Technology, Training, and the New World of Arbitration

Insurance is often referred to as a “people business.” That adage applies to the claim process more than any other element in a highly diverse business, and there is likely no part of the claim operation where the interaction of people is more vital than in the arbitration of inter-company disputes.

This often-overlooked but critical subset of the subrogation process has been around for decades. And, for most of its existence, arbitration has changed very little in its fundamental structure. Today, arbitration has entered a new world, one where technology and training are taking a proven process of recovering claim dollars, reducing pending claims, and lowering legal costs to a new level of efficiency and professionalism.

At a time when claims and associated expenses are being scrutinized more closely than ever, many companies and self-insureds are looking at the savings generated by arbitration as an opportunity to enhance their bottom lines. To take full advantage, insurers and self-insureds require a better understanding of arbitration in their own operations. They need to have access to arbitration training programs and learn to utilize new electronic technology and programs developed by Arbitration Forums (AF), which makes the process easier and faster.

Through AF, 430,000 claims valued at nearly $2 billion in inter-company claim disputes were resolved through its arbitration programs last year. AF has documented that for every dollar spent on inter-company arbitration, the return on investment for all companies was $38.22 for year-end 2005 — nearly double the return of five years ago (this includes associated allocated and unallocated internal expenses). From a monetary standpoint, the return on expenditures is tremendous. But so, too, is the time saved by avoiding the court system to resolve simple property and casualty disputes with other companies.

More than 60 years of experience has given AF, the largest nonprofit provider of inter-insurance related arbitration services in the country, a unique perspective on how this important process is utilized by claim professionals and subrogation and recovery specialists.

The increasing efficiency of the system can be attributed to two major factors: the expansion and development of new technology, and heightened levels of training among all system participants, including arbitrators.

A Technological Point of View

First, let's take a look at technology and arbitration. Without question, property and casualty insurers and self-insured companies are increasingly utilizing high-speed electronic filing systems to resolve subrogation disputes. AF reported that 218,000, or half of its 430,000 arbitration filings in 2005, were made electronically, up from 33,000 in 2004.

Since its inception in late 2004, AF's online filing program grew to 208,000 filings. The online service is available for all disputes involving auto, property, medical payment, PIP, uninsured motorists' coverage, third-party liability, workers' compensation, and disputes involving concurrent, overlapping, or excess/primary coverage.

AF also reported that insurers' participation in its e-speed filing program jumped nearly 63 percent between 2004 and 2005, increasing to about 27,000 filings. The program offers high-speed electronic filing for small-dollar auto liability and damage disputes. The heightened company focus on saving expense dollars coupled with the ease of electronic filing and an increased understanding of the benefits of arbitration programs should generate even more growth in the future.

The most valuable application of new technology to the arbitration system, however, is AF's E-Subro Hub, an intelligent, web-based paperless network that acts as an electronic clearinghouse for subrogation workflow between insurance carriers and other parties involved in subrogation.

The web-based network, launched two months ago, was developed by AF to streamline the subrogation process and reduce costs for thousands of insurers, self-insureds, third-party administrators, and claim-service organizations. The E-Subro Hub is expected to handle millions of transactions annually, ultimately transforming a slow, cumbersome, paper-driven subrogation process into a seamless, highly-efficient electronic system that produces rapid settlements and reduces costs.

The new subrogation technology will enable users to send and receive subrogation demands electronically, attach supporting documents (estimates, bills, photos, police reports, etc.) automatically route demands to file handlers, negotiate online and view and download online reports. The E-Subro Hub is web-based, which means there is no software to purchase or download. The technology enables users to interactively manage both subrogation demands and responses, gain access to on-line reports that provide important management information, improve recovery, and enhance loss-reduction opportunities.

It also is scalable to a company's current level of automation, enabling it to be quickly and inexpensively integrated into a user's current system. The hub features security technology that adheres to industry best practices to ensure information is kept secure.

While the E-Subro Hub will encourage settlement, if necessary, filing arbitration will be as simple as clicking a button because the hub will share the same web-based platform as AF's arbitration services.

Regardless of the means utilized — electronic or paper — commencing arbitration is simple. Companies (both self-insured and insurer) sign agreements with arbitration service organizations, agreeing to forgo litigating disputes with other members and instead utilize binding arbitration. The process usually begins with the risk manager, financial officer, or claim officer seeking an alternative to litigation.

There are several types of inter-company claim disputes resolved through these forums, including auto subrogation, property subrogation, personal injury protection, and special arbitration, which resolves co-defendant liability apportionment disputes as well as disagreements over coverage for concurrent or primary/excess policies on first- and third-party claims.

Most of these types of agreements have a dollar limit ranging, which can range from $100,000 for auto, property, and personal injury protection and up to $250,000 for special arbitration. This supports the concept that such forums are primarily used for simple claims involving a relatively small dollar amount. Also, AF data shows that more than 80 percent of inter-company arbitration disputes are related to auto collisions.

Once an agreement is signed, companies are able to use binding arbitration to resolve claims and subrogation disputes with other members. Also, none of the other members to that agreement may litigate against participating companies in accordance with the terms of that particular agreement.

In the case of AF, while there is no cost to sign up as a member, there is a nominal filing fee for most disputes ranging from $40-$65. Since the majority of these disputes are simple auto collisions, more than 95 percent of them are presented by file only, without a personal appearance. It is important to point out that there are additional internal costs for participating companies that should be considered when evaluating the total return on investment. These costs include the salaries of the claim handlers, the time it took to prepare the file, and mailing and copying costs.

Company cycle time, from loss to resolution, is another key factor that affects return on investment. For example, using automobile subrogation, if two companies are arguing point of impact on a liability issue or disputing the cost of parts of labor, when does it no longer become cost effective to do so? Companies need to set some cycle-time goals in order to achieve reductions in cost and time and an increase in recovery.

The Right Person for the Job

Arbitrators are chosen to resolve each case based on their expertise. They are tested to determine if they will be appointed to a panel. To be considered, a prospective arbitrator must have at least five years of experience for special arbitration and three years for all other programs. To further enhance the quality of decisions made by more than 7,000 arbitrators, AF has created a new arbitrator training and certification program. Company arbitrators are required to participate in the program, which covers the new process for reviewing cases, making a decision, and explaining that decision. Arbitrators also must successfully pass a claim and forums knowledge test as well as review and render decisions for several simulated cases.

The program provides additional direction on how to present clear, well-written explanations of decisions by giving arbitrators an opportunity to develop and practice their writing skills. The new certification program is in addition to AF's continuing-education workshops, including web seminars that focus on the practical application of the rules and procedures for each arbitration program.

Arbitrators are the backbone of the process. They ensure that every decision rendered will meet the new standard of a quality decision. Clearly, there are many inter-company disputes that require the essential skills of attorneys as litigators or negotiators. But there are many that do not. That's where understanding of arbitration and when to use it comes in.

Making It Work

The success of the arbitration process requires knowledgeable participants. AF offers workshops and training materials (including reference guides and videotapes) free of charge, to teach members how to successfully and efficiently use its forms, policies, and procedures.

Well-trained subrogation adjusters are critical to the arbitration process. They know how to initiate subrogation negotiations quickly and not allow it to become protracted. They understand when to file for arbitration and what the process requires. They take full advantage of the right to file counterclaims and effective contention writing.

Back in the 1990s, companies began to cut back on this kind of essential training. Not surprisingly, the aggregate recovery in inter-company arbitration began to decline from $277 million in 1990 to $240 million in 1994. When AF's new training resources became available at company locations, individual company recovery began to rise steadily and significantly. By 2001, aggregate recovery had grown to nearly $568 million.

Having eliminated much of their in-house training programs, insurance companies and self-insured are increasingly asking AF to provide training beyond the discipline of arbitration and expand its education efforts into the broader area of subrogation and recovery.

New approaches to training help teach and reach more people more effectively, and are designed to be just enough, just in time, and produce bottom-line results. AF works with participating companies to define their specific needs to develop and deliver customized training and measure the impact of the training solution. This process begins with a strategic planning meeting between the company and AF education and recovery consultants. The company recently launched a training program that utilizes the Internet, instead of a classroom, to train people at their desks on their own time. In addition, live training seminars also have been added.

To give front-line filers a greater understanding of arbitration programs and procedures, the Internet and e-mail makes the process easier than ever to initiate and manage. For example, the AF web site allows carriers and self-insured members to instantly look up pertinent information on a case and determine its current status. By entering a docket number, file number, or insured name, a user can access specific information on a particular file such as hearing locations and time, and details on decisions (including panel comments).

AF also has just completed a five-year process of completely revising all of their forums to make them more user-friendly and easier to understand. These changes were made as a direct result of feedback the company received via focus groups, customer meetings, and online surveys.

Armed with knowledge, training, and new technology, carriers and self-insured companies can save expense dollars by fully realizing the proven benefits of arbitration. That's how we are taking arbitration to a higher level.

D. Kay Smith is chief executive officer at Arbitration Forums. She can be reached at dksmith@arbfile.org.