(This information came from Mike Cerf (prairielaw forum))
The Tapestry of Indifference
01/18/2000
I have recently reviewed a posting with the interesting title of, " United Front of Allstate, State Farm and Company."
This now leads me to my observations as a long time claims professional, now 28 years, that the " Inside Game ", that being how the claims game is played, has changed from the role of the claims department, " To solve the problems of their insured", to that of creating a profit center for the carrier. The goal today is to create adversity at all levels, this adversity in turn creates, delay and compromise, the fundamental tools of the claims department that can create higher levels of profit.
As some are aware over the last year or two my occupation has gradually involved into that of an expert witness in the claims area, in that role, I have testified for both the plaintiff and the defense, but also in that role I have observed a radical change in how claims are handled. My observations are also influenced by looking back to my role in the industry, in positions ranging from a desk adjuster, to home office and claims vice president. What I now see is a fundamental shift to a siege mentality, or the claims game is now war, and each claim is a battle and in the
long run we will not lose the war.
I would also caution, that the majority, but not all of the front line claims adjusters are not bad or misguided individuals, rather they are overworked, underpaid, poorly supervised claims people. I have observed that workloads are so high that the average adjuster cannot even review the average demand with any sense of professionalism, they have low levels of authority, i.e., lots of responsibility but no authority. The average adjuster also does not understand your claim, he or she may supervise 13 states and have 250 claim files on their diary.
Authority is centralized and tightly controlled, at most carriers a request for $5,000 is a three step process, adjuster, supervisor, evaluation consultant and then a computer data base review (Colossus) . The bottom line is money, you can stop the money flow, now known as " leakage " if you tighten up the process. Keep in mind that most adjusters and certainly management are graded by leakage. "Leakage" simply being dollars that flow out of their pockets. Each and every step of the process has a control to stop leakage.
Performance is measured on Severity - meet or exceed branch plan, 5% reduction from prior year.
Allocated expense - Meet or be reduced by branch goal
Litigation management - 5% reduction from prior years
Closing ratio -100%, this also has 30/60/90 day goals
Reserving
Investigation
Comparative negligence
Preparation of requests for authority
At each step the adjuster is graded on compliance with these steps and others, this is key to salary increase, assuming they get one, higher management is on a bonus plan.
The fact that the carriers tend to move more and more cases to trial is rather simple, they have the money, you do not. I have commented before on the fundamental rule of large numbers, keep in mind I am not an actuary, they are more qualified to make this work in a real sense, but if you have a region, lets say four states. Then you are a Personal lines carrier, and you get 50,000 new arising, (new claims) and 40,000 are auto BI claims and your average paid loss per claim, un-represented is $3,000 and represented $6,000 the choice is quite easy, you crank down the numbers by 5%, just look at the savings.
On average if your BI reserve on each file is $4,000 and you have 50,000 open claims, $20M. You now save on average 5% per claim, most likely more, you just saved $1,000,000. But the savings are really much larger. The carrier can litigate a $6,000 case on a volume basis for around $2,500 possibly less., now the plaintiff pays the same thing, the net is then much less to the client, so you settle for $3,000. If they can pull that off on 20,000 claims out of that 50,000 think about the additional $6M in savings, and on and on.
The process starts from the day the file hits the desk, this is the weaving of the tapestry of indifference, they do not care about what happens to you, your client, the defense firm, just the bottom line. The goal is to create a tapestry that will be a reflection of their values, not those shared by society that your insurance carrier is there, to provide protection and to lower the consequences of disaster.
The goals are to save maximum dollars of the
book.
Mike Cerf
Expert Witness Insurance Claims
Sherwood, Oregon
mcerf@teleport.com
Truth and Justice will prevail! Promote it for all you are worth, or your worth will be nothing!
PR CRAP!Please don't believe "You're in Good Hands", or that "A Good Neighbor" will deliver "A Piece Of The Rock", if you buy their Insurance!
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