This is Part 1 of a two-part series on waiver of premium. Part 2 will be published soon.
Insurance actuaries consider waiver of premium (WOP) a neglected liability — a supplemental benefit rider that has yet to be fully evaluated for risk exposure or cost containment, unknowingly costing individual and group life insurance carriers billions in liability every year.
The problem is that many companies don't have accurate claim management systems capable of reporting what's really happening with the life waiver reserves that are sitting on their books. But with a 44 percent increase in disability claims by people formerly in the workplace1, it's time this largely ignored liability is held up to the light.
Why Companies Need To Pay Attention
Most life insurers aren't fully aware of how much of a liability they're carrying when it comes to their waiver of premium reserves. Moreover, they're even less likely to know critical information such as the number of open life waiver claims, the percentage of approvals and denials, or claims still holding reserves that perhaps maxed out years ago.
Tom Penn-David, Principal of the actuarial consulting firm Ant Re, LLC explains: "There are generally two components to life waiver reserves. The first is active life reserves (for individual insurers only) and the second is disabled life reserves, which is by far the larger of the two. A company that has as few as 1,000 open waiver claims with a face value of $100,000 per policy, may be reserving $25+ million on their balance sheet, depending on the age and terms of the benefits. This is a significant figure when coupled with the fact that many life insurers do not appear to be enforcing their contract provisions and have a higher than necessary claim load. Reserve reductions are both likely and substantial if the proper management systems are in place."
Unfortunately, by not knowing what's broken the situation can't be fixed. Companies need to examine their numbers in order to recognize the level of reserve liability they're carrying, and to see for themselves the significant financial and operational consequences of not paying attention. Furthermore, a company's senior financial management team may be underestimating the actual number of their block of waiver claims, thus downplaying the potential for savings in this area. Typically, the block of existing claims is much larger than new claims added in any given year, and often represents the largest portion of overall liability.
"Life companies are primarily focused on life insurance reserves and not carefully looking at waiver of premium," Oscar Scofield of Factor Re Services U.S. and former CEO of Scottish Re., says. "There could be a significant reserve redundancy or deficiency in disabled life reserves and companies need to pay attention to recognize the impact this has on their bottom line."
This is Part 2 in a two-part series on automobile insurance fraud. Part 1 in the series appears here.
Who Participates In This Type Of Insurance Fraud?
Just about anyone. You'd be surprised. Even people who consider themselves upstanding citizens will get drawn into the business, because they see it as a victimless crime. One of the first cases I investigated involved a college-educated, former Farmers Insurance adjuster from Ohio. One day, he just decided to go to the dark side of the earth and started staging collisions from Ohio to California. He got away with $11 million before we caught him and put him in prison. He had so much activity going on that he carried a briefcase with him, and in that briefcase were 13 valid licenses from Colorado, Ohio and Texas — all valid — along with lots of crib notes from all of his activity. In an unlucky turn of events for the fraudster, he was stopped for speeding one night. As he opened his briefcase to get out a driver's license, that sheaf of crib notes was visible to the highway patrol officer, who reached right over his head and grabbed it. Lesson learned. Keep your crib notes to yourself.
People don't necessarily set out to go into insurance fraud as a career, but it's easy to see the attraction, said Borloff. "When you're first introduced to the people in this business, they say, 'This guy, he's in the insurance business,' and everybody understands he doesn't have an insurance company, he's in a different side of the business. But he's a well-to-do guy, with a house in Beverly Hills, with a car, with everything. And you ask yourself, 'Why can he do it and I can't?' And then you start to learn."
This is Part 1 in a two-part series on automobile insurance fraud. Part 2 in the series can be found here.
Traffic engineers would love to unblock the clogged arteries of Southern California's freeway system, where rush hour is anything but "rush" — more like gridlock.
But in a land where one's car is one's empire, one's freedom and personal statement, carpooling is a tough sell. The high-occupancy vehicle (HOV) lanes have scant occupancy.
In fact, cars carrying multiple passengers are such a rarity that this scenario alone raises red flags for auto insurance claims adjusters.
Operating under the radar is a fast-growing segment of the so-called "underground economy" — organized criminal enterprises that stage automobile collisions with the intent to defraud insurance companies of medical payments. In some cases, the entire incident is created on paper, with fictitious vehicles and false identities. In other cases, the perpetrators take real vehicles with legitimate insurance policies out to vacant lots or remote fields to crash them and then fill out a counter report. The most compelling cases are the ones where participants intentionally ram vehicles together on city streets — often a rear-end collision in a left turn lane — then dial 911 and wait for police and emergency medical services (EMS) to arrive. This approach triggers a police report and EMS records, which lend an air of legitimacy to the event. It really happened.
Based on instructions from a stager, the driver and two or three passengers — who are known as "stuffed passengers" — report neck and back injuries. The passengers later visit a physician or chiropractor who is in collusion with the criminal ring. The patients sign in and leave without receiving any treatment. If the insurance company balks at paying the specious claim, the claimant enlists the help of an attorney who is also party to the scheme. The attorney is tenacious, willing to go to court, generally able to bluff until the insurance company backs down and settles.
In the process, everybody except the insurance company gets easy money. Property damage to the vehicle is paid to the owner of the vehicle, while multiple players split the proceeds of the settlement for medical payments. In a typical case where the insurance company settles for, say, $6,000, each vehicle occupant might get $1,000, the lawyers and doctors collect their fees, and the enterprise leader retains 50 percent of the professional services fees plus the balance of the claimants' settlement, if any. If the enterprise leader successfully stages dozens of such incidents a month, it's a lucrative business.
This practice exploded in Southern California in the mid-1990s. If you are a Special Investigations Unit investigator, you are dealing with this every day. The average caseload for an adjuster or claims representative might be 150 or 200 a day, depending on the size of the company. At least 25 percent of that is some flavor of fraud. It's either a false claim or an embellishment to it. People are doing it. Even people who think of themselves as law-abiding are doing it, because they don't think of insurance companies as victims. This type of activity is so prevalent that our undercover investigators would hear paramedics on the scene saying, "Okay, which one of you is going to the hospital this time?"
Automobile insurance fraud is such easy money that the business is even creating unlikely bedfellows. For example, in South Central Los Angeles, the Bloods and Crips — gangs that have had an intense and bitter rivalry — are now cooperating with one another in organized insurance fraud, because it's more powerful and profitable to join forces.
Traditional burglar alarms have lost much of their value as a tool for loss control, but video alarms are taking their place. Police response to burglar alarms is degrading and in many cases police departments have stopped responding to traditional alarms unless they are verified.
Millions of traditional alarm systems have created an enormous problem, wasting shrinking police resources on millions of false alarms. It is a big concern that has the attention of national law enforcement leadership.
International Association of Chiefs of Police (IACP) president, Chief Craig Steckler specifically addressed false alarms as a key issue in his inaugural address of October, 2012, "According to studies, last year there were more than 38 million false alarm calls in the United States. In many agencies alarm calls were the number one call for service, and statistically, these calls often account for nearly ten percent of all the calls for service the agency handles on an annual basis. Additionally, every study of the issue continually finds that 95 to 99 per cent of all alarms are false." Chief Steckler bluntly states, "We must take a critical look and unbiased look at false burglar alarms, and determine whether in the new norm, this type of call (police responding to alarms) is truly a prudent use of severely limited resources."
Chief Steckler is not exaggerating. Police consider traditional burglar alarms an enormous waste of resources. Officers no longer make arrests, and alarm companies focus on selling deterrence instead of apprehensions. From the police perspective, many simply no longer care.
The situation has degraded to the point that many major cities like Las Vegas, Salt Lake City, San Jose, and Milwaukee stopped responding to traditional burglar alarms altogether. This trend is gathering momentum. The public/private partnership of the police/alarm company/insurance industry has atrophied, and neither the police nor underwriters find effective loss control in traditional burglar alarms.
Data-driven analysis is a critical decision-making tool for Construction Financial Managers and other industry leaders.
Decision-making is arguably the most important responsibility of company leadership.
Companies that make better decisions make fewer mistakes, and achieve a distinct competitive advantage in the marketplace.
The underlying purpose of benchmarking is to continually improve the quality of organizational decision-making.
As construction risk management consultants, we help contractors prevent accidents, mitigate claims, and reduce the total cost of risk through a continuous improvement process.
We believe companies must instill management accountability for continuous improvement by linking performance measurement to both prevention activities (leading indicators) and operational results (lagging indicators). As the adage goes:
"What gets measured is what gets done."
In our consulting roles, we frequently help companies establish realistic performance measures by conducting various types of claim and loss analysis.
This type of data analysis is usually the starting point in a performance improvement process — and a common practice among insurance agencies, brokerages, carriers, and risk management consulting firms.
In addition, we are often asked to conduct a benchmarking analysis that compares one company's claim and loss data against peer companies or to the construction industry as a whole.
The term "benchmarking" refers to the comparison of a company's performance results against those of similar peer companies. Benchmarking evolved out of the quality improvement movement in the late 1980s and early 1990s.
Its initial intent was to identify leading companies regardless of industry sector, and apply their best practices to improve one's own company. Over time, benchmarking has become synonymous with process improvement.
The traditional view of benchmarking required two separate disciplines focused on performance improvement: measures and methods. Identifying and capturing performance indicators (the measures) is only the first step; developing and implementing performance improvement (the methods) is the second and most important step for the benchmarking process to be truly effective.
The Health Club Analogy
There is limited value in benchmarking without applying new methods to address continuous performance improvement. Performance improvement requires more than the measurement of performance indicators; it requires the implementation of changes in management disciplines to attain improved operational results.
Using only performance indicators without implementing new methods to improve operations is akin to joining a health club and expecting the benefits without actually using the equipment or committing to an exercise program.
Merely jumping on the scale and gauging your weight relative to others doesn't help you achieve your own weight loss goals anymore than comparing your pulse and respiration rate to others helps you attain your aerobic or cardiovascular fitness goals. What matters most is that a person embarking on a weight loss or fitness program stays committed to the process and monitors his or her own progress.
Similarly, we believe the ongoing monitoring of claim and loss data specific to an individual company is even more important than the initial measurement of insurance claim and loss data relative to other companies.
This article was excerpted exclusively for Insurance Thought Leadership from a 43-page research report by the author and published by Aite Group on December 12, 2012 as further described here. This new report from Aite Group reviews the many different vendors, products, and services that help Property & Casualty insurance carriers achieve claims excellence. Based on a May through August 2012 Aite Group survey of North American Property & Casualty insurance company claims executives, the report assesses the executives' views of and reliance on various vendors, products, and services.
The insurance industry has recently been transformed from operating in a product-centric model to operating in a customer-centric model across the entire enterprise, from sales and marketing to underwriting and from claims to billing. Today's new consumers are better informed than ever, have a heightened sense of service entitlement, and are quick to exchange information, experiences, and opinions with one another using smartphones and social media, where their influence exceeds that of insurance company marketing. And over the past several years, in a fiercely competitive marketplace, North American insurance carriers have spent billions of advertising dollars on promoting their companies based almost entirely on the responsiveness and quality of their claims services.
It has long been understood that the claim is the "moment of truth" for property & casualty insurers with their policyholders, and it is truer today than it has ever been. When a claim is filed — by an average 10% of all personal lines insurance policyholders every year or, put differently, by the average policyholder once every 10 years — the claim is more often than not triggered by a traumatic or at least unpleasant event. Consider as well that the typical claimant has been dutifully paying his or her insurance premiums for years with nothing tangible to show for it and now, at this time of high anxiety, needs and expects prompt and attentive assistance.
Vendors play a crucial role in enabling carriers to achieve the elusive goal of claims excellence. Supporting the entire insurance claims process (though mostly transparent to claimants) is a large, well-coordinated, mostly virtual team of claims professionals with diverse skills and responsibilities. These professionals are supported by tens of thousands of claims software, services, and solutions vendors. Further, these third-party service providers frequently interact in-person with claimants earlier in the process and more frequently than do insurance claims representatives and as such become the face of the insurance company.
The extent to which all of these many different resources work together on behalf of the claimant and provide excellent customer service can dictate the claimants' level of satisfaction and, in many cases, their intent to renew their insurance with that carrier as well as the opinions they will share and post about their claims experience. Because the challenges facing today's property & casualty claims executives, including ongoing resource constraints and the many other factors described above, are unprecedented in terms of their number and complexity, claims vendors that best help them solve these challenges are the most highly valued and rewarded.
This is Part 2 of a two-part series on claims management in the wake of a disaster. Part 1 of this series can be found here.
Protect All Property From Further Damage Every policy requires that the insured protect the property from further loss. Therefore, you should turn off any water flow to broken appliances or pipes, arrange to have openings in roofs or walls covered to protect from rain damage, and seek help from the adjuster to further protect your property from losses of all types.
Take any necessary emergency measures to protect the building and personal property from any further damage. Do not throw anything away until permission of the insurance company is obtained in writing and you have documented its condition unless the damaged property presents a hazard to the health or safety of your family or others.
If the insurer delays or refuses to authorize measures to prevent further loss, confirm the insurer's delay in a fax, email, and a letter, and take whatever reasonable measures you can afford to protect the property. If your loss is covered, the insurance company should also cover the cost of any reasonable emergency measures you took to protect your property. It is not unusual for an insurer to deny coverage for damage resulting after the initial claim on the grounds that an insured failed to comply with the policy condition to protect the property from further damage.
Document The Loss
If you were prudent and prepared, before the catastrophe, an inventory of your contents or took pictures of your contents, provide the adjuster with the inventory and photographs or videotape. Photograph, videotape, and inventory all damaged property after the loss. Make sure you record the date of the photos and videotape. It is important to document the source and the extent of damage whether by fire or water intrusion.
In most states, a material misrepresentation, concealment, or omission made in connection with the claim will give the insurer a valid reason to reject the entire claim. For example, claiming that an item was destroyed that really wasn't or substantially overstating the value of a damaged item is fraud. In most states insurance fraud is a felony that can place you in state prison if convicted.
No catastrophe is so bad as to cause you to attempt to defraud your insurer to make up for uninsured losses. You should never exaggerate, speculate, or guess about the loss or value of any particular piece of property. Make it clear to your insurer when recollection may not be accurate, when you are estimating value, and the basis for your estimate. For the value of items you are not sure about on a claim presentation, use the phrase "To Be Determined." If you do not have receipts to show the price of an item, information can be found in catalogs, statements from retail clerks, bank statements, credit card statements, or statements from family members or friends.
If all else fails, a formal appraisal can be obtained from a professional personal property appraiser. Save this as a last resort, since the insurer will usually refuse to reimburse you for the costs of hiring an appraiser, but may hire one at no cost to you if asked courteously.
This is Part 1 of a two-part series on claims management in the wake of a disaster. Part 2 in the series can be found here.
Presenting a Claim
If your house was damaged or destroyed by fire, windstorm, or flood as a result of state declared catastrophes and you had a fire, homeowners, flood insurance, tenant's homeowners or condominium policy, you will be dealing with an insurance adjuster. You should recognize that dealing with an insurance adjuster in a catastrophe is usually fairly easy because of the number of claims the adjuster is required to deal with in a short time.
Insurers will be in a very generous mood. They will be seeking good publicity by taking care of victims of the catastrophe quickly and fairly. To make the claims process go easily, the insured person must understand that both the insured and the adjuster have duties when damage caused by fire, windstorm, flood or other insured perils are discovered. The following list outlines the most important of these duties:
- You should be sure there is no unnecessary delay in reporting the fact of the discovery of damage to your insurer as a claim.
- You and the adjuster should establish that there is no unnecessary delay in responding to any fire, fire fighting, flood or water-related cause of loss where "mold" may result as a natural result of water, warmth, and existence of mold spores in all building.
- You may be asked to sign a non-waiver agreement.
- You may receive a reservation of rights letter advising you of your duties under the policy, the conditions that apply or might apply, and the exclusions that may apply to the facts of the loss.
- You, as the insured, should readily, and without objection, sign the non-waiver agreement or accept the reservation of rights as an expression of the status quo.
- The adjuster should remind you, as part of the reservation of rights letter and explanation of the duties of the insured, to preserve and protect the damaged property and to mitigate the loss with due diligence and dispatch.
- You can request from the adjuster the identity of respected, competent, and professional contractors experienced in fire reconstruction or the drying out of buildings and the prevention or restriction of further loss including mold growth.
- You should follow up regularly with the adjuster to ensure that he or she is meeting contractual obligations since a catastrophe often makes communications difficult.
- If you have failed to protect the property from further loss, the adjuster must remind you, in writing, of your failure and how that could effect your claim.
The adjuster should consider advance payments to avoid any unnecessary difficulties so that you and your family will have a place to live while your house is being rebuilt.
- If your house is destroyed, you can expect an advance of $10,000 to $20,000 to carry you over.
- Even if your house was not damaged, you are entitled to additional living expense payments if you were ordered out of your house by the state government, federal government, Homeland Security, or the local fire department.
- Remember that additional living expense coverage does not pay all of your post loss expenses, only those over and above your normal expenses.
Physician-Guided Managed Care Achieves Better Results
Ever wondered why managed care costs more every year but the results seem about the same? For decades, the most expensive portion of a claim was the indemnity payments. Today, with medical advances, it's the medical expenses, which in workers' compensation alone, have increased nationwide by an annual average of 8 percent, nearly double the medical consumer price index of 4.3 percent over the same six-year period.
Although managed care services vary somewhat from company to company, they are more or less delivered as commodities, with each service providing similar capabilities regardless of vendor. Upfront fees are the selling point, and price is the primary differentiator. Some service providers may be more efficient than others, but only because their technology underpinnings are better (or better managed). Either way, technology-based processes often define the service, with poor accommodation for human intervention.
In this typical managed care model, medical bill reviews sail through software systems as fast as possible, grabbing savings along the way based on automated business rules and built-in triggers. Experienced nurses conduct utilization reviews (URs), but generally in a rubber-stamp role, and escalation of questionable utilization reviews to physicians can slow the review process by days, or even weeks. Similarly, case management is a nurse-based service in which physicians come into play only on an exception basis. And finally, there are the networks of doctors and hospitals that discount fees. Because the managed care vendors that build these networks absorb part of the discounts as payment for network access, they have little incentive to choose these providers selectively.
In this standard managed care model, one service provider might boast the lowest price for medical bill review, another for utilization review, and both will attract buyers on price alone. But insurance entities that choose providers based on upfront fees are sacrificing a higher level of savings — one that can only come with a more holistic view of managed care services.
Most marketing and communication departments know all too well that social media and social networking sites are a treasure trove of opportunity for elevating your personal or corporate brand. Employees use social media for personal use, but also use it as a forum to talk about their boss, their company, their products, their problems and whatever else is on their mind. There are 200 plus social media sites in English alone, Facebook recently reached one billion users, and Twitter puts out more than 170 million tweets per day. That is a lot of free advertising!
However, what many businesses fail to remember is that, despite all of the positive aspects social media brings to a firm's marketing, communication, and sales efforts, it's also ripe with opportunity to damage their brand and cause a financial loss. While it's free marketing, it's also a lot of unedited content being published online that could be about your business, about your products, or attributed to you. Could a competitor feel that your employees are slandering their people or products? Could a competitor gain inside information about your organization? Could an employee divulge information that could get them fired? Could you or your employees inadvertently offend prospects and clients? In short, yes. As social media use continues to evolve and grow, it's important to consider this exposure to your organization.
Using Social Media To Generate Business Leads
All of this can be scary, but you can't ignore the great opportunities created by social media. Any organization not taking advantage of social media sites is signaling that it is not evolving with the times, and there is nothing close to matching the immediacy of broadcasting your news through social networking sites. A well-crafted social media strategy can generate a lot of interest in your product or services and drive traffic to your website where more specific information can be provided.
"In time, the proper execution of a focused social media strategy is an efficient means of staying in front of prospects. When the prospect has a business problem, your positioning as a credible, knowledgeable resource can help you get in the door and, hopefully, close the deal," says Randy Stoloff, Director of Marketing and Social Media at AmWINS Group Benefits in Warwick, Rhode Island.
It is critical to have all content reviewed by someone within your organization that can be responsible for stopping improper content from being released. It's also important to review applicable insurance policies such as a website media policy or cyberliability policy to be sure social media activities are covered.