SPRING 2012| |VOL. VOL.1,1,NO. NO.42 FALL 2012
2 Claims Journal | Fall 2012
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The Fight Against Fraud
nsurance fraud is not going away, but the industry may be getting smarter about predicting the future. Many fraud fighting initiatives, including predictive analytics and anti-fraud teams, are having an impact. “The insurance fraud problem is estimated to exceed US$40 billion globally and is showing no signs of abatement,” says Russ Schreiber, insurance practice leader for FICO, a predictive analytics and decision management technology Predictive analytics have provider. Forty-five percent of insurers estimate the greatest impact that insurance fraud costs represent 5 to on fighting fraud. 10 percent of their claims volume, while 32 percent say the ratio could be as high as 20 percent, according to a new survey of U.S. insurers by FICO and the Property Casualty Insurers Association of America (PCI). While it has been estimated that insurance fraud accounts for up to 10 percent of property/casualty insurance losses, the survey reveals that some in the industry believe fraud could be more prevalent. More than half (54 percent) of insurers responding to the survey expect to see the cost of fraud in personal lines to increase in 2012; less than 3 percent expect a decline. The survey also found 67 percent of insurers expect to see an increase in personal property fraud, 65 percent expect an increase in workers’ comp fraud, and 60 percent expect a rise in personal auto fraud. The majority of insurers (61 percent) attributed the increases to sustained economic hardship by policyholders. Only 17 percent of insurers attributed the expected increase in fraud to a rise in the sophistication of criminal gangs. Yet 60 percent expect a rise in workers’ comp fraud rings, and 61 percent expect a rise in auto fraud rings. When insurers were asked about fraud-fighting initiatives that can have the greatest impact on insurance fraud, predictive analytics was identified as the most effective by 45 percent of respondents. Predictive modeling is helping to identify possible fraud at the very early stages of a claim, says Steve Armstrong, chief pricing actuary for Chartis Consumer Insurance. “Claims data is extraordinarily rich with information that predictive modelers could just go nuts over,” Armstrong says. So far, there’s been significant improvement on how to detect fraud early at the point of claims with predictive analytics, he says. “Some people have even started to crack a nut at looking at the potential for fraud on new business by just looking at underwriting characteristics that might lead to a potential fraud down the road.” Insurers have also found the use of anti-fraud teams for Andrea Wells specific books of business (37 percent), link analysis for deEditor-in-Chief firstname.lastname@example.org tecting fraud (31 percent), business rules for stopping known fraud types (29 percent), and external databases (29 percent) as other useful fraud-fighting approaches, the survey said.. Whatever the approach, early detection is critical in the fight against fraud for insurers. CJ 4 Claims Journal | Fall 2012
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FALL 2012 | VOL. 1, NO. 4
Homeowners’ Claim Costs Fueled by Rise in Severity, Frequency 8 2011 Fatal Work Injury Stats Down: Report 8 Study Finds Drivers Unaware of Texting Habits 8 How to Investigate Heating Equipment Fire Losses 12 Fraud Focus: What’s New in Staged Auto Accident Scams 14
12 SPECIAL REPORT 2012 Engineering, Investigative & Forensic Guide 16 The Defects in Product Recalls 20 Enhancing Efficiency & Quality in Claims Estimating 23 Navigating the Rental Car Insurance Highway 24 26 IDEA EXCHANGE Burke’s Law: Exploring the Auto Use Exclusion 26
Essentials: Insured Status on Auto Coverage 27 Alternative Dispute Resolutions Guide for Adjusters 29 Final Offer: Sampson on the Partisan Divide 31
On The Cover Product Recalls 6 Claims Journal | Fall 2012
CLAIMS DEPARTMENTS 4 Opening Note 7 Web Exchange 9 Business Moves 10 People 30 Calendar of Events
web exchange Video Highlights
In a Reader’s View
The Role of Arcing in Fires http://www.insurancejournal.tv/videos/7012/ Forensic electrical engineer and president of Anderson Engineering Erik Anderson discusses fire cases he sees frequently and explains arcing during Andler & Associates’s annual live burn training seminar.
Fire Fee Ignites Anger Among California Residents More than 800,000 rural California residents who own property in wildfire country received bills for a new annual fire-protection fee, rekindling outrage that will likely lead to a lawsuit to overturn the surcharge. The fee, passed by Democrats in the Legislature and signed by the governor last year, is intended to raise an estimated $84 million in its first year for fire-prevention efforts. The annual charge can run as high as $150 for property owners with a single occupied dwelling. The fee was imposed on those who own property within the 31 million rural acres covered by the California Department of Forestry and Fire Protection, a responsibility area that includes about one-third of the state. A recent University of California, Merced, study said climate change, development and changes to the landscape may double the fire risk to rural homes in the next 40 years. The Associated Press story generated several comments from readers, including the one below:
Good Defense but Higher Severity in Med-Mal Cases http://www.insurancejournal.tv/videos/7128/ While the frequency of claims filed against medical professionals that are being litigated has generally declined in the past decade, payouts for successful medical professional liability claims have increased. One of the main drivers of the trend toward higher claims payouts is increased selectivity of cases by the plaintiffs’ bar, according to Laurel Byerly, senior vice president for Western Litigation. The company is a third-party administrator that manages medical malpractice claims and litigation for self-insured entities.
Podcasts Highlights Hurricane Andrew Revisited 20 Years Later http://www.insurancejournal.tv/videos/7731/ Gary Kerney, assistant vice president of Verisk’s Property Claim Services, discusses Hurricane Andrew 20 years later and how adjuster practices, catastrophe modeling and building codes all changed after the storm. How to Investigate Lightning Damage to AC Units http://www.insurancejournal.tv/videos/7666/ Jeff Peters, professional engineer and vice president at Rimkus Consulting Group, provides tips on investigating lightning damage claims involving air conditioning units. He explains the types of strikes, how to determine whether a claim is due to a surge versus lightning, and how to handle the new refrigerant requirements.
D Nicholson says: The vast majority of those living within the rural communities in question already pay fire prevention taxes and routinely clear their properties to create defensible space. The greater problem are the huge number of uninhabited lots which are neglected by their owners. … They should be required to clear those properties of debris or face fines for not doing so. CJ
ClaimsJournal.com Web Poll
Should Insurers cover the risks associated with fracking?
No, the risks related to fracking remain unknown.
Yes, according to current research, the risks associated fracking are minimal.
Undecided: 16.5% (54 votes) Total Votes: 557 votes Fall 2012 | Claims Journal 7
CLAIMS REVIEW | NEWS & TRENDS
Homeowners’ Claim Costs Fueled by Rise in Severity, Frequency
he cost of homeowners insurance claims has been rising rapidly because of the combined effects of rising claim severity and increases in claim frequency, an Insurance Research Council (IRC) study of homeowners insurance claim trends found.
From 1997 to 2011, the average claim payment per insured home (houses, apartments and condos) countrywide rose 173 percent, from $229 to $626. In 2011, homeowners insurance claim costs per insured home increased 27 percent. Over the entire study period, the annualized rate of increase was 7.4 percent. In the study, “Trends in Homeowners Insurance Claims,” the IRC examined trends for claims that were not related to catastrophic events and those that were related to catastrophic events.
Trends in average claim severity (the average claim payment per paid claim) for both groups were similar in some respects. For both groups, countrywide claim severity increased almost 200 percent and ended the 15-year period in 2011 with similar values — $8,077 for non-cat-related claims and $7,553 for catrelated claims. Significantly, however, the trend in catastrophe-related claim severity was much more volatile from year-to-year, with dramatic increases and decreases during the study period. Trends in homeowners insurance claim frequency (the number of paid claims per 100 insured homes) were very different for the two groups of claims in the 15-year study period. Claims frequency unrelated to cat events fell substantially from 1997 to
2005 for a variety of factors. Since 2005, however, non-cat-related claim frequency has increased at an annualized rate of 2.9 percent. Cat-related claim frequency, while much more volatile, remained fairly flat through much of the period. CJ
2011 Fatal Work Injury Statistics Down: Report
n estimated 4,609 fatal work injuries were recorded in the United States in 2011, down from the 4,690 fatal work injuries in 2010, according to results from the Census of Fatal Occupational Injuries (CFOI) program conducted by the U.S. Bureau of Labor Statistics.
The rate of fatal work injury for U.S. workers in 2011 was 3.5 per 100,000 full-
time equivalent workers, compared to a final rate of 3.6 per 100,000 for 2010. In the past three years, increases in the counts based on additional information have averaged 166 fatalities per year, or about 3 percent of the revised total. Final 2011 data from the CFOI program will be released in Spring 2013. Fatal work injuries in the private
construction sector declined to 721 in 2011 from 774 in 2010, the fifth consecutive year of lower fatality counts. Fatal construction injuries are down nearly 42 percent since 2006. Fatal work injuries in private truck transportation rose 14 percent in 2011 — the second consecutive year that counts have risen after a series low in 2009. CJ
Study Finds Drivers Unaware of Their Texting Habits
exting while driving is considered a serious public safety concern, but a new University of Michigan study suggests that drivers might not be aware of their actions. 8 Claims Journal | Fall 2012
U-M researchers found that texting while driving is predicted by a person’s level of “habit” — more so than how much someone texts. When people check their cell phones without thinking about it, the habit represents a type of automatic behavior, or automaticity, the researchers said. Automaticity, which was the key variable in the study, is triggered by situational cues and lacks control, awareness, intention and attention. “In other words, some individuals automatically feel compelled to check for,
read and respond to new messages, and may not even realize they have done so while driving until after the fact,” says Joseph Bayer, a doctoral student in the Department of Communication Studies and the study’s lead author. This first-of-its-kind study, which identifies the role of unconscious thought processes in texting and driving, is different from other research that has focused on the effects of this behavior. Thus, the current study investigates the role of habit in texting while driving, with a focus on how (rather than how much) the behavior is carried out. The findings appear in the Journal Computers in Human Behavior. CJ
Business Moves EagleView Technologies Wash.-based EagleView Technologies now offers wall measurement reports for residential properties. The measurements are derived from high-resolution photographs using patented technology. The report provides a 3D wall area diagram, total square footage of the wall areas, number and total square feet of windows and doors, and north, south, east and west elevation diagrams. Wall reports can be ordered separately or bundled with EagleView’s roof measurement reports.
The vulnerability of a building to hurricane wind increases rapidly in the initial construction phases and then levels off after windows and doors are closed. The vulnerability of a building to earthquake ground shaking increases dramatically once the foundation and substructure
are complete, and levels off after the addition of the lateral load-resisting system. AIR model users can estimate losses to builder’s risk policies (commercial and residential) that begin coverage after construction has started by entering a “percentage completion” value into the software. CJ
Fire Science & Engineering
Sedgwick Claims Management Services Sedgwick Claims Management Services plans to open two new Midwest service centers, located in New Albany, Ohio, and Coralville, Iowa. The Coralville location is contingent on the approval of available job training and economic development incentives by the Iowa Economic Development Authority and the city of Coralville. Sedgwick anticipates hiring approximately 200 people at each location in the next 24 months. Nearly 60 employees in each location are expected to be hired before the offices become operational in January 2013. Job opportunities available at the service centers will include customer service representatives, disability claims specialists, leave specialists, nurse case managers, and management, technical and support roles. Additional positions will be added at both locations throughout 2013. Recruitment for the new positions will begin immediately, with a target start date in November for training purposes.
Forensic Investigation & Litigation Support Forensic Analysis Laboratory Testing Fire Modeling Code Analysis Origin & Cause Fire Spread
Hughes offers a broad range of high level expertise in fire & explosion dynamics and active & passive fire protection systems. Areas of investigation include: Consumer Products; Lithium Ion Battery Fires; and Sprinkler System Performance, Inadvertent Discharge and Corrosion.
AIR Worldwide AIR Worldwide (AIR) expanded its offerings for commercial insurers with a capability for determining losses from natural catastrophes to buildings under construction. CLASIC/2TM Version 14.0 introduces the ability to model builder’s risk policies for the AIR earthquake and hurricane models for the United States.
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9/27/12 4:51 PM
Fall 2012 | Claims Journal 9
people Julian Millar
Claimspro International (CPI), an independent division of SCM Insurance Services (SCM) offering international loss adjusting services to London and the international market, named Julian Millar managing director. Millar, who joins from QBE, will be responsible for driving the expansion of CPI’s operations and business in the United Kingdom and Europe. GAB Robins, a global risk management services company, appointed Maggie Cowing to head of major and complex loss. She will be responsible for the company’s major loss, construction and engineering and home foreign divisions. Cowing, who joins from Cunningham Lindsey, has more than 26 years of adjusting experience, and has expertise in all aspects of major and complex property and business interruption losses across a range of industry sectors. Glenn Gibson was named CEO of Crawford & Co.’s consulting practice in Canada. He will be responsible for developing the company’s Canadian consulting practice in the areas of technical loss adjusting, arbitrations, strategic planning and enterprise risk management. Gibson began his insurance career at Fireman’s Fund Insurance Co. and later helped build Adjusters Canada into the largest claims administration firm in Canada. He has held a number of executive positions with Crawford since the company purchased Adjusters Canada in 1998. Lt. Gov. Peter Kinder will lead a newly formed state committee reviewing Missouri’s disaster recovery efforts and preparedness for future challenges. The Interim Committee on Disaster Preparedness was created by Republican House Speaker Steven Tilley. It also includes lawmakers, a Joplin, Mo., city council member, an official from a health care company and a Jasper County official. Kinder, a Republican, says the committee will check whether the resources poured into disaster recovery are getting the expected result. Pennsylvania-based Erie Insurance named Richard Burt executive vice president of product. He will oversee Erie’s three business lines — personal, commercial and life insurance. Burt has more than 25 years of actuarial and business experience from firms including Deloitte
10 Claims Journal | Fall 2012
Consulting; Willis, Coopers & Lybrand; and Aetna Life & Casualty. Burt is a Fellow of the Casualty Actuarial Society. He succeeds Mike Zavasky in this role. Zavasky announced retirement plans last year. The Republic Group named Timothy R. Wiedmeyer vice president of claims. Wiedmeyer previously served as vice president of claims at West Bend Mutual Insurance Co. He began his 23-year claims career with Heritage Mutual Insurance Co. (now Acuity). New York-based Insight Specialty Programs (ISP), a developer and marketer of insurance, noninsurance and telematics products and services, appointed Thomas Harms president and Michael DiLoreto chief operating officer. Prior to joining ISP, Harms was senior vice president at Aon Benfield Fac’s program division. Throughout his career, he has served in various positions at Braishfield Associates, Ardent Risk Services, G.L. Hodson & Son and Alexander Re. He began his career at Liberty Mutual. With more than 30 years of experience as a retailer, wholesaler, insurance company executive and a reinsurance intermediary, DiLoreto has an extensive background in property, casualty, life, health, annuity and structured reinsurance and insurance programs. DiLoreto serves on the board of directors of Southwestern Insurance Information Service (SIIS). The Bermuda Insurance Institute (BII) appointed Dawnnelle Walker as its first CEO. Walker will assume her role at the BII in November 2012. She will report to BII’s Governing Council. BII is a registered charity and educational institution, funded by its insurance industry members. The institute facilitates insurance studies and insurance-related studies, as well as organizes discussion of industry matters and other interaction among industry participants. Connecticut-based insurer The Hartford promoted Robert Bateman to senior vice president and controller of the company. Bateman succeeds Beth Bombara, who was recently promoted to lead the company’s life runoff business. In his new role, Bateman will be responsible for accounting operations and will report to Christo-
Claims Professionals. It’s Good to Have Options. pher J. Swift, executive vice president and chief financial officer. Bateman previously was senior vice president and chief financial officer for The Hartford’s commercial markets division. Bateman joined the company in 2004 and has served in a variety of roles within the finance organization, including chief financial officer for claims and property/ casualty runoff business.
Jeffrey F. Harrold, chairman and CEO of Auto-Owners Insurance Company, received the Griffith Insurance Education Foundation’s 2012 Lifetime Achievement Award. The award recognizes industry leaders for their commitment to education, and for their support of the missions of The Griffith Foundation and the National Association of Mutual Insurance Companies (NAMIC). For 21 years, Harrold worked on the property/casualty side of the business before assuming responsibility for life company operations in 1998. Since then, he was named executive vice president and assumed additional responsibility for home office property/casualty underwriting and the marketing division, before he was named president of Auto-Owners Insurance Group then CEO. CJ
Claims Education for Your Unique Needs We know the claims function can be challenging, even on the good days. That’s why The Institutes offer a range of professional development options (including the multi-tracked Associate in Claims designation) to help claims professionals be more efficient and effective no matter where they are on their career roads. © 2012 American Institute For Chartered Property Casualty Underwriters
Montpelier Reinsurance Ltd., the Bermuda-based subsidiary of Montpelier Re Holdings Ltd., named Christopher Downey head of Global Casualty and Specialty Treaty Reinsurance. Downey is responsible for leading the full portfolio of casualty and specialty treaty business written through the company. He will report to Christopher Schaper, president of Montpelier Re. Downey has nearly 20 years of underwriting and actuarial experience in the insurance and reinsurance industry, most recently as senior vice president specialty & casualty at Alterra Bermuda. He is a fellow of the Casualty Actuarial Society, a member of the American Academy of Actuaries and a Chartered Financial Analyst.
Introduction to Claims
Associate in General Insurance (AINS®)
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Chartered Property Casualty Underwriter (CPCU®)
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3/16/12 1:26 PM Fall 2012 | Claims Journal 11
CLAIMS REVIEW | Home
How to Investigate Heating Equipment Fire Losses
2009, more than one-third (37 percent) of heating-related fires involved a fireplace, chimney or chimney connector. Twenty ave was making his way through percent of these fires were the result his house trying to find out why his smoke detectors were sound- of mechanical failure, malfunction or improper installation. ing … then he saw it. Scorched paint Determining the origin of these fires and burned places covered the wall is not difficult; however, identifying a above the fireplace, and small flames specific cause of the fire can be a chalwere visible in several places. While waiting for firefighters to arrive, he won- lenging effort. The National Fire Protection Association’s “NFPA-211 Standard for dered what could have gone wrong. chimneys, fireplaces, Although this is a vents and solid-fuel fictional account, de- 37% of heating- burning appliances” spite hiring licensed related fires involve a provides more ingeneral contractors, formation regarding homeowners involved fireplace, chimney or proper installation in a heating equipchimney connector. and use than most of ment fire loss may us care to know. Adlearn too late that ditionally, in commercial applications, installation or maintenance should have local building and fire codes may require involved a certified or trained installer. more stringent regulations be followed. The National Fire Protection AssociaEach solid-fuel burning appliance manution (NFPA) reported that in 2010 more facturer also publishes proper instalthan 57,000 heating equipment fires lation and use information with each occurred in the United States. Almost specific unit. And if that isn’t confusing 500 people were killed in these fires, enough, the information is different for and direct property losses amounted many models. So what should one look to more than $1.1 billion. From 2005 to
By Dennis K. Haas
12 Claims Journal | Fall 2012
for when investigating a loss involving a solid-fuel burning appliance? First, involve an origin and cause investigator to document and verify the fire’s origin. Then, familiarize yourself with the specific make and model of the appliance in question, as well as who installed it. Many units are not installed or inspected by certified or trained installers familiar with the specific requirements of the unit, but are installed by general contractors. Installation requirements vary by appliance, all of which involve minimum clearances from combustible materials. Even “zero clearance” appliances have some clearance requirements that must be met.
These requirements are applicable to the appliance, flue piping and the chimney. Following are some general requirements, but there are more to consider. Fireplace appliances must be installed inside an opening that meets the minimum requirements. The appliance must be installed flush with surrounding framing and must not be recessed into the opening. It must also allow for proper clearances between the rear of the unit and the back of the enclosure. The opening must provide for minimum distances from the door opening to side wall, and from top of the appliance to the mantel. Fire stops should be provided within the chimney void area that also includes approved spacers at any point where the piping penetrates the fire stopping material. These voids must be free of any material, including insulation. Flue piping size and type requirements vary by the manufacturer’s recommendations, appliance type and construction. Chimney height requirements apply depending upon roof type and height, and local ordinances may require a spark arrester. Minimum space requirements also apply from chimney above the roof line to other portions of the dwelling. Zero clearance fireplaces may require an anchor plate be installed on top of the unit. When required, the anchor plate must be matched to the specific unit. Intake air requirements apply to many models. In some instances, insulation may be used as a “clearance reduction system,” but then it, too, must meet minimum requirements. NFPA-211 recommends that fireplaces and chimneys be inspected once a year. As-
certain if an inspection has been conducted and by whom. Often, aging appliances may have deterioration of the flue piping that allows hot gases to enter the void space and contact combustible materials. These problems should be identified during an inspection by a qualified technician. The temperatures produced by these appliances can and do serve as a competent ignition source for nearby combustibles.
child’s p u zzle (easy to value)
For losses involving solid-fuel appliances, involve a qualified expert. He can ensure that the mountain of requirements are thoroughly researched so that subrogation is not lost in those instances where product failure or third-party liability is possible. CJ Haas is a senior investigator and field supervisor for UNIFIED Investigations & Sciences Inc. in San Antonio, Texas.
wha t the heck? (hard to value)
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9/27/12 5:00 PM
Fall 2012 | Claims Journal 13
CLAIMS REVIEW | fraud focus
What’s New in Staged Auto Accident Scams
woop and squat, drive-down and panic stop are examples of staged auto accidents, according to Frank Scafidi, director of public affairs for the National Insurance Crime Bureau (NICB). Scafidi recently sat down with Claims Journal to describe the most common types of staged auto accident schemes. Here, he outlines why it’s important for adjusters to verify key aspects of an investigation involving a potentially fraudulent accident scam. Claims Journal: What are staged auto accident schemes? Scafidi: They are a significant cost-driver in a lot of areas, and particularly in states that have no-fault insurance systems. What they generally do is involve one or more people, one or more vehicles that the bad guys operate … where the innocent driver, because of the way the accident is carried out, usually will hit somebody in the rear or will be hit by one of the bad guys so that a responding law enforcement officer will find that innocent victim at fault. CJ: What are the most common types of auto accident schemes? Scafidi: One is called the “swoop and squat.” There are different variations, but essentially that scheme is where you have two or three vehicles that are opermight then just disappear. ated by criminals, by co-conspirators. So [what] you’ve got left at the scene They will identify a target, and they’ll are the innocent victim and the person maneuver their vehicles in such a way that they ran into. When the cops show that one vehicle will pass the target up, of course, it’s a pretty clear cut case victim, the innocent victim, and then of following too closely. get back in front of that car, and then In many cases, you’ll find witnesses they’ll continue on Sometimes staged accidents are for a ways, and then another vehicle will the first step in a multi-fraudulent come up alongside the target vehicle to block situation. that person’s potential escape from an impending accident. that are all part of the criminal con Then the first vehicle will just stop spiracy. … So,when a claim comes in, it’s suddenly, causing the victim’s vehicle to very difficult to disprove. When you hit run into the back of the bad guy’s car. somebody in the rear, you’re typically at Meanwhile, the other players in the side fault. When you’ve got witnesses to back car, the blocking car or other trail cars, up the bad guy’s story — that’s a pretty
14 Claims Journal | Fall 2012
incredible set of facts to overcome. Then, there’s a “sideswipe,” a “drivedown.” Another one is a “panic stop.” A panic stop is essentially the same … it’s where an individual driving the car, the bad guy [is] with two or three other people in the car. Then they just move it along at a slow rate of speed and they find somebody that looks like a good target. They’ll maneuver in front of that car, hit the brakes quickly, and then cause the innocent person to run into their rear. Again, now you’ve just got one vehicle that’s operated by the bad guys, but you may have two or more passengers in there … They’re going to get out, and they’re going to complain of injuries. When someone asks them, “Why did you stop?” Well, it could’ve been that
somebody stepped off the curb or there was some reason for them to stop that’s going to sound legitimate. So, it’s not the person that stopped that’s going to be at fault. It’s the one that hit them in the rear. In the sideswipe, typically the bad guy will position his vehicle in an outer lane, and then as soon as the victim’s vehicle comes into that outer turning lane, the criminal will sideswipe it. This is usually done where you’ve got dual turning lanes. There’s just a way to maneuver the vehicle to make it look like the bad guy was innocent and the victim vehicle performed some sort of a traffic maneuver and hit the bad guy, to make it seem like the innocent party is at fault. CJ: Are there any other new trends in staged auto accidents? Scafidi: Not really. There are some variants of all these things, but the key ingredients to these phony accident schemes is to have an innocent vehicle that is maneuvered in such a way that driver either hits a car or is hit by one of the bad guys. The actual crash might be more intense
than anyone was planning. There’s one famous case from New York years ago where a woman was killed when she was part of staged accident scam. So, there are risks to drivers and pedestrians, in many cases. It’s important for adjusters, claims handlers and investigators to understand that when you get what looks like a clear-cut case of, “Gee, well our insured was at fault here making a left turn,” there could be other elements. If you’ve got some indicators of these things — several people in the car that was hit are claiming injuries — these are things that send up the red flags for us. We have to be aware that what appears to be a clear-cut accident could very well have been a staged or setup accident. CJ: Are there a few common factors involved in staged accidents? Scafidi: Perhaps, when you run your claims history on some of these things and you see the same vehicle is involved in other claims, even in other parts of the state or the country, that’s a clue. I would defer to the SIU and the claims
experts and professionals. When you see something like this, give it a little extra review. It never hurts to refer something to us if you think it’s questionable. As an investigator, if you see something or you’re referred a claim and it doesn’t add up, then do a little more digging. Everyone is under time constraints, and you’ve got to process claims quickly. It just pays to take a little extra time and verify some of the names that might be on that claim, the injuries, the places that these people are seeking medical assistance or where they’re referred for medical treatment. Sometimes staged accidents are really the first step in a multi-fraudulent situation, where you’ve got people referring injured parties to certain clinics, to certain doctors, for treatments that are never even performed or are unnecessary. When you start probing around and you see a lot of these referrals to specific clinics in certain areas … you get into, really, the granular detail of what goes on behind a claim. When you see that activity, that’s another indication that there could be something there that’s very wrong. CJ
Volunteer • Give • Make an Impact Join IICF Week of Giving Oct. 13-20, 2012
Bring your talent and energy Help your community • Join other insurance professionals Sign up your volunteer team at IICF.org/volunteer. New for 2012: A giving campaign supporting St. Baldrick’s Foundation, Starlight Children’s Foundation, and Wounded Warrior Project. * Text INSURANCE to 50555 to donate $5 or donate at IICF.org. *Standard message and mail rates apply. For full terms visit www.mGive.org/T. The Insurance Industry Charitable Foundation is a registered not-for-profit organization under section 501(c)(3) of the IRS code. Federal Tax ID #20-1240972.
9/24/12 11:13 AM Fall 2012 | Claims Journal 15
IDEA EXCHANGE | ENGINEERING, INVESTIGATIVE, & FORENSIC GUIDE
ENGINEERING, INVESTIGATIVE, & FORENSIC GUIDE 2012 C
laims Journal is pleased to publish the 2012 Guide to Engineering, Investigation, and Forensics. This exclusive directory resource has been designed to help claims professionals find partners and services to enhance their ability to respond to disasters and better assist their clients. We look forward to expanding and enhancing this directory in the future and welcome your feedback on how we might improve it. Please send comments or suggestions to email@example.com.
American Structurepoint, Inc.
Douglas G. Peterson & Associate, Inc
7260 Shadeland Station Indianapolis, IN 46256
P.O. Box 777 Greenfield, MA 01302
www.structurepoint.com/investigative firstname.lastname@example.org (855) 822-1966 Since opening our doors in 1966, public- and private-sector clients have trusted American Structurepoint as their single-source contact for first notice of loss through incident resolution. Weâ€™ll handle your property or liability claim investigation 24/7, so you can rest easy. We specialize in: Fire Investigation; Forensic Engineering; Information Technology; Environmental; Expert Witness; Catastrophe Response; Construction Management.
Amset Technical Consulting 1864 S. Elmhurst Road Mount Prospect, IL 60056 www.amsetUSA.com email@example.com (888) 982-6738 Amset provides technical consulting to insurance professionals and attorneys in the investigation, analysis, and resolution of insurance claims involving electronics, equipment, and electro-mechanical machinery. Since 1996 Amset has earned an excellent reputation in the field of property and casualty claims for electrical & mechanical failure analysis, fire/explosion origin & cause investigations, vehicle fire investigations, cost analysis, electronics restoration, data recovery, laboratory examinations, and evidence storage.
Donan Engineering Co., Inc. 11321 Plantside Drive Louisville, KY 40299 www.donan.com firstname.lastname@example.org (800) 482-5611 Donan Engineering is a multi-disciplined forensic consulting firm with professional engineers, fire investigators, and a component testing laboratory.
16 Claims Journal | Fall 2012
www.dgpa.com email@example.com (413) 774-3781 x302 A national, multi-disciplinary damage engineering firm, whose specialty for over 40 years is providing objective answers to engineering cause, cost, and downtime questions.
EFI Global, Inc. 8811 FM 1960 Bypass Rd West, Suite 400 Humble, TX 77338 www.efiglobal.com firstname.lastname@example.org (281) 312-3157 EFI Global offers the widest range of engineering, fire investigation, failure analysis, environmental, accident reconstruction, laboratory testing, and real property services available to public and private entities. Our multidisciplinary team of engineers, fire investigators, and scientists is selected for their technical proficiency and in-depth industry knowledge to aid clients in resolving technical problems. With more than 400 professionals in 27 service centers nationwide, EFI Global has the resources to respond quickly to your unique needs â€“ anytime, anywhere.
Haag Engineering 4949 W. Royal Ln. Irving, TX 75063 www.haagengineering.com email@example.com (214) 614-6500 Haag is a globally diverse consulting firm encompassing forensic engineering, construction consulting, geotechnical consulting, 3D laser scanning/BIM modeling and research/testing. Haag engineers have a wide range of expertise in all disciplines - civil, structural, architectural, mechanical, electrical, and metallurgical. We also offer outstanding educational programs, tools and publications. Haag is celebrating 88 years of serving not only the insurance industry, but manufacturers, attorneys, government entities, municipalities and corporations with our professional expertise.
HSA Engineers & Scientists
3075 Breckinridge Blvd, Suite 470 Duluth, GA 30096
100 Bush Street, 20th Floor San Francisco, CA 94104
www.hsa-env.com LGriswold@hsa-env.com (706) 949-1110
www.rgl.com firstname.lastname@example.org (415) 593-1300
Forensic Engineering firm located throughout the southeast. Providing Fire & Explosion Investigations; Marine Fire & Electrical Investigations; Lightning Investigations; Product Failure Analysis; Product Liability; Expert Case Review; Expert Witness Testimony; Subrogation and Liability Determinations; Trial Preparation; Expert Review of Reports & Depositions. Offices located in Georgia, Florida, Tennessee, Alabama, South Carolina, North Carolina & Texas. 24 hour response time and 5 day turnaround on forensic reports. Let our staff of Fire Investigators and Engineers solve your problems.
RGL Forensics is an international firm of accounting, valuation and corporate finance professionals who are specially trained in discovering and defining financial value. The firm establishes relevant facts and reliable figures for insurance, corporate, legal, and public sector clients and has done so for more than 30 years. For more information, please visit www.rgl.com or email Steven A. Rosenthal, CFE, at email@example.com.
Hughes Associates, Inc. 3610 Commerce Drive, Suite 817 Baltimore, MD 21227 www.haifire.com Forensics@haifire.com (410) 737-8677 x217 Hughes Associates, Inc. has 30+ years of experience delivering fire related forensic services as part of a full service fire science and engineering firm with offices across the US and internationally. Hughes experts are technical leaders, consisting of Professional Engineers, scientists, and investigators with proven experience to respond to fires, explosions, or fire protection system failures. We provide a broad range of capabilities in one firm, high level expertise from scene investigation to trial testimony, testing and research, modeling, and code consulting.
Rimkus Consulting Group, Inc. 8 Greenway Plaza, Suite 500 Houston, TX 77046 www.rimkus.com firstname.lastname@example.org (713) 621-3550 Rimkus Consulting Group, Inc. serves clients with more than 300 professional engineers, scientists, financial experts, fire investigators and technical specialists located in offices all over the U.S. plus London. Their knowledge, experience and expertise are the reasons why Rimkus is among the largest and most highly regarded forensic consulting firms in the world. Dedicated to fast, informative response and unparalleled quality of final product, our experts provide reports and courtroom testimony aimed at clear understanding by a non-technical audience.
U.S. Forensic Nelson Architectural Engineers, Inc. 2740 Dallas Parkway, Suite 220 Plano, TX 75093 www.nae-us.com email@example.com (877) 850-8765 Nelson Architectural Engineers, Inc., serving nationwide from strategically located offices in Texas, Florida, Georgia, Maryland, Maine, Colorado, California and Hawaii, is a progressive multidiscipline firm specializing in forensics and consulting. We are investigators who assess damage from perils such as hurricanes, explosions, fires, structural failures, and design and construction defects -- typically within an insurance or legal setting. NAE excels in Forensic Engineering (Civil, Structural, Mechanical, Electrical), Forensic Architecture, LEED速 Consulting, HVAC, Roofing, and Cost Estimating.
3300 West Esplanade Ave, Suite 601 Metairie, Louisiana 70002 www.usforensic.com firstname.lastname@example.org (888) 873-6752 U.S. Forensic, L.L.C. is a Southeastern U.S. forensic engineering firm offering expert evaluation, opinions, reporting and courtroom testimony. We currently maintain 14 offices with technical expertise including mechanical engineering, civil engineering, structural engineering, fire cause and origin, electrical engineering, vehicle accident reconstruction and indoor air quality investigations. Office locations include New Orleans, LA, Lafayette, LA, Hattiesburg, MS, Picayune, MS, Memphis, TN, Destin FL, Jacksonville, FL, Orlando, FL, West Palm Beach, FL, Miami, FL, Columbia SC, Charlotte, NC, Austin, TX and Dallas, TX.
Fall 2012 | Claims Journal 17
Partnership for Priority Video Alarm Response (PPVAR) membership includes electronic security industry companies, police departments, sheriff organizations and the insurance industry.
The goal of PPVAR is to increase criminal apprehensions while reducing needless dispatches. We do so as an organization by promoting the priority response to video alarms that are verified by a certified central station.
POTENTIAL CRIME IN PROGRESS! » Verified human activity on site » Priority response warranted » Increased apprehensions & deterrence
PARTNERING WITH LAW ENFORCEMENT | ALARM COMPANIES | INSURANCE INDUSTRY
18 Claims Journal | Fall 2012
New Partnership for Video Alarms Delivers Arrests and Loss Control
he PPVAR (Partnership for Priority Video Alarm Response) is a growing ally for loss control professionals. This partnership brings together all parties in the battle against property crime including law enforcement, alarm companies, insurers and property owners. Some of the largest alarm companies in the business are involved including Protection 1, Diebold and Stanley. Police chiefs are joining PPVAR from large suburbs like Grand Prairie, Texas to the second largest police force in the country, the Los Angeles Sheriffs Dept. Police Chief Magazine, the official publication of the IACP (International Assn. of Police Chiefs) carried a case study earlier this year that documented a 70 percent arrest rate. In fact, making arrests is the whole point of this partnership. Since statistics show that one arrest can eliminate 30 to 50 burglaries, real loss control and cost savings are realized when insurers are processing 30 fewer claims resulting in 30 fewer appointments for adjusters. Arrests are the ultimate loss control tool for burglaries. Once expensive, video cameras are now just another feature on most new cell phones. The alarm industry is delivering innovation, building upon the video technology revolution that has occurred in the last decade. The innovators of the entire “security food chain” are creating video alarms and monitoring services that are delivering new levels of security to their customers (your insurance policy holders). This innovation is far more than just a new product, although there are many new products like I-View and Videofied. National recognized testing labs, like Intertek, are actually adding a “V” for video designation for their ETL certificates to help define video alarm systems. Leading security companies like Protection 1, Stanley, and Diebold have all invested heavily to update their monitoring stations to maximize the value of video alarms and deliver priority alarm response to their customers. Perhaps, most importantly for loss control and underwriters, law enforcement personnel have embraced video alarms and now respond to a video verified alarm as an “in progress” call –giving the call priority response. Traditional alarm systems typically receive a level three or lower as
most of these dispatches are not actual crimes. In fact, the arrest rates on traditional alarms are less than a tenth of a percent. That does not mean that they are not a deterrent. A siren screaming to the neighborhood that someone just entered the property is a deterrent. The fact is, however, that they seldom deliver arrests and arrests are effective loss control. Declining budgets are having an impact on police response to alarm systems. Some jurisdictions like Detroit, San Jose and Salt Lake City no longer respond to unverified alarms. In many others, reductions in the number of responding officers have increased response times and budgetary realities mean degraded service. The PPVAR is reaching out to the insurance industry, and especially to loss control professionals, to join the partnership. The NICB (National Insurance Crime Bureau) has a seat on the board and is a strong supporter of Priority Response for more arrests. The NICB is supported by over 1,100 property/ casualty insurers and the major interface between these companies and law enforcement. We welcome your participation as we move forward to maximize the value of “loss control with a badge.”
The PPVAR is reaching out to the insurance industry... We welcome your participation as we move forward to maximize the value of “loss control with a badge.”
Contact: www.priorityreponse.info Phone: 651-855-7802
Fall 2012 | Claims Journal 19
SPECIAL REPORT | Personal Lines
By Denise Johnson
espite the thousands of products recalled each year, whether or not recalls are effective is still debated. Some experts question the effectiveness of recalls. They say too many recalls are based on inadequate safety testing and undertaken more to satisfy regulators than to improve safety. Often, recalls suffer from poor execution and communication and are inconsistently enforced globally. All the while, the costs of recalls may not be enough to change a product maker’s practices. Recall Costs and Regulatory Pressure There have been more than 350,000 products recalled each year since 2008, according to the website wemakeitsafer. com, a company that builds web applications for consumers, manufacturers and retailers to improve communication relat-
20 Claims Journal | Fall 2012
ing to product safety recalls. While a recall might seem to be an expensive prospect, that’s not always the case. Kenneth Ross, counsel at the Minneapolis-based law product liability defense firm of Bowman and Brooke, says that just 5 percent of all consumer products involved in a recall are returned to the product maker. “The cost to the manufacturer is not that great,” Ross said. “Some manufacturers will report to the CPCS [Consumer Product Safety Commission] even if they’ve never had an accident before.” Angie Puthoff, senior marketing communications manager for Stericycle, a company that has provided recall services to manufacturers and retailers for more than 2,000
recalls to date, said the company doesn’t track costs of a recall because it varies based on a number of factors. Some factors that impact the total cost of a recall include the size of the recall, the length of time for the recall, the location of the products in the supply chain, and the need for additional recall announcements or an expansion of the recall, Puthoff said. “The costs of a recall are really hard to estimate given all the risks that different companies face,” Puthoff said. Ross said because recalls are fact specific, figuring out the average cost is pointless. “Every recall I’ve done is a bit different. I can tell you that the cost can be enormous if you get a lot of products back or if you have to send out lots of letters,” Ross said. For example, a recall for a well-known home improvement retailer involved sending out letters to 35,000 customers and cost the company more than $100,000, he said. One reason for the noticeable increase in product recalls can be attributed to increased governmental pressure on manufacturers to publicize problems with their products, according to Ross. “There are more recalls because there is more responsibility for manufacturers to report to the government ... and also to foreign governments,” Ross said. According to Ross, who also serves as an expert witness on recall adequacy, manufacturers believe that recalling a product voluntarily protects them from further action by the CPSC and might help them defend themselves in the event of a future accident. “What we see is that many recalls are occurring where no one’s been hurt and no one may ever be hurt,” Ross said. “But there’s a defect in the product and it could cause a serious injury, so the companies are deciding for various reasons, both regulatory and product liability, to just recall their product.” Global Variations in Rules and Enforcement Product recalls on a global scale in particular can be problematic due to varying reporting requirements and differing legal landscapes among the countries involved. “What’s kind of goosed everything up here, depending on where you sell your products, is that we now have reporting responsibilities in Australia, the EU [European Union], Canada, South Africa,” Ross said. The Bowman and Brooke former law firm partner has
seen how these differences play out. “In Canada and Australia you have a duty to report if you’ve had a serious accident and it could happen again. You don’t have to have a defect.” However, in the United States, under National Highway Traffice Safety Administration (NHTSA) and CPSC, there must be a defect, he said. “There are different reporting responsibilities, different thresholds for reporting. You can have the situation where you would actually have a duty to report in one country and not in another,” Ross said. The Bridgestone tire recall in 2000 is an example of reporting differences among countries. “What happened is that Ford recalled the product in Venezuela and Saudi Arabia, and not in the U.S., because it’s hot there, and they were having accidents there. They didn’t report to NHTSA, and they hadn’t taken a recall in the U.S. Well, NHTSA found out about this, and made them report, and made them do a recall. Ford took a hit for that, and they had to defend themselves because they were recalling products in foreign countries and not here,” Ross said. In addition to reporting requirements, companies must understand the legal landscape of each of the countries where their products are sold. “When I talk to manufacturers, wherever you sell your product, you have to understand what the laws are, and be prepared to comply with them. Because there may be things that are going on in foreign countries that will adversely affect your U.S. litigation,” said Ross. For example, a case involving a baby product recalled in both the United States and Europe ‘There are more resulted in litigation being filed in the United States because product recalls because liability litigation is difficult to there is more pursue in Europe. “If I’m remembering correctly, responsibility for they weren’t that rigorous in manufacturers to Europe, because Europe has very little product liability litigation,” report to the Ross explained. “They didn’t tell the retailers to go get the product back government.’ from their customers. One retailer took the product off his shelves, sent it back, but he never communicated to his customers to send the product back.” After a baby died in Sweden, the mother filed suit in the United States. The company was unable to get the lawsuit moved out of the United States. “We had to justify why we implemented this recall differently from country to country, and didn’t require a recall among consumers in Sweden, and we did in the U.S. It was a loser of a case, we had to settle it. When you’re defending recalls, these are really hard cases because with 20/20 hindsight you can always do more,” Ross said. Product liability litigation in Europe is limited as well, continued on page 22 Fall 2012 | Claims Journal 21
SPECIAL REPORT | personal lines
continued from page 21
Ross said. “I’ll call it procedural. There are no contingent fees in most countries. There’s no pain and suffering. There are no punitive damages. There’s really no claim for lost wages because the safety net in Europe is such that you’re getting medical Manufacturers expenses and lost earnings if are not required you’re injured. You can’t get a big verdict in Europe. That and to report a recall the lack of punitive damages and jury trials makes litigation to their liability a lot less remunerative than it is insurer. here,” Ross said. Michael Krauss, a law professor at George Mason University School of Law, an expert on products liability and the author of a book on the subject, “Principles of Product Liability,” agreed. “There’s an increasing amount [of litigation] in Europe and Canada but it is still much less than in the United States,” Krauss said. One reason is due to the taxpayer funded medical care available in those countries. According to Krauss, an injured person is not out of pocket any money and there is less of a need to find a deep pocket to pay the bills. Another reason, he said, is that jury trials are not common. “All throughout the western world, apart from the United States, jury trials do not exist in tort law,” Krauss said.
Europe isn’t the only place where product liability cases rarely stick. The same holds true in Canada and Australia. “We’re [the United States] the champion on litigation, and there’s a reason for it, and the reason is because the attorneys can get money out of it. That’s what drives it more than anything else,” Ross said. Customer notification is another issue. Despite technology and multiple social media platforms, retailers and manufacturers aren’t communicating well with their customers. “The retailers are working on it but Target and Wal-Mart, for example, don’t keep track of who buys what. Costco does — Costco knows exactly who buys what, and they can communicate, email or mail to everybody who bought a particular product that’s being recalled,” Ross said. And while manufacturers are not required to report a recall to their liability insurer, there are reasons they might want to do so, he said. “We like to tell them if we’re going to do a recall, particularly during pending litigation. But we’re not required to tell an insurance company that we’re recalling our product. That’s not an insurable event,” Ross said. “People have asked me before, you know, ‘I’m going to recall my product and I’ve got some current claims, should I tell my insurance company?’ Yeah, you probably ought to let them know because maybe you want to go out and settle some cases before the recall becomes public knowledge,” he added. CJ
Timing Crucial in Product Failure Liability Investigations
esidential appliance fires annually result in an estimated 9,600 fires, 25 deaths, 525 injuries and $211 million in property losses each year, according to the U.S. Fire Administration.
A Consumer Reports study analyzed home fires occurring between 2002 and 2009 found that appliances were to blame in more than 69,000 fires and over 35,000 were due to defective products. Ryan Allaire, a Colorado engineering manager with Phoenix Investigations, said product liability failure investigations often include a check for recalls. “When we go do an investigation and it’s a potential product failure liability case, we generally pull up recalls for that product or brand,” Allaire said. While it may seem like a costly expense, it’s beneficial to hire a cause and origin expert early on in an investigation. That’s because timing is important in a product failure liability investigation. Getting there after a restoration company or contractor has begun work can be detrimental to a product liability subrogation case. 22 Claims Journal | Fall 2012
“Be aware that during a fire, products are getting damaged and components are getting moved around and tossed around by the fire department,” said Allaire. Witness statements are important to gather early too, Allaire added. CJ
SPECIAL REPORT | appraisals
Enhancing Efficiency and Quality in Claims Estimating
n today’s fast-paced, competitive world companies feel pressure to get the job done right and done quickly. Nowhere is this more evident than in the property industry, where adjusters strive to quickly handle assignments and exert better control over the claims process to minimize operating costs and keep policyholders satisfied.
By Jeffrey C. Taylor and Mike Fulton
During the scoping and estimating phase of the claims process, adjusters face several major challenges that determine whether they will succeed: efficiently documenting the loss, avoiding scoping errors, and tracking and responding to building cost trends. Several strategies can enable adjusters to complete claims assignments according to their companies’ highest standards.
losses by using aerial technology that leverages high-resolution images to produce detailed renderings of roof structures. In a total loss, aerial imagery also allows estimators to recreate exteriors of structures that have been reduced to rubble. Upon completion of the scoping phase, adjusters can use several strategies to maintain control while estimating repair costs. Building Cost Trends Accurate scoping data does little good if the pricing data adjusters rely on to estimate repair costs is outdated. Material, labor and equipment prices can shift quickly, and changes rarely occur at the rate some would expect. Using current, localized data to track building costs is the best way to stay on top of trends as they unfold, as well as to write repair estimates that appropriately match the losses they cover. For example, it is often assumed that material and labor rates will spike following a major catastrophe, but demand surges only affect costs when they outstrip the available supply in the market. The widespread hailstorms that struck parts of Illinois, Indiana, Kentucky and Missouri on April 28 demonstrated this point. According to media reports, wind speeds reached 60 miles per hour, and the storms pelted several areas with hail that measured up to 4.5 inches in diameter — roughly the size of a softball — and damaged tens of thousands of homes. Yet the widespread damage did not have a drastic effect on the cost of roofing materials or labor. In fact, St. Louis, Mo., which experienced substantial damage, reported only onefifth of a percent increase in average roofing labor costs one month after the hailstorms (See “Average Roofing Labor Cost” on page 23). The cost of 25-year composition shingles — a com-
Losses and Errors The faster an adjuster can scope a loss, the better; however, accuracy shouldn’t be sacrificed. Adequately scoping structural damage is crucial because errors made during this phase have far-reaching repercussions later in the cycle. Making effective use of mobile technology is a great way to achieve these goals. Now a smartphone or tablet can replace paper, pencils, a tape measure and camera to help adjusters document structural damage more efficiently. Adjusters can use mobile technology to take photos, record voice notes and capture structural dimensions. Industry-specific apps further streamline the workflow by allowing adjusters to electronicontinued on page 28 cally transfer claims notes from their mobile devices to their claims estimating system, which saves time and reduces errors that can occur when manually inputting scope data. Recent developments in aerial imagery also provide adjusters with ways to scope difficult losses, such as roof damage and total losses. Few claims are as timeconsuming or as dangerous as roof losses. According to the U.S. Bureau of Labor Statistics, more than one-third of all 645 work-related fatal falls in 2009 involved ladders and roofs. AdTrends for average roofing labor costs in St. Louis compared to state and national averages between justers can save time and reduce January 2012 and June 2012. the risk when handling these
Fall 2012 | Claims Journal 23
SPECIAL REPORT | auto
Navigating the Rental Car Insurance Highway By Lori Widmer
n a recent business trip, Shelly rented a car using her American Express card. She opted for the rental company’s auto insurance protection. Within a few days, Shelly had an accident that caused $8,000 in auto damage and sent her and a passenger to the hospital. How should the claim be paid? The answer may not be as easy as it appears. Because Shelly travels a lot, she purchases American Express’s rental car coverage. Is that the first payer? Then again, Shelly lives in a state that requires rental car companies to cover at the state minimum. Under state law, the rental car company might be the first payer. Or is it Shelly’s personal auto insurance that responds? For the claims adjuster new to the rental car process, it might be daunting to unravel. Justin Petty, president and CEO of Petty Details LLC, a claims, auditing and subrogation service company, says knowing where to look can simplify the job. Start with the rental agreement, he says.
New York and doesn’t own a car. So when she rents a car, she contacts both her credit card company and the rental car company and has them send her information on just how much coverage she would have. She feels it is a necessary step for consumers, but may also be a good practice for adjusters. Adjusters should understand the coverages and should look for collision damage waivers to determine if the renter has taken on the responsibility unwittingly. “It’s a different animal from regular auto insurance; it’s more specialized.” The challenge for the adjuster, she believes, is when the renter’s regular auto policy isn’t adequate to cover even the excess insurance. Foley agrees. He says that especially if the renter has an older car at home with limited insurance, there’s a good chance the rental wouldn’t be adequately covered under the renter’s personal policy. In that case, he says adjusters should understand state laws to determine if the rental company is liable for part of the damages.
What to Look For Petty has handled thousands of rental car claims. First, he says to make note of who’s driving, then check the agreement to see if that person is listed as a driver. Depending on the agreement, it could be that the person driving doesn’t make a difference, or could make a big difference. Another primary factor — knowing what is expected at the state level. In some states, he says, rental car companies are required by law to assume a minimum financial responsibility in any accident involving bodily injury. Peter Foley, vice president of claims administration for the American Insurance Association, says adjusters should know that state limit and what is applicable to rental car companies. “What does the state require of the companies? In some states, even though the collision loss might be subject to my policy, it could very well be that the first $25,000 of the bodily injury claim must be paid by the rental car company.” Loretta Worters doesn’t have auto insurance. The vice president of the Insurance Information Institute lives and works in
Oddities According to the experts, Shelly’s hypothetical claim is a fairly typical claim scenario. Then there are claims that stand out. Petty remembers one in particular. He was handed a claim on a car that was rented and then involved in a hit-and-run accident. The driver and passengers were all injured, and they’d purchased the maximum coverage available through the rental company. It was an easy claim to settle — until that same car showed up on yet another claim for yet another hit-and-run accident. Petty realized there was something odd when the car’s VIN showed up in the ISO history in his database. “When I pulled up the previous claim history, the damages on the vehicle were identical,” Petty says “The vehicle had not been in two separate accidents, clearly.” And again, the renter had purchased the maximum coverage. Upon investigating, Petty discovered that the vehicle was being used in multiple scenarios and being presented as a rear-ender accident. The rental car company was al-
24 Claims Journal | Fall 2012
lowing the use of its car and writing phony contracts. “No one was ever actually driving that vehicle,” he says. Each accident filed under that car amounted to $20,000. Criminal acts are rare, but Petty has seen his share. So it wasn’t surprising when he saw a claim that he began investigating as potential arson. The claimants had rented a Crown Victoria, and within days filed a claim. The car had caught fire and burned while the renters weren’t near or in the car. “We thought it was arson because it looked like an accelerant had been poured all over the hood,” he says. Through a group effort among claims adjusters, Petty and the team found the problem. The cruise control deactivation switch on the car was located over the master cylinder and brake cylinder. Brake fluid, being highly flammable, would ignite whenever the defective switch failed to turn off when the car was turned off. Over time, it created an arc, which ignited the fluid. Foley, who worked in insurance companies prior to his current tenure at AIA, says he had to spell out to a renter why renting a car with full coverage wasn’t going to be paid for by the insurer. His insured had an accident with a car that had coverage for liability only. He rented a car while their car was being repaired. “[He] purchased the coverage for collision, then submitted the bill to my company. We wouldn’t reimburse him for that coverage because he had purchased more coverage than
Rental Insurance Differences
o understand what rental car insurance covers, and how that differs from traditional personal auto insurance, look at the fine print. Here are potential areas of concern for adjusters trying to determine financial responsibility:
Loss Damage Waiver. Also called collision damage waiver, this is not an insurance product. Instead, it’s a waiver of financial responsibility should the rental car be damaged or stolen. Many waivers also include a “loss of use” inclusion, which will reimburse renters for the inability to use the car should it need repair or replacement. This waiver can also cover towing and administration fees, not often paid for by traditional auto insurance. Liability Protection. Typically found on most personal auto, liability protection is often offered on rental agreements. Rental companies are in fact required to provide the staterequired minimum of liability coverage, but the minimums are usually quite low. Also, rental agreements allow the companies to recoup any liability amounts paid from the renter. Personal Accident insurance. This covers renters for medical/ambulance services from injuries sustained in auto accidents. In many cases, it’s an unnecessary expense because most health insurance plans or personal auto insurance will cover renters for injuries due to auto accidents. Personal Effects coverage. If personal items are stolen from the rental car, this coverage would trigger. A homeowners or renters policy often includes off-premises theft coverage. CJ
he actually had on his policy.” Exclusions to Consider Worters says many car rental companies now impose various fees after an accident that can include: towing, storage, impound fees, loss of use, diminished value and administrative services. Who pays those? It would depend on what coverage is in place, but also what personal auto insurance has decided to reimburse for. Administrative and diminished value fees vary widely, costing from several hundred to several thousand dollars, Worters says. Adjusters should check with insurers to understand what is covered and at what level. Another possible exclusion: an unnamed driver. While many rental agreements specifically exclude from coverage anyone who isn’t listed on the rental insurance policy, Petty says occasionally personal insurance covers the unnamed driver. It would depend on the state and the terms of the auto policy, he says, but adjusters should look into the possibility. “It’s a question of whether or not you’re allowed by contract. In the end, you’ll be responsible anyway. But whether it’s your insurance or the rental agency depends on the contract.” One key exclusion to look for is the damage liability waiver. If the renter has refused the damage liability waiver offered by the rental company, that portion of the claim would be the responsibility of the renter’s personal auto coverage. Petty believes the best coverage is provided by personal auto insurance. In his opinion, rental car insurance offers minimum coverage, which may not be adequate in an accident given the way cars are equipped with in-dash GPS systems, computerized MP3 players and the like. “You will get cheaper coverage through your own auto insurer than through a rental agency. Their rates are higher because you’re buying them on the spot.” So what about Shelly’s claim? Both Foley and Petty say that in a case where there are more than one coverages available, the rental policy would respond first, and any personal auto insurance would act as excess coverage. If the credit card protection is greater than either of the others, Shelly might do well to present the bill to the credit card company’s insurer, but only after determining whether the rental car company has a financial responsibility under state law. Knowing those specifics make the difference in accurately settling a claim. Petty says. Foley says adjusters should exercise caution in claims involving more than one insurance policy. “The adjuster should get the facts and, when in doubt, speak to their supervisor.” CJ Widmer is a Philadelphia-area freelance writer who specializes in insurance and risk management. Fall 2012 | Claims Journal 25
IDEA EXCHANGE | BURKE’S LAW
Recent Cases Explore Scope of Auto Use Exclusion
number of recent cases provide insight into the application and interpretation of auto use (or motor vehicle) exclusions generally present in a homeowner’s policy. Auto use exclusions typically preclude coverage for injury or damage arising out of the ownership, maintenance, use, loading or unloading of motor vehicles. Courts have struggled with identifying bright-line rules for applying the auto use exclusion. A Georgia court recently noted that “use of a motor vehicle” is generally not defined within a policy, and the court found an exact definition or bright-line standard to be “elusive.” See Hays v. Ga. Farm Bureau Mut. Ins. Co., 722 S.E.2d 923 (Ga. App. 2012). Despite their lengthy analyses in search of a more precise standard, courts have generBy Burke Coleman ally resorted to common sense applications to determine if the use of the vehicle was causally connected to the loss. The court in Hays, although confounded in its attempt to define “use of a vehicle,” was presented with one of the easier (and more entertaining) fact patterns. In Hays, two men devised a pulley system by which they would use their truck to hoist a portable toilet onto the top of a deer stand. As one man drove the truck to lift the toilet, the deer stand fell, injuring the other man. The court held that the injury was caused by the use of the truck. This determination was based on the proximity of the truck to the accident, the driver’s control of the truck, and the “plain and ordinary sense” of the term “use.” Sunshine State Insurance Co. v. Jones, 77 So.3d 254 (Fla. App. 2012) presented a more challenging scenario. In Jones, four teenagers were driving when the teen in the passenger seat grabbed the steering wheel to “get a rise out of” the driver. When the driver attempted to swat the passenger’s hands away, she lost control of the car, which veered off the road and crashed. Both the passenger’s homeowner’s insurer and auto
26 Claims Journal | Fall 2012
insurer disclaimed coverage. The homeowner insurer argued the passenger’s conduct constituted the “use of an automobile.” The auto insurer disagreed and argued that the passenger’s horseplay was not the use of a vehicle. The court determined that the passenger’s grabbing of the steering wheel did not constitute a “use of the vehicle” because he did not attempt to “employ the car in a manner intended … or to exert control over the operation of the car.” Auto use exclusions are not necessarily limited to vehicles in operation. Two other cases recently analyzed the “use” of parked vehicles under auto use exclusions in homeowner’s policies. In State Farm Mut. Auto. Ins. Co. v. Va. Farm Bureau Mut. Ins. Co., 462 Fed. Appx. 414 (4th Cir. 2012), a van had been parked at a construction site for a month when it caught fire. The Fourth Circuit Court of Appeals held that the term “use of a vehicle” required employment of the van as a vehicle. Because the van was not functioning as a vehicle when the fire occurred, the loss was not caused by the “use of a vehicle.” However, in New London County Mut. Ins. Co. v. Nantes, 36 A.3d 224 (Conn. 2012), the Connecticut Supreme Court found a vehicle to be in use despite the fact that it was parked and had no occupants. In Nantes, a woman parked her running car in the garage overnight with the garage door closed. The carbon monoxide filled the house and poisoned her sleeping guests. The court determined the injuries were caused by the “use of a motor vehicle,” noting that “use of a vehicle,” according to natural and ordinary usage, is not limited to operation of the vehicle but includes the vehicle being parked. Auto use exclusions do not lend themselves to bright-line tests based on vehicle location, operation, or movement, but rather are best applied using common sense. CJ Coleman is the legal counsel and compliance manager for Demotech Inc., Insurance Journal’s research partner. This article is not intended as legal advice, and is not a substitute for legal analysis and advice on a particular issue. Email: bcoleman@demotech.
IDEA EXCHANGE | COVERAGE CORNER
Essentials: Determining Insured Status on Auto Liability Coverage
overage questions arise in automobile liability where family members, as additional insureds, are living apart from the household of the named insured. Courts have reached differing results regarding insured status for the separated spouse or family members. Often, the reason for the separation is because there is marital discord that results in the non-named insured spouse living apart from the named insured. This was the situation before the Court in Aetna Cas. & Sur. Co. v. Miller, 276 F.Supp. 341 (D. Kan. 1967) (applying Kansas law). In Miller, the nonnamed spouse was living apart from her husband at the time of an auto accident during the pendency of a diBy Steven Plitt vorce. The Court found that the non-named insured spouse was a resident of the household and therefore insured for the accident. The Court looked at several factors to support its determination: 1) notwithstanding the fact that the wife and children had left the named insured’s home, they left a substantial amount of the couple’s mutual property at the home while taking limited mutual property upon separation; 2) the couple visited together after the separation occurred; 3) the insurance company policy in question was titled “family automobile policy,” which implied to the Court that the policy was to protect all family members as long as the family relationship legally existed; and 4) prior to the couple’s separation, the policy had been in effect. The Court noted that insurers should not require the equivalent of a “bed check” to determine whether the motorist is insured based on whether “conjugal bliss” existed in the home at the time of the accident. Residency A similar granting of coverage was made by the Court in Lumbermens Mut. Cas. Co. v. Continental Cas. Co., 387 P.2d 104 (Alaska 1963), where the Court found that a non-named insured spouse was still a resident of the same household as her insured husband during marital discord and intended dissolution. In this case, the wife had filed for divorce from her husband, who was living outside the residence at that time. The husband had left the family home prior to the divorce filing and was staying with relatives or at a hotel, while the wife and children lived in the family home. In
determining that the household continued to exist, the Court observed that the husband: 1) had visited the home several times a week and spent Sundays there; 2) paid the house and utility bills 3) bought groceries for his family; 4) kept his tools and equipment in the home; 5) occasionally took his wife and children out for meals; and 6) the husband received most of his mail at the home. Additionally, during the separation, both spouses used the insured automobile. Thus, the Court found the usual place of residence had not been abandoned. A relevant consideration in adjusting claims where a
marital separation has occurred is whether the separation was intended to be permanent or temporary with a possible reconciliation. Compare, Miroff v. State Farm Fire & Cas. Co., 471 N.Y.S.2d 807 (1984) with Marlowe v. Reliance Ins. Co., 15 N.C.App. 456, 190 S.E.2d 417 (1972), cert denied, 282 N.C. 153, 191 S.E.2d 602. In Marlowe, the Court found that the non-named insured husband was not a resident of the household because he had been separated from his wife for approximately two months at the time the motor vehicle accident had occurred. Additionally, the Court noted: 1) the insured wife and children moved into a trailer following the couple’s separation; 2) at the time of the accident the husband was not paying rent or support to his family; 3) the husband did not live with his wife in the trailer; and 4) during the separation period leading to the motor vehicle accident, evidence established that the wife did not know where her husband was living. continued on page 28 Fall 2012 | Claims Journal 27
IDEA EXCHANGE | COVERAGE CORNER continued from page 27
In reaching its decision that the non-named insured husband was not a resident of the house, the Court found that “residence” required some kind of abode between the parties, which the husband did not have with his wife at the time of the accident. Children of Divorced Parents Determining the insured status of minor children of divorced parents who maintain dual residency also presents some difficulty. In determining the insured status of a minor child, courts will focus on the amount of time the child spends at the insured household, child’s age, intent of the parties, and whether the named insured is legally obligated to the minor child. See, e.g., Auto-Owners Ins. Co. v. Merillat, 167 Ohio App.3d 148, 2006-Ohio2491, 854 N.E.2d 513 (6th Dist. Fulton County 2006). When the child lives with the non-custodial parent during weekends, courts have found that the child is a resident of both parents’ household for purposes of automobile liability coverage. See, e.g., Alava By and Through Insured status of Alava v. Allstate Ins. Co., 497 So. 2d minor children of 1286 (Fla. Dist. Ct. App. 3rd Dist. 1986). The fact that one parent divorced parents has legal custody is not disposiwho maintain tive of the question of whether a child may be a resident of the dual residency household of the non-custodial also presents parent. See, e.g., Simmons v. Ins. Co. of North America, 17 P.3d 56 some difficulty. (Alaska 2001). Therefore, custody is not dispositive of the final coverage determination. Additionally, joint custody alone has been found not to be sufficient to establish that the child was a resident of the mother’s household at the time the automobile accident happened, where the child’s presence in the mother’s household was minimal, the child’s visits with the mother were sporadic and irregular, and the child’s own testimony was that he lived with his father. See, e.g., Aetna Cas. & Sur. Co. v. Crafton, 551 N.E.2d 893 (Ind. Ct. App. 1990). Where the spouses are separated due to military duty, or where a child is living apart from the named insured’s household while serving in the military, courts have found that the household remains intact. See, e.g., State Farm Mut. Auto. Ins. Co. v. Holloway, 423 F.2d 1281 (10th Cir. 1970) (interpreting Oklahoma law) (separated spouses), and Beck v. Pennsylvania National Mut. Cas. Ins. Co., 429 F.2d 813 (5th Cir. 1970), reh’g denied, 432 F.2d 563 (1970) (applying Pennsylvania law) (a separated child). One court provides guidance in determining insured status where additional insureds are not living in the residence at the time of the accident. In Mid-Century Ins. Co. v. Duzykowski, 131 Ariz. 428, 641 P .2d 1272, 1274 (1982), the Court found the following should be considered in determining whether the individual is a “resident of the same household:” [T]he individual’s presence in, or absence from, the named insured’s home on the date of the occurrence; reasons or circumstances relating to the absence 28 Claims Journal | Fall 2012
or presence; relationship of the individual to the named insured; living arrangements of the individual in earlier time periods; individual’s subjective or declared intent of place of residence; [and] the existence of a second place of lodging. The claim representative should inquire as to the reasons for the putative insured’s absence from the residence, including temporary or permanent separation; reasons or circumstances relating to the absence or presence, i.e., current living arrangements including support and visitation both before and after the separation; and the subjective or declared intent of the putative insured and the named insured. The claim representative should not jump to a premature conclusion that if the putative additional insured is not living with the named insured at the house listed on the declarations page, that the putative additional insured is not insured under the automobile policy. CJ Plitt is a nationally recognized expert in insurance law. Email: SP@kunzlegal.com.
Trends for average 25-year composition shingle costs in St. Louis compared to state and national averages between January 2012 and June 2012. continued from page 23
mon repair item for hail damage — only rose 0.32 percent by June 1 (See “Average 25-Year Composition Shingle Cost” chart). A post-hailstorm price surge might have occurred in a healthy construction market, but there are many contractors and service providers nationwide in need of work. After the storm passed, the local workforce was able, willing and eager to meet the increased demand for labor. Adjusters who carefully monitor building costs in their local areas and make adjustments based on these shifts are in a better position to exert more control over their claims handling. This strategy also ensures they are writing component-based repair estimates that reflect the conditions of the markets they service. By apply these strategies during the scoping and estimating phases of the claims cycle, adjusters can improve the speed of their claims handling while making sure the job gets done right. CJ Taylor is the assistant vice president of the Xactimate Group, and Fulton is the assistant vice president of Xactware’s Pricing Data Services division.
IDEA EXCHANGE | BEST PRACTICES
An Alternative Dispute Resolutions Guide for Adjusters
lternative dispute resolution (ADR) is playing an increasingly frequent and important role in claims adjusting.
The majority of an adjuster’s job entails working to resolve claims with claimants or their counsel directly, although, not all claims resolve in that fashion. Some that don’t settle result in By Christopher litigation; others are subject to different Shulman kinds of ADR processes before, as part of, or during the litigation process. It is estimated that in Florida alone, more than 75 percent of all unresolved claims (i.e., those that do not resolve through direct negotiation), are submitted to ADR. Most of those are referred to mediation, considered the most common type of ADR. Others are referred to appraisal. If the claim reaches litigation, more than 90 percent of all insurance claims are referred to mediation. Occasionally, courts will refer insurance disputes, usually first-party claims entailing an assignment of benefits to a provider, to nonbinding arbitration. It is not uncommon for third-party claims against insureds to be submitted to binding arbitration outside the court process (i.e., employment practices claims and certain other types of casualty claims). Mediation The most common ADR process is mediation, in which a neutral assists the parties to explore a negotiated settlement. Mediation is characterized by three core features: •Self-determination where the parties, not the mediator, make all substantive decisions on whether to settle and, if so, under what terms; •Confidentiality and, More than 90% of in some states, privilege, claims are referred such that what is said to mediation. at mediation stays at mediation unless there is an express exception; and •Impartiality of the mediator, meaning that the mediator does not take sides and has no undisclosed conflicts of inter-
est with the parties or their counsel. The mediator helps the parties try to understand where each side perceives their respective areas of risk to be, to frame offers each side might be willing to accept, and to appreciate what might happen if there were no deal. The mediator typically starts with the parties and counsel making opening statements. Thereafter, in continued joint session and/or in private meetings, also known as caucuses, with just one side at a time, the mediator asks probing questions, leads a discussion on the strengths and weaknesses of each side’s case, and makes suggestions about offers or counteroffers each side might choose to move towards settlement. If a deal is reached, it is a binding, enforceable agreement. If not, then the claim proceeds with further litigation. Arbitration and Related Processes In arbitration, the parties submit a claim to a neutral third person, known as an umpire in an appraisal and a neutral evaluator in neutral evaluations, who decides the outcome. This is the principle difference between mediation and arbitration: who decides. There are two types of arbitration: binding and nonbinding. A nonbinding arbitration may also be referred to as an appraisal in first-party property losses or a neutral evaluation. Depending on whether the arbitration is binding or nonbinding, the parties are required to follow the arbitrator’s decision, or may seek resolution through litigation. While the nature and format of the submission of proof may vary from formal, court-like presentations to oral or written arguments made by counsel or the parties, the arbitrator’s role is the same — to make a decision. If the decision is binding, but one side does not follow the award, the opposing party has recourse to the courts to enforce the award. There are many factors to consider in deciding whom to select as a neutral for a claim: the neutral’s reputation and experience as an ADR professional; experience in the subject matter of the claim; lack of connection to the dispute or disputants; price; and ease of scheduling. CJ Shulman is a member of the Florida Circuit-Civil Mediator Society and a member of the National Academy of Distinguished Neutrals. Fall 2012 | Claims Journal 29
event calendar October 2012
Annual Insurance Loss Control Association Conference For insurance loss control personnel, conference topics include crane safety, slip/trips/falls, distracted driving, flammable liquids and nanotechnology. This year’s conference includes a field trip to the Ohio Fire Academy. October 8-10 Columbus, Ohio Contact: See website for details, www.insurancelosscontrol.org First Party Claims Conference This year’s conference offers 50 nationally recognized speakers, sponsors and exhibitors, and up to 15 continuing education credits for adjusters seeking educational and networking opportunities in the first-party claims community. October 15-17 Warwick, R.I. Contact: Info@firstpartyclaims.com. See website to register, www.firstpartyclaims.com PLRB/LIRB 2012 Large Loss Conference An educational and networking conference designed for senior claims adjusters and managers, and technical adjusting staff. Topics relate to large and complex property and casualty subjects, and are organized into tracks. October 29-31 Washington, D.C. Contact: Valerie Berka, meetings manager, at email@example.com. Or, phone 630-724-2227
Advertisers Index ClaimExpress www.claimexpress.com
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Hughes Associates, Inc. www.haifire.com
RGL Forensics www.rgl.com
The Institutes www.theinstitutes.org
Weather Forensics www.weatherforensics.com
30 Claims Journal | Fall 2012
National Workers’ Compensation and Disability Conference This 21st annual conference is for anyone involved in the workers’ compensation and disability management industries. Four claim tracks will be offered: better claims management, health/medical management, solving legal/regulatory issues, and opioid solutions. There will be 25-plus breakout sessions on workers’ compensation, including sessions on regional conflicts, disability and return-to-work programs. November 7-8 Las Vegas Contact: See website for details, www.wcconference.com 2012 PLUS International Conference Celebrating 25 years, the conference focuses on issues affecting the professional liability industry. Sessions will focus on generational differences in the workplace, cyber liability exposures, EPLI litigation, Corporate D&O litigation and new risks facing health care providers. November 7-9 Chicago Contact: Laura Palmer-Turnacliff, palmer-turnacliff@ plusweb.org National Association of Subrogation Professionals’ 2012 Annual Conference The annual conference of subrogation professionals offers more than 70 educational sessions in seven tracks, covering all aspects of subrogation and recovery: auto, property, products liability, workers’ compensation, health, management and general. Most sessions will have updates on recent case law and statutory changes, as well as trends to watch. November 11-14 Las Vegas Contact: NASP at 1-800-574-9961 for more information PLRB Western Regional Adjusters Conference One of a series of regional claims adjuster conferences held in the United States. Network with peers while taking part in educational sessions designed to improve knowledge of core claims issues. November 13-14 Dallas Contact: Alissha Watley, firstname.lastname@example.org. CJ
IDEA EXCHANGE | FINAL OFFER
ith less than a month to go before The U.S. economy is not growing fast enough to absorb the 2012 elections, one of the most new entrants into the workforce, much less re-employ the significant macro trends that has nearly 8 million people who lost their jobs during the Great emerged is the highly partisan environment. Recession. Believe it or not, the story is about to get worse. A study by the Pew Research Center At the end of this year, we are facing what Federal Reserve highlights a sharp increase in political poChairman Ben Bernanke has called the “fiscal cliff.” This larization and forecasts continued political is when large spending cuts will intersect with major tax gridlock. The study found that Americans increases, and together threaten to cripple our historically weak recovery. By David A. Sampson are more polarized along partisan lines than at any point in the past 25 years. The first problem stems from the failure of the 2011 Con The exact onset of hyper-partisanship is difficult to gressional Super Committee, which was formed in the wake pinpoint, but in 2011, New York Times columnist Joe Nocera of the federal government’s near default on sovereign debt. claimed that the fight over Ronald Reagan’s nomination of The Committee’s inability to reach an agreement on budRobert Bork to the Supreme Court get cuts last fall has led to “automatic” marked the beginning. Since Bork, budget cuts of $1.2 trillion, split between we’ve seen contentious confirmation defense and nondefense spending, set to hearings for a number of Supreme take effect in January 2013. Court nominees, including Clarence The second issue is the expiration of Thomas, John Roberts, Samuel Alito, the Bush-era tax rates. All of the current Sonia Sotomayor and Elena Kagan. tax rates on personal income, capital The 2000 election clearly drew the gains and dividends, and estates are set battle lines between right and left. to expire on December 31. This means Although we saw national unity in the every American taxpayer and business is aftermath of the 9/11 terror attacks, facing an automatic tax increase on New the partisan gap quickly widened Year’s Day, unless Congress extends the again during the Iraq War and split current rates. According to economist even wider after 2008’s financial crisis. Martin Feldstein, “a sustained tax in When President Obama was electcrease of that magnitude would push the ed, many hoped we would see a new U.S. into a new and deep recession.” national unity emerge. But almost These critical issues will not be adTwo key macro trends — dressed before the elections. That means immediately, Democrats in Congress pushed through the financial Americans will have to rely on lawmakthe 2012 elections and stimulus and health care reform with ers to fix these major problems during a the weak economy — are lame-duck session at the end of the year. little Republican support. The 2010 mid-term elections returned RepubliOf course, the Eurozone sovereign impacting the property/ cans to the House majority, which has debt crisis is deeply concerning because casualty insurance created the gridlock we see today. the path it follows could determine This year’s elections have been whether the United States goes back into industry. sharply fought, and they are likely to recession. widen the partisan divide, not reduce it. There is nothing on These economic woes have led to a rise in populism and the horizon to suggest that hyper-partisanship will dissipate. greater scrutiny for everyone in the financial services industry. Even normal business activity for insurers — such as underEconomic Challenges writing and claims processes — will be viewed skeptically. The second macro trend is a historically weak economic Any misstep, real or perceived, will be magnified tenfold. recovery that once again is slowing. Property/casualty insurers are facing serious challenges. In the past several months, slow job growth has come The economic, political and regulatory challenges posed here in well below expectations. The current recovery pales in have the potential to be just as costly and disruptive to insurcomparison with most other recoveries, including the one folers as major natural catastrophes. CJ lowing the Great Depression. In the three years following the Sampson is the president and CEO of the Property Casualty Insurers Association of Great Depression, the economy rebounded with growth rates America (PCI), which represents more than 1,000 homeowners, auto and business of 11 percent, 9 percent,and 13 percent. The current recovery insurance companies that write 38.3 percent of the nation’s property/casualty insurbegan in the second half of 2009, but economic growth in 2010 ance. was only 3 percent, and in 2011, it was 1.7 percent. Fall 2012 | Claims Journal 31
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32 Claims Journal | Fall 2012
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Insurance fraud is not going away, but the industry may be getting smarter about predicting the future. Many fraud fighting initiatives, inc...