If a picture is worth a thousand words, the diagram above shows one about how insurance claimants think about claimants who pay more versus paying less to their policyholders. The policyholders often have their claims underpaid because the insurance companies reward the claims providers who underpay claims. The rewards come from a perception and marketing of "high performer" adjusters who pay policyholders less are better adjusters than those who pay policyholders larger and more extensive amounts.
This chart and the article on claims management that refers to it, How to Cut P&C Claims Leakage 1 shows that some carriers believe that those who pay less are what "high-performing" property insurance claims companies should do. Can you imagine an insurance company being transparent and advertising because it rewards and sees its adjusters doing a good job of "they pay you less?"
This is exactly what was discussed four years ago, Incentive pay for lower insurance requirements for policyholders still exists where I noted "how financial incentives can promote unethical behavior by frontline employees to serve customers." Some claim lines, not all, reward the claimants who pay less and do not pay their insurance customers fairly, completely and quickly.
I've never seen a financial claim target that rewards property claim adjusters who pay their customers entirely. I challenge someone in damages management to share a real goal with a financial reward to a property damage unit or property damage distributor where there are objective measures that show that the goal is to pay the insured in full.
I should not be surprised that there are articles in the public domain that accept unethical incentives for damages management. This practice of rewarding adjusters and claims managers for producing results that reduce claims payments rather than fully paying policyholders has been going on for a long time. I, How do I create unethical claims? Set the wrong goal and fail to monitor performance goals for unethical behavior I noted a working document from Harvard Business School 2 on the subject. I quoted the newspaper and noted in a similar way:
How many insurance companies aim to "pay in full" or "as quickly as possible the full benefits" as part of the work performance review for adjusters, claims managers and company executives? No.
If all adjusters and insurers have an extremely ethical obligation to immediately pay their customers full coverage, everyone can expect these goals to be reflected as primary goals throughout the organization. In fact, most non-life insurance organizations have goals that promote the exact opposite result.
I can appreciate that insurance claims managers are concerned about being "played" by the insurance claims process and paying more than what is owed. But two mistakes never do the right thing. Establishing a claims culture that does not first reward claims providers for fully paying their customers the full amount done makes a dissatisfaction for its customers. I'm not saying overpaying customers to make this happen. But it does not take a rocket scientist to figure out how claims will be made when you reward the adjusters who pay less and view them as "high-performing."
Chip @ 2 will introduce a relatively new lawyer to Merlin Law Group, Micah Cartwright, as my guest today. Micah trains from our Oklahoma City office. We will discuss Oklahoma requirements standards. We will also talk about the significant late and underpaid claims from AmGuard Insurance Company. Hope to see you at 2pm EST for an interesting session.
Thought for the day
You do not need a weatherman to know which way the wind blows.
2 Lisa D. Ordóñez, et. al, Goals gone: The systematic side effects of over-prescribing goals . Harvard Business School NOM Unit Working Paper No. 09-083. January 23, 2009.