Thoughts On Claims Incentive Goals—Where Is the Goal To Not Overlook All Damages?

Merlin Law Group attorney Drew Houghton brought an article, Discovery of Insurer Employee Incentive Plans: Rewarding Employees For Paying Insurance Claimants Less, to my attention. It was written by longtime colleagues Mike Abourezk and Marialee Neighbours. Their article is important and raises one of the fundamental ethical questions of claims management: The role of the claims professional regarding company profit. While insurance companies need to be profitable in the long run, I have yet to see a claims goal that rewards claims managers for making certain that the customer has not had benefits missed and not paid after a loss.

The entire article is worthy of reflection and study. The beginning is a good summary:

Insurance companies set financial goals and objectives for their employees, including their claims personnel. Employee incentive plans reward personnel for achieving these financial goals with promotions, salary increases, and/or bonuses. For claims personnel, this may mean denying or minimizing claims.

Basically, discovery of an insurance company’s employee incentive plans is an effort to discover the motives, intent or lack of mistake behind bad faith conduct. As the term ‘incentive plans’ suggest, such plans are obviously intended to influence the behavior of insurance company employees. If claims handlers or their supervisors are vying for personal cash bonuses or other awards, this information is highly relevant in a bad faith case.

Mike and Marialee won a case involving these issues, as noted in Incentive Pay to Lower Insurance Claims to Policyholders Still Exists. That post attached the expert affidavit from the case describing the claims incentives at Travelers. These incentive programs are very guarded:

These incentive paid programs are neither disclosed or advertised as existing for obvious reasons. Insurance company executives love the attention about why their stock price and income are rising, but do not want to admit that it comes as a result of tough claims payments. Insurance company lawyers try to hide these incentive programs from view by refusing to turn them over when requested in discovery or by requiring “confidentiality agreements.

While writing this post, I noticed that the pleadings from that case indicated the return and destruction of confidential evidence, which certainly must have been many of these internal claims incentive programs.

The title to this post came from a post written thirteen years ago, Wrongful Claims Practices For Which Insurers Should Be Punished (Part Two). In that post, I noted many companies teach that ethical good faith handling requires prompt and full payment, yet the company still maintains claims goals which do not align with what is taught as ethical good faith claims practice:

The insurance process works pretty well most of the time, with most claims resolved in a more or less acceptable manner. Most insurance company adjusters want to get the full amount of benefits to customers as quickly as possible, have the claim closed, and get a fair paycheck for their work. Most insurance company adjusters are initially taught good faith obligations of claims performance. There are a number of insurers and insurance company attorneys who truly seem to be engaged in good faith claims teaching, discussion, and review of problem cases. They try to get even bad faith claims resolved fairly and quietly.

Problems occur when insurance company management initiates claims programs and cultures where full and prompt payment is difficult for the field adjuster, or first line of claims management, to obtain. When upper management sets goals to pay less on claims, they do so at the expense of customer service. Does anybody believe insurance executives would accept higher claims payments in order to obtain the alleged goal of great customer service when their bonuses are based on paying less?

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Good faith claims rules are known and often enforced by in-house and outside insurance company attorneys. These attorneys recognize that their clients owe policyholders a legal and regulatory duty of good faith. We often cite to this in our cases when our clients have not been treated fairly.

For example, our firm’s Knowledge Manager, Ruck DeMinico, was researching Zurich Insurance Company’s position of good faith claims handling for an upcoming mediation of mine. He came across some information demonstrating that Zurich insurance attorneys do not teach adjusters how to underpay or delay claims. To the contrary, his research came across a number of articles about and by Zurich’s in-house claims counsel, Daina Kojelis, which show a very sophisticated and behavioral side to good faith claims philosophy. This philosophy is also found in courses leading to the CPCU Designation–probably the most ethical coursework and professional designation in the insurance business…..

… paying the full benefits is not the purpose or result. Every time a new claims initiative is implemented, it is about paying less and showing that the claims department is doing better than its competitors at paying less–just go through the Zurich claims management presentation for an example. Even though well meaning legal counsel may teach the good faith option, I think most get the picture that executive managers are trying to drive greater profit and personal compensation.

For those interested in reading more on this topic, I attach a paper by insurance claims expert Charles Miller, describing some of the claims programs which were initiated with these goals in mind: Behind the Scenes in the Insurance Claims Industry: How Insurance Companies Have Revolutionized Insurance Claims Handling©.

Thought For The Day

What you get by achieving your goals is not as important as what you become by achieving your goals.
—Zig Ziglar