Nothing Succeeds Like Excess (Coverage) ….

Occasionally I am called to serve as an expert witness on insurance coverage disputes. A disproportionate number of them have involved matters of reporting to excess and umbrella carriers.

Well, maybe I should say matters of NOT reporting or late reporting to excess and umbrella carriers.

In one case, the policyholder did not report a general liability loss to an upper level excess carrier until a freaky trial result delivered a multi-million dollar plaintiff award. In truth, the first defense attorney had evaluated the case as having modest “legs” on liability, but the damages were significant. There was much dispute later over the wording of the excess policy CONDITIONS, as to whether it required reporting if the insured had reason to believe that the claim would never penetrate the excess.

In another case, a primary insurer failed to notify an umbrella carrier of a personal lines auto claim which – you guessed it – blew north of the primary limits. The primary’s adjuster made some quick phone inquires to the agent and broker, was told that they couldn’t locate an excess policy, and the adjuster then assumed there was no such coverage; this despite the policyholder’s insistence that he did in fact pay for coverage with a specific named umbrella carrier. Rather than report it on to the umbrella (“throw it up against the wall and see what sticks …”), the adjuster assumed that absence of evidence (“We can’t locate the policy…”) equals evidence of absence (“There is no umbrella coverage …).

In both matters, literally hundreds of thousands of dollars in legal and related fees could have been saved had the risk manager (in case #1) or the adjuster (in case #2), invested just five or ten minutes to draft a letter to the excess/umbrella carrier. Five to ten minutes!

A sound risk management – and loss reporting -- adage is, “When in doubt, report it out.” There may be many reasons why insureds and primary carriers don’t do so. They may be too busy. They may have an oversight. They may be guilty of wishful thinking. They may have legit grounds to think it is a bogus claim. They may not want to come across as an alarmist. They may be worried that reporting a loss will cause the excess/umbrella to jack up the renewal premium. They may think the policy does not require them to. They may fear that the plaintiff’s demand will ratchet up once he learns of the added insurance limits. They may chafe at the prospect of some new upper layer insurer galloping in, nosing around and telling them to settle the case.

I understand all the reasons. Not all of them are flawed. Still, investing five to ten minutes to draft and send a letter to avert the huge risk of a coverage problem seems like a sound bargain to me. There is a huge upside (preserving coverage) versus a small downside (five to ten minutes of time).

Sounds like a good investment to me!

When they don’t invest the time, they are certainly providing full employment opportunities for coverage lawyers.

Gustav Gives Insurers Get Another Chance – Along with FEMA And NOLA

Some may think that I’ve beat up on State Farm and its brand management lately. Actually, that is not the case. What I did a week ago was to post a link to a blog by an unsatisfied State Farm policyholder. State Farm may have ticked off the wrong guy because he also writes business blogs on brands.

Recently I was reading a book on marketing and branding which singled out State Farm for doing an excellent job of pitching its brand – that State Farm is THERE. It commends State Farm for its response after Hurricane Hugo in 1992. (See The Invisible Touch: The Four Keys to Modern Marketing by Harry Beckwith (2000, Warner Books, p. 101).

With Hurricane Gustav bearing down on New Orleans and the Gulf coast now, we have heard a lot about how FEMA and the City of New Orleans have learned various lessons from the nightmarish Katrina experience three years ago. Katrina will also test the mettle of insurers – including but not limited to State Farm -- to see if they too are better prepared to avoid some of the servicing and coverage wrangles which followed the wake of that storm’s devastation.

Claim Service Drives the Brand … or Destroys it

Insurance companies have reputational assets from the goodwill, image and brand they try to project in the consumer marketplace. One insurer is like a good neighbor. One puts you in good hands. Another is on your side. Yet another might be able to hook you up with a caveman… or a gecko.

The flip side: insurers have reputational risks that can take a hit if an insurance company botches a claim. In the age of the Internet, where it seems that everyone has a blog (including claim commentators!), one client’s dissatisfaction with an insurance claim can quickly reach tens of thousands through the power of cyberspace. Such is the case with a recent blog by one John Fergurson in his August 12, 2008 blog, “State Farm is Where???”
http://brandinsightblog.com/2008/08/12/state-farm-is-where

Here, Fergurson relates the pain of a homeowners insurance claim he filed with Stare Farm. He quickly found that his soothing agent was not the one who handled his loss. In fact, he was surprised to learn that agents have little to do with the adjusters who “service” policyholders. / The agent is a local; guy or gal, part of the local community.

The adjuster is off, hundreds of miles away.

Whether you agree or disagree, I’d recommend you take five minutes to read “State Farm is Where?”

The point here is not to pile on State Farm or any other insurer. The point is to understand how claim service can either strengthen a brand or undermine it. Filing a claim is, for policyholders, where “the rubber meets the road.” Insurers who project warm and fuzzy treatment but who deliver hard-nosed, ball-busting claim service may find their brands tarnished.

They might even find themselves the target of criticism on the blogosphere.

Trial Lawyers Name Top Ten Worst Insurers: Hatchet Job or Food for Thought?

David Letterman has a Top Ten list. Now, America’s trial lawyers have theirs.

The trade group formerly known as ATLA – American Association for Justice – has released a list of the ten worst insurance companies in a free white paper, “The Ten Worst Insurance Companies in America.” (Download at http://www.justice.org/docs/TenWorstInsuranceCompanies.pdf)

Drum-roll, please … Here is the list

1. Allstate
2. Unum
3. AIG
4. State Farm
5. Conseco
6. WellPoint
7. Farmers
8. UnitedHealth
9. Torchmark
10. Liberty Mutual

Some observations. First, the list contains a mix of P&C carriers, health insurers and specialty niche carriers.

Second, claim services (or lack thereof) figure prominently in making the list. Other factors include marketing and underwriting practices, poor corporate governance, etc.

Third, a unifying theme of many case studies is the existence of strong financial incentives for adjusters to deny claims. It refers to incentive plans where adjusters get free portable refrigerators for leading the office in claim denials. For example, it asserts that AIG locks claim checks in vaults, delays paying defense attorneys for a year and holds pizza parties to destroy documents.

Three of the Top Ten had retained management gurus McKinsey to come in and figure out how to pay fewer claims.. The “good hands” were replaced by boxing gloves in campaigns designed to delay, deny and defend claims. Good hands? No, but some consumers did think they got the good finger.

It will be interesting to see what if any industry response is forthcoming. Folks within insurance often wonder why that industry does not enjoy a better public image. I have heard and seen no rebuttal to the AAJ white paper. Surely there is an insurance trade group that can muster a response. To let this critique go unanswered would seem to be damming.

To be sure, this is one side of the story only. “The flattest pancake has two sides” and perhaps each company on the list has its own response. If so, let’s hear it. Insurers have no monopoly on problems. When it comes to excoriating greed, the plaintiff's bar can be caught living in their own glass houses as they toss rocks. Witness the shenanigans of Dickie Scruggs and Bill Lerach, for instance. At least CEO’s usually have shareholders to answer to.

When I first heard of the AAJ Top Ten list, I tended to dismiss it, unread, thinking maybe it was a badge of harbor being so named. So personal injury lawyers hate insurers. Big news!

On further reflection, I urge all claim folks – especially those in upper management – to read the report to gauge how financially driven metrics can be over-weighted to produce dubious results.

Of all People, an Adjuster Should Know!

Apparently in St. Paul, MN a young girl was riding her bike when hit by a car driven – and then drive off – by a Farmers Insurance Company claims adjuster. (You can check out the story yourself at http://kstp.com/article/stories/s514421.shtml?cat=1) 13-year old Sydney Carlson was beneath the car which, fortunately, came to a stop. The driver got out, apologized but then drove on without checking for injuries or calling 911. The girl recalled that the car had a Farmers Insurance logo on its side.

Contacted by the girl’s father, Farmers acknowledged that one of its claim adjusters was driving the car and that the Company was investigating.

Incredible. You would think that if ANYONE knew to stop and stay at the site of an accident, it would be an insurance adjuster. Isn’t that advice given by every insurance company to its own policyholders? This just shows perhaps that no one is immune to a brain fart. The skills and advice we apply in our professional lives sometimes flees us when it comes to our personal lives. This is not, however, to justify the adjuster fleeing the scene.

Maybe the adjuster was en route to investigate a traffic accident when he ended up having one of his own. It reminds me of a story told about a bus operator in England. After weeks of customer complaints that he drove right by the bus stops without stopping, management called him in and demanded and explanation. Unrepentant, the bus driver stated, “There is no way I can make my time checkpoints if I have to stop and actually pick up passengers!” Maybe the adjuster had certain time standards for completing claim investigations and he simply could not hit his “best practices” benchmarks if he had to stop after every pedestrian or bicyclist he ran over.

Of course, now the Farmers adjuster will need his own adjuster. Physician, heal thyself.

Likely he will need his own defense attorney as well.

The Few, The Proud, The … Adjusters?!

I’ve always said that claim adjusters were like the Marines of the insurance industry. Marines represent the country’s “tip of the spear,” translating highfalutin policies into real action.

Similarly, it falls to the claims people on the front lines to translate those lofty marketing assurances and policy provisions into concrete service.

Now, it turns out that the Marines and insurance adjusters may have more in common than I ever thought. A recent article in the Los Angeles Times (“Marines Act as Paymasters to Afghans”) (http://www.latimes.com/news/nationworld/world/la-fg-helmand6-2008jul06,0,5963950.story) describes how the Marines in Afghanistan are reimbursing Afghanis for property damage and business interruption occasioned by fighting the Taliban.

The article quotes Marine 1^st Lieutenant Shaun Miller as saying that paying claims was not exactly what he signed up for when he became a leatherneck. At times, he says, he feels like an . . . insurance adjuster!

Marines playing claims adjuster in Afghanistan raise a number of interesting case-handling issues, none of which are likely addressed in any of the Insurance Institute’s Associate in Claims texts:

· What kind of receipts are acceptable in processing a herdsman’s business interruption claim from destroyed poppy fields that would have yielded him a profitable drug crop?

· If you pay for a killed goat, do you value the loss on an ACV or replacement cost basis?

· In the event of a “total loss” of the goat, is there salvage value in using the goat’s remains for a dinner roast?

· Has ATLA (or, excuse me, Lawyers for Civil Justice, or whatever they call themselves this week) set up a branch near Kabul to make sure that the Marines abide by fair claim practices?

For now, these will have to be rhetorical questions. Adjusters may occasionally find themselves in tough situations, but none so tough as those faced by the brave Marines in Afghanistan and elsewhere who must add “claims adjuster” to their repertoire of professional skills!

Even in Claims, It's Sometimes WHO You Know, Not What You Know ...

We’ve all heard the expression, “It’s not what you know it’s who you know.” In the realm of claims adjusting, this was recently illustrated by the Washington, DC transit Authority. Seems that former Washington, DC Mayor Marion Barry sits on the Board of Directors for the Washington Metropolitan Area Transit Authority (WMATA), the subway and bus system that runs in the nation’s capital. Allegedly, a Metro bus collided with, damaged and then drove off from Hizzoner’s private passenger car recently.

A full month after the alleged accident, the ex-Mayor telephoned in and filed his property damage claim with WMATA. There were no witnesses to the collision and the bus driver allegedly involved knew nothing about it. Nevertheless, the Transit Authority fast-tracked Barry’s claim and ended up paying him over $3000 in reimbursement for damage to his car.

Keep in mind that this is from a bureaucracy which normally could not find its own posterior if you spotted them two hands. The Metro system is replete with complaints of broken escalators, random service, late and overfilled trains, and incredibly poor response to derailments and power outages. The Authority just cannot get its act together.

Nevertheless, it acted with incredible alacrity in processing a property damage claim which, asserted by any other private citizen, would have probably been laughed out of the proverbial ballpark. If Joe Q. Citizen had phoned in a unwitnessed property damage claim one month after the date of the alleged accident, doubtlessly it would have been a case of denied liability. The poor claimant would have been lucky to receive a form letter denying his or her claim, months after the loss report.

Of course, both the ex-Mayor and the Transit Authority staunchly deny that politics or pull had anything whatsoever to do with the remarkable speed with which the claim was processed.

It just goes to show that, even in the realm of claims -- or perhaps especially in the realm of claims -- it’s not just what you know but who you know!