Filed Under:Agent Broker, Agency Management

How to avoid the dark side of claim 'best practices'

Don't look now, but best practices are the rage.

Every insurance company, third-party claims administrator and independent adjusting company seems to embrace best practices to differentiate themselves from competitors. Marketing factors spur the trend too, as companies tout their own best practices to separate themselves from other firms. “Those other guys have their claim practices? Well, we have … best practices!”

One downside: Clients will hold you to those best practices. Failure to meet best practices may trigger liability claims for negligent claim-handling, breach of implied contract, and even bad faith. When you set the bar high and fail to clear it, consequences flow and — some may be bad-faith suits.

After a claim meltdown, rest assured that picking through the wreckage will be an enterprising attorney seeking blameworthy targets. Who better to serve that role, than the (perceived) cash-laden insurer? After all, its management boasted of those best practices and look what happened!

Setting the bar high … and colliding with it

For example, a company may recognize that an initial claimant contact normally occurs in the first 72 hours after a first notice of loss (FNOL). Nevertheless, that company may raise the bar and tout as a best practice first contact within 24 hours. Industry standards may call for contact of policyholders within 72 hours of a FNOL, but the company establishes more rigorous requirements.

Insurer custom and practice may be for adjusters to complete an investigation in 21 days for certain claims, but a company compresses the timeline at 14. The more rigorous standards one sets, the more exacting courts and insureds may be regarding actions on a claim. The takeaway: Do NOT establish standards which the company is not absolutely certain can be met. Courts in some states view violations of a company's own internal guidelines as potential evidence of bad faith. So accept the notion that no good deed goes unpunished.

By trying to exceed industry standards and adopt best practices, the company may be held to a higher standard than would otherwise be the case, painting a bull's-eye on its back. Remember those promotional and training materials touting its best practices? Expect to see them enlarged and shown to juries as trial exhibits. Then, bad faith counsel will methodically walk through how the adjusters handled the claim in question, contrasting lofty aspirations with the grim reality of what they actually did on the claim file.

Still sure it's worth trading on the company's “best practices”? Nancy Germond, an Arizona-based trainer and claim consultant observes, “In claims, we’re busy putting out fires, and a best practices manual can be a back-burner item that flares up and burns the claim department.”

John Keskula, subrogation manager at Chesapeake Employers Insurance Co. adds, “By publishing best practices, you invite scrutiny as well as Monday-morning quarterbacking.”

Related: What should you do when a client complains?

Envision plaintiff counsel's summation: “Ladies and gentlemen, we’ve seen the documents produced by Hard-Hearted Insurance Company, what they call their ‘Best Practices.’ They use these to get more business and charge more money. These are their promises to consumers like you. In contrast, we’ve also seen how Hard Hearted actually handled this claim. A far cry from their vaunted ‘best practices’! True?”


(Photo: Thinkstock)

Law of unintended consequences

This does not mean that pursuing best practices is a bad idea. Shouldn't a person's — and a company's — reach exceed its grasp? Don't be afraid to set the bar high. “Having a [best practices] manual setting the bar high,” according to U.K.-based consultant Clive Munnings, “demonstrates that an insurer seeks to provide the best possible service.” In claims, as in life, nothing is wrong with reaching for the stars.

However, that effort could come back to bite one. What some view as a way to elevate claim practices could become a bad faith liability. Shouldn't adjusters and claim operations strive not just for competence, but mastery? Definitely. However, claim departments should consider potential negative, unintended consequences of codifying best practices.

Two case studies

As an expert witness reviewing cases involving alleged bad faith by adjusters or insurers, often an insurer's “best practices” are discovery targets and a point of contrast between how claims are supposed to be handled and how they were actually handled by the adjuster. If adjusters follow company best practices, no problem arises. However, troubles multiply when lofty pronouncements from management must be implemented by the folks actually doing the work.

Recently, a trucking firm sued its third-party claims administrator, alleging mismanagement of a Workers’ Compensation program over many years. Discovery revealed that the TPA had published best practices. A Workers’ Compensation file audit, however, showed deviations from not only best practices, but from claim-handling norms.

In another case, a plaintiff sued an insurer over attendant care benefits allegedly underpaid for years through automobile PIP coverage. Through discovery, the plaintiff saw that the insurer had some written best practices. One section covered “cost management.” The plaintiff used those to build an institutional bad faith claim, alleging that cost management guidelines aimed to boost company profits at the policyholder's expense.

Jamaican sprinter Usain Bolt holds the world record in the 100-meter dash at 9.58 seconds. He is officially the world's fastest man. Sprinters finishing one or two places behind him — like Justin Gatlin and Asafa Powell — get silver and bronze medals, respectively. That doesn't make them unreasonably slow. They are still blindingly fast.

Straying from “best practices” in claims doesn't mean that an adjuster engages in unacceptable behavior. The orbit of reasonable practices lies outside best practice. There is a range or continuum of claim-handling activities that may fall short of a company's “best practices” but are nevertheless reasonable.

Related: What drives customer satisfaction?

A saying attributed to Voltaire, “The best is the enemy of the good,” applies here. Falling short of best practices may not equate to bad faith. One can miss best practices, but still be within the realm of reasonable claim standards. As a top-shelf claim organization, a company should always be striving. That's why establishing written best practices is a worthy discipline, despite the risks.


(Photo: Thinkstock)

7 tips for implementing best practices

  1. Choose words carefully. Include a disclaimer. Have counsel draft it. Point out that these are aspirational goals, not warranties or guarantees.

  2. Don't do it for show. Don't make best practices another “credenza decoration.” Don't embark on best practices as the management initiative du jour. Aim to change behavior, not to have an impressive-looking document.

  3. Train and train again! Provide periodic training and education on best practices. Schedule in-house sessions to refresh everyone's understanding them. Develop case studies to show examples of best and not-so-good claims practices.

  4. Audit for adherence. “That which gets measured gets done.” Quality assurance means checking under the (file's) hood to make sure that adjusters follow best practices.

  5. Link it to performance reviews. Align performance review criteria with best practices. Then, link performance reviews to merit pay. This reinforces the tie between striving to be the best and the money in paychecks.

  6. Reassess best practices periodically for relevance and currency. Like furniture, best practices benefit from periodic dusting. As a company evolves, its notion of what does (and doesn't) constitute best practices may change as well. Periodically review the document for relevance.

  7. Make it realistic, authored by people who “do the work.” Marc Dubois, a Florida-based claims consultant, notes that some best practices guides “are written by theoretical practitioners rather than by folks who have hands-on experience.”

Related: More police departments have stopped taking accident reports

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