The “pièce de résistance” of an insurer’s compliance and risk management program is its claims handbook or manual. Without written claims-handling policies and procedures, companies are at risk for significant losses.
Of note, failures to meet claim regulations and to keep claims policies and procedures updated rank high among the Top 10 criticisms found on market conduct examinations, according to Wolters Kluwer Financial Services’ annual market conduct research. Such violations have resulted in millions of dollars of fines, fees, and penalties.
Drafting claims guidance, however, is as challenging as creating a work of fine art. For most insurers, painting a coherent picture from diverse regulatory requirements, and framing them into the claim process, poses unique challenges.
Defining the Palette
What should companies consider as they craft claim guidelines? As there are infinite ways to produce a painting, there is no one-size-fits-all approach to drafting compliant, effective claim policies and procedures. Each policy may be sketched out in light of:
- The specific law or regulation being addressed.
- An evaluation of resources available to implement and maintain the control.
- All risks of non-compliance (financial, as well as reputational).
- The company’s general philosophy and appetite for compliance.
- Any local business and market custom and practice distinctions.
Here are five steps to help make composing your claim compliance masterpiece easier.
1) Preparing the Canvas: Overcoming Initial Challenges
First, claim protocols are often more difficult to compile than other policies and procedures. Insurers need to prepare for such challenges. The sheer volume of claims-related laws in one state can be intimidating. Compound that by 50 states, and the task can feel overwhelming. Further, many statutes address not just claim matter but also policy wording requirements, consumer complaint issues, or general compliance mandates. As a result, it is not always clear who within the insurance organization needs to respond.
Before you even begin drafting your manual, decide who is responsible for compiling and tracking law changes, writing, and making updates to drafted policies. Will updates in regulations be monitored by the claims department, legal, or compliance? Will line-of-business managers be involved in reviewing or approving the claims policies at any stage? Sketch out a detailed process in advance with all affected departments and ensure that information about new laws or changes to existing laws are being routed to the right internal parties, are accounted for, and are being implemented.
To this end, consider technology that can help with regulatory change management, workflows, and communication. Technology is available today to build and store claim manuals in a central library and ensure accessibility to all who need the information. As an example, CUNA Mutual Group’s Claims Operations team recently updated its claim policies and procedures with the help of Wolters Kluwer Financial Services. Its new claim library is part of a larger enterprise risk management (ERM) system that links to a regulatory information system. This allowed CUNA Mutual Group to automate and simplify the process of assembling, distributing, and maintaining claims procedures throughout the company. It also links regulatory information right into the handbook to help ensure claim policies are based on the most current laws.
“Evaluating how we could maximize different technology tools was a valuable exercise,” said Mark Martin, vice president, Claims, at CUNA Mutual Group. “We are now able to create an accurate record of the policies and procedures relied upon by our claims adjusters while enhancing claims procedures with compliance information. We can also maintain an audit trail of the considerations that were made regarding each adjusted claim.”
2) Select a Focal Point: Develop A New Policy or Procedure
What should the focus of the claims manual be? With thousands of laws, rules, and regulations, it can be hard to decide which ones need to be digested into a specific policy or procedure. There is no single “right answer.”
When deciding if a new policy is needed, however, it is important to consider the following:
- Is there a National Association of Insurance Commissioners (NAIC) Model Law about the claims topic? If so, the subject will be of particular interest to state insurance regulators. Model laws can be solid starting points for developing the core of your compliance policies or parts of your risk management program.
- Do your claims procedures capture all the key points that auditors will review? Check the NAIC Market Conduct Examiner’s Handbook, which outlines issues and questions that state regulators will investigate as part of market conduct exams.
- What are other companies doing? While insurers have to be mindful of anti-trust laws, it may be acceptable to try to develop procedures to reflect general industry best practices through networking and social media sources like LinkedIn; through industry trade groups and publications; or with the assistance of specialized consultants and vendors.
Insurers should also consider the ramifications of not having a specific policy or procedure, as well as whether a policy will affect a large number of handlers or only a select few. Finally, a written guideline may be needed to explain an unclear law or offer a corporate position on an issue that cannot be gleaned by reading the statute, regulation, or bulletin on its own.
3) Arranging Key Elements Around the Focal Point: Digesting Applicable Law
It is difficult to write a single guideline to comply with complex, multipart statutory provisions on a state-by-state basis. One way to tackle the job is to collect all applicable laws from different states on a potential claim-handling area, legal or compliance topic and break them down to their basic elements. Build protocols around those core compliance topics.
Take, for example, different state statutes addressing good-faith trade practices or claims practices. Individual state statutes often have rules that touch on multiple aspects of the claims-handling process, such as acknowledging first notice of the claim and corresponding with the insured during a claim investigation. These distinct issues may also have different regulations. Issuing one procedure that attempts to comply with all of the statute’s subparts, such as “Handling Claims in Massachusetts,” is ineffective.
However, if you break down the law by its elements, then you can look at specific subtopics across jurisdictions. Write one procedure on “Acknowledgement,” a second on “Determining Claim Values,” and a third on “Noticing Mortgagees,” if all concepts are combined. Just because a state law has thrown apples and oranges into the same bowl doesn’t mean you need to force them together in one policy. Rather, you need to be able to have a discrete procedure that makes sense in your own claims workflow.
4) Choosing Colors: Blending the Law into a Coherent Picture
There are many approaches to drafting claim policies for a company operating in multiple states. You have state-specific laws, such as laws regarding sinkhole claims in Florida or ones related to snowmobiles in Maine. Additionally, there are issues that require attention from all states, like federal laws applying to the handling of Medicare claims. Somewhere in the middle are the laws that have common threads but require state-specific tweaks. A good example is a law that was developed out of an NAIC Model Law but has been amended by state legislatures to meet the needs of local consumers.
Insurers needing to create a standard to address these laws generally choose to follow one of the following approaches:
- Find the most common regulatory standard to set a common policy.
- Comply with the most onerous regulatory standard.
- Set a company-specific standard that is stricter than even the strictest law
- Adopt a blended approach
While each one has its pros and cons, a blended approach often brings the best results. It sets a core policy on either a company-specific “high standard” or “most onerous” law as a default rule and then adds state-specific references to ensure the policy is complete.
In the process, budgets, financial costs, and resources may impact such an approach. However, cost-benefit analysis shouldn’t be purely a dollar discussion. Reputational risk, while difficult to quantify, can be devastating to an organization. As Warren Buffett said, “It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.” When designing any claim compliance or risk management policies today, reputational risk must be part of the discussion palate.
5) See the Whole Picture: Making The Final Touches
Just like artwork can take infinite directions, there are endless ways to draft claim policies. Your work may involve writing very broad protocols to meet standards in all jurisdictions, or narrow state-specific policies, or something in between. But one common thread is the need for “final touches.”
So take a step back, look at the whole picture, and read all policies together as one comprehensive system of controls. Make sure you are confident that you have not only adequately addressed specific regulations but also that your handbook is in line with your company’s general business, compliance, and risk management appetite and philosophy. Have you adequately evaluated the resources you have available to keep the policies updated going forward, as well as the risks of non-compliance? These final touches will help provide a comprehensive picture of all claim policies.