Risk Managers Coached On Team Approach To Claims

A negative is that "from an insurance adjusting standpoint, none of the team members has the authority as in the old days." Previously, he said, adjusters "had the checkbook with them–they came, they saw, they wrote the check."

Now, he noted, things are different. "It's we came, we saw, we wrote a report, we sent that report on to the insurer, we waited to hear back, and we reported back what the insurance company thinks."

Added to the increased time element, because decisions are being made at the home-office level, the relationship with the decision-maker is lost, he said.

On the plus side, however, risk managers "are taking some things upon themselves," he said, noting that they are becoming more responsible about mitigating losses and "getting back in business."

Risk managers also are not waiting for the insurer to guide them through the claims process, and have more of an understanding of what they need to do, said Mr. Mascali.

"That's one of the things we've been working on," he added. "Because after Katrina, clients turned to us as a broker and said, 'You guys are in this business every day. Is there something you can do to help us get through this process?'"

Risk managers can speed up the process, he suggested, by having a solid claim management plan in place, putting together their own team of people prepared to work with their insurer counterparts.

"They need to have the right people on the ground at the facilities–not just in theory," he explained. Such a person would coordinate the work of the restoration contractor and the engineer who evaluates a building's damage, he said.

Also required is a vendor to give a business-interruption evaluation during the first week after an event, he noted.

"That's when the CFO is calling," he emphasized. "The CFO wants to know, 'Are we covered, and what's our loss?' You're the risk manager and you have to answer that."

Mr. Mascali, who has seen post-Katrina devastation firsthand, said that disaster claims can get very complicated.

For example, in an area in New Orleans known as St. Bernard's Parish–one of the hardest hit by Katrina, losing 60 school buildings–the question becomes how much gets rebuilt. "Do you go and rebuild 60 schools when they estimate that half the population of the parish won't come back for another 10 years?" he asked.

However, the dilemma is that if the schools aren't rebuilt, "people won't bring their children there, so they're struggling with those kinds of decisions."

An added complexity, he said, is that "insurers are saying, 'If you don't rebuild, we don't owe you replacement costs, we just owe you actual cash value.'"

Meanwhile, the company may want to rebuild, but doing so may take longer than the policy stipulates, he added.

"That was one of the issues of Seven World Trade Center," he noted. "They had two years to rebuild, but how can you rebuild [on the WTC site] inside of two years? So that is being litigated."

Owners of hotels and other establishments in New Orleans have similar decisions to make about whether to rebuild, he added.

This disaster, he said, has made risk managers "acutely aware" of what their property policy does or does not cover.

"Studying the policy is very important," he cautioned, noting that once a loss occurs, it's too late. "After Katrina there were some surprises for risk managers, especially on business interruption," he said.

Are risk managers getting the message? Although many felt immune to the terrorism risks heightened by 9/11, Katrina has had a broader effect.

Post-Katrina, although "the shock has worn off," he said, "the lessons learned continue to live on. Many businesses are still out of business there. Many companies had to close down facilities and locations."

Ruth A. Grande, executive vice president and director of client services with Sedgwick Claims Management Services out of Memphis, Tenn., noted that regardless of the insurance arrangement, "savvy risk managers understand that a significant cost component is their claims management program."

Whether workers' compensation, property losses or liability claims are involved, "depending on the industry, the reporting, administration and payment of claims needs to be managed for best outcomes," she said.

Ms. Grande advised that when looking for outside help on claims–whether a third-party administrator, a broker or some other provider–risk managers need to view it as a partnership.

"You're looking to either avoid claims with safety prevention or mitigate the cost of losses once they occur," she said. "It begins with the risk manager and the claim organization understanding and developing a joint business plan."

She said risk managers need to share the goal of their companies, identify what makes them profitable, and then determine how claims management can support that.

"Starting with that understanding and using the tools the claims administrator can bring is where you start talking about reducing claims costs," she said, adding that another important ingredient is how data is analyzed.

Leslie A. Grever, vice president and account executive in Sedgwick's Chicago office–who formerly worked on the risk management side–observed that many major firms have limited resources when it comes to analyzing and preventing losses.

"It's out of sight, out of mind and hard to put a dollar amount on," she said. "So you wind up with limited safety resources and you want to direct them where they'll give the best value."

The best value, she pointed out, may not be claims management once a loss occurs, but rather "avoiding the claims in the first place."

She noted that TPAs can help risk managers by offering insight into ways safety resources can be used to the best advantage, while emphasizing that "safety is a good investment and everybody's job."

Another consideration for risk managers, she said, is establishing a cost-allocation program within the organization.

Having such a program–where the claim costs in some form, paid or incurred, are taken out of general corporate expenses and allocated to the particular entity where the losses occurred–can impact the bottom line of the entity and "get the attention of senior management within that organization."

Getting the managers' ear within different areas of the organization becomes "critically important, either in prevention and safety initiatives, or in mitigating losses once they occur," according to Ms. Grever.