Righteous Denials

I have what could be described as an accumulation problem, and it involves newspapers and magazines. It is mostly self-inflicted, since I haven’t yet convinced myself to transition to digital subscriptions, but it is chronic as new paper items arrive every day and I refuse to recycle those that remain unread. Instead, I create "read later" piles and then intermittently try to deal with those piles, as I did last week when I sat down on my screen porch, surrounded by stacks of newspapers and magazines, intending to read and recycle until current.

Unfortunately, reading world news in large doses can be disheartening, and when your mind wanders off in search of more uplifting thoughts while you are reading, you end up not remembering what you just read. This has everything to do with how your working memory operates, and how your two competing modes of attention (focused and wandering) interact. See Hit the Reset Button in Your Brain by Daniel J. Levitin for an enlightening description of how it all works.

So while I wasn’t concerned when my mind began to wander, I was surprised when this quote from Nobel Prize winning poet, dramatist and literary critic T.S. Eliot popped into my head:

“Most of the evil in this world is done by people with good intentions.”

I have been unable to discover the original context of his statement, but if I take it at face value and consider it from today’s perspective I have difficulty accepting the premise that most evil is accidental and unintended. Fellow Nobel Prize winner Albert Camus’ observation in The Plague somehow seems closer to the mark:

“The evil that is in the world always comes of ignorance, and good intentions may do as much harm as malevolence, if they lack understanding.”

The concept that actions taken with good intentions, but fueled by ignorance or lack of understanding, can be as harmful as actions taken with bad intentions isn’t really surprising. We’ve all worked with both types of people: the well-intentioned but uninformed folks who, through their lack of understanding and/or incompetence, cause all kinds of trouble and damage, and the malevolent ones who intentionally do harm. But the Camus quote reminded me of something else, something I hadn’t thought about for many years, something that used to be a problem in claims handling in the early 1990s. We called it the righteous denial.

Righteous denials occurred when an insurer refused to honor a first party property claim simply because, in the opinion of the claims handler, something wasn’t quite right with it. The decision to deny, usually made at the local claims office level, was often not evidence-based; sometimes the denial would be issued before the investigation had even been completed. The written comments in the file supporting the denial were usually colorfully raw and emphatic, flavored with instinct or emotion. You know, comments like “This claim stinks” or “This guy is a crook” or “I know he set this fire, no matter what the Fire Marshal says.” It goes without saying that these were called “righteous” denials because the claim handlers earnestly, perhaps even sanctimoniously, imagined themselves occupying the moral high ground. They were driven and determined to resist any claim that seemed inflated or fraudulent, against all odds and at all costs.

Don't get me wrong--these were not evil people intent on doing harm. But their doggedness to do what they saw as the “right thing”--even if the evidence didn’t entirely support doing it—arguably interfered with the performance of the duties of good faith and fair dealing that insurance companies owed to the people they insured. The litigation that followed exposed insurers to negative publicity, contractual damages in excess of policy limits, and to direct actions for extra-contractual damages, including punitive damages in some cases.

It may be hard to believe now, but back then most claims handlers didn’t understand what “bad faith” claim handling was, and they never imagined that their righteous denials could contribute to such unfortunate outcomes. Their good intentions, pursued intractably with ignorance and a lack of understanding, were characterized in litigation as egregious, outrageous, unscrupulous, arbitrary, capricious, reckless and/or unreasonable behaviors designed to avoid claim payment while placing the insurer’s interests ahead of the insureds’. And their claim file comments were used against them as evidence to support that characterization.

Those were stimulating and challenging times. As I recall, it required quite a bit of time and effort to change the underlying operating mindset and banish the righteous denial, in part because some claims handlers had a hard time “unlearning” something they believed in so strongly. Of course adults often have trouble learning and integrating things that conflict with something they believe they already know. Jane Bozarth described it this way in her article Nuts and Bolts: Unlearning:

Old habits are hard to break, and revising old thinking patterns, even when one recognizes the need for change, is challenging. And when we’re under pressure the old learning may reemerge, as it has a longer history inside our responses.

I need to get back to my reading, but for more about first party bad faith and the history of bad faith in general, check out the ABA’s Recovery of Extra-Contractual (“Consequential”) Damages in First-Party Bad Faith Cases and Thomas F. Segalla’s Bad Faith as a Continuum: From Claim to Trial.

Dean K. Harring, CPCU, CIC is a retired Chief Claims Officer and an expert and advisor on Property Casualty insurance claims and operations. He can be reached at dean.harring@theclm.org or through LinkedIn or Twitter.

Airports, Innovation and Go Fever

I don't spend much time in airports anymore, and I admit to being grateful for that. For me, air travel has degenerated into an unpleasant and frustrating series of annoying experiences, end to end. Parking, baggage, security, boarding, being on board--all aggravating and uncomfortable, but hard to avoid when you need to travel long distances quickly.

I was walking through BWI airport after a flight a few weeks ago, studying the crowd flowing past me, and I realized I was surrounded by miserable, unhappy people--people in transit--apprehensively winding their way through a noisy, competitive obstacle course bristling with deadlines, pressures and uncertainties. Kids wailing, wishing they were somewhere else. Teenagers with eyes fixed on their phones, or scanning the baseboards looking for electrical outlets for a quick charge. Flushed, exasperated travelers. Grimacing, arguing, whining, snarling into phones and at airline personnel and at each other. Some dutifully playing the role of designated navigational obstacles, bumbling and shuffling along, blocking the walkways and standing in the wrong lines. Others speed walking, aggressively bobbing and weaving, dragging companions and kids and enormous wheeled bags behind them, while glaring at the elite priority platinum business travelers pirouetting to the front of the line. All these poor souls desperately trying to do one thing: escape from the airport, either in a plane (departures) or out the front door (arrivals.) I quickened my pace toward the exit.

Outside, I stood near a family with a talkative and curious child, about 7, who was interrogating his father:

Q: Why are we standing here?

A: We are waiting for our ride home.

Q: Do we have to?

A: Yes.

Q: I'm hot. Why can't we wait inside where it is cool?

A: We are waiting here.

Q: Why?

A: Because I said so, that's why.

The child let it drop. Is it any wonder we learn to stop asking questions when we are young? Even if we didn't have mind-shrinking conversations like that with our parents, in school we quickly learned that doing well involved answering questions, not asking them. Asking questions is an integral part of learning, creating, and innovating, however, so there's a cost. Po Bronson and Ashley Merryman described it this way in their Newsweek article: The Creativity Crisis

Preschool children, on average, ask their parents about 100 questions a day. Why, why, why—sometimes parents just wish it’d stop. Tragically, it does stop. By middle school they've pretty much stopped asking. It’s no coincidence that this same time is when student motivation and engagement plummet. They didn't stop asking questions because they lost interest: it’s the other way around. They lost interest because they stopped asking questions.

Sir Ken Robinson, in his wildly popular (over 27 million views) TED talk Do Schools Kill Creativity?, makes the point that while young children are usually not frightened of trying new things and they have no worries about being wrong, by the time they become adults most have learned it is safer to avoid taking chances, to limit the possibility of making mistakes. Schools, by stigmatizing mistakes, educate people out of their creative capabilities. Companies are run that way, too, says Robinson: "If you are not prepared to be wrong, you'll never come up with anything original."

I think it is fair to say that most of the large, bureaucratic companies I have worked with over the years valued compliance much more than they valued innovation or creativity. Employees were rewarded for knowing and following the company's policies and procedures, and reprimanded for making mistakes, particularly if the mistakes involved deviating from established company best practices. Rethinking processes, imagining new products or services, experimenting with new approaches--these activities were rare because they were potentially dangerous to an individual's career (penalties for failure) and it was just easier and safer to stick with established protocols. If something really needed to change, the smart move was to call in a consulting firm and have them make the change recommendations. This dynamic is probably what Rosabeth Moss Kanter was thinking about when she penned the line: "Mindless habitual behavior is the enemy of innovation.”

Yet innovation isn't frightening just because it involves implementing something new—a product, a service, a process, an alliance, a market, or an experience. It is frightening because of the expectation that the new thing will somehow create value and improve results. So while thinking and talking about innovation is easy, innovating demands execution, a commitment to a new course of action, a personal, public leap of faith. There's a steady drumbeat of danger, disruption, and discomfort that accompanies that leap, and given there's never any guarantee of success, innovation looks just like the sort of thing we learned to avoid back in elementary school. Innovation may be a popular discussion topic these days, but not much of it seems to be happening in the property casualty business. (See Innovate or Die. Really?)

Every once in a while, though, circumstances conspire to create a high urgency insurance company version of a "go fever" situation, pushing innovation and transformation to center stage. This can happen for many reasons, like when a new CEO makes lofty promises to investors about expense containment or growth, or when a company is not competing effectively and needs to hit the reset button to get back in the game.

The "go fever" scenario adds another level of risk to any innovation/transformation effort. Even though Jack Welch says innovation ought to be everyone's job, all the time, in a "go fever" situation someone is usually chosen to drive the innovation/transformation process and deliver the anticipated benefits, quickly. Under pressure to deliver, to get things done, there is a huge temptation to take short cuts, to start the change process without first becoming sufficiently familiar with the realities and constraints of the system being evaluated. I suppose it's a bit like starting surgery without first getting the patient's medical history, working up a diagnosis, and preparing a surgical plan. Without a baseline understanding and appreciation of the rules and regulations and intricacies and dependencies of whatever it is that needs to improve, even the best plans and intentions will be shaken and undermined by unintended consequences, unforeseen obstacles, false assumptions and unanticipated collateral damage.

Of course unintended consequences, unforeseen obstacles, false assumptions and unanticipated collateral damage look and sound a lot like undesirable outcomes, and they can derail and/or kill an innovation project and the career of the person driving it. Sure, there's no guarantee that better preparation would help avoid such outcomes, but a more informed and enlightened innovation approach arguably would at least put the risks on the radar screen.

So if you are tapped to run a high profile innovation/transformation project, job one should be to get yourself familiar with the realities and constraints of the system. By all means, ask questions of the people actively involved in managing the work, but don't demonize or penalize them for pointing out obstacles or risks or dependencies no one had considered previously. Gather the facts, and don't fall into the trap of accepting any single point of view as definitive, even if it is the CEO's; seek insight and understanding instead. Remember philosopher Marshall McLuhan's cryptic admonition: “A point of view can be a dangerous luxury when substituted for insight and understanding.”

For an entertaining and informative look at failure, the costs of failure avoidance, and "go fever", check out the Freakonomics podcast Failure is Your Friend.

Dean K. Harring, CPCU, CIC is a retired Chief Claims Officer and an expert and advisor on Property Casualty insurance claims and operations. He can be reached at dean.harring@theclm.org or through LinkedIn or Twitter.

The Consultants Your Boss Hired Are Here to See You...

If you are running an insurance claims operation, and your boss or the board brings in outside consulting experts to evaluate it, chances are you have a problem. Not just the problem the consultants are being called in to examine, but a pricklier, more personal problem--a perception problem. Someone with some clout in your organization apparently doesn't believe you are capable of doing whatever it is the consultants are going to be doing.

That puts you in a tricky situation, one that demands thoughtful action. First of all, don't try to convince your boss or the board that you are an expert and that you don't need outside assistance to handle the situation. Don't waste time arguing that your training and years of experience managing claims qualify you for the challenge. Do understand that the decision has already gone the other way, and any attempt you make to reverse it looks like resistance, concealment, perhaps even cluelessness.

Think about it. If you argue that there is no problem, or the problem is outside of claims, or that every claims operation has the same problem, you risk being classified as stubborn, change averse, and overly comfortable with the status quo. If you protest that you have already diagnosed the problem and designed a solution, realize that others don't see it that way. They want another opinion, another perspective. Maybe they don't like your plan, or perhaps it conflicts with some other course of action they want to pursue. It could be they don't quite know what the problem is, but there's something troublesome in the loss numbers, and they want to understand why it is happening and what to do about it. Or, worst case for you, they might just be looking for evidence and justification for overhauling your organization and/or escorting you out the door.

The reason really doesn't matter, but your response does. As activist and author Jerry Rubin once said: "The power to define the situation is the ultimate power." You have the power to assist in framing the inquiry and shaping the outcome by being visible and playing an active, cooperative role with the experts during the engagement. Take advantage of that power.

First, welcome the consultants and make arrangements to provide them with whatever help and information they need. Brief them fully on your organization, your strategy, and your operating procedures. Impress them with the dashboards and controls you use to manage risks and results. Talk to them about process efficiency, effectiveness, and loss cost management techniques. Show them how you establish and monitor key performance indicators and how you interact and communicate with your stakeholders. Demonstrate how you identify and incorporate best practices in your claims handling processes. If some of the consultants lack industry knowledge and have no background in claims--don't be dismayed. Instead, patiently take the time to make sure they fully grasp how your company functions and how your operation contributes to results. In other words, do whatever you can to provide the experts with plenty of evidence supporting the proposition that when it comes to running an insurance claims operation: 1) you know what to do, 2) you know how to do it, and 3) you are doing it, quite well.

The consultants' job is to identify performance gaps and root causes, and propose actions to close those gaps. Your objective should be to provide them with the information, the insights and the support they need to do that job well. People who hire consultants usually believe the consultants will bring very high levels of knowledge, objectivity, credibility and perceptiveness to the engagement. While that belief might not always be accurate, the reality is that consultants' findings are accepted as authoritative in most cases. That means their recommendations will impact you and your organization, so it makes sense for you to invest your time and effort into framing the inquiry and shaping the outcome. Give it your best shot--you might even learn something in the process.

The downside is that in tricky, prickly situations like this there is no guarantee things will turn out well even if you do everything right. Sometimes there are hidden operating agendas, foregone conclusions and predetermined outcomes underlying the consulting engagement, and unless you know about those factors going in, there's not much you can do to manage their impact.

Dean K. Harring, CPCU, CIC is a retired Chief Claims Officer and an expert and advisor on property casualty insurance claims and operations. He can be reached at dean.harring@theclm.org or through LinkedIn

Invisible Man on Third…

I was wandering around my yard after dinner the other night, half-heartedly taking inventory of the garden chores I had been dodging, when I noticed some kids playing kickball across the street. There were six of them, three per team, and they were pretty good kickers, so they were doing a lot of base running. I chuckled when the tall kid standing on third base yelled "Invisible man on third!," at which point the base runners on first and second and the kids on the other team watched intently while he jogged to home plate to kick. Bases loaded, invisible man on third! I hadn't heard that proclamation for a long time, but if you have ever played kickball, stickball, baseball or softball with teams of three or less, you know all about the invisible man.

For some reason, that kickball game got me thinking about invisibility as a attribute in planning and operations and personal behavior. In certain circumstances, as in the small team base-running scenario, it is an operating imperative as the game can't proceed unless the invisible runner rule is invoked. Invisibility is the goal of many corporate security protocols, to protect sensitive information, to preserve privacy and confidentiality, and to shield intellectual property from attack or discovery. It is the intended product of stealth functionality, to camouflage activities while providing cover or anonymity. It can be an element of a individual's operating model, or a preference, as when someone acts behind the scenes or tries to avoid visibility or to otherwise conceal their activities. And sometimes it emerges as an incidental factor in a program or project, usually through negligence or inadvertence, when folks aren't paying attention and ownership, accountability and decision rights don't get clearly established.

My first encounter with a corporate version of the invisible man came decades ago while I was working as a claims supervisor for a large insurer in Massachusetts. I remember the claims supervisor job as a tough one, largely because the supervisor was responsible for monitoring and directing a hefty and constantly shifting portfolio of claims toward timely and appropriate resolution. Theoretically, the supervisor would assign the claims to claims handlers who moved them through the phases--investigation, evaluation and resolution--but sometimes there just weren't enough claim handlers available to handle all the claims. Turnover, training, vacations, hiring freezes, an increasing volume of new claims--any one of these things could create a situation where there were too many claims and not enough claim handlers. The solution? At that particular company the solution was Mr. X, who had a diary number and carried a large caseload of slow moving claims reassigned from other claim handlers. Every claims supervisor had a Mr.X on staff. He was imaginary and invisible, so he wasn't able to accomplish anything on the claims, but the reassignments to Mr.X created workload capacity so the real claim handlers could handle more new claims. Mr.X was an operating imperative.
 
Years later, I bumped into Mr.X's cousins at a third party claims administrator in New Jersey. The TPA had guaranteed their clients that claim workloads would not exceed a certain number per claim handler. As the end of the month approached, if workloads were higher than promised the TPA claims supervisors would reassign claims to themselves or to their office manager to reduce the claim handler workloads to the agreed number. This was done for stealth reasons, to conceal actual workload levels. Of course the supervisors and manager weren't imaginary or invisible, but they may as well have been since they did not actually work on the claims assigned to them. They were simply placeholders until after month end, at which point the claims would be reassigned to the claims handlers.

Radio and TV journalist Richard Harkness is credited with drafting this definition of a committee: "A group of the unwilling, picked from the unfit, to do the unnecessary." While I think that characterization is a bit severe, I have probably been on too many committees, so I believe it is fair to say that most committees have at least one member who fails to attend meetings and contributes little or nothing to the committee's work. That's awkward enough, but when the invisible committee member also happens to be the committee chair, it is even more awkward. I remember working on a committee in New York where the chair would schedule a meeting, then miss the meeting at the last minute because of a vague, recurring malady he described only as "man flu." The committee would meet without him, cover the agenda, provide him with the minutes, then he would schedule another meeting, and at the last minute...well, you have probably lived this dream yourself. He was an absentee committee chair, he took credit for the committee's work, yet he never contributed anything to that work.

I have seen the same type of incidental invisibility in large scale technology development and/or implementation projects, where it is frequently difficult to determine who, if anyone, actually "owns" the project. I always ask two questions: 1) Has any one person actually been tasked with setting direction, managing obstacles and making decisions on the project? 2) Is there a real person who knows and understands he/she will be held responsible and accountable if things don't work out as expected on the project? It is usually easy to identify the project sponsor, and the steering committee, and the subject matter experts, and the IT folks who are managing the project, but the project owner is often not visible. Why? Either project ownership responsibility was never specifically assigned or, more likely, ownership was assigned to a committee. Psychologist Will Schutz was no doubt thinking of something else when he wrote this, but he did a good job of describing the inevitable, unfortunate outcome when an owner-less or committee-owned project fails to meet expectations: "Everyone is responsible but no one is to blame."

It is even worse when the wrong person or department is identified as the owner. I think it is crazy for Human Resources executives to own an employee engagement project, for example, or for IT executives to own a technology development or implementation project. These are business projects, and they should be owned by the business leader who convinced the organization that he/she had a problem or an opportunity, and that the project was the solution. Sure, HR and IT are there to assist, to provide expertise, structure, oversight, and maybe even project management, but the business person owner needs to remain visible, responsible and accountable.

Jonathan Lethem made a point about invisibility in his book Chronic City: "The invisible are always so resolutely invisible, until you see them." That's true in business and in life, I suppose, but no matter how hard you try, you'll never be able to see the invisible man on third.  That's just the way it is.

Dean K. Harring, CPCU, CIC is a retired Chief Claims Officer and an expert and advisor on Property Casualty insurance claims and operations. He can be reached at dean.harring@theclm.org or through LinkedIn or Twitter.

If You Have to Explain It, It’s Not Working…

My father was an artist, but once he settled down to raise his family he earned his living as an advertising and design executive. He had a tremendous eye for print advertising, and he enjoyed talking about the critical interplay between the design of an advertisement, and the message it was trying to convey.

He said a successful ad had to do three things:

• Grab the viewer's attention
• Stand on its own
• Speak for itself

If it couldn't do those things, if someone had to explain it to the viewer, then the ad wasn't working. Maybe you've seen the E. B. White quote about jokes: "Explaining a joke is like dissecting a frog. You understand it better but the frog dies in the process." My father would tell you that although White was writing about jokes, he could easily have used the same simile to write about advertisements.

I was thinking recently that most of us probably assess business communications using roughly the same standards my father used to evaluate advertisements, but with a twist. We have been traumatized by years of exposure to lame jokes, rootless speeches, painful presentations and ill-reasoned papers, and we are under pressure since the volume of communications we see seems to be growing steadily. Circumstances have forced us to adapt and develop into discerning judges with low patience, high expectations and absurdly short attention spans.

So when we consider whether a particular communication is worth our time and attention, we decide very quickly. If it's not important, if it doesn't engage or enchant us, we ruthlessly shift our attention elsewhere. That shift can be quite noticeable at a live presentation. Next time you find yourself in the audience at a presentation that isn't going well (easy to do, unfortunately), take a look around and you will see audience members whip out their smart phones or tablets and begin brazenly swiping through screens just as if they were home sitting at their kitchen table. Some might even attempt "quiet" telephone conversations from their seats. Once this happens, it is as if these audience members have exited the room. They are no longer listening, so they have no chance of receiving or remembering or using the information embedded in the presenter's message.

No matter what you think about this behavior, it is the new normal and it is happening all around you--at conferences, in meeting rooms, in offices, in cubicles, on video conferences and on teleconferences. It even happens one on one. I used to work with a particularly exasperating CEO who would schedule a meeting with me, ask a question, and then never lift his eyes from his Blackberry as I answered. He was an unapologetic multitasker--confident he was absorbing what I was saying while he was clearing his email. Of course in his mind he was also a fabulous public speaker, and I suppose under the right circumstances (convention of robots?) his lifeless, monotone expostulations might have been well received.

When it comes to multitasking, here's the reality: humans cannot read and listen with comprehension simultaneously. If you are talking to someone and they are reading their email, they cannot process what you are saying. Douglas Merrill describes why in his blog Why Multitasking Doesn't Work:

When you’re trying to accomplish two dissimilar tasks, each one requiring some level of consideration and attention, multitasking falls apart. Your brain just can’t take in and process two simultaneous, separate streams of information and encode them fully into short-term memory. When information doesn’t make it into short-term memory, it can’t be transferred into long-term memory for recall later. If you can’t recall it, you can’t use it.

What's the solution? That depends upon whether you believe there's a problem and, if so, how you perceive it. If you think folks are justified in tuning out of presentations that aren't working, turning on their devices, and dropping out of the audience, then you might believe the solution has something to do with requiring presenters to deliver more engaging presentations. If, however, you think the electronic devices are the problem--that they are enabling unwelcome and inappropriate audience behavior--you might support a ban on audience electronic communication devices at presentation sessions. Or maybe you think that both solutions, applied together, make sense.

I tend to look at presentations the same way my father looked at ads. I think people who presume to stand in front of a group (or a microphone, or a video camera) to deliver a message have an obligation to deliver it in such a way that it works, i.e., the message grabs the audience's attention, stands on its own, and speaks for itself. I also believe audience members should give a presenter their undivided attention, but I suppose a legitimate question is for how long? I watch a new TED talk each day and I admit that even when confronted by a talk that is by definition limited to 18 minutes, I will move on if the speaker hasn't hooked me in the first minute. I don't pretend I am multitasking, I just move on to something else. While that approach may be fine for TED talks, where what's being communicated is usually potentially interesting but not particularly important to me, shouldn't the standard be a bit different in a business presentation setting?

I think so. If we want business communication to work better, we could start by being better presenters and listeners. Chris Anderson, the curator of TED, has said: "A successful talk is a little miracle--people see the world differently afterward." My father would have said the same thing about a successful ad. And whether the ultimate objective is to entertain, direct, inform, inspire or convince, isn't that really the whole point of communicating, even in business?

Dean K. Harring, CPCU, CIC is a retired Chief Claims Officer and an expert and advisor on Property Casualty insurance claims and operations. He can be reached at dean.harring@theclm.org or through LinkedIn or Twitter.

Dirty Tricks?

I recently read a vigorously worded document published by the American Association for Justice (formerly the Association of Trial Lawyers of America--ATLA®--an organization that supported plaintiff trial lawyers) entitled Tricks of the Trade: How Insurance Companies Deny, Delay, Confuse and Refuse . Even though the document reads like an alarmist commercial for plaintiff law firms, it got me thinking about a series of half-day seminars on claims management principles I delivered to groups of property casualty insurance agents a few years ago. The objective was to familiarize agents with the claims process and help them become more effective as coaches and claims advocates for their insureds.

The class was usually relatively sedate until we started discussing how an insurance company handles claims. Many of the agents already had fairly well-formed opinions on that topic, i.e., they were convinced the claims process took unnecessarily long, that it was needlessly complex and inconvenient, and that claims payments were delayed and unfairly minimized by claims adjusters who they believed were rewarded by insurance companies for underpaying claims. Some of the agents had been involved in or had heard about at least one nightmare claims situation, the details of which they always enjoyed sharing with the group. So while I was often surprised by the students' general lack of knowledge and understanding of the claims handling process, I was never surprised by their fascination with the "dirty tricks" they were convinced claims handlers commonly used to minimize claims payments.

I thought it was important for the agents to understand all of the forces that exerted influence on the claims handling process, so I gave them a quick overview of the elements of fair claims practices regulations that had been implemented in many states, including this list of some of the prohibited behaviors in California:

• Misrepresenting coverage
• Failing to acknowledge and act reasonably promptly upon communications
• Failing to adopt and implement reasonable standards for the prompt investigation and processing of claims
• Failing to affirm or deny coverage of claims within a reasonable time after proof of loss
• Not attempting in good faith to effectuate prompt, fair, and equitable settlements of claims
• Compelling insureds to institute litigation to recover amounts due under an insurance policy by offering substantially less than the amounts ultimately recovered in actions brought by the insureds.
• Failing to provide promptly a reasonable explanation of the basis relied on in the insurance policy, in relation to the facts or applicable law, for the denial of a claim or for the offer of a compromise settlement.
• Directly advising a claimant not to obtain the services of an attorney.
• Misleading a claimant as to the applicable statute of limitations.

Once the agents realized that California didn't just dream up this list of prohibited behaviors, once they understood that claims adjusters had indeed been doing these things in California, and that was why the behaviors had been prohibited, they were intrigued. At that point, to illustrate the impact regulation has had on claims handling, I would tell them stories about some of the things claims adjusters were taught to do before fair claims practices regulations were in place, back in the 1970s, when I worked as an adjuster. Like refusing to reveal policy coverage limits, or negotiating to "save something on the policy limit" (Supervisor to Adjuster: If we are going to pay out the full policy limit, why do we need you?), or "controlling" cases (contacting a claimant quickly to establish a relationship and encourage him/her to deal with you directly, without an attorney involved) or engineering "drop-check" settlements (sending out an unsolicited check along with a release to attempt to settle a claim.) I would also relate the urban legend about an insurance company claims officer who introduced a short-lived loss cost management program that had a catchy name, something like "Operation 3%." It supposedly worked like this: once the adjuster figured out what a claim was worth, he (adjusters were almost always men back then) would deduct 3% from the number and that would become the new maximum to be paid on the claim.

With the exception of "Operation 3%," these probably were not really dirty tricks--they weren't illegal or unethical-- they were simply best practices at that time. The agents would usually agree, although a few would remain unshaken in their belief that adjusters are rewarded for underpaying claims. And they wouldn't budge, even when I described how most insurance companies routinely reviewed closed files to assess claim handling quality, and when they found an underpayment they immediately corrected it.

If those insurance agents were any indication, there is a receptive audience out there for publications such as Tricks of the Trade. Google "dirty tricks used by adjusters" and you will get a quarter of a million results, many of which are links to law firm websites shrilly warning consumers about ploys, tactics and dirty tricks used by adjusters. Unspeakable, heinous and despicable tricks such as attempting to talk with a claimant, or to get a claimant's statement, or to secure a medical authorization form.

"Some matters are simply contentious" wrote Sara Sheridan recently in a Huffington Post blog totally unrelated to claims. Indeed.

Competence: A Blend of Knowledge, Skill and Will

For most of my years as a Chief Claims Officer, I carried a notebook with me constantly. I used it as a journal, capturing meeting notes, assignments, commitments, requests, details of conversations, lists of people I had to see, and tasks that needed to be accomplished. I also logged ideas or topics or quotes that struck me as interesting or potentially useful. Each weekend I would review my notes, then categorize and prioritize the items into action lists for the coming week, month, quarter and year. A notebook would last me about three months, except in very busy times, and I still have most of those notebooks. This past weekend I was flipping through an old one, and I came across a quote I had written in block letters, attributed to German writer and politician Johann Wolfgang von Goethe:

“Knowing is not enough; we must apply. Willing is not enough; we must do.”

Funny how a simple quote in a notebook can provoke vivid memories. I was immediately able to recall the situation I was facing when I scribbled that note. I had been in place as the Chief Claims Officer for a large, troubled insurance company for a little more than a year. One of the premier US management consulting firms had been in residence the entire time, helping to do a baseline loss cost leakage study. It was a very tense situation. Just to be clear, there are some inconsistent definitions out there now, but when I use the term "leakage" I am referring to the amount paid on a claim above and beyond what should have been paid. Leakage is generally reported as a rate, a % of the total amount paid on a claim (or sample of claims), so if $10,000 was paid on a claim that should have been resolved for $9,000, the leakage rate would be the amount overpaid ($1,000) divided by the total paid ($10,000) or 10%. Leakage rates under 5% were considered acceptable back then, but the baseline numbers I was seeing were at least three times that number, across all lines of business, so I knew I had a problem.

While a properly executed baseline leakage review reveals, by line of business, where in the claims handling process leakage is happening, it's the root cause analysis that pinpoints why it is happening. The only good news about leakage is that it is easy to eliminate if you have access to a candid and dependable root cause analysis.

I remember being disappointed with the original root cause analysis because it concluded that training was the remedy for the leakage problem. In other words, claim handlers were making poor loss cost management decisions because they hadn't been trained appropriately--they didn't have the level of knowledge necessary to handle claims properly.

I knew it couldn't be that simple. I had looked at closed files myself and I had seen breakdowns in core claim handling that couldn't be fully explained by lack of knowledge. Best practices were being ignored by claims handlers and their managers, file documentation was substandard, the prevailing claims management focus was passive and tactical (process based) rather than active and strategic (resolution based), and there was an alarming lack of urgency evident in the files. Something else was going on.

We dug a bit deeper, and it didn't take long to conclude that our primary leakage root cause did indeed involve a competence gap, but the gap had three different components: knowledge, skill and will. Think of knowledge as the process of learning and understanding how to do something. Skill involves applying that knowledge in a practical setting to produce desired results. And will, as we considered it, was all about attitude, character, determination, discipline, and the desire and willingness to work to produce the best outcomes. Competence requires all three--knowledge, skill and will. In claim handling, that means the claim handler has to know how to handle claims, be skilled at applying that knowledge, and be willing to diligently work at producing the best results.

While training can close a knowledge gap, and hands-on training, guided practice and mentoring can help improve skills, will is a "hearts and minds" challenge--it involves determination and choice. People decide the degree to which they are willing to apply their knowledge and skills and efforts in any given situation based upon well known motivators. Of course today we tend to talk about employee engagement (the extent to which employees feel passionate about their jobs, are committed to the organization, and put discretionary effort into their work), not will, although the concepts are basically the same.

It turned out our most significant competence gap component back then was will, not knowledge and skill, so additional training on its own would never would have solved that leakage problem. Once we understood that and knew where else to focus in order to create an operating environment conducive to producing better outcomes, we managed the leakage number below 5% within about 12 months.

Many thanks to Johann Wolfgang von Goethe, who according to my notebook played at least a supporting role in illuminating the true nature and breadth of the root cause problem we were facing!

Dean K. Harring, CPCU, CIC is a retired Chief Claims Officer and an expert and advisor on Property Casualty insurance claims and operations. He can be reached at dean.harring@theclm.org or through LinkedIn or Twitter.