning of the claim, you have somebody demanding they get paid," he says, while at the carrier, as soon as they hear that, they "dig their heels in right away."
It can become a "self-fulfilling prophesy," Mayers says.
Another claims expert with a last name starting with M, Bill Myers of RWH Myers & Co. LLC, explains the sentiment shared by several experts spoken to for the piece that the size of today's property losses has a lot to do with the tension. Back in 1976, $20 million would have been considered a "big, big loss," he says. Today, losses are frequently in the hundreds of millions, quite a few more than a billion.
And the complexity of them: Companies are becoming global, coverages broader, exposures more international, supply chains longer--all more opportunities for problems, says Gerry Alonso, senior vice president of claims at FM Global, although it's not inevitable that complex claims must get contentious.
"Perhaps the risk managers are getting more frustrated because their coverage is getting more complex than it ever did, and as a result they're having to provide more support than they ever did," says Gary Brown, senior vice president for U.S. and Canada branch operations for McLarens Young International.
But come on, adjusters just aren't independent or objective anymore, especially when the claim is bigger.
"I personally haven't heard that," the long-time adjuster Brown replied to that accusation, echoing the retort that Shaw stuck to when ambushed in Edinburgh.
In chorus is Frank Feldman, direct of client development at Johns Eastern Company Inc., an independent adjusting firm and third-party administrator in the profession of claims-handling.
"The claims adjusting process is supposed to be one where, as an adjuster, you have a fiduciary duty to pay what the policy says you owe," Feldman explains.
(Crawford declined to participate in this article, by the way.)
Then how about the army of lawyers, accountants and other experts whom insurance companies bring to bear as soon as a claim gets going? That didn't used to happen.
No one can argue against the point that property risks have become increasingly more complex, especially when dealing with a catastrophe, not to mention events like Sept. 11 and Katrina.
Nowadays, like never before, it takes more insurers to build a tower--scores at times.
In the "olden days," thoughyou had more carriers on one risk, according to Marchitello, one general adjuster would speak on behalf of all those companies with their authority and confidence and reach settlement.
Not that there weren't experts called in, but it used to be the exception rather than the rule. But now, it's not uncommon to have four, five or six different adjusters, each with various experts in tow, he says.
"That is a recipe for confusion, and it just takes a long time to sort through that many opinions and that many companies writing checks," says Marchitello.
Others long of tooth in the business suggest, however, that insurers have always had their experts. Have they increased? Yes, but in degree, not in purpose.
"I don't see it as a matter of outgunning," says Myers of RHW Myers. "The insurance industry has always been pretty frugal with the types of experts that they hire."
Oklesen agrees, saying that carriers have always had a set of consultants for major losses to help them scope it out and afford them leeway to negotiate.
Both men suggest perhaps the risk managers are the ones leading the experts arms race. Whereas back in the 70s, few experts, if any, were brought in by the policyholder, but now the use of forensic accountants and other hired guns has become common.
Brown the adjuster estimates that more cases of bad faith are occurring, yet he is quick to defend claimants.
"The litigation process has come more sophisticated, and I think plaintiff's lawyers, if their client tells them to go into a certain direction, will add everything they think they can add."
Plus, risk managers could be upping the ante because of added internal pressure from above. Twenty years ago, months could go by without something happening on a claim, says Brown.
"Nowadays, if a week goes by without something happening on a claim, somebody somewhere is putting pressure on the risk manager," he says.
In the very least, admit that risk managers can't count on the word of adjusters if only because they don't have power anymore.
Perhaps here there seems to be agreement. Maybe.
"They used to be able to work deals, and 99 percent of the time, when you got a deal from an independent adjuster, it was pretty much golden," says Lockton's Oklesen.
But carriers and their committees have now taken control, with the independent adjuster a mere messenger of information between the policyholder and the carrier, saying and doing what the carriers tell them, continues Oklesen.
Adjusters would agree, right?
"I don't agree that the independent adjuster, or the company equivalent, has been isolated or their role become smaller," says Brown. "I don't think we've taken a backseat at all."
If anything, he says, the exact job description of adjuster has changed. They do less of the grunt work and aren't the jack of all trades as much but act more as managers of process and team members.
At least admit that the golden days are gone!
No, we can't even agree on that.
"There was a golden age," says Oklesen, adding that claims today are just so much more complex with supply chains and just-in-time inventories.
"Obviously, when we look backwards, people tend to see halcyon days," says Marchitello, adding there's always been claims contention in the 30 years he's been around. "It was a nicer process years ago than it was today."
But a golden age in terms of payment rate and timeliness?
"Except for issues with Katrina and Sept. 11, I don't see any real difference in the success rate and reasonable time tables for getting losses settled, I don't see any real difference today than 20 years ago," says Myers.
If anything, suggest some folks, the claims process is better than ever. Says independent adjuster Feldman, claims professionals have such technology at their hands now, the process can't help to be quicker and more efficient.
And insurers appear all for it. Feldman's organization works with more than 100 different carriers and self-insured entities, and with that perspective, he says, "Carriers are looking for a way to perfect the claim. I hear that from a lot of clients."
Superior claims service is a way to differentiate themselves from competition, in other words.
"So with the broader coverages, and the mindset of a customer-friendly claims process, I would suggest that the golden age could be today," says FM Global's Alonso.
October 1, 2008
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