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Insurance Transparency Has a Claims Dimension Too!
August Risk Management Tip of the Month
By Kevin M. Quinley CPCU, ARM AIC, AIM, ARe

Claims Software

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

Drum-roll (and three Bronx cheers), 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, but not exclusively, n 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. Ione company had an incentive plan where adjusters got free portable refrigerators for leading the office in claim denials. 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 on this dubious distinction list 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 apparently thought they got the good finger.

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 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! Reading the white paper, however, I became increasingly uneasy.

Most of us have heard about the concept of transparency in insurance over the last few years. The Spitzer campaign against brokers' contingent commissions exposed oblique arrangements of which many risk managers were unaware, arrangements which many thought created conflicts of interest. As a result, there has been a sea change in broker compensation and a new embrace of transparency.

Transparency has more than a sales and insurance placement component, though. It has a claims dimension. That is, do you — the risk manager — have a clear and full disclosure of how the adjusters handling your claims are evaluated? How they are paid? Whether they have financial incentives to fight your claim?

Rhetorical questions, but the AAJ white paper has implications for insurance buying and the questions savvy risk managers should ask — or have their broker pose. Questions like…
  • If you were on the AAJ Top Ten list, what is your rebuttal?

  • What assurances can you give me that I would NOT receive the kind of claims treatment that earned these companies mention on the list?

  • How are your claims people evaluated?

  • Are any financial or non-financial incentives tied to claim denials or reductions in claim payouts? (By themselves, financial incentives are not bad per se, depending on how they are weighted and balanced by customer service and satisfaction metrics.)
  • Is any salary consideration or contingent compensation tied to customer service metrics?

  • If I have a case ion suit, how promptly will you pay the defense attorney? Do you have enforced service standards that articulate a timeframe?

  • Once you issue a claim payment is there any reason you would hold off sending it?

  • Can I be invited to any file destruction pizza parties? (Just kidding there!)
Other questions may arise in your mind after reading the AAJ report. The point is that risk managers focus on something other than price, price, price in insurance placement and renewal decisions. Now that we have opened the proverbial kimono on broker compensation packages, maybe it is time to sneak a peek behind the flaps of claim operations.

Let the sun shine in. Use this checklist of questions to pry the panels apart and assess the degree of transparency in insurer or TPA claim-handling practices to make a fully informed buying decision.

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