Remember the classic 80’s film “War Games” where the computer system named War Operation Plan Response, or WOPR for short, asks Mathew Broderick in that See ’n Say computer voice “Shall we play a game?” The movie was a tense thriller that was topical for my Cold War childhood but pointed out, among others things, that all games are not fun. Insurance claims should not be a game, where one side is playing games as a tactic to delay or reduce claim payment. It’s much like a battle in a war, in which one side is lured into an ambush. Unfortunately, I see this all to often when preparing property and business interruption claims for my clients.
The reason it is so frustrating is that my client is usually struggling to recover from a major loss to it’s business, affecting them financially and emotionally. They have done their best to protect from such an occurrence via loss control, insurance procurement and a proper claim filing. So when they document their losses and present their claim under the terms of their insurance contract, they should not have to battle bullying, stall tactics and misguided theories.
As an example, I had a chemical company as a client whose business was heavily dependent on the supply of raw materials from specific international locations. The exclusive relationships with these international suppliers and their governments took decades to forge and represented a distinct competitive advantage. Their business was cyclical and during a low point, their manufacturing plant was devastated by a hurricane. If they were not able to get back up and running quickly, the long term contracts with their suppliers would be cancelled undoing years of supply chain efforts.
The CEO had a legal background and recognized the real possibility that his company would not recover from this loss if the insurance they bought could not reimburse in a timely manner. He knew he was facing the possibility of laying off over 1,000 employees as well as losing long term supplier relationships.
The insurer’s tactic was to overwhelm the client with requests for information while demanding time and attention to explain the operational complexities. While scrambling to answer the flurry of questions, my client had to accommodate a large group of insurance investigators at their chemical plant that was still underwater. Contractually, the insurance company has the right to gather information they need; however, there is a tact and decency that should be observed. The insurers strategy was to leverage the policyholder's crisis situation to establish reasons not to pay the claim based on misguided theories about their business. Because of the chaos, when the insurance consultants arrived on site to survey the damage, the client was not prepared. They did not have a proper escort for the insurer consultants to review the damaged facility. As a result, information was gathered from which they made critical assumptions about the damaged equipment that formed the basis for their theory on the valuation of replacement equipment and lost production.
The client was not informed about these conclusions until some months later when the report was presented. They were ambushed and put on the defense, backtracking trying to disprove the incorrect information. All the while, claim payment is withheld until the issues are resolved.
This tactic is common in claim war games. While the insurance team may just be doing their job as instructed, a company’s existence is at risk. Adjusters are often cavalier about this process and will hide behind their “duty” or policy wording, while in reality they are just playing games with the money owed to the policyholder.
Despite the games, I am happy to report that through a lot of hard work and foresight, we were able to overcome these obstacles and secure advanced payments to stabilize the client’s operations, maintain supplier relations and create an equitable settlement. The CEO and other executives were relieved and appreciative of the results we achieved considering the situation we were facing.
So how did we do it?
It takes an effective strategy and careful execution to be successful and here’s the approach that we know works best:
- Take Control - You do not want to put off the insurance company too long, but it is okay to let them know you are going to control when they get access and who they can interview. More claims are derailed in the first week by uncontrolled access and miscommunication.
- Agreements in Real Time - one of my favorite risk managers relates this mantra during claims, “we make decisions in real-time.” What he means by this is that when confronted with a decision - say rebuild or replacement of equipment - you use all the information you have at that time to make the decision. As long as the adjuster is aware of the decision and your reasoning, they should not second guess what you have done down the road once more information is known. For example, immediately after a loss you think you need two cranes onsite to move equipment and debris. After the fact, you realize you could've got by with just one. You made a decision in real-time that was based on what you knew at the time and should not be penalized based on your initial estimation. If the adjuster doesn’t object at the time of the decision, they have no grounds to object after the fact.
- Clarify Requests - the insurance company is going to ask for information - a lot of information. In general, these requests are broad in scope and may even be used to fish for something that can be used against the claim. Don’t let this happen. Ask that requests be specific - if they are not specific, send the request back. Ideally, claims are presented with supporting documentation and that should be the focus of requests. I am often used to filter this information down to what is really necessary to provide - which should be specific to what is being claimed. Extraneous information can create confusion and lead to more requests. Your loss accountant, if experienced, will be helpful with interpreting these requests and focusing on what is relevant to the claim.
- Recruit Experts - Adjusters and their team work on claims every day. It’s their full-time job. For you, it is an infrequent part of your job. If you want a smoother process and positive outcome, you need experts working on your behalf. In addition to your internal team, your brokers claim experts, as well as independent forensic accountants, engineers and outside counsel are critically important. Ensure that those on your team are working on your behalf and match-up well against the insurance company representatives. In my claim example, we were not engaged from the onset, so it is vital to have your independent team vetted and agreements in place ahead of a loss. Remember, like this example, many claims are hindered by mistakes made in the initial weeks post loss. Immediately after a loss is no time for shopping.
- Don’t play games - In other words, focus on the claim, not the games. Prepare an accurate claim from your perspective, be upfront with relevant information and be reasonable in final negotiations. As stated before, games have no place in claims. Just because insurers may play games to offset your recovery, doesn’t mean you need to do the same. You are much better off being prepared, being professional and being confidently in control of the process.
If you follow this advice, you will stand a much better chance succeeding with claim recovery. Just like WOPR realized in the movie, with claim war games there are no winners. Avoid this ambush by being prepared and informed.
Published 6-8-16: InsuranceThoughtLeadership.com