An Exposure Driven Approach

On June 15, 2011, In Claim Liability Operations, By VMG

For the liability claims organization everything revolves around the exposure model. Accurate exposure prediction is the key to effective claim handling on the individual claim level, and is vital to the efficiency and consistency of the organization as a whole.  At the individual claim level, an exposure driven approach results in effective claim triage that assigns services based upon predicted exposure. At the organizational level the exposure driven approach allows the organization to develop the most efficient staffing models for the types and quality of claims being handled by the organization.

In this series of articles we will examine how a liability decision support system that is structured around an exposure driven approach philosophy can result in more effective claim handling and increase the efficiency and effectiveness of the organization as a whole. The series consists of four articles, each of which will cover in depth one element of the claims management process and how that element can be enhanced through the application of an exposure driven approach philosophy.

The first article in the series will cover what we refer to as Triage and Investigation, and how the exposure model for a claim should be the driving factor in the management of that claim throughout its lifecycle. We will also examine how an exposure driven approach can affect organizational dynamics and staffing models.

The second article in the series will focus on Workload Quantification and how an understanding of the exposure model allows for the most efficient assignment of claims, (i.e., the right adjuster for the right claim), and how that exposure model also determines the amount of work required to resolve the claim.

The third article will look at the liability decision support system and how it needs to be Adaptive to the exposure prediction model on a continuing basis throughout the claim lifecycle. We will examine the concept of the liability decision support system being a platform rather than a product, and how, depending upon the exposure model, it can bring to bear the proper tools at the proper time in the claim cycle so that the claim can be resolved in the most optimal manner possible.

Finally we will look at Measurement and Peer Comparisons through the prism of the exposure driven approach. We’ll examine the need for user “tunabilty” of both exposure thresholds and the toolsets available to the liability decision support system. And we will close the series with a recap and overview of how a liability decision support system with advanced exposure modeling capabilities will benefit the claim organization at both the adjuster and organizational level.

Triage and Investigation – Day One Prediction, Claim Assignment, Claim Management, Organizational Dynamics, and Staffing Models

An accurate exposure prediction for each and every claim, throughout the lifecycle of that claim, (from first notice of loss through final settlement), is the cornerstone of any successful claims organization. Having a reliable exposure model allows the claims organization to triage claims and assign adjusters and resources to maximize productivity and efficiency, and minimize the cost of the claim handling process.

In medicine triage is the process of determining the priority of treatment by sorting casualties based upon the severity of their injuries. In claims the concept of triage can be thought of as assigning adjusters and resources to manage a claim based upon the exposure prediction for that claim. Obviously the sooner that a claims organization can make an accurate exposure prediction for a claim, the more efficiently and cost-effectively that claim can be resolved. A liability decision support system that has both an effective exposure prediction model and the ability to allocate tools that are appropriate for the types and exposure levels of the claims assigned to the adjuster is an invaluable asset for any claims organization.

Exposure Driven Claim Assignment

One of the key elements in developing the most effective and efficient claims organization is assigning the right person, with the right skill set, to the appropriate level claim. The importance of initial claim assignment based upon potential exposure was noted in an article in Claims Magazine by Rebecca C. Amoroso:

A claims talent crisis is looming with a projected shortage of more than 85,000 adjusters by 2012. With the number of expert adjusters dwindling, initial assignment of claims to the right resource is more important than ever. By better understanding a claim’s true exposure, explosive cases are quickly directed to the most qualified adjusters while low-exposure claims are channeled to less experienced resources or auto-adjudication. (August 2008, p1)

While the need for proper initial claim assignment may seem obvious, the complexity of accomplishing that seemingly simple task becomes readily apparent when you consider an organization with hundreds, or even thousands of adjusters, each at a different competency level, handling hundreds or thousands of new claims daily.

By utilizing the exposure prediction model of a trusted liability decision support system as the basis for assigning claims to adjusters, the claims organization has a built in mechanism for enforcing consistency of assignment that most efficiently utilizes the talents and skills of its adjusters, no matter what their level of expertise.

By having the ability to assign the right adjuster as early as possible in the claim handling process, the claims organization can also minimize adjuster reassignments during the life of the claim. Reassignments are costly to insurers on multiple levels – they increase the time period needed to settle a claim (making it more likely a claim will enter litigation), they involve duplication of effort (increasing labor costs), and they generally are a major source of consumer complaints involving insurer claim practices. Author Rod Travis, an executive vice president for a management consulting firm specializing in the insurance industry, noted in the Consultants Corner blog of Insurance Networking News, the role that information technology (of which the liability decision support system is a key element) can play in assigning adjusters:

IT can improve financial results by partnering with claims departments to deliver stronger claims automation and better analytics from claims data. This can help identify cases with potentially higher losses, enabling early and appropriate intervention. One simple example is flagging low-severity soft tissue injuries. Such claims warrant a more senior adjuster be assigned. (April 12, 2011, p1)

Exposure Driven Claim Management

Claims are dynamic, with their classification and complexity frequently changing during the life of the claim. These changes must be continuously monitored by a liability decision support system that dynamically reacts to each change with an updated and current exposure prediction model. That model in turn should be the basis for assigning adjusters to a claim based upon their strengths and skills as well as providing a framework and tool set that will best allow the assigned adjuster to most efficiently handle the claim.

Changing elements within a claim represent a dynamic environment in which a liability decision support system can play two important roles. First, the system should be able to assess the effects of any changes on the exposure prediction value for the claim. A 2005 Business Insurance article in which author Rupal Parekh interviewed claims technology expert Donald Light of Celent Communications, touched upon the importance of this liability decision support system function:

To help determine what is fair and accurate for both claimants and the insurance company, some online systems now provide suggested settlement amounts, using a rules engine, Mr. Light noted. For example, in the case of a bodily injury such as a broken leg, systems are available that can provide the adjuster with the average settlement amounts based upon geographic-specific medical costs. (May 1, 2005, p12)

Parekh quoted Mr. Light as saying of these systems, “For newer adjusters, especially, that takes away the likelihood of making a human error.” (May 1, 2005, p12)

The other important role of the liability decision support system is to assist the adjuster in the investigation of the claim by suggesting and making available investigative tools and resources that are tied to the initial or changing circumstances of the claim. The tools best suited for the investigation of a claim are almost wholly dependent on the exposure potential of the claim. If exposure potentials are initially high, or if they should change significantly during the life of the claim, a sophisticated liability decision support system should be able to suggest to the adjuster the most appropriate investigative resource.

For example a sudden and significant change in medical specials midway through the investigation of a claim, could trigger the liability decision support system to suggest to the adjuster that a specialized impact analysis be performed. Tools that predict the probability and severity of injuries based upon an impact study of the underlying accident, could be helpful in determining if the change in medical specials is warranted.

Staffing Models and Organizational Dynamics

A liability decision support system that is focused on exposure can also be the lead element in determining the most efficient staffing model for the claims organization. The data that the liability decision support system uses in creating exposure prediction models for individual claims can also be used on a macro level across the claims organization as a whole, to create an optimal staffing model by providing a basis for the quantification of different exposure events.

Developing a staffing model that matches adjuster skill sets and event quantification and that also provides a means of modeling actual claim workloads (and the exposure level across those workloads), is a formidable but absolutely essential task. On his insurance-related blog, The Claims SPOT, Marc Lanzkowsky addresses the issue of developing a staffing model. “Having a staffing model will allow you to objectively look at your operation and help determine if it’s a good time to hire more staff” (May 3, 2010, p1).  He lists 3 suggestions for creating a staffing model. First says Lanzkowsky, determine:

  • What kind of organization are you?….Understanding the strategic position of your claims organization is critical to understanding what kind of staffing model is relevant.
  • Decide on a metric to develop your model: The metric you choose will help to determine the model, but will be wholly based upon the types of claims organization you are….Maybe your claims settle quickly, as in some property matters, so the number of new claims a handler receives in a month is a more critical metric…
  • You now have the metric – test the staff and come up with the model: Once you settle on a metric, check your top performers against the new metric you have selected. How many files are they handling and still managing files within best practices? At what point does their ability to manage those files well breakdown? Take an average of the top performer’s metrics and you will have a staffing model to give you a benchmark.  (May 3, 2010, p1)

Using exposure models as the metric which Mr. Lanzkowsky refers to in his second point in the above quote can allow the claims organization to match the skill sets of its staff to the actual types and exposure levels of its claims inventory. Matching adjuster staff skill levels against the claims inventory exposure levels is an effective method of developing a staffing model that is made possible through the exposure driven approach philosophy.

The above methodology also gives the claims organization the operational flexibility to monitor changes in claim types, volumes, and exposure levels and adjust its staffing requirements in a timely manner to reflect those changes.

Conclusion

A liability decision support system that provides advanced exposure modeling capabilities will benefit the claims organization on multiple levels. At the adjuster level it will increase the efficiency and consistency of the claims handling process. At the organizational level it will assist in developing staffing models that accurately reflect the true operational needs of the organization.

Amoroso, Rebecca C. (August, 2008). Science Project – Tech Decisions. Claims Magazine Retrieved 6/2/2011 from: http://www.propertycasualty360.com/2008/08/01/science-project

Lanzkowsky, Marc. (May 3, 2010) “Does Hiring More Staff Improve Claims? How To Know When The Time Is Right.” The Claims SPOT – SPOT on Ops Retreived 6/2/2011 from: http://theclaimsspot.com/2010/05/03/does-hiring-more-staff-improve-claims-how-to-know-when-the-time-is-right/

Parekh, Rupal. (May 5, 2005, p12) “All Systems Go; Automating claims processing systems can speed up processing and boost the bottom line.” (Cover Focus: Information Technology). Business Insurance. Retrieved 6/1/2011 from: Expanded Academic ASAP (Infotrac): Subscription or Library membership required.

Travers, Rod. (April 12, 2011) “5 Steps for Insurers to Maximize Profitability. Insurance Networking News Claims Blog. Retrieved 6/6/2011 from: http://www.insurancenetworking.com/blogs/insurance_technology_IT_projects_profitability_growth-27652-1.html

(CC) June 2011 Vatti-Manhattan Group
This article may be copied and distributed freely provided that you keep this copyright notice intact and is provided for free and without charge.  We have to the best of our knowledge abided by all copyrights, trademarks and quoted material.  Any comments, omissions, misuse concerns etc. regarding the use of trademarks and copyrights should be directed to info@vatti-manhattangroup.com.

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Comparative Negligence – A Multidimensional Approach to Claim Investigation

On March 9, 2011, In Claim Liability Operations, Litigation, By VMG

The ability to accurately evaluate comparative negligence in automobile accidents is a vital skill for any claim representative. The liability decision support system used by the claim representative must serve to augment and bring consistency rather than restrict that skill. Unfortunately many of the liability decision support systems used by insurers today are designed to second guess the skilled thought processes of the claim representative and channel them into a pre-determined, one-size-fits-all decision tree.  Although, many would tell a tale of the salvation of their computer programs – we are not of that mind set.

In this article we will show how an advanced liability decision support system can augment the inherent skills of the claim representative and allow that representative to make comparative negligence evaluations that are multidimensional, viewing the claim as a whole rather than as isolated elements. This multidimensional approach allows the claim representative to structure their evaluations of the key elements of the investigation to make comparative negligence assessments. In addition, these assessments reflect both the factual elements of the claim as well as the more intangible elements such as credibility, quality, and reliability of information sources, elements which can have major impacts on the outcome of negotiations or litigation.

Brief History of the Development of Comparative Negligence vs. Contributory Negligence

Over the past half century the doctrine of comparative negligence has gradually replaced that of contributory negligence in American tort law and has now become the standard in state automobile insurance regulations across the country. In a 2001 Harvard Law School – John M. Olin Center discussion paper, author Oren Bar-Gill noted:

The comparative negligence rule, and more generally the principle of comparative fault, is sweeping through the law of torts, and beyond. Through statutory intervention or judicial innovation, the traditional common law doctrine of contributory negligence has been gradually pushed aside. And the march of comparative fault continues. (Paper 346, 12/2001, p4)

The contributory negligence doctrine had been the governing standard for automobile insurance law for the first half of the twentieth century throughout most of the United States (it remains so in four states and the District of Columbia – see Appendix A). Under the contributory negligence system, third party lawsuits for injuries sustained in automobile accidents were not permitted if the plaintiff in that lawsuit was judged to be even partially at fault in the accident. It did not matter how minor the fault, if it existed at all, recovery of damages was prohibited.

Acceptance of the contributory negligence standard slowly began to decline as dissatisfaction with its relatively harsh results grew among the general public. Pressure from the motoring public and lobbying from trial attorneys resulted in a shift away from the contributory negligence standard. State legislatures across the country began to substitute the new standard of comparative negligence into their automobile insurance regulations. Comparative negligence in its simplest form is a legal doctrine that enables claimants to recover a portion of their damages even when they are judged to be partially at fault for an accident. Each driver’s degree of negligence is compared to that of the others and a claimant’s recovery is reduced by the percentage of his or her negligence.

Depending upon state statutes, comparative negligence takes one of three forms: pure comparative negligence, modified comparative negligence – 50% rule, or modified comparative negligence – 51% rule.

  • Pure comparative negligence – Thirteen states use the pure comparative negligence rule which allows any person suffering damages to recover even if that person was 99% at fault. Any damages awarded however, are reduced, by the damaged party’s degree of fault. In a noted 1975 decision (Li v. Yellow Cab Company), the California Supreme Court, moved the state of California from a contributory negligence system to one of pure comparative negligence. In its decision the court mandated that:

Therefore, in all actions for negligence resulting in injury to person or property, the contributory negligence of the person injured in person or property shall not bar recovery, but the damages awarded shall be diminished in proportion to the amount of negligence attributable to the person recovering. (1975, p10)

  • Modified comparative negligence – 50% rule. In the twelve states utilizing this variation of modified comparative negligence an injured third party can only recover damages if his or her fault does not reach 50%. If a driver is judged to be 50% or more responsible for an accident that driver is prohibited from recovering damages. As with pure comparative negligence, damage awards are apportioned according to the degree of responsibility.
  • Modified comparative negligence – 51% rule. Twenty one states use the 51% rule. Under this version of modified comparative negligence an injured third party may recover damages if his or her responsibility is 50% or less. In other words damages can be awarded to a driver who was 50% responsible for the accident, but not if he or she was 51% or more responsible. As with pure comparative negligence, damage awards are apportioned according to the degree of responsibility.

Note – for a listing of the damage award system in use by each state, see appendix A at the end of this article.

A Structured Approach to Evaluating the Components of a Claim Investigation

All claim investigations are built around three key foundational pillars: investigative reports, physical evidence, and statements. Investigative reports can take the form of police reports, accident scene photos, skid mark analysis etc. Physical evidence is the evidence resulting from an accident – damage to vehicles and injuries to those involved. Statements include statements by the involved parties or witnesses, made to the police at the scene or to the adjuster during his or her investigation, as well as statements provided by expert witnesses brought in to analyze specific elements of the claim.

During the initial portion of a claim investigation the goal of the adjuster is to ascertain the facts of the accident and to determine the liability of each of the involved parties – the claimant (or claimants) and the insured. A key element in determining liability is assessing the comparative negligence for each party involved in the accident.

In assessing comparative negligence, the adjuster uses the investigative reports, physical evidence, and statements to evaluate their content as well as their reliability, quality, and credibility. This evaluation in essence determines if there was a breach of duty by any of the involved parties and if so, what part those breaches of duty played in the accident. This linkage is important given the fact that the concepts of duty owed and duty breached are tort concepts that would be used in a judicial context. Below is a summary of the main elements inherent in the concept of  negligence and breach of duty as outlined by author David J. Shestokas in his article, “The Law of  Negligence”:

Doctrine of Breach of Duty in Motor Vehicle Accidents

A claim investigation can establish that an insured either had no duty or did not breach a duty they did have, or it can establish that a claimant contributed to an accident by breaching a duty the claimant had.

In order to recover damages based on negligence a claimant must prove that all of the elements that comprise negligence are present. These elements are:

  • Existence of a duty by the insured
  • Breach of that duty by the insured
  • Actual harm or damages caused to the claimant
  • The breach of duty by the insured was the proximate cause of the actual harm or damages suffered by the claimant. (Mar 25, 2009, p1)

The operation of a motor vehicle on a public roadway imposes duties upon the operator. There are duties that are common among all states and jurisdictions and there are other duties that are state specific. Common duties include:

  • Duty to look out – you must pay attention and be aware while driving.
  • Duty to operate safely
  • Duty to Avoid – you must do all that is reasonable to avoid a collision or contact with another vehicle or pedestrian.
  • Duty to obey traffic laws
  • Duties created under the “reasonable man” theory. – You must operate your vehicle as would a “reasonable man” in similar circumstances.

The breach of duty concept is fundamental in assessing degrees of comparative negligence for both claimants and insureds. Anyone who is determined to have a breach of duty in an accident is negligent. In any accident, one or both parties can be found to have committed a breach of duty resulting in negligence which contributed to the accident. A sophisticated liability decision support system can assist the adjuster in determining comparative negligence by allowing the adjuster to rate the reliability, quality, and credibility of each the three investigative pillars: the investigative reports, physical evidence, and statements. These ratings, based on the expertise and experience of the adjuster, are used by the liability decision support system in determining the probable shared responsibility of the claimant for the accident.

Given the fact that this assessment of duty owed duty breached is critical to a comparative negligence determination, a system that provides investigation survey templates that are populated with the factors that are relevant in determining the comparative negligence of both the claimant and the insured is paramount. The factors within the templates will assist in determining which driver breached which duty, and the degree those breaches played in the comparative negligence of the claimant and the insured. Because those factors vary greatly with the specific type of accident, the liability decision support system must be adaptive and flexible enough to provide the adjuster with only those query sets that are relevant to the specifics of the particular accident. In addition, a truly advanced liability decision support system will allow an adjuster to use their experience in rating the reliability, quality, and credibility of the reports, physical evidence, and statements themselves. These ratings will be used in generating both comparative negligence assessments and in more advanced systems, an overall strength of case evaluation which can assist the adjuster in deciding the best strategy to adopt in settling the claim. This will insure consistency across claims and within the organization, and provide defensibility should the analytical process itself be challenged.

The results of the analysis provided by the liability decision support system should produce a liability and comparative negligence assessment that provides a useful guideline that the adjuster can use for negotiations and settlement of the claim. We have found that providing the adjuster a visual scaled representation of the probability of the claimant’s shared responsibility for the accident, is an effective method of alerting the adjuster that there is a comparative negligence element that should be pursued.

Summary

When considering the processes involved in the investigation and evaluation of claims some of the fundamentals that an organization should keep in mind include:

  • The liability decision support system should allow the adjuster to focus on the key elements of the claim, and produce a liability and comparative negligence assessment that provides a guideline for negotiations and settlement of the claim.
  • The adjuster must have the flexibility in their investigation to pursue whatever avenues of information are relevant to the claim. The liability decision support system must not become an impediment to that flexibility by forcing the adjuster to adhere to a pre-determined, one-size-fits-all investigative template.
  • The liability decision support system must provide a support structure that allows the adjuster to apply their investigative skills in the most productive and efficient manner.
  • In assessing liability and comparative negligence the adjuster must be able to document objective and consistent standards that are applied across all claims. The liability decision support system should provide a mechanism that is defensible and demonstrably unbiased.
  • Ideally, the liability decision support system will also provide an objective assessment of the strength of case in the event the claim was to proceed to litigation.
  • The liability decision support system should provide a mechanism that allows the adjuster to enter both the factual and subjective elements of the claim for evaluation. The evaluation returned should provide both a strength of case rating, and negotiation points that can be used by the adjuster in determining whether a case should be defended or settled.

The liability decision support system should augment and support the adjuster’s investigation and evaluation of the claim. It should not be thought of as a sort of “electronic adjuster” that is able to replace the judgment, skill, and analytical expertise of the adjuster. Rather, it should serve to aid the adjuster’s evaluation of the claim by structuring the process of the evaluation itself. Providing a structural framework upon which the adjuster can build an evaluation gives consistency to the evaluation process across claims and throughout the organization.

Bar-Gill, Oren. (12/2001, p4). “Does Uncertainty Call for Comparative Negligence?” (Paper 346). Harvard Law School John M. Olin Center for Law, Economics and Business Discussion Paper Series. Retrieved 2/10/2011 from: http://lsr.nellco.org/cgi/viewcontent.cgi?article=1134&context=harvard_olin

Case Reference:

Li v. Yellow Cab Co. (1975 p10) 13 C3d 804 [L.A. 30277 Cal Sup Ct Mar., 31, 1975] Opinion – Sullivan, J. – III [6]. Retrieved 3/11/2011 from: http://online.ceb.com/calcases/C3/13C3d804.htm

Shestokas, David J. (Mar 25, 2009, p1). The Law of Negligence: Duty, Breach of Duty, Injury and Causation. Suite 101.com. Retrieved 3/8/10 from: http://www.suite101.com/content/the-law-of-negligence-a105023

Appendix A – Damage Award Systems Used by the Various States

Contributory Negligence States: Alabama, Maryland, North Carolina, Virginia, (Washington D.C.)

Pure Comparative Negligence States: Alaska, Arizona, California, Florida, Kentucky, Louisiana, Mississippi, Missouri, New Mexico, New York, Rhode Island, South Dakota, Washington

Modified Comparative Negligence States – 50% Rule: Arkansas, Colorado, Georgia, Idaho, Kansas, Maine, Nebraska, North Dakota, Oklahoma, Tennessee, Utah, West Virginia

Modified Comparative Negligence States – 51% Rule: Connecticut, Delaware, Hawaii, Illinois, Indiana, Iowa, Massachusetts, Michigan, Minnesota, Montana, Nevada, New Hampshire, New Jersey, Ohio, Oregon, Pennsylvania, South Carolina, Texas, Vermont, Wisconsin, Wyoming

(CC) March 2011 Vatti-Manhattan Group
This article may be copied and distributed freely provided that you keep this copyright notice intact and is provided for free and without charge.  We have to the best of our knowledge abided by all copyrights, trademarks and quoted material.  Any comments, omissions, misuse concerns etc. regarding the use of trademarks and copyrights should be directed to info@vatti-manhattangroup.com.

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