Deal or No Deal – Has the claims industry lost the art of negotiation?

An insurance policy is a contract like any other

The purchase of an insurance policy is a commercial transaction. Businesses buy insurance to protect themselves from unwanted events which would otherwise have a damaging effect on their profitability. Insurers sell each policy hoping to make a profit from the sale and myriad others like it. It’s about the success of each party’s enterprise, a success measured on the profit and loss account. In that respect it’s no different from the many contracts that businesses enter into, be they vehicle leases, IT purchases, consultant contracts, or staff hires.

Much thought goes into these contracts. Each side of the transaction measures the costs and the likely benefits, negotiations are conducted, prices and terms agreed and hands shaken. That, too, is how insurance contracts are sold and bought, with the broker as an intermediary; in that three-cornered relationship deals are done and each party is satisfied with them. Of course, no contract has any value until the time comes for it to be performed. Staff must work diligently and conscientiously to their job specifications, cars must run properly and be well serviced, IT shouldn’t crash. When those things don’t happen, the buyer of the goods or services has to address the problem with the seller.
Businesses want to reach solutions not disputes
Very few businesses believe in litigation as the first step in any such resolution. Any formal dispute procedure is damaging to the continuity and comfort of the parties, it carries an element of uncertainty and costs time and money. Businesses want to get on with making their profits, they want to get rid of any disputes as quickly and amicably as possible and they generally want to maintain their commercial relationships. That is the very essence of entrepreneurialism, its central reliance on cooperation and working together. Problems are solved by discussion and negotiation leading to the eventual handshake. Deals are done pragmatically, relationships are preserved and the financial welfare of each party is assured. With most contracts performance can be readily measured in the normal day-to-day workings of the business but insurance is different: it’s only when a claim arises that what the seller has to do becomes apparent. It’s at that point that the buyer of the policy has a chance to assess what has been bought and to do so against the everyday standards of commerce.

Insurers have every good reason to make proper evaluation of claims: they have underwriting books and profit and loss accounts to protect; they are guardians of their shareholders’ and policyholders’ interests in the prevention and detection of fraud; they may themselves want to make the settlement of the claim the subject of subrogation, and none of what follows dismisses the importance of these objectives. It is the methods adopted in pursuit of these aims that could lead business policyholders to believe that insurers don’t understand business and don’t know how to deal with the commercial community. Almost by definition entrepreneurialism is the art of deal-making. But business owners and managers may not perceive insurers as interested in making deals, or in flexible negotiation or in pragmatic and quick closure of a claim. Instead, the perception can be of unnecessary precision, more akin to an audit trail than to an opportunity to strike a deal advantageous to each party. It’s not difficult to assess the approximate value of a transaction to each party and to negotiate around that in broad terms: it’s what businesses do all the time.

Commercial policyholders want a commercial approach to their claim

Insurers are required by the FSA to treat their customers fairly yet the experience of some business claimants is that settlement of claims is bureaucratic, prolonged and, adversarial. If the requirements of the Policyholder are not met Insurers risk Claimants believing that insurers do not
have full awareness of the manners and practices of the commercial environment. So Claimants could think insurers see little evidence of the advantages that can accrue to each side of the transaction by doing the deal. Any such deal carries risk, and carries it for each side. Businesses are adept at measuring risk and benefit and running their enterprises accordingly. Insurers, the specialists in risk at the time of issuing the policy, seem to some to be more risk-averse when it comes to claims. Essentially, any business that has a claim has but one imperative, and that is to maintain its financial stability by getting cash in for its profitability and its cash flow. To do that it will generally assess the risks of discounting its claim for such as early settlement, a reduction of management and staff time in meeting insurers’ demands, and restoring the continuity of smooth operation, but they often find no reciprocal appetite.

Responding to the requirements of the Policyholder is the art of good claims handling and Insurers should guard against an unnecessarily complicated and forensic claims process. This will help Claimant businesses to feel that their needs are being met and they are being treated fairly in the claims process.

Source: Claims Focus published by Chartered Institute of Loss Adjusters (CILA)