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The Claims Report Card: How Are We Doing? Where Are We Going?

Editor's Note: For a complete transcript of the Claims Report Card panel discussion, including the panelists' further views on the future of insurance sales, customer expectations and accuracy of insurance data, please see our web site at

With 2000 and the new millennium a]ready upon us, now is a good time to take stock in the adjusting industry and to determine in which direction claims professionals will be going in the next decade, and the next century.

At the third Annual Claims Exposition & Conference (ACE), held last November in Baltimore, Claims held a panel discussion called "The Claims Report Card," in which representatives from the insurance industry and from a national consumer group rated the performance of today's claims adjusters.

The panel, moderated by Richard Rambeck, editor of Insurance West, sister publication of Claims magazine, included Janet Bachman, vice president of claims administration for the American Insurance Association, based in Washington, D.C.; Stephen Brobeck, executive director of the Consumer Federation of America, based in Washington, D.C.; and Bill Hofmann, president-elect of the Independent Insurance Agents of America, based in Alexandria, Va., and president of Provider Insurance Group of Belmont, Mass.

Topics discussed included customer service, the increasing pressure from trial lawyers, public perception of insurance companies, cost reduction, claims settlements, the effects of new technology on claims handling and many others. The following are excerpts from the discussion.

Janet Bachman:

Reconciling Perception & Reality

A lot of times we forget in our daily work how important we are. By "we" I mean you [claims professionals]. But oddly enough, others don't forget. We -- the property/casualty industry, as one of the three pillars of the American economy, along with banking and the investment industry -- support the creation of millions of jobs every year, the accumulation of trillions of dollars of wealth, and the ownership of virtually all property in the United States. We are, by far, the greatest advocate of health and safety in the United States. ... Even though we sometimes forget how important we are, as I mentioned, those who we deal with outside of the industry are well aware of how important we are.

As much flak as we take -- and we take it very often -- nobody wants to put us out of business. Everybody has a stake in the health of our industry. We have a lot, I think, to be proud of, most particularly on the claims side. Every year, as you know better than anybody, you handle millions and millions of claims, and you handle them competently. I'm going to run through a few statistics for you to give you, shall we say, fairly objective feedback.

First, what do our commercial customers think of us? Half of the property/casualty industry is commercial insurance. The other half, in premium volume, is personal insurance. The RIMS organization ... has been doing an annual survey, a customer survey, for a couple of years now, with some partners in the academic community. Our scores, from a claims perspective, have remained fairly steady. On a scale of zero to 100, we rate roughly, in claims, a "68." What that means is, basically, we rate a "C."

These are very demanding customers, as they should be -- they pay us a lot of money. What our commercial customers say in claims is they give us high marks for credibility, high marks for fairness, low marks for timeliness, low marks for being responsive to their individual needs, most particularly their information needs. By comparison, the brokers and agents score much higher than we do. The TPAs, generally, score much lower than the carriers do.

What do our customers think of us, on a personal side? Every year, for a number of years now, there's been a scoring system for all industries ... called the American National Customer Satisfaction Index, and, again, it's a joint partnership with ... the University of Michigan. They score all major industries by customer satisfaction, taking polls and surveys and so on.

And how do we rate against a myriad of other industries, both service and manufacturing? Basically, not as bad as you may think. For one thing, we're roughly on a par, in consumer satisfaction, with the utility companies and with retailers. We score above -- we make our customers happier than -- the banks, phone companies, the media and the airlines. We score below, almost consistently, manufacturers. The exceptions are the manufacturers of personal computers, and I think anybody who uses a computer can commiserate with that. But those scores are not as low as one might think. Again, on a score of zero to 100, the public, at large, scores us a "77." That's higher than our business customers do.

Let me give you some examples of scores after a loss. Remember, when they do widespread polling of the public, they're asking people to rate carriers both before and after they've had losses. Generally, your scores improve after a loss.

In Minnesota, in 1998, there was a series of terrible storms in the first half of the year. The state trade association afterwards did a survey of policyholders who had turned in storm claims to their carriers to find out how well the carriers had serviced the customers. The scores were pretty good. Eighty percent of those who turned in property claims because of those terrible storms were "very satisfied" with ... the service, with the payment, with the integrity and the communication. About 20 percent were not, and of [this group], the biggest complaint dealt with coverage -- they thought that the coverage explanations were inadequate or unfair. But an 80 percent score for our industry is actually fairly decent; it's not extraordinary, but it's pretty decent.

Third-party claimants -- what did they think of us? These are not our customers, obviously. These are the people making claims against our customers. [Their ratings] are the reverse of our customers' [ratings], and that probably should not surprise anybody in the audience. ... Nonetheless, based on a study from the Insurance Research Council, ... 41 percent of auto claimants -- third-party, mainly bodily injury claimants -- get lawyers. ...

Why do they get lawyers? Well, 40 percent of those who get lawyers do so because they think they need to protect their rights; they don't trust us to protect their rights. Another 25 percent get lawyers because of something we affirmatively -- at least in their mind -- have done that they don't like, whether it's we were late contacting them, we didn't offer them enough money, whatever the case may be. So, two-thirds of the people who get lawyers, get lawyers for reasons that have nothing to do with you, personally. [It is] a perception problem going into the equation as soon as the claim occurs.

Now, if you take those perceptions and you say, "What's the reality out there?" there are some interesting statistics. ... Based on another study from the Insurance Research Council, for comparable injuries -- even though the third-party claimants don't trust us -- people who get lawyers actually net, on average, less money than those who do not get lawyers, ... and they get their money awfully faster when they deal with us directly than when they have a lawyer. What that tells us, obviously, is that the public has good reason to trust us more than they do.

If you take a look at the number of [third-party] lawsuits that come into our industry to defend every year and you compare that in the litigated lines to the number of claims that we receive, what's our litigation incidence? ... Industrywide, about 8 percent of auto liability claims, mainly bodily injury, go into suit. Only 7 percent -- a surprisingly low percentage -- of other liability claims go into suit. Six percent of work comp claims go into suit. How often do our policyholders sue us for something they think we've done wrong, presumably egregiously wrong? Very seldom. Roughly one in 4,000. ... The incidents of complaints to regulators, both by policyholders and by claimants, is extremely low -- it's far below 1 percent of claims. That's the reality versus the perception.

So, what conclusions can we draw from that? I think it's fair to say, first of all, that, as an industry, not only are we very important but we execute our responsibility generally pretty competently. People generally like their own carrier far more than they like the opposing carrier. That's not a surprise, and it's very similar to how people feel about members of Congress. They like their own member of Congress and they think all the rest of them are bums. And, of course, if everybody was right, then every member of Congress would be a wonderful person.

... The opinion of most people about us improves after they deal with us. They learn that we're not as bad as they anticipated. Can we do better? Oh, vastly! Vastly better. ... [But] the overall conclusion that I want to leave you with is that there's a so-called common wisdom out there that nobody likes us, everybody hates us. To snicker about insurance companies is the thing to do. However, when you look at the reality, ... people do not, shall we say, "despise" us anywhere near as much as the common wisdom would have us believe. Since we generally get a grade of around "C+," maybe a "B," from our public, there is obviously a lot of room for improvement.

Stephen Brobeck:

Keep Claimants Informed, Involved

Well, I do have a little different perspective and, actually, you will be surprised that, even though ... most of you think I'm going to give you a pretty tough grade, I'm going to give you a fairly high mark. I think you do a pretty good job. The research that Janet cited bears that out. So does other independent consumer research.

I was actually a little surprised to take a look, in researching my remarks this morning, [at] two recent evaluations of your claims performance that appeared in Consumer Reports -- one on auto insurance claims, the other on homeowner insurance claims. While the ratings were a little higher for auto claims than for homeowner, on auto not one company that was evaluated -- and there were 25 or 30 -- received a "bad" rating. In fact, every one received at least a "good" rating and a number of companies received an "excellent" rating. So, you're clearly doing something right, and we commend you for that.

This surprised me a little bit, to look at those numbers, given what I know about the changes in the industry, particularly the restructuring that has affected your operations. You have tried to become much more efficient over the last 10 to 12 years. Why? Because consumers were highly dissatisfied, particularly in the large cities during the late '70s and '80s because of rising premiums. So, you took those complaints seriously [and] ... you did get more efficient. However, there is a tendency to cut corners [and] reduce service -- there are some trade-offs here between costs and between service.

That restructuring included, we all know, some increasing centralization of function, so that I would not be able to, for example, let [an agent] do quite as much work to help resolve my claims. I'd have to call an 800-number and talk to someone I didn't know. It also included efforts to restrain losses and, in fact, we support those efforts. Janet's organization and mine, you may or may not be aware, founded the Coalition Against Insurance Fraud. And what is the purpose of that? It is to encourage you to pay more attention to fraudulent claims, because [for all] those fraudulent claims you pay, those costs are passed on to all the honest policyholders. ...

Now, obviously, I would not have been invited if I were just here to deliver good news. There is also room for improvement. Janet cited research by the Insurance Research Council. Another finding of that organization is that at least 27 percent of claimants are dissatisfied with the compensation that they receive. One could probably look at that statistic either as the glass is half-full or half-empty, but there is a significant minority that is dissatisfied. When we talk to state insurance departments, [as] you're well aware, most of the complaints about insurance have to do with claims settlement. Frequent complaints include, "There was a delay in my compensation," or "Gee, I thought I was covered for that, but they tell me I'm not."

...In the last month, ... I was involved m a fender-bender. Now, I live and work in the District [of Columbia], and that is a very unsafe place to drive. In fact, I have been hit, in the last six or seven years, five times. ... I was late to a meeting and I pulled out into a passing lane, and a big old dump truck, whose tire was higher than my Honda Civic, came and just grazed my door. Well, that "graze" with a big old dump truck put a dent right in both the door panel and the left front fender. So, I took it to a body shop [with a] good reputation in D.C., [which] gave me a $1,400 estimate. I called my insurer -- they had me go out and see an adjuster at a separate facility, and he approved a claim for $1,100. Then I took it back to the shop, and I said "Well, I hope this works out."

Well, it didn't work out. The next thing you know, three days later, ... I get a call from the body shop [saying] they won't accept this. In fact, they delivered a replacement door without a mirror. ... I ended up setting up in my office a conference call between the body shop and the insurer. ... The insurer basically kept saying, "the body shop doesn't understand. We're going to take care of the claim." ... Early [the] next week, I call back -- the guy's nearly got it fixed. I called the insurer back, and there's two sets of stories [about why it's not resolved]. ... I have to set up a second conference call between the body shop and my insurer. It's a good thing I'm a real patient, understanding gay, because the average consumer would just be very upset at this point. Even that did not resolve the complaint.

What did I have to do to get it resolved? There is a happy ending to the story. I was mad at this point, and I was ready to start looking for another insurer. I called my agent. My agent solved my problem in one half hour! There's a lesson there -- don't cut them out of the process.

You can see here that, 20 years ago -- even 10 years ago -- I would've gone to [my agent] and he would've taken care of it and wouldn't have had to set up two conference calls or go through all of that worry and problem-solving effort. ...

What are the costs of that kind of experience? [First], it could mean loss of business -- I was prepared to walk, if [my agent] hadn't intervened. Second, more litigation, like the State Farm car part litigation. ... I must say that, personally, I'm sympathetic to you. We believe that you ought to be able to use the non-OEM parts. ... Why should we need a part that is of OEM quality -- and there's a great variation of quality in those parts -- when you're driving a five-year-old or eightyear-old car? My car is eight years old. I want the cheapest part. ...

[The] third cost -- more adverse legislation, like that California third-party bad faith legislation. Then, finally, [this fosters] greater toleration for insurance fraud. People say, "Well, they've taken advantage of me -- I'm going to get back at them!" You know how they get back at you -- they then can more easily rationalize essentially unethical behavior in terms of claims filing.

Remember that, for consumers, what's the product that you sell? It's the claims settlement. Otherwise, what relation do consumers have to you? They get a bill, they pay it. They get another bill six months later, they pay it. An expectation has been created -- probably a higher expectation than with many other products, because what you offer is assurance. They're going to judge you harshly if, after making those premium payments, you don't resolve or pay the claim -- if it's justified -- promptly and fairly.

What's especially important, I think, [are] three things:

* First, take preventive measures. Make absolutely certain that your policyholders understand the coverage. Here's actually where your agents have a great deal of responsibility.

* Second, when the claim's filed, explain the procedure and the decision-making. Most consumers, not all, will be reasonable, will cut you some slack, will listen to reason, if only you explain it to them. Whenever possible, offer them choices. I think where we're headed on this replacement parts controversy is to give consumers the choice and make them pay for the more expensive part. ...

* Finally, if the dispute cannot be resolved, offer arbitration or mediation as an alternative, as opposed to getting into a squabble with them.

One final word in conclusion: There has been, in our society ... [a] changing relationship between your primary-care physician and you. Even 20 years ago, some of those physicians would not have told you if you had had a terminal disease. They would have told a spouse or someone else. They would not have given you access to your medical records, if you had demanded them.

Think about today: [Doctors] give you all the information -- more information than you want. You don't want to hear all that information about the possible risks; they tell you anyway. They give you options. Sometimes, they don't even help you select those options This completely changes the relationship -- sort of equalizes it. Yes, they are the experts, but you are expected to achieve a certain mastery in terms of the way the service operates, and make a rational decision. And then, what's the implication of that? Take responsibility. It's more difficult for me, having made that decision, to go back and sue my physician.

Bill Hofmann:

This is where the service area -- the world in which you operate -- is evolving.

Claims Service Is What We're Selling

I think we're a unique business. We're selling things that people hope they're never going to use. Tell me any other product or service out there that people pay for, hoping against hope that they never have to use, that they won't see any of you out there that are adjusters.

We, as agents, sometimes create the problems for you out there, trying to handle the claims and solve them. Sometimes we goof on the front-end. [If adjusters are] talking about coverages not being there, that's our fault. We're supposed to be selling the proper coverages Out there, but a lot of times, you folks pick up exposures that we don't know exist, and we all have to work together. You folks, the adjusters, are the ones that we always go to, to find out what's covered and what's not covered -- not the underwriters!

The reason we're out there is because of the claim process. Anybody can sell them the insurance. It's the time when they have that loss [that's most important]. You people are dealing with, in many cases, catastrophe, when someone has totaled their car. I have a 21-year-old daughter who just totaled a car -- thank God she was fine -- coming home from college because she had to get a little more money from Dad; get some laundry done. But it's a catastrophe. ... We're now dealing with getting a replacement car. It's an economic hardship on my wife and I. She now takes a cab to go to work.

We people have major property losses, ... you people are stepping up when people have a moment of absolute catastrophe, and you do a very important job. The agents are the people who want to stay involved in that process. I've got a vested interest. My whole livelihood is based on selling. I don't get paid a salary every week. I only get paid when I can sell a product. If we sell something incorrectly, or you people don't do your job correctly, there are a thousand other places people can go to buy their insurance product. ...

The example that Steve gave wouldn't have happened to one of our clients. We'd have been involved in it long before it ever got to that situation, because it would have been one call to us saying "We've got a problem with this body shop and the company," and that's what we're there for. We think that's the most important thing we do in our agency. And we need you people to keep us informed.

...I'm excited about the advent of the computer and how we're going to use it in the claims reporting process. We're going to be reporting, directly to your companies, claims as we get them because we tend to get the first report. We're going to be doing this all electronically. We're going to be able to find out how soon you went out to look at that house, that business, that car. Timeliness is one of the most critical things we have in handling a claim. ...

I think that you adjusters do a tremendous service and you really are why the person bought that insurance to begin with. [However], your attitude in dealing with clients is one of the things that bothers me the most, if I was going to talk about a negative. You people need to have a real positive approach when you're dealing with these people. I know sometimes you've had one too many claims for the day, you've got all the paperwork you've got to do, etc., etc. But the biggest complaint that I hear in our office, from our clients, is sometimes the attitude that the adjusters approach the claims with.

Questions From the Audience

Q: In the past 20 years, the expectations of consumers seems to have increased in regard to insurance, due, some say, to misleading catch phrases in insurance company advertising. First of all, are expectations rising? Second, if so, to what degree is the industry responsible for this?

Bachman: I think expectations are rising, but then they are for all products and services. We're not being singled out, as an industry, for higher customer expectations. Our customers should have higher expectations of us, as time goes on. With technology and other resources, we're able to do more for them, and so we should.

I don't consider their rising expectations to be a negative or a problem. I consider it, genuinely, to be an opportunity to shine as an industry and be able to meet higher expectations, while keeping the price relatively steady. Frankly, you've done that. Keep in mind that the competitive pricing market has kept our premium costs, across the board in the United States, quite steady during this decade. At the same time, those customer expectations are rising, and you're still able to keep the costs down.

Brobeck: In an earlier professional life, I was a historian, as well a consumer advocate. One of the things that historians have concluded about this country is that it's unique, in part, because we believe in the idea of progress; that is, we think that things are going to get better. And that's good. Why would so many people take such incredible risks investing their hard-earned savings in new businesses, most of [which] we know will fail, if they were not really, deep down inside, hard-wired to believe that they could do it?

Well, every provider is sort of the victim of that expectation. In fact, in most product areas, there are improvements -- the quality of cars gets better, banking gets more convenient. There is also a similar expectation that consumers will get better value, better service for lower price, from you -- whether you can deliver it, or not, is not the issue. They have that expectation.

Hofmann: Yes, I think consumers are much more sophisticated today, I think that's correct. I think they should be. I think life and times are just so much more complicated. In fact, one of the things we re dealing with in our agency right now is, having looked at the Progressive [Insurance] model, how do we provide 247 claims service as an independent agent? I think we have to figure out how we're going to do that. And I think our consumers are expecting that.

If my daughter had rolled her car at 3 o'clock in the morning, I would've wanted somebody to call and talk to. So, who is going to be there? If you call our agency; it says "Thank you very much, call us at 9 o'clock in the morning." So we need to figure out what the expectations are there, when you do have that serious house fire in the middle of the night. ...

Q: In a recent poll, 4 percent of respondents said that a large insurance settlement in a lawsuit was the key to their retirement plans. How do you combat this perception of the existence of a "lawsuit lottery" as well as the aggressive lobbying efforts of plaintiffs attorneys?

Brobeck: Well, it's interesting you would cite that survey because we released it last week. The most frightening aspect of that survey was that, for households with incomes of under $35,000, more thought that they could accumulate several hundred thousand dollars in savings by winning the lottery or a sweepstakes than by patiently saving and investing. That was the real stunning statistic in that survey.

It's a very individualistic, entrepreneurial country. There's a good side to that, and there's also a downside. The downside is that some people -- a minority, I believe -- are just looking for all kinds of opportunities to get rich, particularly people who don't have much hope of dramatically improving their situation.

I had a very sobering and enlightening experience in the '70s. We set up a consumer group in different parts of Cleveland. The core member was a blue-collar worker. What I learned was that not only are these people very competent and energetic, but that also they all aspired to get out of their factory jobs. ... It's not just those of us in [this] room who have aspirations. ... Realistically, to them, even though the odds are not very great winning the lottery or winning big in a, lawsuit, it gives them some hope. ...

Theoretically, the best approach -- one that I think the public would support--is basically "you get what you pay for." If you want the ability to sue at the drop of a hat, you ought to pay for that ability. As a result, states like Pennsylvania have offered a choice of a couple of options [in their auto insurance]. While those options aren't perfect, they've worked fairly well. ...

Hofmann: It troubles me that our brightest people coming out of high school today are going into law school. They're not going into science and medicine. I think that says something about where the economic reward is. I'd love to see us adopt, in this country, the English system, where the loser pays. Maybe we'd cut down on some of the frivolous lawsuits that we've got.

But it all comes back to politics -- who controls the state legislature. Look at the occupation, state by state by state. Go to Washington. Look at the members of the House and Senate. The attorneys outnumber any other profession ... by [an] astronomical [amount]. The insurance agents, insurance company adjusters, insurance company people are not going into politics, they're not running for office. Doctors aren't. We're not the cross-section that we used to be when this country was founded. ...

"Choice auto" is a good example. Personally, I think we ought to do something countrywide on choice and let people make that choice. ... I understand, as an agent, that could potentially reduce my income, if people choose one form over another. It's interesting to me that Ralph Nader is such a champion of consumer rights, but gets so much money from the trial bar that he's opposed to choice auto. What's the message?

Bachman: Personally, I think the trial bar itself is the main shaper of the litigation lottery business. I don't think consumers are. You mentioned 4 percent [of consumers] are interested in looking at a personal injury suit as a key to retirement. Four percent, to me, is insignificant. ...

I think the trial bar should be respected as probably the last and most unfettered entrepreneurs in this country. They are uniquely positioned and do an incredibly good job of creating a demand for their product; and then filling the demand and making money off of it. They have an almost unlimited ability to do that -- I'm not surprised that they do it. But they do that on their own initiative. ...

Q: Based on the increases in technology, the growth of the Internet and 24-hour call centers, how will these advances affect the selling of insurance and the adjusting of claims?

Brobeck: The Internet will transform radically the sales process, but in regard to claims, there will surely be a dramatic increase in e-mail communications. But there will always be many of your policyholders that will want to talk to you by phone.

Bachman: I think if you look out far enough -- let's say 10 years, 15 years from now -- at the technology that'll be in place, ... I think it'll be a bonanza for customers, and for claimants, to some extent. ... Ultimately [everyone will] benefit, not only by driving down costs but by speeding up the process and increasing the satisfaction level.

There is a big hidden negative in there that we have to watch out for, and that's the depersonalization of the process. We're already in danger of doing that right now, for a variety of reasons that have nothing to do with technology, but technology can make it an even more impersonal process. Since, in claims, we're dealing with people at a very vulnerable and highly emotional moment, I think it's most important -- much more so than in the sales process -- that we guard against depersonalizing the claims process.

Hofmann: I totally agree with Janet. We have a web page at our agency. We're selling insurance over the Internet. I think the next generation that's coming up ... will be buying insurance [on the Internet]. The depersonalization truly concerns me because I don't think the consumers are going to be as well educated on the 'net as they can be with one-on-one [explanations]. I do think, as I reported earlier, that this idea of reporting claims on the Internet and over electronic commerce is absolutely the way we ought to be doing stuff.

We all need to understand: e-commerce is here, people, whether you like it [or not]. I look around [at some] gray hairs [in the audience], and I've got them, too. I know how to turn [my computer] on and off -- they don't let me do anything important with it. But it's how the world is being run today and we have to get up and do it that way.
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Geographic Code:1USA
Date:Jan 1, 2000
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