How to manage an insurance claims dispute

Insurance is not just about the numbers, says Col Fullagar. He explains why it is so important to get the claims dispute process right.

Insurance companies tend to focus much of their self-promotion on three key aspects of their service: new business, administration and claims.

In regards to new business and administration, the promotion is all about ease, speed, and experienced and knowledgeable staff. It would be unusual for an insurer to promote the fact that only 75 per cent of all applications submitted got to the point of being finalised — or that 15,000 changes of addresses were notified and processed correctly.

But, in stark contrast, when it comes to claims, the promotion is all about the numbers: “We pay 98 per cent of all claims submitted,” or “Last year we paid out more than $150 million dollars to claimants.”

It is absolutely the case that when someone applies for insurance they would like to be confident that their application will be processed quickly and efficiently, and when they have an administrative requirement they would generally seek the same.

At the time of lodging a claim, however, there is a deeper imperative — and some insurance companies may be missing this point.

To the extent that it is possible, men can speak with some authority about the subject of male logic, and male logic can, in part, be characterised as follows:

A man can be happily married.

He can be totally devoted and faithful to his wife of many years.

 But if that man was to have an HIV test as part of an insurance exam, even though he knows the chances of a positive result are one in a squillion, he absolutely knows he will be the exception and he will remain convinced of this until three days later when he receives the negative test result.

Insurance clients can sometimes be the same.

Logically, the client of an adviser will trust the adviser. If they did not, they would not remain a client of that adviser.

Logically, they will trust the advice of the adviser. If they did not, they would not accept the adviser’s recommendation.

Logically, they will trust the insurance product being recommended. If they did not, they would suggest that a different insurance product be used.

Unfortunately, it is not the adviser, the advice or the insurance product that is the issue; it is the almost subconscious, general perception about insurers.

The client may say: “I know my adviser told me that last year the insurance company paid 98 per cent of claims submitted, and they paid $150 million dollars in claim payments. But I just know I will be the exception, and they will find some reason to delay or even fail to pay my claim.”

What the client generically fears is the insurer’s claims management process — specifically, the ability of the insurer to handle any disagreements or disputes that arise in such a way that the client will feel their position is given credence.

Reassurances about the statistics of claims that are paid and the dollars that are paid make little or no difference — in much the same way the statistics about HIV infections make little or no difference to the generic male when he has an HIV test.

In one sense, it is not the reality of insurance claims management and dispute resolution that drives negativity towards an insurance company or the industry in general — it is the perception.

But in another sense, it is the reality because at times what appears to be lacking with some insurers is an understanding of how utterly critical factors other than claim statistics are to the perception of them and the industry.

If an adviser has ever had a client who was embroiled in a protracted claims dispute, that adviser will know that if and when the cheque is finally paid, the client may thank the adviser for their help but is unlikely to speak in glowing terms about the insurer — or the insurance industry in general.

Disputed claims may be relatively small in number and proportion, but it would be reasonable to assume they are a large part of what drives advisers and clients to relate personal and third party experiences. Also, it is well known that bad news sells better than good news.

It is therefore reasonable to assume that disputed claims are a major contributor to the way in which the insurance company or industry are perceived.

In turn, the major opportunity for the insurance industry to change for the better any negative public perception is to ensure all insurers ‘get it’ when it comes to the dispute resolution process within claims management.

There are two types of dispute resolution processes:

The formal process

This process begins when the insurer responds to an adviser or client query about a claim being denied by saying: “If you do not agree with our decision, there is a formal process that we follow. Firstly, the matter is referred to our internal, dispute resolution body.”

The internal dispute resolution body will sit around a table behind closed doors, and generally it will include people such as the claims manager, a senior manager and one or more internal legal counsels.

Seated at the table and included in the discussion there will generally not be a client or adviser advocate and in fact, generally, there will not be a client or adviser present in the room.

The ratio of decisions maintained to decisions overturned by these bodies is rarely, if ever, made public. The client and their adviser might be forgiven for not having enormous confidence in this part of the dispute resolution process.

Next, the client is told: “If you do not agree with the decision of the internal, dispute resolution body you have the right to take the matter to the Financial Ombudsman Service (FOS).”

FOS has financial limits. For example, it cannot (without the agreement of the insurer) hear complaints when the benefit amount exceeds $6,000 a month for revenue claims and $250,000 for lump sum claims.

Also, to take a matter to FOS it is necessary to make a written submission that, preferably, should be drafted in a logical and compelling way.

Not all clients or advisers are skilled in this area. Insurers, on the other hand, have any number of people who will possess these skills.

FOS does a great job, but it naturally takes time. There is an escalation process for urgent cases but often, even in non-urgent matters, the delays associated with waiting for a decision bring with them psychological pressures rather than financial ones.

Insurers, on the other hand, likely have neither financial nor psychological pressures.

Finally, the client is told: “If you do not agree with the FOS decision or if your claim is over the FOS limits, you can take legal action if you wish. The insurer, of course reserves its rights, etc.”

The average cost of litigation is measured in the tens of thousands of dollars. The average time to undertake litigation is measured in the “many months” or even “some years”. Then there is the “we reserve our rights” factor. If the client pursues the legal path and is unsuccessful, the insurer can seek a ruling to recover costs from the client.

This would be daunting for anyone, but consider the plight of someone whose income protection insurance claim has been stopped by the insurer. A letter is sent to the client advising them of the reason, but the client either does not understand or does not agree with the reason.

A referral to FOS may not be possible because the benefit amount is over the FOS limit.

What choices does this client have? Do they commence legal proceedings and risk financial ruin if they lose, or are they simply forced to walk away?

Situations such as these do occur, despite any assurances to the contrary.

A proportion of claims disputes and litigation are frivolous or even fraudulent, but the vast majority are simply people who genuinely believe their case is valid because the insurance company has not taken the time to sit down and fully explain the position to them — and this is the key.

There is nothing essentially wrong with the formal resolution process and it plays a very important part in settling disputes, but financial services is, after all, a relationship business and the initial approach should be directly client-focused.

The client-focused process

In the first instance, the client-focused process requires a commitment by the insurer that, if a decision is challenged, the client or the client’s representative (the adviser) can sit down at the table with appropriate representatives of the insurer.

This may mean being present at the internal dispute resolution meeting and being included in the discussion.

Each party at the table ideally should have trust and respect for each of the other parties. Each party ideally should approach the matters to be discussed with an open mind, acknowledging that no one may be 100 per cent right and they all have something to contribute.

Discussions should be open and honest — all cards have to be put on the table and the cards must be face up. If medical evidence or legal opinions are involved, appropriate authorities should be requested and obtained. In the absence of strong evidence of fraud, there should be no hiding behind legal privilege.

Ideally, these discussions will give rise to an outcome that is acceptable to all parties. But if an outcome cannot be agreed upon, second best is that there will be agreement about the “next step”.

For example, once the client understands the position of the insurer they may be willing to provide additional information that would enable the insurer’s decision to be reviewed.

Only when all parties, not just the insurer, agree that no further progress can be made, is the matter referred to an external body, such as FOS, a solicitor or a mediator.

The client-focused process may take time as it may be necessary to meet more than once, but it is unlikely to take months and it is even more unlikely to cost either party a great deal of money.

The insurer must actively promote the client-focused process as an available option, rather than something that is simply offered on request.

It is termed client-focused because it treats the client as an equal within the process, and the client is likely to feel less pressured because they have an advocate or they are their own advocate, and their position is being heard and considered.

If this process were more widely followed, there can be no doubt that more disputes would be resolved before it was deemed necessary to commence legal proceedings or to refer matters to FOS, which would, in turn, lead to faster FOS turnaround.

Some insurers are nothing short of outstanding in the way they consistently implement the client-focused resolution process. Some are not.

The single most important criteria that should be used to judge an insurance company is not the speed or ease of its new business process, or the experience and knowledge of their staff, it isn’t even the terms and conditions of their policy document — it is their commitment to a client-focused dispute resolution process.

Claims are not only about the numbers.

Col Fullagar is national manager at RI Advice.