This article examines the third of the five major components of the claim management process, whether for insured, partially insured, or uninsured claims. So far, we have covered claim reporting preceded by an overview of claim best practices. In this article, I cover claim investigation, which is at the heart of the claim process in the journey toward reaching a final resolution.
Central to the claim management process is the investigatory efforts that are focused on gathering the evidence, formally and informally, that enables the analysis necessary to help determine such critical issues as the following.
- The extent to which the insurance coverage applies, if at all
- Whom the coverage applies to
- The value of the claim
- What the reserve should be to cover the financial obligation
- The information that is needed to effectively address elements of the claim, such as injury payments, medical bill payments, property damage payments, retention of lawyers, paying versus denying and defending, etc.
- The additional information that may be needed to move an open claim to its final resolution and file closure
Much of this activity revolves around not just the claimant but the other sources of information such as witnesses, law enforcement, experts, medical providers, employers, and others. Thus, the core investigative activity involves interviewing people who have the facts needed about issues above and securing information from other sources that add to those facts (e.g., police reports, physical evidence, social media, or video sources). While most of this was done in person in the now distant past (note: the shift toward desk-based investigations began in the 1980s), today's modern claim professionals are frequently able to gather the needed evidence much more efficiently and effectively from behind a computer screen and by telephonic inquiry.
Most often, the key goal is urgency since failing to act quickly in the aftermath of accidents can mean evidence could be lost, which degrades analysis and decision-making in the overall claim management process. In some exposure areas, regulatory requirements, such as under workers compensation statutes that require decisions (e.g., compensability) and payments (e.g., first and recurring wage loss reimbursements) be made within specific time frames. Failure to meet regulatory rules can often result in fines and penalties for the insured and/or claim handler, a situation all claim professionals prefer to minimize if not avoid.
Other important aspects of the investigative process include the following.
- Preparation for litigation, including civil trials
- Preservation of evidence
- Dealing with the law and lawyers
- Finding and securing expert witnesses
- Accident reconstruction
- Documenting a file legally and sufficiently
I'll address each of these elements next, beginning with litigation preparation.
Litigation
While most reasonable people prefer to avoid the time, expense, and headaches of filing suit or being sued, there are circumstances when a claim resolution may not be achieved any other way. This can be a simple matter of attitude where one party demands more than the other is willing to pay (reasonable or not) or a more complicated matter of disagreement over the interpretation of one or more elements of the evidence. One simple example of this is the credibility of witnesses. Witnesses have varying levels of credibility, and those levels can be highly subjective with various biases and tendencies to look at "facts" differently. Regardless, their testimony may be more significant to one party or the other, and, if a case is tried, it's only the jury's view of that witness that ultimately matters.
So, claim professionals must engage in their work with the possibility in mind throughout that a claim may end up in suit and possibly a full civil trial before a file can be closed. This means understanding rules of evidence and court procedure such that, if this occurs, the file is sufficiently documented to turn over to a lawyer for its further handling and defense.
Preservation of Evidence
This may seem obvious, but, as reflected above, courts and juries have rules and expectations about evidence that they must consider and assess, and that the claim professional must be mindful of during the investigation. This may be whether it's the way accident photographs are handled from inception to trial presentation or whether or not a statement taken from a witness, recorded or written, is done in such a way so as to ensure it doesn't get thrown out by a judge due to potential spoliation. This typically means ensuring that the evidence is properly handled, labeled, documented, and stored to retain its ultimate usability before a court of law.
The Law and Lawyers
Much of what I referenced above is directly affected by the jurisdiction(s) relevant to the case. This may be, for example, one place for the accident and another for the court of law used. Regardless, claim professionals must understand the fundamentals of the jurisdictions in which they handle claims both for basic claim evaluation decision-making (e.g., is negligence law based on "contributory" or comparative negligence?) as well as for preparing a case effectively for defense should litigation ensue and it be handed over to a lawyer to conclude.
Lawyers become involved in litigated claims on both the defense (the insured) and prosecution (the plaintiff) sides. On the defense side, it is common for lists of defense counsel to be used based on previous experiences and the willingness of those lawyers to work cases in accordance with the methods and philosophies of their benefactors (insurers or self-insurers). They may alternatively be part of "house" counsel where they would be on the payroll of an insurer for this purpose. Through literal trial and error, these "approved" lawyers persist through a combination of results and relationships that evolve from handling litigation volume over time.
On the plaintiff side, it is much different. Plaintiff lawyers are by definition in an adversarial position to insureds and insurers, and, as such, the interactions with them can be wrought with friction as each party seeks to maximize their results, usually in the form of monetary payments (i.e., settlements and verdicts). Thus, they act in ways that are often aggressive and challenging to the claim professionals who represent the opposing party. As such, claim professionals must develop skills that enable them to deal with these adversaries in order that they may represent the interests of their client best. In both situations, good interpersonal skills are required to succeed in dealing effectively with lawyers, regardless of which interests they represent.
Witnesses
The "facts" are sometimes hard to verify, making witnesses valuable sources of information about what happened and thus corroborating or providing alternate views that validate the facts or bring the accuracy of the facts into doubt. As a result, it is common to seek and secure witness statements, either in writing or recorded, for addition to the claim file and later assessment of key questions. One particular focus is a comparison of accident descriptions when the "facts" are less than clear or disputed.
Finding witnesses is the first challenge, which is followed closely by securing their cooperation. The latter is understandable as the reality is that when they consent to provide their view, it may very well mean that they may end up having to testify in court should the matter not be resolved short of litigation. This will deter some witnesses. Ultimately, however, the bigger challenge with witnesses is assessing the accuracy or sometimes even the veracity of their account. This means leveraging a whole set of people skills that provide insight and interpretation that claim professionals must develop to be the most successful. The truth is, some people are just harder to read than others, and yet witnesses will sometimes be the defining differences among divergent claim outcomes.
Accident Reconstruction
One of many useful experts that claim professionals sometimes engage to get a better, clearer view of what actually happened are accident reconstructionists. An accident reconstruction is a scientific approach to solving the questions of how and why an accident occurred. This approach is usually performed by experts trained in the field of accident reconstruction engineering and physics as well as law enforcement personnel that have this specific training. It is most commonly used in reconstructing traffic accidents but can be used across a variety of accident types; it can be very helpful in validating accounts by claimants and witnesses of what actually happened. This is especially useful when participant memories may not be reliable due to injuries and the mental and emotional trauma of more severe accidents.
These services run the gamut from very limited to significantly comprehensive approaches to recreating an accident. The last one, of course, is much more expensive and time intensive but may sometimes be necessary to understand the more complex scenarios that define some accidents. Like all "extra" loss adjustment expense (LAE) involving contractors, the extent of the approach taken will be driven primarily by the potential ultimate value of the claim.
File Documentation
We've discussed most of the key aspects of claim investigations, all of which lead to information being documented for either a physical or (most often) an electronic claim file and the compilation then enabling the claim professional and all appropriate parties in the process to leverage investigative information for each of their specific purposes. To meet these ends, both timeliness and accuracy in file documentation are critical.
One element of documentation that is particularly time sensitive and important is the reserves set and periodically adjusted on every claim file. These are typically determined or validated by the claim professional assigned to a claim and often overseen by claim supervisors or managers to whom that person reports. These financial values are set to establish for accounting purposes what each of the component parts (e.g., LAE, bodily injury, or property damage) of the claim will cost and what the total will be at closure. The accuracy of these estimates improves as information is gathered and added to it. As actuaries apply their magic to the file reserves, the claim values in the aggregate find their way to the "ultimate" value. This ultimate value of a book of losses, typically associated with a particular insurance policy term, determines what, if any, profit the insurer/self-insurer makes on the policy.
Thus, accurate reserving is an important part of file documentation that is a core responsibility of a claim professional and the accuracy of which is directly related to the success of the claim investigation as outlined in this article. Needless to say, claim investigations are often the most time-consuming element of claim management but also the most critical to getting an accurate evaluation of the legal obligation and a fair and equitable resolution for all parties.
The next subject in our series on claim management will be claim evaluation and reporting. After this subject, I'll conclude the series with the claim settlement and resolution activity that leads to the final goal of timely, fair, and effective claim closure.
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