Merlin Law Group’s attorney Drew Houghton provided an article Discovery of insurers’ employee incentive plans: Rewarding employees for paying insurance applicants less, to my attention. It was written by longtime colleagues Mike Abourezk and Marialee Neighbors. Their article is important and addresses one of the fundamental ethical issues of claims management: The role of the claims profession in terms of corporate profits. Although insurance companies need to be profitable in the long run, I have yet to see a claim that reimburses claims to ensure that the customer has not missed benefits and not been paid after a loss.
The whole article is worth reflecting on and studying. The beginning is a good summary:
Insurance companies set financial goals and objectives for their employees, including claims personnel. Incentive plans for employees reward staff for achieving these financial goals with promotions, salary increases and / or bonuses. For the claims personnel, this may mean that they are denied or minimized claims.
Basically, the discovery of an insurance company’s employee incentive plans is an attempt to discover the motives, intent or lack of mistakes behind behavior in bad faith. As the term “incentive plans” suggests, such plans are obviously intended to influence the behavior of insurance company employees. If claims managers or their superiors compete for personal cash bonuses or other awards, this information is very relevant in a case of bad faith.
Mike and Marialee won a case involving these issues, mentioned in Incentive pay for lowering insurance claims for policyholders still exists. That post attached the expert certificate from the case describing the incentives for claims by travelers. These incentive programs are closely monitored:
These paid incentive programs are neither disclosed nor advertised as existing for obvious reasons. Insurance company leaders love the awareness of why their stock price and income are rising, but do not want to admit that it comes as a result of tough claims payments. Insurance company lawyers try to hide these incentive programs by refusing to hand them over when requested in the discovery or by demanding “confidentiality agreements.
When I wrote this post, I noticed that the posts from that case indicated the return and destruction of confidential evidence, which really must have been many of these internal incentive programs for claims.
The title of this post came from a post written thirteen years ago, Incorrect methods of claim for which insurers should be punished (part two). In that post, I noted that many companies teach that dealing with ethical good faith requires quick and full payment, but the company still maintains claims that do not conform to what is taught as practices for ethical good faith claims:
The insurance process works pretty well for the most part, with most claims resolved in a more or less acceptable way. Most insurance company adjusters want to get all the benefits to the customers as quickly as possible, get the claim closed and get a reasonable salary for their work. Most insurance company adjusters are initially taught in good faith obligations to perform claims. There are a number of insurers and insurance company attorneys who really seem to be engaged in good faith teaching, discussion and review of problem cases. They try to get even bad faith claims resolved fairly and quietly.
Problems arise when the insurance company management initiates claims programs and cultures where full and fast payment is difficult for the field adjuster, or the first line of claims handling, to obtain. When senior management sets goals to pay less for claims, they do so at the expense of customer service. Does anyone think that insurance executives would accept higher damages to achieve the alleged goal of good customer service when their bonuses are based on paying less?
Rules for claims in good faith are known and are often applied by internal and external insurance company lawyers. These lawyers realize that their clients owe policyholders a legal and statutory obligation in good faith. We often refer to this in our cases when our clients have not been treated fairly.
For example, our company’s Knowledge Manager, Ruck DeMinico, examined Zurich Insurance Company’s position in good faith claim management prior to an upcoming mediation by me. He came across information that shows that Zurich’s insurance lawyers do not teach adjusters how to underpay or delay claims. On the contrary, his research came across a number of articles about and by Zurich’s internal injury lawyer, Daina Kojelis, which show a very sophisticated and behavioral side of the philosophy of good faith. This philosophy is also found in courses that lead to the CPCU designation – probably the most ethical course and professional designation in the insurance industry ….
… To pay all benefits is not the purpose or the result. Every time a new claims initiative is implemented, it is about paying less and showing that the claims department does better than its competitors at paying less – just go through Zurich’s claims management presentation as an example. Although well-meaning legal advice can teach the alternative in good faith, I think most people get the impression that CEOs are trying to create greater profits and personal compensation.
For those interested in reading more about this topic, I enclose an article by the insurance claims expert Charles Miller, which describes some of the claims programs initiated with these goals in mind: Behind the scenes in the insurance claims industry: How insurance companies have revolutionized the management of insurance claims©.
What you get by achieving your goals is not as important as what you get by achieving your goals.
– Zig Ziglar