What is our 'True North'?

The insurance industry, and particularly the claim profession, has always had to deal with the question of balance. We constantly face the challenge of weighing the needs of the policyholder, our organization and claimant. These can create tenuous relationships that, if not balanced correctly, can result in financial hardship to any of the parties involved. The impact can be felt much more quickly by the policyholders and claimants, but carriers too will suffer if they are not balanced in their claim practices. Too much attention to any one aspect of our business can lead to imbalance and ultimately, failure. JD Power and Associates has ranked the ‘service’ provided by automobile insurance companies after a claim has been files as among the highest rated service industries they study. These results certainly fill us with pride and lead to a very competitive marketplace where the service expectations are extremely high.

While service perception is high, we are bombarded with commercial after commercial promising “lower rates” than the other guy. Clearly, keeping prices low is important in our industry. Increasing rates can be a significant detriment to competitive position. One of the best ways to keep prices low is to pay less. However, being perceived as not paying ‘fairly’ has an adverse impact on the perception of service.

In addition to external forces on our profession, there have been more discussions about the impact of metric-based performance goals. We can all appreciate that paying the better performers and incentivizing for results make sense. But when a claim decision is viewed through the prism of ‘what’s best for me the claim professional’, the balance can be too easily out of skew. In fact, this is a very dangerous situation if not balanced skillfully.

So, as you can see, navigating these treacherous waters requires claim leadership to provide a consistent message, require ever improving claim skills and clearly defining ‘True North’.

Below I have outlined what I consider to be the ‘True North’ of our profession. I list them in terms of a hierarchy of interests and responsibilities. Hopefully, many of you agree with my hierarchy. I am open to feedback either way.

#1 Responsibility: Protect the assets of our insureds

Most insurance customers do not fully grasp what they purchase when they enter into a policy contract for personal lines insurance coverage. Yes, they know it’s mandatory (in many states), kind of understand the deductible process, and may be aware of the exposure in the event they cause harm to someone else. But unless they have experience in claims or with a serious claim, they may not grasp the magnitude of the exposure.

Thankfully most claims are not of the type that involve serious injuries, threaten policy limits or result in protracted litigation. But ALL claims involve policyholder assets being at risk. Damages to vehicles and/or personal property, both assets, can be major setbacks depending upon the owner and the use of the property. Protecting assets means doing the proper investigation to return the insured to pre-loss condition not deliberately or through ignorance refusing to pay for necessary repairs or adequate property values. Protecting the assets of the policyholders means knowing the applicable policy so you provide every bit of coverage available.

Perhaps the most important aspect of protecting the policyholder’s assets is doing a thorough investigation. Rather than complete a set of required ‘tasks’, the claim professional should always be cognizant of the exposures facing their insured and customize their investigation to ensure the policyholder is thoroughly protected. Always reinforcing that the investigation completed immediately following the loss is the most accurate and most likely time to gather the most germane evidence. We all know that loss scenes are compromised, and recollections get cloudy or tainted with time.

Investigations must be conducted objectively. Considering all pertinent information increases the likelihood that the exposure risks are fully understood and can be addressed as quickly as possible.

Protecting policyholder asset also means identifying subrogation potential that can result in money back not only the carrier but the policyholder as well. Investigation efforts yield a significant return on investment due to identifying mitigating factors, potential tortfeasors and fraud. Assets include the policyholder’s premiums.

Without a doubt, there is a lot to consider when protecting the assets of the policyholder. This is the essence of what we do and how we add value to society.

#2 Responsibility: Protect the assets of our company

I know there may be a few CEOs and CFOs who may prefer this responsibility get top billing, but it simply cannot! Not that #1 and #2 are mutually exclusive; I just mean that we must always consider the insured’s assets before the insurance carriers. If a claim is owed, it’s best to resolve it quickly rather than allow it to increase in value. A practice of consistently trying to pay the lowest possible values will almost always result in paying more in the long run. Unlike good wine, claims never go down in value.

The purpose of this responsibility is to keep balance with #1 and the quest for exceptional claim service. When taken to its extreme, protecting the assets of the insured can justify paying everything and then some as a claim practice. We always must remember that we have a fiduciary responsibility to thousands of policyholders to be good stewards of their money.

Focus on efficiency and effectively resolving claims can define the difference between your company and the competitors in your market. Most personal lines insurance carriers insure a similar fleet of cars and houses in the neighborhoods. Most subscribe to similar underwriting practices and comply with the same state regulations. Many of the vendor tools employed to assists us are used throughout the industry. Our policyholders drive the same roads, go to the same automobile repair shops, use the same contractors and doctors. It’s the carriers whose claims staff is the most knowledgeable and effective that create its own competitive advantage.

#3 Responsibility: Protect the assets of claimants

Many will ask, “why protect the assets of the claimants”? We do not have a contract or fiduciary responsibility to them. After all, they are making a claim against our insured and wanting money from our company and have not paid us a cent in premium!

All that is correct, but a little short sided. Considering the assets of a claimant actually makes the claim resolution process easier with far less friction. Claim professionals are a part of a carrier’s marketing Providing good, professional claim service can attract new policyholder’s which is almost always welcome!

I have mentioned in previous articles that the insurance industry has a significant impact on the economy. There is a social pact between us the community at large that we will step in and help avoid unnecessary delays and legal involvement to keep society moving. And quite frankly, we do a pretty good job. Too frequently; however, we see carriers treat claimants without the reverence they deserve. No, they don’t pay your salary, but they are potential customers.

Even more important than being potential customers, claimants are voting constituents. Some will remember when Proposition 103 passed in California. It was billed as a consumer protection bill addressing how insurance carriers could establish premiums. Californians were convinced they were not happy with the industry and sought alternatives. I share this because about the same time voters reacted to rising insurance premiums at the ballot box, an economist by the name of Andrew Tobias was offering an alternative solution to our industry in California. The idea was Pay at the Pump. Simply put, an amount would be added to the cost of each gallon of gas that you purchase and would represent your insurance premium. The collected funds would be gathered by the state and doled out when losses occurred. This system makes most insurance company operations unnecessary. It did not pass, but clearly unhappy citizens have every right to consider alternatives to a current system. We saw what happened in 2008 with a health insurance industry that many felt did not have their priorities aligned with the customers.

As I write this, I can make a very strong argument that #2 and #3 should be reversed. Recognize that none of these are mutually exclusive and the hierarchy creates an order but the space between all three is very narrow!

In summary, we have an extremely important obligation to all parties involved in any insurance transaction. The decisions that we make can be very difficult and may result in hardship: for example, denials due to coverage or liability. But always considering the assets of the insureds, carriers and claimants will help ensure that we remain viable in an ever-evolving industry.

Thank you