Who hasn’t heard or maybe even recited the maxim, “Claims don’t get better with time, they only get more expensive”? So, then, why do so many claims languish to old age?
With all of the industry’s attention on data mining and harvesting the value of unstructured data from claims files, there is perhaps no single unstructured data item as potentially impactful in the claims industry as the word “wait.” The word actually declares a conscious plan to do something later rather than sooner. Even without sophisticated data analytics capabilities, once you are sensitized to the insidious nature of the word “wait” in claims file notes, you’ll be amazed at how often it appears. You also won’t be able to stop seeing it with alarming frequency.
Before we consider some practical yet often overlooked or underappreciated solutions, a deeper understanding of the problem is needed.
Costs of Waiting
The costs of waiting manifest themselves in increased loss costs, including both loss and expense dollars. The biggest costs are direct and identifiable dollars, but opportunity costs can also be significant. The causes of waiting include well-intentioned but suboptimal case strategies, litigation management plans suffering from a lack of experience or expertise, an institutional penchant for hesitation, and typical human tendencies to procrastinate. The cures for waiting include a variety of techniques to recognize and overcome the causes and reduce the costs.
Experience has proven to claim professionals that defense costs and other expenses naturally and undeniably increase as claims age and as legal and investigatory investments need to be made in claims files over time. Legal and other allocated loss adjustment expenses (ALAE) on relatively straightforward claims such as slip/trip/fall cases can easily reach $25,0000 to $50,000, or even more.
Not only does ALAE increase with age, but also unallocated loss adjustment expenses (ULAE), which mount more quietly. ULAE includes the internal costs of handling claims that are not allocated to or paid from the individual claims file. The most significant ULAE component is often the time of claims professionals measured in salary and related expenses, benefits, technology, and even rent allocations. Unless directly billed by a third-party administrator, a carrier’s mounting costs of handling claims are often not directly measured at the individual claims file level. ULAE can be a significant source of leakage frequently untraceable at the individual file level.
In addition to ALAE and ULAE, claim executives commonly track claims severity by age, and actuaries have a complementary view of the same phenomenon through loss development triangles. The impact of a claim’s age on loss dollars can be more controversial, but no less certain. After all, shouldn’t the value of a claims file—absent additional post-loss factual developments such as a deteriorating medical situation or discovery of a new witness—have a readily discernible value without a lot of elasticity? Why would the aging of the claim, in and of itself, have any impact on the value of the loss sustained? Does attorney representation truly add to a claim’s value? A variety of other factors can also come into play, including changing perceptions of value by either side, evolving strategies to increase or mitigate value (depending on which side you’re on), or simply becoming too invested or entrenched in a biased or inaccurate evaluation.
All components of the loss costs triangle can be negatively pressured by the aging of a claim. Some are just easier to see than others.
Causes of Waiting
There are numerous causes of waiting, many of which have alternatives for acceleration. They include poorly devised case strategies and plans; hesitation inherent in the claims organization itself; and the tendency of people, especially busy people, to procrastinate. Here are some common causes of waiting.
Waiting for More Information. Even the most basic lawsuit can generate troves of documents, data, and information, and it is rare that even that most basic lawsuit has all questions answered with certainty. The acquisition of any material piece of evidence or information in litigation can always lead to the need for the next item, and the next. Loose, poorly designed case strategies fail to identify and pursue the information truly critical and adequately sufficient to evaluate a case; and even when they do, seem to keep going without knowing when to say when. “Enough is enough” should not be an expression of frustration, but rather a statement that the truly critical information adequately sufficient to price the case has been targeted and is now available.
Waiting for a Demand. A demand is simply a subjective and often wishful statement of value as well as a starting point for a negotiation. It carries no substantive weight of its own, and is arguably independent of the actual, objective value of the case. So why wait for it? It might seem easier to develop your own evaluation from the starting point of knowing the demand, but if you have what you need, evaluating a case and making an offer before receiving a demand is one of the most impactful ways to accelerate case closure.
Waiting for a (Reasonable) Demand. It’s easy to withhold making any offer when faced with an offensively unreasonable demand, but it is equally unreasonable to offer nothing. Few litigated cases have a zero-dollar value, as defense costs of even a perfectly defendable case can call into question the economics of a long fight versus an early compromise. Reputational issues may influence decisions to fight versus compromise, but shouldn’t lead to a decision to not offer anything without first receiving a reasonable demand.
Waiting for Mediation. Mediations have become the new trials. With a mediator as judge and jury, cases are argued in a safe and non-binding forum. No runaway verdicts, no outlier jurors (good or bad), no surprise rulings, and even formal protection of related communications. Claims professionals and defense lawyers seem to have fallen too often into the habit of working to prepare a case for mediation without first considering a pre-mediation offer and negotiations.
Waiting Because I’m Busy. Whether it’s receiving a new claim to investigate, a new suit that needs defense counsel assigned, a case that needs a timely coverage position letter, a time-limited demand, an upcoming mediation that requires immediate preparation, we all have work that is more pressing, which often results in unintentional waiting on files that have less-urgent demands. There are dangers in always prioritizing urgent situations over important situations, though. Waiting can be done without urgency, but it can also have important consequences with insidiously mounting claims costs.
Waiting Because I Don’t Know Any Better. Not knowing what to do next leads to uninformed waiting, as does a misunderstanding of what is truly needed to advance a file. Ignorance, innocent or otherwise, is the enemy of claims resolution.
A word of caution: Sometimes, waiting can be appropriate, although not with the pervasiveness currently being experienced in the industry. A truly pivotal deposition, a legal ruling, an inspection, an expert opinion, and other similar things might require a designed, conscious wait. Any wait intentionally designed into case strategy should be agreed to by the defense team (claims professional, defense counsel, and defendant) as being crucial for the best outcome. Sometimes, an issue in the case needs time to mature, or the parties just need more time to contemplate their positions; but if the benefits of the wait can’t be clearly explained, then the wait isn’t crucial and isn’t helping the case resolve.
Cures for Waiting
Armed with an understanding of the causes and costs of waiting, a variety of cures can be deployed. The most important strategy is to simply ask, “Is the wait worth it?”
There are stand-alone software solutions as well as components and capabilities built into many modern claims platforms permitting claims professionals to not only manage individual case strategies, but also to provide a portfolio view and measure performance. While these software solutions can be very powerful, they will fail without the right litigation management ecosystem surrounding them.
Before turning to automation, be certain your claims staff is on the same page with the company’s overall litigation management vision. Are early settlements and expense savings prized, even if the settlements come at a premium price? Is the best loss/indemnity outcome the goal, regardless of what it costs to achieve it? Surprisingly, companies seem to subtly value certain dollars more or less than others, and sometimes a loss dollar, an ALAE dollar, and a ULAE dollar are not all worth the same. While your CFO will tell you that “a dollar is a dollar,” knowing if certain dollars in the loss-costs triangle are valued more than others is an important part of understanding a company’s litigation management vision.
Additionally, an early, thoughtful, and aligned defense strategy can avoid detrimental waiting and deleterious case aging. Should the case be settled now? Is there one or a few critical items to develop that would be adequately sufficient to evaluate the case and begin negotiations? Should all efforts be focused on preparing the case for dispositive motions? Or is the case headed to trial? (Really?) Having an early meeting of the minds of the claims professional and defense attorney can set a case on the right track. Conferring with counsel frequently as developments occur and assuring the ongoing alignment of the case strategy helps to avoid either counsel or the claims professional falling off track.
Also, be sure to consider claims guidelines, best practices, and performance expectations. Clarity as to the company’s litigation goals, trial appetite, and interest in early compromise should be aligned from the executive level through middle management and directly to the front-line claims staff. Expertise and supervisory oversight on the right files assures another set of eyes on case strategy.
Communication and training is critical, too, since the best intentions don’t amount to much if not clearly communicated and reinforced through positive examples. After-action reviews create learning experiences with both claims staff and defense counsel, and are important because if you don’t train to it, you can’t expect it to happen.
A quality assurance program that monitors and rates performance of both claims staff and defense counsel is critical to reinforcing expected behaviors and outcomes, as well. The best programs are based on outcome data and metrics, and not just compliance with checklists or popularity contests. A good program needs to be closely synchronized with guidelines, best practices, and performance expectations. More and more law firms are now providing proprietary scorecards and sophisticated data and analytics that dramatically increase transparency of performance, and new vendor offerings are also coming to market. These developments are nothing short of revolutionary for the future of assessing performance on claims litigation.
A Final Thought
Aligning all stakeholders on the ultimate goal for each case as well as the next step towards that goal is critical to achieving the best claims outcomes. Driving the “wait” out of claim files begins with an overall vision for litigation management strategy, skillfully executed to optimize all components of the loss costs triangle. So the only remaining question is, “What are you waiting for?”