Own The Anchor
March 14th, 2019
Sail to Improved Settlements!
Anchoring occurs in third party settlement negotiations when one side throws out a number in an effort to influence—or “anchor”—the way the opposing party values a claim. Our experience shows that anchoring directly affects the settlement value of injury claims, so it’s critically important for insurance adjusters to “own the anchor” in negotiations.
The research below will surprise you!
What Drives Anchoring?
Anchors come in many varieties, but we find that medical costs are by far, the greatest and most troublesome. It’s natural to assume that medical costs are an important factor to a settlement and a possible starting point in a negotiation.
We are aware that some medical providers grossly overcharge for services and run up their bills. Most of us also know full well that medical costs are only one factor to consider and shouldn’t be the sole determinant of claim value.
However, what we don’t realize is that medical bills have an undetectable and powerful impact on the ultimate settlement amount. While we believe we treat medical costs as separate and distinct from other elements in a claim, our research demonstrates that medical costs have an oversized influence on the pain and suffering portion of the claim.
Chart 1. To understand how medical costs influence, or anchor, the settlement, we looked at the relationship of first demands as a multiple of submitted medical costs (e.g., a settlement demand of $10,000 with $2,000 in submitted medical bills represents a 5:1 multiple), with final settlements as a multiple of medical costs (a $6,000 settlement demand with $2,000 in medical bills is has a 3:1 ratio).
Chart 1 illustrates how medical costs dramatically affect the amount we are willing to settle for. It’d be hard to show any higher correlation. The higher the demand by a plaintiff attorney vis-à-vis the medical bills, the higher the settlement they were able to negotiate. The plaintiff attorney very effectively “owns the anchor” by anchoring the overall value of the claim in the medical costs.
Why Medical Bills Influence
Medical bills have such an outsized impact on settlement values because they are, often, the only tangible item in discussions. Venue, pain and suffering, a claimant’s age, etc., aren’t tangible. By contrast, the dollar amounts shown in medical bills are easy to reference, and we naturally latch on to them.
Even when we seek to discredit the medical bills, we’re still referencing them, granting them relevance,even authority. They stubbornly remain the anchor.
The Fact-Based Fix
Thankfully, facts are stubborn, too, and work very effectively to unseat anchors!
Plaintiff attorneys rely heavily (and successfully) on medical costs that they fail to examine and understand the underlying facts of their case. In order to exploit a claim’s facts, the approach demands a command and use of the facts of the injury and its treatment.
As Chart 2 illustrates, the same adjusters who produced the results in Chart 1 were subsequently able to “own the anchor” through negotiation grounded in facts. Using fact-based analyses prepared by CaseXpert® specialists, the anchor of the submitted medical bills was dislodged. In fact, the bills showed a negative correlation on the ultimate settlement accepted by the plaintiff attorneys.
The dispersion of results in Chart 2 shows that the tight relationship between submitted medical bills and settlements had ceased! CaseXpert® effectively obliterated the anchor and is now producing accurate settlement values grounded in facts. When arguing from facts, the adjuster calls the plaintiff attorney’s medical bill bluff and “owns the anchor.” Good news, mate.
It’s facts or nothing.
So, how do we stake our negotiations in facts? The answer rests in shifting a case from its “raw data,” like medical bill costs, to substantive arguments. And we don’t mean bill review services, which focus on explanations of benefits and reductions in charges according to a fee schedule. Their use of obscure medical codes and rules, which aren’t widely understood or capably explained in negotiations, means that bill reviews diminish their authority and can’t help us to unseat the anchor.
Substantive arguments must be backed by evidence drawn directly from a claim, such as information from treatment notes, emergency room reports, and observations from the medical world about how injuries are objectively documented and what justified medical care looks like. This approach will lower your ultimate settlement costs, with the wind in your sails.
We’d welcome your thoughts on “owning the anchor.” What has worked for you?
Casentric is passionate about fact-based techniques that improve settlement outcomes. Casentric’s CaseXpert® has delivered results for our customers for over three years. Please feel free to call us for more information.
Jim Kaiser, CEO
Steve Washington, COO