Our recent blog, “The Industry Has a Negotiation Problem”, prompted interesting comments from managers and adjusters. In that blog, we argued that poor negotiation skills are costing insurance companies significant dollars in negotiated settlements and litigated claims. Casualty managers nearly uniformly agreed with this view and responded that it was driven by poor preparation, training issues and lack of process. Adjusters, on the other hand, were quick to point the finger at leadership as the source of the problem. They cited insufficient time to properly prepare, as well as a lack of leadership support on taking tough positions. Though growing inventories and increasingly lengthy and complex medical documentation are well established issues, the lack of management support is more critical. The amount of confusion and resignation that occurs at the adjuster level when they lack management support is far more consequential on results than the lack of time.

The issue of “management support” brings us inevitably back to the question, What cases do you WANT to litigate? The way this question is answered (or not answered) lies at the heart of this problem. Any organization that lacks clarity on where it draws the line overcompensates on third party personal injury settlements.

If you don’t articulate what you want to litigate, adjusters are unclear as to what is important to examine and focus on in the evaluation. What should they rule in or out? When you decide what you want to litigate, you can specifically identify the types of issues in a case that are worth fighting over. We’ve written about this before. Definition aligns adjusters and managers on what content they need to look for in a case.

Without clarity on the types of issues that are important to an organization, nearly any settlement payment can be justified to resolve a claim. We find this translates into very broad ranges that both adjusters and their managers will set for settlement values on the same claim. Our work with our clients involves finding that sweet spot that should define the value of the case. We find that answer by making sense of the variation. Getting to a collective consensus on value is incredibly powerful (in our experience it cuts the settlement values on soft tissue and serious injury claims by as much as 50%). If you want an idea what this looks like, check out this video. There is an effective way to get to consensus numbers, though it won’t happen through the traditional “authority” process or reliance on adjuster experience.

Roundtables are commonly used as a means to achieve alignment on claim value. While these would seem useful in spreading insight and gaining consensus, they just don’t do that. Cases are presented and described in a storytelling fashion, however, the rules for analyzing cases aren’t clear at all to the participants. They’re more akin to a merry-go-round where the case revolves around a set of issues, but the participants feel as though they stop at about the same place they started. They are often more worn down by the experience than enlightened.

Most cases, however, aren’t subjected to roundtables. Instead, adjusters submit their case evaluations to their manager, who either approves the requested authority or changes it. In the latter case, in our experience, it is unclear in most cases what drove the manager’s change in value. While this contains evaluations, we find that it doesn’t contain settlement values because additional authority is later sought on a high percentage of cases. Further, the lack of communication from managers on claim values and the limits they set don’t foster alignment.

So, how can we introduce clarity to claim value?

First, end storytelling. When the discussion of a case starts revolving around a story of how an accident occurred and the types of injuries and treatments that are involved, values vary considerably. The explanations that people cite are varied and the methods they use to justify their values are equally different. Where the merry-go-round stops is never clear.

Second, require setting a value for each component. This means identifying the value of pain and suffering for each injury and the value of each bill. When you discuss the value at component level, it is easier to identify factors that drive up value as well as those that don’t.

Third, take the next step to create value parameters for pain and suffering. For common injury types (which are few in number and which constitute well over 80% of all your claims), what would cause you to go above $x? For example, for a neck/back disc herniation, what evidence about the injury would cause you to believe the value of the pain and suffering for this injury should be $5,000? That is, what would make it “atypical.” Define your list of aggravating factors and the evidence that demonstrates them. For the “typical” case (without aggravating factors), where do you want to draw the value line?

Fourth, similarly, create parameters for medical bill processing. When would you NOT reduce a medical bill for excessive fees? How will you determine that charges are excessive – what evidence does the adjuster have to show this? If there is no support for ongoing treatment, why would you consider paying more than 4-6 weeks?

Value is the sum of all these parts….and is where the line should be drawn.

So, the fifth and final step is to decide how far apart the offer and demand have to be. Be careful about how you calculate the cost of defense. Most estimates are too generous.

The job of leading a casualty organization can leave your head spinning with facts that have you looking at each case as unique. You need to segment claims in order to be able to control them collectively. The exercises above do this, though they aren’t easy. They require a thoughtful approach to identify what a “typical” case is by clearly defining what falls outside of “typical.” This is the work that we do for our clients and it pays enormous dividends to their claims organizations. If you are interested in learning more, feel free to reach out to us.