The Industry has a negotiation problem!
Updated: Mar 11, 2020
Increasingly, casualty leaders we speak with confirm that negotiation effectiveness of their casualty adjusters is an issue for their organizations. There is broad consensus, too, that poor negotiation skills are costing insurance companies significant dollars in negotiated settlements and litigated claims. In our view, the industry significantly underestimates the magnitude of the problem. Poor negotiation skills have a far greater impact on claims than can be seen through the lens of individual cases. Casualty leaders’ descriptions of settlement negotiations are very consistent across companies. The negotiation is short, generally less than 5 minutes. The adjuster offers a brief description using generalizations about the case and then proceeds to make a lump sum settlement offer, e.g., “We can offer $15,000.” That’s followed by a little banter in which the plaintiff attorney questions whether the adjuster knows the venue, the case, etc.....The adjuster then asks the plaintiff attorney to "take my offer to your client." This approach seems more suitable to buying a used car than resolving a complex issue like a personal injury claim. What happened to create this outcome? And how is it that so many casualty leaders share this experience in common?
A negotiation handled in this way almost always leaves one wondering whether a good settlement was reached. Frequently, the best conclusion that we, as experienced claims leaders, can reach is that a really bad outcome didn’t happen. This is far from the optimum conclusion. How can we explain this outcome?
First, adjusters do NOT put the level of effort into case evaluations that is required. They have neither the time, nor the medical expertise, and experience tells them that it won’t make any difference anyway. Evaluation preparation isn’t captured in any company KPI, right? However, poor preparation is a certain recipe for poor outcomes, no matter the domain, be it business, science, athletics, etc. It’s the equivalent of an athlete appearing on race day having barely prepared for his event. Second, to the extent adjusters have prepared and spotted things like excessive medical costs or questionable causation, they frequently give up on these available arguments before the negotiation starts. Adjusters have been conditioned by plaintiff attorneys to expect that they don't want to talk about such details. So, adjusters simply concede the arguments, rather than raise them. The effect is that the plaintiff controls the framework for negotiation. Third, adjusters negotiate in lump sum dollar amounts, rather than evaluating and securing agreement on the different parts of the case. It would seem strange and too complicated to discuss the value of individual parts of the case. Like most claims organizations, they fail to understand that negotiating cases by individual component produces significantly better results for adjusters than it does for plaintiffs’ attorneys. As the lawyer’s old saw goes, the devil is in the detail. When claims adjusters can talk about the details, they gain control of both the negotiation and the outcome. If you feel like you're losing money in negotiations, you almost certainly are. If you want to know how much, multiply your average injury settlement amount (typically, $12,500–$17,500) by 25%. That's the amount you are most likely losing per case. Multiply that number by the volume of cases you close each month to understand your monthly loss. If this has you looking for the exit, it should. But let's not stop there. It's important to understand what you're up against. Here are some thoughts that might help create a useful starting point: 1. Your “seasoned” adjusters won't save you. We can’t find a meaningful connection in our research between how long an adjuster has been doing their job and how good they are at it. Even if this connection did exist, there simply aren’t enough “seasoned” adjusters and everyone seems to be fighting to get them. 2. What is your organization’s “way"? Most companies have not defined their process for evaluating and negotiating injury claims or set clear expectations for their adjusters. Each personal injury case is seen as having its own nuance that no process can accommodate. This is wrong and leads to an unpredictable and uncontrollable resolution process. 3. All the experience in the world won't help if your adjusters aren't taking at least a few minutes to have the plaintiff attorney explain what they are basing their case on and how they arrived at their demand amount (here’s a big hint: plaintiff attorneys can’t explain it). When adjusters negotiate in a vacuum, it costs you money. 4. Negotiation isn't speed dating. When negotiations last only a few minutes or, worse, are conducted through brief email exchanges, you are definitely losing more money than you think. There is a huge cost to saving time that way. 5. Talking tough is useless. Being more adamant about negotiations and exhorting adjusters to dig in more doesn't turn the tide. Throwing in stories about cases you negotiated isn't instructive. Negotiation leverage is accomplished through the details in the evidence and presenting facts wrapped into cohesive arguments. That requires proper preparation, clear expectations about outcomes, and a process you monitor. 6. Just listen. Record some negotiations of your adjusters or listen in. Prepare yourself to be shocked. In many cases, you might think that just 10 pages of medical records had been provided to your adjuster, given the brevity of the conversation. Hint: medical records are typically more than 150 pages. At this point, you should be ready to sit down with pen and paper and jot down notes on the following: 1. How and when should our first offer on a case be made? How do we better utilize medical facts? How do we avoid throwing lump-sum numbers back and forth? When should we NOT make an offer and just listen? 2. After our first offer, how do we manage the process to gain agreement? If we are making lump-sum dollar offers, will we ever really know if we are agreeing on anything? How do we make an offer without just throwing more money out the door? Most of all, what is an effective way to control the framework? Processes with clear expectations and fact-based negotiation work. That is why we created Casentric. We help customers get to the details and deliver a process that saves them, on average, 25% to 40% on claims they settle.