Electronic communication has become an accepted medium, indeed even the preferred medium, by a segment of the population. Email, texting and Facebook are now ingrained in American society. Of late, the social trend seems to be to place less value on in-person and verbal communication than on electronic communication. This naturally has had a trickle down impact in the insurance claims arena. It is but one more example of how the claims adjusters' responsibilities have morphed over the last three decades from an in-person investigator, to something entirely different.
Traditionally, claims adjusters were provided with company cars, and expected to personally investigate each loss. Phone contact was unacceptable. In-person investigations occurred in all lines. In the workers' comp area, this meant visiting the employer and obtaining statements from witnesses, supervisors, co-workers, etc. It also meant visiting the treating doctor to discuss the diagnosis and proposed regimen of treatment. Naturally, meeting the injured worker within 24 hours of the assignment and securing a statement (written or recorded) was mandated, whether the person was at home, in the hospital or at work.
As you might expect, a personal investigation by a claims adjuster had a chilling effect on less than candid representations by allegedly injured workers. It seems much easier to distort the recounting of an accident when speaking to a claims adjuster by phone rather than in person. Additionally, the personal nature of the investigations allowed the adjuster to understand the nature of the employee's work, plant lay-out, and job duties and responsibilities. It was also a conduit to forging personal relationships with employer management, the medical staff (many plants had full-time RNs, and some sported weekly or monthly visits by MD's), and the employer's risk management staff, which later helped to facilitate quicker yet more thorough investigations. However, the in-person investigation standard carried great unallocated expense (overhead) costs, which ultimately resulted in a change of investigation tactics.
The Art of the Investigation
Back in the 1970's and early 1980's, the typical claims adjusting staff was male, college educated, rather young and intensively trained on how to conduct an in-person claim investigation. Due to the requirement for in-person investigations using company vehicles, it was thought that the work was a bit too dangerous for females. After all, there were many unsavory areas where a visit to take a statement from a claimant was considered unsafe for the "fairer sex."
The claims adjuster was responsible for "womb to tomb" handling of each case. This included the initial investigation, medical management, performing activity checks, initiating settlement negotiations, prepping the case for a hearing if litigation materialized, implementing "early return to work" tactics, etc. Very few subcontractors were used in this era, mainly because the adjuster was responsible for virtually everything.
Quid Pro Quo
In return for all of the heavy investigative lifting, the claims adjusters normally had caseloads that were manageable. A sixty case diary was often considered a full work load by insurance company standards. Maintenance, insurance and gas for the company car was all paid for by the business. Although the adjuster had to pay for "personal mileage" (usually at something around $.12 per mile), the company vehicle was essentially given to the claims adjuster as the primary investigative tool.
Of course, adjusters were not known for earning stratospheric salaries. No, the salaries were rather low, and the raises penurious. But being on the road four days a week (typically an adjuster was allowed one office day per week to catch up on documenting the paper files, and case reviews with the supervisor) in a company provided automobile gave the adjuster an unprecedented amount of flexibility. But the position required self-motivation, individual responsibility and accountability to get the job done. Most adjusters knew how to well conduct in-person investigations, and had a sixth sense when something didn't add up.
The Expense Crush
With no cell phones in this era, calls were made into the office by the adjusters from phone booths (typically at 10am and 4pm) for the vast amount of each day carried a cost. In the early 80's, most insurance companies determined that taking away the company provided vehicles, making the adjusters office bound using the telephone as their main investigative tool, and doubling their caseloads to 120 claims would save millions of dollars in expense.
On the surface, this appeared to be an excellent strategy. Cut expense exponentially, and double the amount of work each adjuster had, which also had the added benefit of requiring less claims personnel overall. What a deal! Or was it?
The Advent of the "New" Adjuster
Without the need for in-person investigations, more females could be hired as claims adjusters. In and of itself, there was nothing wrong with this development. Unfortunately, many of the new crop of claims adjusters not only lacked college education, but had never been given any formal investigative training, and often didn't know how to conduct a compensability investigation, or an in-person outside investigation. They were often promoted from clerical staff positions to "Medical Only" (no compensable lost time claims) Adjusters. When lost time adjusting spots opened, these former clerks then became Claims Adjusters, and then sometimes wound up being promoted to Claims Supervisors.
With the "new" adjusters, it seemed that the basic investigative thought process went something like this; the claim was reported on an Employer's First Report of Accident (E-1) form, so the accident must have occurred out of and in the course and scope of the worker's employment. In other words, a processing mentality replaced an investigative mentality.
Additionally, adjusters now had a plethora of sub-contractor assistance on everything from medical management, to outside investigations. There are medical management nurses, vocational rehabilitation experts, utilization review companies, large IME networks, outside defense counsel, SIU adjusters, etc. The claims adjusters began to morph from actual investigators to more of a "general contractor" concept where they managed the various sub-contractors, but actually did less substantive investigative and medical management tasks on the files themselves.
The Bill Comes Due
At least partly as a result of the watered down telephonic investigations, more indemnity and medical dollars began to be spent on each case. Competition for market share also was evident as a policy pricing issue. Loss costs inevitably began to climb in the middle 80's to the point where the workers' comp system was substantially out of balance by the late 80's. This rendered "guaranteed cost" workers' comp policies a poor bet for the underwriters. The insurance companies began to internally refer to them as "guaranteed loss" policies.
To combat the erosion of profits, "loss sensitive retro" (or retrospectively rated) policies were instituted. If loss costs escalated, the policyholders had to pay more premiums.
The problems that first became manifest in the 80's continue to dog the industry. For example, the workers' comp domestic insurance line has only three years of a combined loss ratio under 100 percent over the last two decades.
Of course, none of this had any positive impact on the claims area. The adjusters continued to sustain increasing claim counts (150-175 became "acceptable"), less clerical support and more bureaucratic requirements from the various workers' comp boards and commissions. It also appeared that whenever a reduction in overhead expenses was implemented, claims would be one of the first departments impacted with lay-offs. The remaining adjusters had to shoulder the caseloads of their departing colleagues, raising their own case counts. More cases meant less accurate reserving, which has led to another problem of significant impact.
The less thorough investigations became increasingly evident when claim audits were completed. I can remember reviewing files involving complex injuries where the result of the entire documentation of the compensability investigation was recorded in one line: "Spoke to employer; claim legit. Beginning TTD payments." I remember thinking if this is what I had written in my files when I was an adjuster in the late 70's, I would have been cashiered very quickly. Clearly, investigative training is necessary, but that's another area where the blade of cost cutting has fallen with regularity.
So where does all this leave the Claims Department, and the WC claims adjuster? Does the long beleaguered claims professional have light at the end of the tunnel, or is it simply a train coming in the other direction?
Sound the Mayday Alert
Advances in technology over the last 20 years cannot make up for the lack of authentic investigative expertise that often seems pervasive. Addressing this situation requires careful consideration, but would include several obvious steps:
1. Set reasonable case-load/staffing standards.
2. Establish claim department professional investigation standards and train to them.
3. Audit to the standards.
4. Audit findings should be used to provide further formal training opportunities.
5. Reward the good players, and try and retrain those not reaching minimum standards. If they do not improve, separate them.
It should go without saying that the desired results of implementing the above items is a decline in loss costs through better investigations and claim management. Throwing money at a problem without an adequate return on investment makes no sense, and so it is here. But trying to achieve quality investigations "on the cheap" is not a recipe for success.
Will the industry ever return to the days of routine in-person investigations performed by staff adjusters in company cars? No, those days are clearly gone forever. However, there can still be investigative standards that should be established that are tough, but fair. The "fair" part includes an active formal training component, reasonable case loads (i.e. a proper staffing model), and moral and ethical leadership (no small issue). The parts of the equation may have changed somewhat, but the overall formula for success endures.
May 31, 2012
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