Hey, Claims Team, Nuclear Verdicts Got You Down? Partner with Legal to Get Ahead of Ballooning Costs
Talk to anyone in claims management, and they’ll tell you the same thing: This particular branch of the industry is here to help produce the best outcomes for policyholders.
“The profession attracts people who want to help people. And, certainly in the commercial casualty claims space, those people are risk managers and claims managers within our clients,” said Taylor Archambault, SVP, U.S. casualty claims, Global Risk Solutions at Liberty Mutual.
That drive for effective claims management serves clients well.
But when the inevitable claim that isn’t as straightforward arises or has a claimant feeling more than slighted, those managing the claim can find themselves in the murky waters of litigation, riddled with regulatory hurdles to overcome.
That’s why developing a strong relationship between the claims team and the legal department can be beneficial — even a necessity — to keeping things moving effectively and efficiently.
“The people who find themselves in claims roles have a natural inclination to problem-solve. And you learn pretty quickly that the best problem-solving happens when you bring together groups of people who have diverse perspectives and experiences,” Archambault said.
Bringing legal into the conversation well before a claim has the chance to be litigated is just good risk management, especially when some of today’s biggest legal trends are driving up claim costs.
To foster that relationship, however, requires a deeper understanding of how these two departments interact overall.
The Intersection of Legal and Claims
In the most traditional approach, legal and claims have existed separately, two teams operating as part of the whole, mainly interacting only after a claim finds its way to the courts.
“Most organizations are not having their legal team fully review insurance policies,” said Andres Franzetti, cofounder and CEO, Risk Cooperative.
That can lead to internal coordination problems if there is a claims dispute.
It can also place legal in a precarious predicament, because if legal does not have an understanding of the organization’s insurance policies, it impacts “how legal engages with the policies to make sure that they maximize their potential coverage, that they don’t run afoul of any of the potential restrictions within the insurance policy … and any other sort of components attached with legal ramifications,” Franzetti said.
That’s why many are seeing the value in bringing these two teams together well before a litigated claim.
According to Brent Bland, SVP, head of workers’ compensation claims, AmTrust Financial Services, the changing legislative environment necessitates collaboration between legal and claims: “There’s been a lot of employer-friendly legislation that’s been passed in key jurisdictions,” he said.
“As that legislation gets passed, it’s up to the different regulatory bodies to interpret and to apply,” Bland continued.
“Oftentimes, what seems to be very simple suddenly becomes very complicated, because there’s either conflicting court decisions or decisions that appear to interpret things differently than the legislative intent.”
That can hinder the claims handling process significantly.
Outside legislation changes, nuclear verdicts, social inflation, third-party litigation funding and similar trends — all of which stem from the narrative of corporate America versus “the little guy” — are driving up claim costs.
“There’s several factors that are driving the legal system abuse and the inflated verdicts,” Archambault shared.
General mistrust of corporations and a culture of blame have influenced juries to award nuclear-sized verdicts to plaintiffs, regardless if deserved or not. The well-organized plaintiffs’ bar we see today doesn’t make matters any easier, as it employs technology, media and advertising to further create incendiary messaging toward big business.
Court backlogs are also impeding claims managers from doing their jobs, because “the backlog doesn’t get solved in a month or, quite frankly, even in a year,” Archambault said, “which then causes claims to remain open for an extended period of time, and that never helps with overall claim costs.”
With so many legal hurdles working against claims, there has to be some level of interaction to get ahead of financial distress.
“When a claim arises, already we’re a little bit behind the eight ball,” said Franzetti.
“And if legal has not been involved in understanding what coverages are being purchased and how the risk management program is integrating the insurance into its overall program and framework, then legal is always going to come in from a more reactive perspective, and there’s going to be little that they can do to help contain some of that fallout.”
Communication and inter-department interaction is more than a greeting or a hello in the hall. Getting claims and legal on the same page before a litigated claim arises requires partnership and a strong strategy.
That can start with something as simple as hiring the right people for the job — a claims team dedicated to helping people and policyholders alike, as Archambault mentioned above, as well as a legal team that really understands the regulatory landscape it’s operating in and has a pulse on how trends like social inflation and nuclear verdicts can impact claims.
Beyond having the right strategy and the right partners in place, Bland offered advice on improving operations to foster communication.
“It starts with approaching litigated matters in a collaborative fashion, where claims is — from day one — engaging legal, supporting them with resources, like [in the case of workers’ comp] clinical resources to better understand medical issues and potential disability,” he said.
“And then it’s ensuring we have common goals and objectives across both claims and legal so that we are collectively working toward the best possible outcome.”
This last point — sharing a common goal — is especially important, because it can unite all parties as they work through litigated claims, keeping one clear end in sight.
“Being proactive and bringing legal in earlier in the process to evaluate the coverages, bringing them in as soon as there’s a claim potential to be filed, and discussing with claims right away, that’s where they can potentially start containing and mitigating some of the claim damage and damage outcome,” Franzetti said.
Highlighting Strengths, Understanding Weaknesses
As these two teams come together for the betterment of claims outcomes, it’s imperative that they understand where each other stand.
No one professional or team should have a monopoly on information, as Archambault said, but instead, they should be sharing what they know and bringing their expertise and strengths into the conversation.
“They should allow that information to influence how they think about strategy to see a particular matter to its, hopefully, successful conclusion,” Archambault said. “Engaged claims and legal professionals who know and respect each other [are] the foundation for collaborative work.”
“A good legal team brings local knowledge and combines it with their legal knowledge to paint a picture for the claims professional about what those key issues are and how best to think about resolving them,” added Bland.
“A well-trained claims professional brings understanding on the outcome we’re trying to achieve that’s best for all parties.”
For small organizations, this interdisciplinary collaboration may not be the easiest relationship to foster, due to limitations of resources. There’s also a hurdle for all organizations in starting out, much like there is for any type of change to structure.
“Enterprises that can have a proper risk management program should be sure to have the legal team be part of that risk management committee,” Franzetti advised. And for the organization that may not have the resources, partnering with their broker can help.
“When the legal team is part of the risk committee, we’ve seen the best outcomes in terms of risk management and claims resolution,” Franzetti continued. “If there’s renewals or policy changes, that team is there and able to review and discuss with their brokers the implications. If there’s a need for a legal interpretation of the policy, wording or language, then the legal team can really step in and have a more direct conversation with the carrier and make negotiations as needed.”
Early visibility into the claims process and risk strategy, he said, “will ultimately help yield a more efficient, quicker and more pleasant claims resolution experience.” &