3 fundamentals of closing insurance claims - PropertyCasualty360

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Insurance carriers today are focusing on reducing claim cycle times and increasing claim closing ratios while maintaining a high degree of accuracy. Therefore, our industry is now in an age where companies are utilizing automation and internal intelligence to accelerate the claims adjudication process.

One of the key fundamentals in this process is investigating, documenting and communicating coverage to the insured. However, adjusters must still apply their critical thinking skills, along with using the automation and internal intelligence available to them, while completing this important claims activity.

How can an adjuster’s critical thinking skills be applied and how do they promote conducting a reasonable coverage investigation, making a timely coverage decision and increasing the ability to accurately apply the policy language to the merits of the claim?

Before answering this question, let’s define critical thinking. I read somewhere that it is the analysis of facts to reach a decision or to make a judgment. Well, it sounds simple enough…or is it?

Fundamental #1: Investigating to ‘find’ coverage

One of the first directives we all received as insurance claim professionals was to conduct our investigation to “find” coverage on behalf of the insured if it exists. This basic fundamental is easily completed with very little critical thinking required when everything lines up for the adjuster.

For example, if the named insured and listed vehicle or the property described on the policy declaration page are both involved in the loss, the challenge of finding coverage is easier. The same is true when the facts of the loss do not create a potential coverage question. However, what investigative activities should an adjuster consider after recognizing there is a potential coverage issue?

First, tailor the investigation to the specific coverage issue. Consider the following two simple examples of coverage issues and the activities the adjuster exercises as part of the process:

Scenario 1: Insured is operating an owned vehicle not listed on the insurance policy

Investigation activities:

Review prior policy endorsements.
Obtain and review bill of sale or purchase agreement.
Statement from the named insured.
Statement from the insured’s agent or broker.

Scenario 2: A water leak at the insured’s home

Investigation activities:

Review of prior claim history.
Complete an inspection of the property and damage.
Engage a cause and origin expert.
Statement from the named insured.

There are other factors for the adjuster to contemplate that could influence how coverage is applied to the facts:

Policy contract language ― How did the completed investigation assist them with applying the language to the merits?
State statutes/insurance codes ― Are there any statutes or codes that apply to the facts?
State case law/public policy ― Have the state courts provided any opinions when interpreting the application of any “on-point” statues, codes or policy language?

Fundamental #2: Documenting the investigation activities

The adjuster should clearly document the specific nature of the coverage issue along with the investigation activities he will be completing to “find” coverage. It is equally important for the adjuster to think about and indicate how he believes each activity will assist with the investigation.

As an example, a statement from the insureds about the unlisted owned vehicle they were operating should provide some specific answers such as when the insureds purchased the vehicle and if they notified their agent or broker about the purchase of the vehicle. The answers should provide the adjuster with the opportunity to determine if the vehicle would meet the policy definition of a “newly acquired auto” or a “replacement auto.”

Each completed investigation activity should be clearly documented and include the date of the activity, what was learned and any additional actions to be taken, and why the activity is necessary. This includes all telephone calls, sent and received emails, sent and received letters, and all documents requested or reviewed.

Decisions to either accept or deny coverage should be documented by the leader unless the adjuster has the authority to do so without management approval.

Fundamental #3: Communicating with the insured

The adjuster should call the insured and explain the coverage issue as soon as the issue is recognized. The explanation should include the activity the adjuster will be completing and how it will assist with the investigation to “find” coverage on behalf of the insured. The adjuster should also inform the insureds about when they will receive a reservation of rights letter and explain why the letter is necessary.

The reservation of rights letter should be prepared and clearly state the specific coverage issue(s), including any pertinent policy language, and outline the investigation the adjuster will be completing to “find” coverage on behalf of the insured.

Some states have insurance regulations that require the insurance company to send periodic status letters to the insured until the claim is accepted, either in whole or in part, or when it is denied. The adjuster should be familiar with these regulations.

The coverage decision must be communicated to the insured in a timely and clear manner. Ideally, it should first be communicated by phone because it provides an opportunity for the adjuster to clearly explain the decision and to answer any questions the insured might have at that time. This conversation should immediately be confirmed in a letter to the insured.

It is recommended the adjuster’s letter include language that withdraws the company’s reservation of rights when they are confirming coverage on behalf of the insured. This written communication must be very clear about why coverage is now being provided to the insured. It should include the next steps to be taken by the adjuster or any expected cooperation from the insured.

The letter denying coverage to the insured must be equally clear because it must include the reason(s) why the company has taken this position. It should include the action the company will be taking on all current claims presented against the policy and all future claims that could arise from the loss.

Our industry is now utilizing email as a common way to communicate with the insured. Be cautious when communicating by email, especially if coverage is being denied because some states require specific language be included in a coverage denial letter. This state required language is usually already part of any coverage denial letter housed in a company’s Claim Correspondence Library.

While automation is a valuable tool in the adjustment process, it can never serve as a substitute for applying critical thinking skills. By utilizing them early and throughout the life of the claim, you should begin to experience improved quality in every aspect of adjudicating a claim with an involved coverage issue.

Ken Oswald ([email protected]) is a retired claim executive with over 40 years of experience. He is now a practicing insurance claim consultant and expert witness located in San Diego, Calif.

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