RISK MANAGERS' FORUM
By Don H. Donaldson, CIC, CRM, RPA
The entire insurance industry suffers from a high degree of institutional mistrust ... Personalization throughout the risk control process, but most especially in the claims function, can make a significant improvement in the public's opinion.
There are many facets to the risk management process. All of the phases and functions within the discipline of risk management involve dealing with people; however, none more so than risk reduction as a function within the risk control process. If your organization has an interest in lowering loss costs by as much as 35%, then read on.
Risk control is not a process than can be conducted from the confines of the "home office" or from a computer terminal. If an organization has a genuine interest in impacting its loss costs, there must be a commitment of resources--both financial and human--to direct, effective, and compassionate communication.
Prompt, effective contact is the key
A growing body of research data coming from the study of workers compensation claims throughout the United States points to the substantial benefits to be gained by reducing the amount of time which elapses from the date of accident/injury to the first meaningful contact by the adjuster, the employer, or a primary medical provider. One such study of WC claims reported average savings of $3,500 per claim by lowering the number of days from 16 to 10 between the date of loss-producing event and first contact. The results for OTC (other than comp) and PD claims showed similar reductions in final settlement costs.i Figure 1 reflects some of the other findings in WC claims as part of the same study:
Figure 1
CLAIMS HANDLING AND SEVERITY COSTS BASED ON DATE OF ACCIDENT TO DATE OF REPORT
Days Total Claims
Settlement Costs
0 - 10 $12,082
11 - 20 15,582
> 31 17,920
EFFECT OF TIMELY CONTACT
ON LITIGATION RATE
Days to ContactLitigation Rate -
% of Cases Litigated
0 - 10 22%
>30 47%
A 1997 Gallup Organization study of 500 WC lost-time cases nationwide indicated that injured employees contacted by company representatives, an insurance adjuster, or seen by a medical provider within one day of the injury producing event were 40% less likely to sue their employers.
The translation for risk managers is an awareness of the broad-based need for corporate America to effect prompt, open communication policies with aggrieved consumers and employees.
Institutional distrust further fuels claims and attitudes
One of the reasons for this movement from trust to distrust in our society has been the phenomenon known as "institutional distrust." Institutional distrust is the tendency of the consuming public to view all large businesses as faceless, self-interested machines with little or no concern for anything except profit. Institutional distrust flourishes in a society where endless advertisements and infomercials from members of the plaintiff attorneys' bar flood the print and broadcast media. These advertisements purport to warn the unsuspecting public of the true dangers of dealing with these faceless and nameless corporations without appropriate legal representation. These attitudes certainly compel many individuals to seek large claims judgments from the "deep pocket" insurance companies.
Further fueling this fire of distrust are the seemingly endless stories of the corporations and public entities with faces and names, such as Enron, WorldCom, and the Federal Bureau of Investigation which have allegedly abandoned reason and public trust in pursuit of their own self interests. In fact, Time magazine's Person of the Year award was shared three ways by employee-whistleblowers at these three organizations--for disclosing just how far these companies had gone in betraying the public's trust, thus creating the scandals of the twenty-first century. Many consumers include the large insurance companies as corporations they do not trust, making loss control even more difficult.
Insurance companies viewed with skepticism
The American culture has become the most litigious in the world. Lawyers and legal experts hired to protect business and corporate interests that have come under assault by public interest groups and the plaintiff's bar have promoted a speak-no-evil, circle-the-wagons mentality within the management and executive cultures of American business. While they are well meaning, these defensive philosophies of "no comment" have produced an adverse effect of laying siege to corporate confidence and aggravating institutional distrust.
Most risk managers are dependent in some measure on the insurance industry for dealing with their organization's consumers and/or employees in critical situations involving claims or losses. As a general matter, the entire insurance industry suffers from a high degree of institutional mistrust which is common across race, age and geographic boundaries. Personalization throughout the risk control process, but most especially in the claims function, can make a significant improvement in the public's opinion. Figure 2 reflects a 1996 study of the insurance industry's imageii and the correlation between personalization and public opinion.
Figure 2
| % of Public having favorable opinion of public image of ALL Insurance Companies | |
| 50% | |
| % of Public having favorable opinion of public image of THEIR OWN Company | |
| 80% | |
Wakeup call
Successful administration of the risk reduction process requires an acknowledgement of the importance of prompt and effective communication. Consistent, customer-driven administrative, operational and staffing policies will continue to be the foundation of the highly profitable segment of the traditional risk reduction component of risk control.
American consumers have demonstrated their need for open and honest communication regarding public and their own private interests. Organizations desirous of lower loss costs and cost of risk will pay close attention to these trends to clearly separate themselves both philosophically and operationally from the public's growing awareness of corporate scandals and bureaucratic failures.
The insurance professionals who communicate directly with the consumers--the agents, customer service representatives, and claims adjusters--have to win and maintain the trust of their clients. These insurance professionals bear the key responsibility of prompt and honest communication so that their clients know they have their best interests at heart and that the insurance companies are driven to reach fast and equitable claims settlements. This effective communication is the cornerstone
of the risk control process.
i First Notice Systems, 1995 Survey of
256,000 policyholders
ii Insurance Research Council, 1997 Fairness & Balance Survey of 2011 P&C Policyholders
References & Authorities
Ward Financial Group, Inc., 1997 Best Practices Survey Results
Jury Verdict Research, 1996, Current Trends in Premises Liability
Jury Verdict Research, 1995, 1996, 1997 Texas & National Personal Injury Verdict Surveys
Fall 1994 Research Review - Journal of the Society of Insurance Research (SIR), Worker's Compensation Cost Containment: Evidence Evaluating the Effectiveness of Available Techniques, Puelz, Robert.
Fall 1996 Research Review - SIR, The Regulatory and Legislative Environment for Workers' Compensation, Oxfeld, Eric J.
Summer 1997 Research Review - SIR, Building Customer Loyalty in a Changing World, Chavda, Dinyar
Id., The Image of the Property & Casualty Insurance Industry from the Consumer's Perspective, Sprinkel, Eliz.
Winter 1995 Research Review - SIR, If You Want to Discover Retention and Acquisition Drivers, Staple Yourself To the Claims Process!, McNeill, Jonathan
Fall 1997 Resources - The Academy of Producer Studies, Show & Sell, Williams, Thomas G. Best's Reviews, March 1992, Avoiding Botched-Up Claims, Kornblum, Guy O.
Vol. LXIV, No. 11 The Insurance Record - Standard Publishing Corp, Human Resource Management Key to Financial Performance, Towers Perrin Workplace Index.
Id., Testing & Physiology Combine for Effective Interviews, Rosengren, Beth. *
The author
Don Donaldson, CIC, CRM, RPA, is president and CEO of LA Group, Inc., which provides a broad range of risk management consulting, auditing, and training services. He has been active in insurance education and training for more than 20 years and is a faculty member for Certified Risk Managers International (CRM). For more information on the CRM program, call (800) 633-2165 or visit CRM's Web site (www.scic.com).