An allegation of bad faith in claims handling can have far-reaching effects, including drawn-out legal battles resulting in potentially sizable settlements and damage to the organization's reputation. But bad-faith claims are not always the result of an organization's deliberate attempt to avoid paying a claim. Rather, they're often the result of an oversight or miscommunication.
It's this latter category that claims professionals should focus on. If an insurer is intentionally underpaying its customers or denying claims without valid reason, best practices are not going to improve the situation. But taking a step back and looking at the claims process at an organizational level is an effective way to identify gaps in knowledge or processes that can and do lead to bad-faith claims.
Before looking at some specific best practices for avoiding bad-faith claims, it's worth reviewing the seven primary elements of good-faith claims handling, straight from
The Institutes' Associate in Claims (AIC) designation course materials
- Thorough, timely and unbiased investigation
- Complete and accurate documentation
- Fair evaluation
- Good-faith negotiation
- Regular and prompt communication
- Competent legal advice
- Effective claims management
Using these seven keys as a baseline, organizations can further improve the claims process and reduce the risk of bad-faith claims by focusing on the following four best practices:
See also: Should Bad Faith Matter in Work Comp?
1. Exercise due diligence when investigating claims.
Claims representatives and their insurers' special investigative units have a lot of experience detecting and investigating fraudulent claims and are trained to watch for specific triggers and red flags. However, a suspicious claim is not always a fraudulent one, and claims representatives must still conduct a fair and balanced investigation. Although this may be difficult, waiting until a definite determination is made is the most prudent way to go.
Even if a claim appears to be fraudulent, it still requires the same level of due diligence throughout the investigation--interviewing witnesses, inspecting property damage, reviewing medical records, etc. Proper documentation goes hand in hand with proper investigation techniques. Claims professionals should encourage the claimant to submit all relevant documentation or evidence, even if the claim seems fraudulent. This documentation may help clear up any uncertainties. And the investigation must be timely as well as thorough. Often, the timeline for an investigation is mandated by regulations or the specific terms and conditions of the policy. Sticking to this schedule is crucial to meeting requirements and maintaining your reputation with the insured. More and more, claimants expect timely updates with faster resolutions. It's hard to blame them--people want payment for their medical bills or repairs to their homes. Insurers need to stick to the timeline they promised.
2. Rely on a solid claims system.
A good claims system that documents a claim's progress is one of the best ways to protect your organization should bad-faith claims allegations arise. Claims representatives usually have a lot on their plates; a formal yet easy-to-use framework makes it easier to comply with regulations and the specifics of individual policies.
A robust claims system also helps maintain consistency. A lot of different people may access a claim or contribute to it, such as supervisors, auditors, underwriters and attorneys. Online systems that prevent anyone from changing information once it's been entered help guarantee that everyone who touches the claim is up to date and on the same page.
3. Make use of experts and mentors to stay informed.
Having a strong support network is essential to anchoring the claims process. Any time a claims representative is unsure of how to proceed when processing a claim, she should know exactly where to go to get an answer and get the claim moving again. That includes an up-to-date claims manual with set procedures and a chain of command with decision makers who can resolve uncertainties during the claims process. Sharing this information should be a top priority during onboarding for claims professionals.
Continuing education is also key. Webinars, designations and state-specific resources detailing evolving regulations and case law are essential. Individual claims representatives should work to expand their knowledge in areas they frequently handle. If you primarily adjust
residential claims, become an expert in that field, then use that knowledge to mentor other employees or act as the go-to source of knowledge on that topic.
The National Association of Insurance Commissioners, your state's insurance department and insurance commissioner, your insurer's legal and training departments and your direct supervisor are all good sources of information on regulatory standards. States have different laws and court rulings regarding bad-faith claims, and insurers have their own company-specific standards, as well. For larger organizations or individuals in the field who cover a large territory, it may be necessary to keep up with several states' standards. One possible source: Unity Policyholders, which provided a
survey and an overview of bad-faith laws and remedies for all 50 states in 2014.
See also: Power of ‘Claims Advocacy’
4. Have the right attitude.
Claims representatives can often facilitate the claims process simply by listening. Never lose sight of the fact that you may talk to people on some of the worst days of their lives. Sometimes, a person will call, upset and frustrated, and start talking about legal representation. It may be best to listen; it doesn't mean that you'll pay the claim or agree to everything they want, but you can offer some compassion and avoid becoming aggressive in turn.
Rarely will all parties agree during the claims process. The key is finding a balance between established procedures that rely on best practices while also leaving enough room in the process to treat each claim uniquely and provide a personal touch for customers.
Interested in learning more about good-faith claims handling? Take a look at The Institutes' Good-Faith Claims Handling course. For broader claims knowledge, learn about The Institutes' AIC and Associate in Claims Management (AIC-M) designation programs.
