“Better information about the predictors of poorer worker outcomes may allow payors and doctors to better target health care and return-to-work interventions to those at risk,” stated Dr. Richard Victor, WCRI executive director.

Moreover, data systems can search for the predictors in claims so that appropriate attention is focused on them from the beginning, mitigating the damage.

Preventive communication

Having said that, the first predictor of poor outcomes identified in the WCRI study will not be found in the data. WCRI found that, when injured workers are strongly concerned about being fired after the injury, outcomes will be poor. Managing worker understanding is an employer risk management issue, one that can best be handled with good communication.

Contacting injured workers early and continually with reassurances of continued employment will drive best results. Moreover, the approach is easy and costs nothing.

Other risks identified in the study require a different approach.

Comorbidity risk

WCRI research identified three comorbidities of concern: hypertension, heart disease and diabetes. When these comorbidities are combined with a workplace injury, the result is longer durations of disability. Workers with heart disease had disability durations four weeks longer than those without heart disease. Those with hypertension and diabetes exhibited 3% and 4% higher rates of not working three years after their injury.

Comorbidity risk is a generally known truth, gained either logically or through experience. I call it corporate wisdom. The study validates the theory.

Monitor ICD-9s

Search for these and other conditions in claims by monitoring the data continuously. Each condition has a set of ICD-9s (International Classification of Disease) for the disease. ICD-9s appear on medical bills, so a continuous search for them in the bill review or claims systems is reasonable. Moreover, the search can be extended to other comorbidities.

Other risky comorbidities

Other comorbidities have been identified through industry research as complicating injury recovery and generating poorer outcomes. Search Google to find specific diseases or to find a myriad of studies that bear this out. Such studies are proof of the notion that when certain diseases are coupled with workplace injuries, outcomes are poorer, disability durations are longer and costs are higher. Examples of search requests are, “Opioids in Workers’ Compensation” or “Obesity in Workers’ Compensation.”

Use a search engine to find industry studies regarding other comorbidities such as specific mental health conditions like stress or depression. The research provides an argument for actively managing claims where the comorbidities exist.

Opportunity gain

Industry research is invaluable. Leverage the work of serious researchers rather than engaging in pricy statistical modeling. Statistical modeling uses advanced mathematical methods to identify high risk claims. Still, an affordable alternative method is available.

Customize for the organization

To learn the comorbidities of most concern to an organization, do a query of the highest-cost claims in the data over the past few years. List the diagnoses in those claims and identify the comorbidities most commonly associated with them. Then look for industry research on those diagnoses to establish rationale for implementing the monitoring and intervention procedures.

'Coattail' to predict

If statistical modeling is not within practical reach, "coattailing" on industry research is a viable alternative. Determine the highest-risk comorbidities within the organization, search the research and begin monitoring the data to find claims where they occur.

Monitoring the data allows for a proactive approach by tagging claims at risk soon after injury, thereby modulating the damage.

Plan of action

Establish standard medical management processes for responding when identified comorbidities or other high-risk diagnoses appear in a claim. Identifying claims that portend risk, whether from comorbidities or anything else, is a cost-savings measure only if an action plan is in place for responding to it. Gaining the information is nice, but it must be tied to an intervention plan to make a difference.

Because these are medical situations, automatic referral to a medical case manager makes the most sense. An organization should establish protocols and procedures for approved intervention. Appropriate attention focused from the beginning will abate the damage, thereby improving outcomes.

Introduction

Traffic engineers would love to unblock the clogged arteries of Southern California's freeway system, where rush hour is anything but "rush" — more like gridlock. But in a land where one's car is one's empire, one's freedom and personal statement, carpooling is a tough sell. The high-occupancy vehicle (HOV) lanes have scant occupancy. In fact, cars carrying multiple passengers are such a rarity that they, alone, raise red flags for auto insurance claims adjusters.

Operating under the radar is a fast-growing segment of the "underground economy" — organized criminal enterprises that stage automobile collisions to defraud insurance companies of medical payments. In some cases, the entire incident is created on paper, with fictitious vehicles and false identities. In other cases, the perpetrators take real vehicles with legitimate insurance policies out to vacant lots or remote fields to crash them and then fill out a report. The most compelling cases are the ones where participants intentionally ram vehicles together on city streets — often a rear-end collision in a left-turn lane — then dial 911 and wait for police and emergency medical services (EMS) to arrive. This approach triggers a police report and EMS records, which lend an air of legitimacy to the event. It really happened.

Based on instructions from a stager, the driver and two or three passengers — who are known as "stuffed passengers" — report neck and back injuries. The passengers later visit a physician or chiropractor who is in collusion with the criminal ring. The patients sign in and leave without receiving any treatment. If the insurance company balks at paying the specious claim, the claimant enlists the help of an attorney who is also party to the scheme. The attorney is tenacious, willing to go to court, generally able to bluff until the insurance company backs down and settles.

In the process, everybody except the insurance company gets easy money. Property damage to the vehicle is paid to the owner of the vehicle, while multiple players split the proceeds of the settlement for medical payments. In a typical case where the insurance company settles for, say, $6,000, each vehicle occupant might get $1,000, the lawyers and doctors collect their fees and the enterprise leader retains 50% of the professional services fees plus the balance of the claimants' settlement, if any. If the enterprise leader successfully stages dozens of such incidents a month, it's a lucrative business.

This practice exploded in Southern California in the mid-1990s. If you are a special investigations unit investigator, you are dealing with this every day. The average caseload for an adjuster or claims representative might be 150 or 200 a day, depending on the size of the company. At least 25% of that is some flavor of fraud. It's either a false claim or an embellishment to it. People are doing it. Even people who think of themselves as law-abiding are doing it, because they don't think of insurance companies as victims. This type of activity is so prevalent that our undercover investigators would hear paramedics on the scene saying, "Okay, which one of you is going to the hospital this time?"

Automobile insurance fraud is such easy money that the business is even creating unlikely bedfellows. For example, in south central Los Angeles, the Bloods and Crips — gangs that have had an intense and bitter rivalry — are now cooperating with one another in organized insurance fraud, because it's more profitable to join forces.

Six Steps to a Successful Insurance Scam

Constantin Borloff (not his real name), the former leader of a successful and sophisticated fraud enterprise that operated in San Diego, Los Angeles and San Francisco, shares his top tips for making fraud pay. Having paid his debt to society, the ringleader now tells insurance companies how he was able to steal so much money from them, who does it and why it's so easy.

Go for the Med Pay Money
Borloff would insist that vehicle insurance policies have med pay coverage — coverage for reasonable expenses to treat accident-related bodily injury. Because this coverage follows the vehicle, passengers in a vehicle that has med pay coverage will likely be covered, as well. Borloff gave vehicle owners a list of insurance companies that would freely provide these policies.

In theory, claimants are supposed to repay med pay money if they receive a settlement, but that doesn't happen, according to Borloff. "For all history, maybe two times the insurance company asked for money back. If you say you don't have money and can't pay it back, they say, 'Okay, don't pay back the money.'"

Find the Inattentive Insurance Companies
Borloff also selected insurance companies with a reputation for laxity, the ones whose claims representatives didn't take a stand and ask the hard questions. "Big companies like State Farm or Farmers have millions of policies, good special investigation units and more experienced adjusters, so that's where you would see more problems. It's better to go to the smaller company or where it's not their main business. These companies usually pay more, while the big companies usually pay a little less."

Insiders in the business share this information, so they know which companies to avoid and which ones would pay off like loose slot machines in Henderson, NV.

What would make an insurance company an unattractive target? "I don't know what will stop me," Borloff. said "All insurance companies are bound by law to pay. So for us, the system is working perfectly. The insurance company can fight, and they have a lot of resources to fight, but eventually they have to pay something. Maybe more, maybe less, but eventually they have to pay something."

Choose Participants Who Won't Raise Suspicion
In a perfect world, your participants are white American citizens with clean driving records and their own driver's licenses. Judges and juries look most kindly upon this type of claimant, according to Borloff.

It is equally important that their behavior fits accepted patterns. For instance, policies should be active for four to eight months before the staged collision. Claims should be modest, usually no more than $5,000 or $6,000. Activities were choreographed to avoid triggering red flags. "I know insurance companies have about 25 red flags," Borloff says. "What the claims adjusters know, the criminal enterprise knows twice. I knew about all these red flags, and I tried to avoid them."

Distributing the cases is one way to avoid detection, Borloff said. "If the enterprise will do, say, 20 collisions a month, the claims will go to five different insurance companies, each to a different attorney — 10, 15 or 20 different attorneys — and any given adjuster will have at most two cases to a specific attorney. Will the adjuster be suspicious about it? I don't think so. It's very difficult for the insurance company to catch these people in this situation."

Borloff tells of a fringe case where a woman, working against the advice of her stager, staged four accidents in a single week. She submitted claims to four different insurance agencies. All four claims were paid, but this pattern of activity could have exposed everybody in the fraud enterprise to scrutiny and discovery.

Pay More Than Lip Service to the Medical Treatment
When private investigators were first sent to wait outside medical clinics to observe and videotape (the comings and goings of visitors), the first people they caught were the ones who walked in, signed in and left within a minute. People quickly learned to stay longer inside the clinic and have follow-up visits at intervals that would seem appropriate for their injuries and type of care.

Keep Your Stories Straight
Cappers and stagers write notes for people so they can remember their stories when talking to claims representatives and, later on, if they meet with an attorney and go into depositions. Somehow, somewhere, there is a record of all this. If the ring is dealing in volume, there must be good notes, or they won't remember the details of a case, and that's how they get tripped up. Some stagers get tripped up simply by having these notes in their possession — in their offices or briefcases, waiting to be found during a routine traffic stop or search.

Insulate the Players From Each Other
These groups tend to function as classic cell networks. In an effective cell network, the claimant may or may not be exposed to the other people involved, or may be only exposed to the doctor but not to the attorney. That's how these people are protected from one another. Participants may not have a knowledge of what else the group is doing. When we arrested 72 people on a state level and brought them into interrogation rooms for 72 hours, it was pretty clear that they only knew their own activities or those of friends they had brought into the group. They had no knowledge of the bigger scheme. That's how you protect your enterprise.

The parties in these fraud rings learn never to admit to anybody that the accident was staged. Everybody in the enterprise knows it, but if you tell even one person, there's a point of vulnerability. It is especially important to insulate the medical and legal providers, because their professional licenses are critical to facilitate these claims. They take it all the way and never back down.

How often would a criminal enterprise walk away from a case because an insurance company's special investigations unit got involved? "I would not walk away, but I would accept lower settlement, for sure," Borloff said. "One time, one of my colleagues made a terrible mistake and sent 63 cases to Allstate — one attorney, same office. They came to me and said, 'What should we do now, SIU is after us?' I said, 'Don't give up, try to fight,' but they decided to give up. It was the biggest red flag. They lost money. It upset people." Giving up is tantamount to an admission of wrongdoing.

This series of articles is taken from the SAS white paper of the same name. © 2013, SAS Institute Inc. Used by permission.

This article looks at how claims practices can influence claims costs and contribute to the increasing liabilities. The article also discusses what self-insureds can do to better manage practices in an effort to control costs.

The management of a workers' compensation claim incorporates several key areas, all of which interact and combine to influence the claim's outcome (e.g., initial handling, investigation, reserving, medical management, etc.). It can be challenging to understand whether a workers' compensation claim is well-managed and whether optimal outcomes are being achieved. This is particularly true for self-insured entities, which often delegate claims management responsibilities to an outside third-party claims administrator (TPA).

The result of using TPAs for claims administration is that the self-insured entity itself maintains little if any expertise in the area of sound claims management practices. Moreover, the TPA will often delegate certain functions to other vendors such as case management and medical and legal bill review, further removing the oversight of these services from the self-insured's reach. Finally, many self-insured/TPA contracts focus on the quick resolution of a large volume of smaller dollar claims, with little consideration for the efforts and resources needed to resolve large claims. Therefore, the management of larger claims may not be well understood or outlined in these arrangements.

Improving three often misunderstood or underestimated claims handling areas could result in a significant improvement in claims outcomes and have a material impact on liabilities:

• Initial activities
• Information and data collection
• Change in case reserving practices

Basic knowledge of these essential claims-handling activities will enable the self-insured to effectively work with its TPA to avoid common pitfalls.

Initial Activities
Activities undertaken by the claims handler immediately after a claim is reported are often thought of as administrative tasks — no more than an intake exercise whereby the handler runs through a checklist of scripted questions. These activities include assessing immediate medical management needs, making three-point contact (i.e., contact with the employer, the injured worker and the medical provider), assigning to the appropriate adjuster, taking statements and gathering documents (e.g., medical authorizations, photos, police reports and wage statements).

In truth, activities that occur in the early stages of a claim may not be terribly significant for the large number of reported workers' compensation claims that resolve quickly. However, for that small percentage of claims upon which the majority of the costs are ultimately expended, proper claims management from the outset is crucial to achieving optimal claims outcomes.

For example, a claimant who has had previous injuries or prior surgeries, or who otherwise presents with certain characteristics such as chronic pain, is more likely to require medical management from the outset to ensure optimal medical outcomes, which in turn reduces costs. For a small number of high-severity claims, if the medical aspects are not understood and well-controlled at the outset, the claimant often does not improve, and the claim can develop into a larger-than-anticipated and larger-than-necessary claim — a lifetime pain management claim perhaps involving multiple surgeries and costing hundreds of thousands or even millions of dollars and without an optimal medical outcome or endpoint for the claimant.

Thus, it is important upon receipt of a claim to investigate all prior injuries, surgeries, prescriptions and comorbidities (i.e., health issues that are not work-related but nonetheless could affect the treatment of the injury). In many cases, the best practice of making three-point contact has devolved in practice into two-point contact (the employer and the injured worker) and in some cases even one-point contact (the employer). This can leave basic medical questions unanswered for weeks or months. For a small percentage of claims that have the potential for developing into the highest-severity losses, these delays could be critical.

Another key initial activity is adjuster assignment. Assignment to the appropriate adjuster can be particularly important for some claims — for example, those where the claimant reports injuries to nonspecific or multiple body parts, such as "neck, shoulder, arm." These claims present an element of subjectivity, uncertainty and potential complexity. It is important that the adjuster thoroughly investigate precisely how the injury occurred and communicate with the medical providers about the types of injuries that can result from that activity.

This means that the adjuster needs to have the proper background and expertise to ask the right questions. If injuries or body parts are reported that are not medically connected to the work-related injury, the adjuster may only have a short period within which to deny those unrelated claims. An inexperienced adjuster may not identify or attempt the valid denial, in which case that injury and all subsequent treatment may be deemed accepted for the duration (perhaps for the life of the claimant), with no further opportunity to deny. In a large number of cases, this missed opportunity will not have a significant impact on the outcome, but for that small population of high-severity claims, such an error will be costly.

As a final example, the initial investigation is important because it can assess the claimant's ability or motivation to return to work based on one or more subtle aspects of the claim, such as educational level, child support status, disability status of the claimant's spouse, ability of the employer to accommodate the claimant's limitations or the proximity of the claimant's home to job opportunities.

It is important for the handler at the outset of the claim to immediately contact the employer, the injured claimant, witnesses and medical providers to ask pertinent questions. Equally important is the need for the handler to listen carefully to the answers and follow up on unusual or inconsistent information. Inexperienced claim handlers often appear to be following a list of predetermined questions and may hesitate to go "off script." Many times, the claims that adversely develop are those that, in retrospect, could have been controlled had certain information been collected and had the investigation been thoroughly completed and thoughtfully assessed early in the life of the claim.

Information and Data Collection
Increasing claim costs are also associated with the inability to easily locate and evaluate the information gathered on the file. A claim may be assigned to an adjuster with the appropriate level of expertise, and that adjuster may undertake a prompt and thorough investigation. However, the pertinent information emanating from that investigation is not captured in discrete data fields in one location in the file system. Rather, that information is buried throughout the "notes" section of the claim system — along with numerous immaterial or administrative entries. This impedes the ability of the self-insured to easily identify claims that have the potential to be large and work with the TPA to effectively control costs.

For example, a large volume of the "notes" section of a claim file may include entries such as the date of a reserve review, an adjuster's failed attempt to contact a party, the payment of a bill, the date a processing decision was made, the scanning of a document into the file or the receipt of a police report with no substantive commentary. Even entries related to the status of a claim — one that on its face would appear to be highly relevant and current — are often simply "copy/pasted" from prior status entries.

Thus, including in the claim notes pertinent information vital to making prompt and reasonable strategic decisions can lead to inefficiencies and suboptimal outcomes. The amount of stale, outdated, repetitive and sometimes misleading information makes it exceedingly difficult to identify and assess the pertinent facts, issues and activities in the file and impedes the adjuster's (and supervisor's) ability to make informed decisions. In many claim operations, reviewing the file is so time-consuming and difficult that the supervisor is only able to randomly select a small sample to audit at regular intervals. If that supervisor does not by chance select the "right" files, important issues might not be identified and key strategic opportunities might be missed.

The problem is compounded when information is entered incorrectly. Common errors can lead to costly repercussions. For example, assume that the medical records all clearly identify a right shoulder injury. If the handler inadvertently refers to the "left shoulder" injury in the claim notes, all subsequent actions might be based upon that. A supervisor or newly assigned adjuster may not have the time, or may believe it is unnecessary, to confirm that information by checking the original medical records. Body parts and treatments could be implicitly accepted and additional costs expended for injuries that are not work-related.

Similar types of errors can be made with wage information or rate calculations and can go unnoticed for long periods, resulting in costlier claims. Finally, as more and more claims departments are outsourcing medical bill review functions to third-party vendors, some of that key medical information is not captured in the claim system at all, which can also distort the true picture of the potential exposure.

Thus, it is important that the self-insured verify that the TPA, or other claims-handling entity, develops a system of meaningful data capture, whereby key pieces of information are systematically downloaded or manually entered into consistent discrete fields in as few screens as possible. Many claims systems already have these capabilities, but handlers are not required to enter the data, and the fields remain blank. Such a data capture would allow representatives at the self-insured entity the ability to obtain a current and comprehensive snapshot of the development on the claim. Discrete data fields also ensure consistency, facilitate fact-checking and support the creation of meaningful metrics and management information reports. Self-insureds should ensure that they have full access to the claims system and that they understand all the features of that system.

Change in Case-Reserving Practices
The onset of conservative case-reserving practices can lead to unnecessary increases in ultimate losses. This may not be intuitive. Many people may think that inadequate case reserves lead to increasing ultimate losses, because over time the case reserve (which was initially set "too low") needs to increase to cover actual payments. While this is true, the ultimate losses may not be affected by the development of inadequate case reserves, because the actuary may have taken the case reserve practices into account in estimating the actuarial reserve.

Thus, even if the case reserves were "too low," the actuarially estimated additional reserves would have compensated, resulting in a total reserve (case plus actuarial), or "ultimate," of "just right." As case reserves increase, actuarial reserves may decrease (all else being equal), and the ultimate will not change. In that way, inadequate case reserves do not necessarily result in increasing ultimate losses.

An important aside: We must remember that inadequate case reserves are not necessarily the result of poor claims handling or intentionally suppressing case reserves. When we say that case reserves are inadequate, we mean that, despite best efforts to set a case reserve that reflects the ultimate value of the claim at any given point, there are a few claims that will develop adversely in unanticipated ways (i.e., in ways that could not be foreseen by the claims handler when the prior case reserve was established). That is in part what the actuarial reserve is intended to estimate — the unanticipated development — and is outside the purview of the claims handler.

Changing case reserving practices by making them "higher" or "more conservative," however, can result in increasing ultimate losses. Consider, hypothetically, a TPA that decides to institute a new practice of establishing a case reserve reflecting the worst-case scenario, or adding an arbitrary amount (e.g., 25%) on top of the best estimate of case reserves. That change could result in higher ultimate losses, for two reasons:

• First, if the actuary is unaware of this change, it will not be incorporated into the actuarial estimates. This could result in higher actuarial estimates. When added to the already increased case reserves, the ultimate losses increase substantially.
• Second, raising case reserves on a claim can lead to overpayments by the adjuster, a phenomenon commonly referred to as "leakage." In this case, the additional case reserves are believed, either explicitly or subconsciously, to be available to make payments. Efforts to reduce costs and manage the claim to its optimal result may be tempered by the knowledge that there is "extra" money with which to negotiate. This change in case-reserving practices can lead to overpayments and rising claims costs.

Conclusion
Understanding and recognizing the importance of these three practices will enable the self-insured to effectively manage the TPA to control increasing costs.

ICD-9s, which are not unique to workers' compensation, are the World Health Organization's International Classification of Diseases, Ninth Revision, Clinical Modification (ICD-9-CM). They are a standardized method of describing injuries, illnesses and related issues worldwide. ICDs are the codes that classify mortality data worldwide. The ICD-CM is used to code and classify morbidity data from inpatient and outpatient records and doctor’s offices. The purpose of the ICD is to promote international comparability in the collection, classification, processing and presentation of mortality statistics. Revisions of the ICD are implemented periodically so that the classification also reflects advances in medical science.

Those who bill for medical services in the U.S. are required to use one of two standard forms from CMS (Centers for Medicare and Medicaid Services), the HCFA-1500 (Health Insurance Claim Form) for outpatient services and UB-04 (Unified Billing) for hospitals and other facilities. Both standardized forms require the medical provider to list ICD-9s appropriate to the medical procedures for which they are billing. The data derived from these forms should be analyzed and incorporated into medical management processes.

Bill review organizations and payers capture data from the standardized billing forms in their systems. Nevertheless, while the ICD information is documented in systems, its use ends there. ICD-9s are difficult to interpret in the form seen on bills.ICD-9s are displayed in the form of codes, not descriptions of injuries and illnesses, and they number in the thousands. Individuals cannot remember the codes, nor do they have the time to look up codes for interpretation. Instead, they simply ignore them.

Yet knowledge resides in ICD-9 codes that can be translated to powerful medical management tools. When the ICD-9s in a claim are monitored electronically and concurrently, they reveal and inform.

ICD-9s reveal migrating claims, which are those where the injured worker is moving away from recovery, rather than toward it. Such claims always accrue ICD-9s. However, few notice what is happening. Standard processes and systems in workers’ compensation only record the ICD-9s. They do not monitor, interpret or even count them.

Migrating claims are those becoming more complex and costly, often an insidious process that is missed by claims adjusters and medical case managers until considerable damage is done. What happens in migrating claims is the injured worker is not recovering and is referred to multiple specialists. Each specialist adds new ICD-9s to the claim, thereby increasing claim risk.

Using a computerized system designed to monitor ICD-9s is a powerful knowledge solution. Alerts can be sent to appropriate persons when the number and severity of ICD-9s in a claim increases beyond a certain point. Migrating claims cannot be missed, and intervention is implemented early, thereby significantly improving effectiveness.

A way to optimize the power of ICD-9s is to score them individually for medical severity. Each claim then contains a total ICD-9 score in the system, which translates to the claim risk score. A system designed to monitor ICD-9 scores in claims keeps a running total, the claim risk score. As ICD-9s are added, the claim risk score increases. As a claim migrates and accumulates ICD-9s, an alert is transmitted to an appropriate person. Migrating claims cannot go unnoticed.

Claim ICD-9 scores are predictors of risk and cost. Claim ICD-9 scores can be monitored from the outset and throughout the course of the claim. The claim ICD-9 score reveals the seriousness and complexity of a claim. Medical doctors managing difficult claims can be differentiated from those handling less arduous claims, thereby creating fairness in measuring provider performance.

The ICD-9 contains thousands of codes, and the ICD-10 revision will triple the number of codes, making its information value exponentially greater. ICD-10 is to be activated in October 2014. However, it now may be postponed to 2015.

Regardless of the government’s decision about when the ICD-10 is required, wise medical managers are using the ICD factor as an important and revealing evidence of claim progress -- or regression.

These employers tell us that they rely solely on the insurance company claims adjuster’s process and the recommended insurance carrier medical clinic treatment protocol. There seems to be no one enhancing communications with the injured employee.

This communication void can lead to misunderstandings and a lack of trust and cause injured employees to seek legal representation. The result can be higher claims costs and delays in closing claims.

In most of these situations, the insurance adviser goes through an annual exercise to obtain rate quotations in an attempt to “control employer costs.”  But the quoting process fails to help the employer understand the costs of each claim. Nor does the process inform employers how to lower costs.

Some time ago, Dave Smith, a safety consultant in Lafayette, Calif., shared a comprehensive list of items and costs that affect employers when a work-related injury or illness occurs. I've attached a copy of Dave’s creation that I share with employers.   

In our experience, this guide helps employers rethink the claims management process and their experience with their insurance adviser. The guide helps employers come to the conclusion that they must make some changes to achieve better financial outcomes.

Cost transparency helps an employer to understand where the costs are coming from. Employers will also be better able to see if they truly have a valuable insurance adviser or if the adviser's process is just too costly.

Many employers seem to forget that it is their money at work in workers' comp claims and that they must be involved in all aspects of their workers’ comp insurance and risk management program.

Remember that the expenses listed in this chart are all in addition to the increase in future workers' comp premiums that come because of the change in the employer’s experience modification factor.

Currently, 17 states plus the District of Columbia allow same-sex couples to marry. Several states have expanded the legal rights available to spouses in same-sex relationships through civil unions and domestic partnerships. On June 26, 2013 the U.S. Supreme Court ruled in  Windsor v. United States, No. 12-307 that section 3 of the federal Defense of Marriage Act (DOMA), which defines marriage, is unconstitutional. Since this decision, several state attorneys general have announced that they will no longer defend their state’s same-sex marriage bans.

Here is an update on the issue of same-sex marriage and claims handling considerations:

Same-Sex Marriage Overview

In the states that recognize these unions, the legal status of same-sex marriages is identical to opposite-sex marriages.

The first states that allowed same-sex marriage did so as a result of court decisions—Massachusetts in 2004, Connecticut in 2008 and Iowa in 2009. However, most states and the District of Columbia provided for same-sex marriage through legislation. Below is a summary of changes in the states over the past two years on this fast-moving issue:

Of the 33 states that still prohibit same-sex marriage, 29 have done so through constitutional provisions. Efforts to overturn state constitutional prohibitions have been initiated in the federal courts and have moved, or are about to move, into four federal appellate courts.

• The Virginia case, Bostic v. Rainey, is expected to be appealed to the U.S. Court of Appeals for the 4th Circuit in Richmond, Va.
• The Oklahoma case, Bishop v. U.S., 04-cv-848, U.S. District Court, Northern District of Oklahoma (Tulsa) is to be heard before the U.S. Court of Appeals for the 10^th Circuit in Denver, Colo., along with the Utah case, Kitchen v. Herbert, 13-cv-00217, U.S. District Court, District of Utah (Salt Lake City). Oral arguments are scheduled to be heard separately for these two cases in April 2014.
• The Nevada case, Sevcik v. Sandoval, 12-17668, will be heard before the U.S. Court of Appeals for the 9^th Circuit in San Francisco, Ca.

In all four cases, the rulings are stayed pending appeal, meaning marriages cannot occur at this time. It is anticipated that the U.S. Supreme Court will be again asked to review this issue in 2015 or soon thereafter. Meanwhile, more action through legislation and ballot initiatives is expected to occur this year.

Civil Unions

A civil union is a category of law created to extend rights to same-sex couples. These rights are recognized only in the state where the couple resides, and no federal protection is included.

In 2013, the Colorado legislature passed a bill to establish civil unions for same-sex couples. The bill also provides recognition of civil unions from other jurisdictions. Gov. John Hickenlooper signed  SB 11 into law on March 21, 2013, and it became effective on May 1, 2013.

Delaware and Rhode Island replaced their civil union provisions with same-sex marriage, as previously occurred in Connecticut, New Hampshire and Vermont.

In Hawaii, civil unions remain available to same-sex and opposite-sex couples alike. The status of civil unions in Illinois and New Jersey are not yet clear with the legalization of same-sex marriage.

Domestic Partnerships

Domestic partnership is a civil contract between same-sex or opposite-sex, unmarried, adult partners who meet statutory requirements. Laws vary among states, cities and counties for domestic partnerships. Several states register these partnerships.

Washington has recently announced that registered domestic partnerships for same-sex partners will be converted to marriages on June 30, 2014, if marriage has not occurred or the partnership has not been dissolved by that time. The conversion will not apply to the domestic partnerships of heterosexual couples.

Reciprocal Beneficiaries

A reciprocal beneficiary agreement is a consensual and signed declaration of relationship for two adults unable to marry each other. Reciprocal beneficiary laws in Colorado, Hawaii and Maryland allow some benefits of marriage such as workers’ compensation survivor and health-related benefits.

Claim-Handling Considerations and Suggestions

The definitions of “spouse,” “dependent” and “marriage” are changing, and these changes affect the handling of casualty claims as we determine who is an eligible dependent or has legal standing to file certain causes of action. It is important that we are mindful of the state laws and any case law in the particular jurisdiction relating to same-sex unions.

Some state insurance departments have issued bulletins regarding their compliance expectations. For example, the Minnesota Departments of Commerce and Health issued  Administrative Bulletin # 2013-3 to advise property and casualty insurers that any policy issued in Minnesota on or after Aug. 1, 2013, providing dependent coverage for spouses must make that coverage available on the same terms and conditions regardless of the sex of the spouse. The bulletin reminds insurers that defining a spouse in a way that limits coverage to an opposite-sex spouse would be discriminatory and unfair and a violation of Minnesota Statutes section 72A.20, subdivision 16.

When evaluating the eligibility of dependents, one area of uncertainty involves same-sex couples that have a valid marriage but move to a state that does not recognize their marriage. The U.S. Supreme Court decision in Windsor did not address Section 2 of DOMA, which does not require states to give effect to same-sex marriages performed under the laws of other states. In the past, most federal laws looked to the state of residence at the time benefits are sought, rather than where the marriage occurred.

In response to the U.S. Supreme Court DOMA decision, the U.S. Department of Labor published  Technical Release  2013-4 on Sept. 18, 2013. This release indicates that the rule of recognition to be applied is based on the state where the marriage was celebrated, regardless of the married couple’s state of domicile. Guidance is also provided on the meaning of "spouse" and "marriage," as these terms appear in the provisions of the Employee Retirement Income Security Act of 1974 (ERISA), and the Internal Revenue Code that the department interprets.

This release likely also applies to the following four major disability programs administered by the Department of Labor's Office of Workers’ Compensation Programs (OWCP):

• Longshore and Harbor Workers' Compensation Program and its extensions, including the Defense Base Act
• Energy Employees Occupational Illness Compensation Program
• Black Lung Benefits Program
• Federal Employees' Compensation Program

Additional recommendations include:

1. Ascertain whom the employer shows as the spouse.
2. In addition to determining marriage or civil union, domestic-partnership registration should be confirmed.
3. If interviewing a claimant in a jurisdiction that recognizes same-sex unions, in addition to "spouse" add the terms “domestic partner or designated beneficiary” to the questions.
4. It might be necessary to find out when and in what state the marriage occurred.
5. Any questions or concerns should be discussed with your supervisor, team leader, manager or defense attorney.

Sometimes, our duties as claims examiners are affected by laws seemingly unrelated to insurance. It is important that we consider the impact of headlines and changes in the law on our handling of workers’ compensation claims.

Recognizing the need to improve claim management processes in waiver of premium claims, life insurers are turning to technology to replace inefficient operations associated with manual claim processing.

“Insurers today have an opportunity to bring automation into the life waiver of premium adjudication process to improve existing business models,” says Eric Lester, vice president of administrative services at Legal & General America. “It’s about operational efficiency, providing a good consumer experience, and integrating forward-looking solutions that fit the profile [that] business models in the industry should emulate. This is why we’re thinking forward—strategizing as how to integrate these efficiencies into everyday processes.”

Insurers can streamline the claim adjudication process by standardizing procedures to substantially reduce manual claim handling and support lowered risk management outcomes.  This next level of technology not only yields greater improvements in life waiver claim management but also enables insurers to focus on the effectiveness of their claim decisions.

Scope of the Problem

For benefit specialists to effectively manage claims and provide highly personalized results requires access to relevant medical data from multiple sources.  Life waiver claim management requires collecting, collating, and communicating the claimant’s medical notes and pre-disability occupation data to evaluate their current capabilities, restrictions and limitations. The information derived during the initial assessment stage builds a critical foundation for ensuring consistency not only in the initial claim interpretation but in the recertification process, as well.

The handling of restrictions  and limitation (R&L) data, occupational identification information, and policy definitions  continue to follow more traditional manual processing procedures, resulting in claims frequently adjudicated without the required data, or against underwritten policy definitions. Here is what’s happening with manual processing:

Insurers rely heavily on the Attending Physician Statement (APS) forms to collect medical status data. However, considering the high volume of claims per specialist and the time involved to manually process them, information contained in the APS isn’t always fully translated. Because of this, forms are often lacking the complete information required to fully understand the claim, based on a fair and accurate assessment of the claimant’s physical capabilities, restrictions and limitations. Moreover, this manual process makes it hard to ensure consistency throughout the duration of the claim.

For example, if the physician states that the claimant is unable to work and fails to provide a written medical basis in the APS forms regarding the decision, benefit specialists are unable to accurately assess and match the claim to the appropriate contractual definition of disability as defined in the claimant’s policy. This process makes it difficult to determine if the liability should be accepted or denied.

Managing the risk throughout the duration of the claim can influence claim outcomes by providing the opportunity for better claim management for both the insurer and the claimant.

The Long-Term Disability & Life Waiver Chokehold

It is not uncommon for consumers to have both their long-term disability (LTD) and life insurance with the same insurance carrier. So, when a person goes on disability, there are essentially two claims open and running simultaneously. The problem is the life waiver claims aren’t being treated as disability claims—which is, in reality, what they are.

What typically happens is the LTD claim becomes the driving force while the life waiver claim takes a backseat, often translating into processing delays. Even though these plans usually reflect two very distinct definitions (LTD claims begin as a two-year “own occupation” plan, while life waiver is usually “any occupation” provision from day one), the life waiver claim sits—waiting to see what the LTD claim is going to do first.  The life waiver claim essentially becomes more of a contractual definition of secondary importance, and consequently is managed as such.

Insurance carriers must be diligent in applying adjudication decisions consistent with what is underwritten in the life waiver provisions of an insured’s policy, and not based on what’s happening with the LTD claim. This has become increasingly problematic as caseloads continue to grow and life waiver claims follow the LTD claim by default, increasing the insurer’s reserve liabilities (i.e., disability life reserves, morality life reserves and premium reimbursement liabilities), and risk exposure.

Unfortunately, once a disability has been accepted on a life waiver claim, there tends to be minimal risk management. Improved risk management in life waiver claims should include best practices that focus on understanding the severity, restrictions and limitations of the claimant, then matching claimant capabilities to the occupational policy terms.

Better Claim Monitoring, Better Results

What’s missing within life waiver processes is the ability to manage the claim block holistically with information derived from all necessary sources, and integrating it into a unified data platform. By doing this, insurers can quickly identify claimants that have occupational opportunities based on their specific physical capabilities, restrictions and limitations, education, experience, and training. But it doesn’t stop there.

Once an occupational opportunity has been determined, insurers can compare these findings to occupations identified by the department of labor and match the capabilities of the claimant to a specific occupation. In addition, medical details surrounding the claim should be updated continually and combined with historical data, as physical capabilities can change over the duration of the claim. This type of automated vocational support allows adjusters to fully evaluate the claimant’s condition for available occupation opportunities.

Considering the thousands of claims that are processed manually by examiners, it can be difficult to ensure that new claims and the recertification of claims are being completed on time, consistently, and in line with risk management best practices. This becomes an almost unmanageable task for examiners as they struggle to maintain the continuity required to reopen, examine, and research individual claims from day one. It is a continual problem because a claim that is approved today may look completely different a year from now.

“With technology, there is a great opportunity for insurers to make operational changes that will systematically improve their current adjudication processes and minimize the insurer’s reserve liabilities,” explains Thomas Capato, CEO of FastTrack RTW Services & Solutions, whose Life Waiver Tool is the first commercially available technology to automate the waiver of premium process. “This next-generation best practice will not only help improve internal productivity for life insurers but allow waiver reserves to be managed properly and improve future actuarial assumptions.”

An automated claim process allows for continual claim management and tracking that’s set to the claimant’s policy terms, ensuring that all follow-ups are done in a timely and consistent manner — without the need for manual intervention.

Summary

Every claim has unique situations, and insurers need to apply the right risk management principles to that particular claim. This can mean the addition of a single automated application, or perhaps a combination of many, internalizing processes to determine the best solution for enhancing risk management outcomes.

“Technology enhances the ability to fully capture specific information surrounding the nature of a claimant’s disability for better risk management within the life waiver block, providing insurers with an accurate profile of the person, the job, and occupational capabilities,” says Lester, at Legal & General America.

It’s time for life waiver processes to utilize technology to manage claims in a more efficient, effective, and standardized manner. By replacing manual claim tasks with the rigor of automated monitoring, insurers have the opportunity to optimize existing processes and improve overall operational efficiencies within their life waiver claim block. Moreover, it is this technology that can make consistent, supportable and repeatable real-time decisions, bringing value to both the insurer and the claimant.

Leakage
Over time, even the best-managed and attentive companies suffer from “leakage.” Leakage can be defined as the loss of assets through failures or gaps in processes or controls. Within the insurance industry these are manifested in three key areas:

• The under-collection of premiums
• The overpayment of direct and inwards reinsurance claim liabilities
• The under-collection of outwards reinsurance collectibles

Examples of leakages within an insurance company’s claims and reinsurance departments would include:

For claims:

• Inadequate coverage/attachment analyses.
• Failure to identify or recover deductibles and retentions.
• Payments beyond policy limits.

For reinsurance:

• Errors or omissions in calculating premium adjustments, reinstatement premiums and profit commissions.
• Failing to deduct all inuring and facultative premiums from benefitting treaties.
• Inability to identify or collect from impaired or insolvent reinsurers.

The root causes of reinsurance leakage include the following:

1. Difficulties identifying all of the parties and contracts involved.
This is particularly an issue either where many years have elapsed between the purchase of the reinsurances and the continuing identification of new and potential recoveries. Over time, contracts can be forgotten, especially smaller inuring contracts and facultative protections. We are all familiar with environmental and asbestos claims that continue to be made against policies in the 1970s, 1960s and earlier. Employees who knew the rationale behind the purchase of complex programs and understood how to interpret and process unusual wordings have long since left.

Identifying all of the parties and contracts can also be a huge challenge when companies are purchased or merged. Many cedants and reinsurers will have changed names or are cloaked behind insurance and reinsurance pools and associations. The common market practice of using fronting companies adds a further layer of complexity. Evaluating the global position between each of the parties – inwards and outwards – will then be essential when it comes to offset and commutation discussions between the parties.

2. Systems and migrations
Nowadays nearly all insurance and reinsurance companies have computer systems to help identify and process necessary reinsurance transactions. There are still a surprising number of companies however who do not have integrated systems and some still use manual processes and standalone spreadsheets. Over time, a company may have introduced several new computer systems, each of which will have necessitated a major data migration exercise. It is self-evident that the more stages involved, especially those subject to human handling, the greater the opportunities for oversights and errors.

The above challenge applies within one company’s operations. What happens when several companies and/or portfolios are merged and all of the records and data needs to be migrated and integrated? The reinsurance programs will all be different, contracts interpreted differently, the technical and accounting systems will be different. Customized systems and processes may need to be introduced. This is a huge challenge that is all too frequently underestimated and often those allocated with the task do not have the time or resource to address it adequately. Corners cut will inevitably lead to greater leakage of assets, both direct and reinsurance.

3. Correct interpretation and application of reinsurance contracts
A group’s reinsurance program commonly involves numerous company entities and countless lines of business being reinsured. The contractual terms and conditions will vary over time, each subject to a number of possible interpretations. Over time, files may be poorly organized – there may be missing treaty documents, incomplete information, undocumented endorsements and anomalous transactions – making correct interpretation and application of the reinsurance treaties and inuring contracts all the more difficult.

Thousands of disputes have arisen involving the relationship between contracts, the intentions of clauses and the meaning of words. With a diverse range of possible causes contributing to inwards claims and in turn outwards reinsurance collections, the correct application of aggregation language is essential.

The interpretations within context of “event,” “occurrence,” and “originating cause” continue to be debated and contested again and again. Loss corridors and the application of coverage sub-limits, deductibles and other terms are other common sources of omission, processing errors and inconsistent procedures.

The problem is not just the complex arguments reinsurers may raise. The issue below the surface is failing to identify relevant contractual entitlements altogether. For example, ensuring that prescribed additional premium adjustments are monitored and pursued, that reinstatements premiums have all been correctly calculated and accounted for following all triggering loss events are common omissions, especially for older and legacy books of business where only the coverage details may have been recorded on automated systems.

Changes in management and personnel, sometimes without all of the required reinsurance knowledge, and ever tightening pressure on resource contribute to the difficulties in ensuring a consistent and accurate process.

4. Follow the cash!
We all know that cash is king. In reviewing any reinsurance program it is essential to follow the cash flow, the reinsurance collateral requirements and reinsurance recoverable collection procedures.

Withheld premium and claim funds, letters of credit arrangements and similar provisions are complex. Add into the mix a matrix of cedant entities and intermediaries. The potential for oversight and error in the accounting and cash audit trails are clear. Redundant reserves can accumulate over time. As well as failing to release essential capital, redundant reserves can distort the value of companies or portfolios offered for sale or commutation.

The London market and Lloyd’s in particular has been very much alive to the challenge of forgotten funds held within brokers’ ledgers and bank accounts. Only a full and accurate reconciliation can identify all of these. Brokers often have little incentive to assist because of the resource cost of identifying the potentially high volume of low value individual transactions (as well as the benefits of holding the cash!).

5. Catastrophe insurance and reinsurance
The proportional and excess of loss markets are very familiar with catastrophe events and the adjustment and payment of claims. Every event throws up its own unique circumstances and challenges. Most of these fall into two generic categories.

The first challenge is accurate data gathering. Does the cedant have effective systems and procedures for accurately recording and tracking all of its loss settlements and capturing the essential information it will need to classify claims by event, by location, originating cause, quantum and proof that these fall within underlying policies for which premiums have been received? What are the risks of losses being incorrectly recorded and either ceded incorrectly or missed from aggregation analyses?

The second challenge is that, once the inwards claims are settled within the terms of the underlying policies, which of these claims can properly be aggregated and collected from catastrophe reinsurers?

Common adjustment challenges include the categorisation of losses as either flood or wind damage following a hurricane storm surge, the use or otherwise of anti-concurrency clauses, the differing operative clauses for triggering business interruption and contingency business interruption clauses and how underinsurance is considered and addressed.

6. Leakage analysis – some real life examples
In the first example, JTW Reinsurance assisted a fellow auditing firm IRI address leakage within a US-based reinsurance operation. It had written workers compensation program business primarily containing per occurrence and aggregate limits. Our review indicated that per occurrence limits had not been correctly applied in a number of instances – such as the impact of a tornado where a loss date for one employee had been entered incorrectly and we were able to establish that it was part of the same loss (which had already exceeded the per occurrence limit). We determined that a number of claims related to a statewide power outage were not covered under the reinsurance contract. Our accounting review indicated that the company had exceeded the aggregate limits for a number of contracts, but was still reimbursing the insured. In total, our review saved the company in excess of $1 million in respect of previously paid claims.

The second example involved an exercise for the reinsurance department of a major US reinsurance company, which had acquired several companies over the preceding ten years. The JTW Reinsurance review involved researching the reinsurance contracts and premium and loss accounting records. We determined that a number of claims had not been billed to reinsurers and also that catastrophe reinsurance premiums had been overpaid because there had been no deduction in respect of business not covered by the reinsurance contract. In total, we saved the company over $2 million being actual cash receipts.

Another claims consultancy provided examples of successes it had identifying leakage of $25 million after analysing three company’s reinsurance programs. The root causes for potential reinsurance recoveries being missed included complex reinsurance arrangements and inaccurate interpretation of these, failure accurately to code and identify facultative reinsurance contracts, systemic issues with the coding of inwards claims from TPAs, and failure to aggregate smaller claims below TPA authority levels.

Remedial action – what can be done?

The range of measures to interrogate a company’s systems, records and procedures to identify leaks and make recommendations to avoid recurrence will always need to be bespoke to each company’s individual circumstances. Examples of these might include:

Identifying reinsurance assets:

• Ensuring that reinsurance programs and contracts have been correctly interpreted.
• Premiums – ensuring that all inuring reinsurances have been deducted and that premiums are deducted for non-covered business (eg. TRIA for terrorism premiums).
• Reviewing claims to ensure that all historic amounts have been included in reinsurance calculations when there is a system conversion.
• Reviewing contracts to ensure that the company’s systems are designed to recognise all reinsurance claims, particularly for older asbestos and environmental claims.

Integration:

• As above and also ensuring that all historic claims values are included in any transfer to a new system and that ongoing data is in a format that will update any existing claims.
• Reviewing of contracts to ensure that permanent information is correct, including the impact of reinsurance commutations.
• Conducting a leakage review after implementation of new systems to check for missing assets.

Conclusion
Reinsurance asset leakage continues to damage the bottom line of almost every live and legacy insurance carrier. Like an iceberg, however, the true extent of the problem lies below the surface – undetected and/or un-quantified. Expeditions to explore below the surface require dedicated time and resource – and funding. Expeditions which senior management often chooses to ignore. But how would stakeholders react if they knew the true cost of such a head-in-the-sand approach? Could you look your CEO in the eye and assure him or her that your company has done all it could do?

Authors
Julian Ward collaborated with Derek Harris in writing this article. Derek is a chartered accountant who has worked extensively within the London and North American insurance and reinsurance marketplaces. After qualifying with Peat Marwick (now KPMG) in Newcastle he moved with the same firm to Bermuda where he was a senior auditor reviewing primarily insurance operations. Returning to London in 1986 Derek began his experience within legacy business with US F&G Re before joining a specialist audit firm assisting with a complex contractors all risks binding authority.  Back within the carrier world Derek assisted Iron Trades with their reinsurance accounting systems and then Bankers Insurance as run-off manager for their Personal Accident LMX spiral exposures. Since joining JTW in 2001 Derek has specialized in complex technical accounting assignments (in particular reinsurance asset identification and recovery) and due dligence review work. Derek divides his time between our Boston and London offices.

While I am an attorney who specializes in handling insurance claims for policyholders, the loss of my home showed me the stresses and challenges of handling my claim with my insurer, as well as those facing many other Oakland firestorm survivors whom I assisted with their claims.

Those whose homes are damaged or destroyed will face many challenges in the coming days and months — temporary shelter, replacement of necessary items, disruption of their lives caused by having to relocate, and the repair and rebuilding of their lives and homes.  I would like to offer some professional as well as personal advice in the hope I can be of some assistance.

Likely, none of you have read your homeowners insurance policies previously.  I am embarrassed to say that I had not read mine prior to the Oakland firestorm, and I am, as they say, in the business.  Do not be surprised when you attempt to read your policies if you have difficulty understanding them, despite their claims of being written in “plain English” or “easy to read” format.  Even professionals do not agree on every policy interpretation, and no one is born with an innate understanding of insurance or how to pursue their personal insurance claim.

Your homeowners policies provide a few basic coverages for your home, other structures, additional living expenses, and personal property.  Initially, you will want to focus on obtaining an advance from your insurer to cover immediate necessities, including food and lodging.  Most insurers involved in a catastrophic loss will readily issue advances from your contents and additional living expense coverages, usually in the $5,000-$15,000 range.  In fact, many insurers will set up local catastrophic loss command centers to handle requests in your community.  The easiest way to communicate or locate your insurer is to contact your insurance agent or broker.

Additional living expense coverage covers your expenses when you are dislocated from your residence as a result of its being destroyed or rendered uninhabitable.  This coverage is usually limited by a dollar limit or a maximum time. Such coverage typically covers either your actual out-of-pocket expenses, such as increased meal costs, increased cost of commuting from a different location, cost of temporary residence, etc., or the reasonable rental value of your former residence.  Most insureds opt for the latter method of determining their additional expense coverage as it is simpler, less time consuming to document and usually yields a greater dollar recovery.

You will need to immediately replace certain essential items, such as toiletries and clothes.  Most insurers will give you an advance on your contents claim with no specific proof of loss other than proof that your home was damaged or destroyed.  As time progresses, you will be required to document your loss on an itemized basis.  Most of you will have replacement cost coverage, which means you will, upon proof of replacement, be entitled to the cost of replacing lost items up to the limits shown in your policy.  For items that you do not immediately replace, the insurer usually will pay you “actual cash” value for those items.

This means that the insurer will determine the replacement cost of the item and then depreciate it for use, age or obsolescence.  If you subsequently replace the item, you can then send the insurer a copy of the receipt and receive the difference between what you were paid by the insurer shortly after the loss and what you spent to replace it.

A frequently asked question is:  What is the replacement cost of an item that is no longer made?  You are entitled to replace such items, subject to your contents limits, with items of like kind and quality.

Eventually, you will be dealing with the cost of repairing or replacing your home.  The first item you will likely have to deal with is removal of debris.  Almost all policies provide coverage for debris removal as either a percentage of the limits for the house or in addition to the limits for replacement of your house.

Next, the insurer and you will be working on determining the cost of rebuilding your former home.  Many of you will have a form of replacement cost coverage that will give you the replacement cost of your home up to some percentage in excess of your stated policy limits.  Such an increase in coverage is typically 125% of stated limits.  Additionally, most of you will have coverage for other structures, such as detached garages, decks and fences, with an additional coverage limit, usually referred to as "other structures" coverage.  Many of you will also have coverage for code upgrades, although such coverages will also have limits.  You will likely have coverage for landscaping.  Even if you had native or natural landscaping, you are entitled to have it replaced subject to the terms of your policy.

An issue that many of us dealt with in the Oakland firestorm is that policies that provide replacement cost coverage usually require you to replace the structure before you are fully compensated, although you are provided some monies on an actual cash value basis in the interim. This posed a significant challenge for those who were less affluent, because they were financially incapable of fronting the monies necessary to complete their homes.  After some negotiations and with considerable help from the then Insurance Commissioner, now U.S. Congressman, John Garamendi, the insurers agreed to either finance reconstruction costs as building progressed or advanced funds.  Most insurers will reach similar agreements in response to the current situation.

Some of you may not wish to rebuild, but may wish to relocate.  There are many considerations that go into such a decision, and it can only be made by you in the best interests of you and your family.  At the time of the Oakland firestorm, most insurance policies required that you rebuild your homes at their current sites.  However, most insurers waived this requirement, and now most policies no longer have these requirements.  If you wish to relocate, let your insurer know as soon as possible.  Even if the policy requires building on your lot, most insurers will waive that requirement as you will be in temporary quarters for a shorter time, which decreases the amount they have to pay in additional living expenses.  Most insurers are ecstatic if the insured wishes to relocate, as it decreases the amount they ultimately have to pay.  If you choose such an option, the insurer still pays you the cost of rebuilding/replacing your former home.  You will also retain title to your lot and can sell it later.

I was asked by many homeowners in the Oakland firestorm and in subsequent disasters whether they need to hire an attorney.  This is my response:  1) most homeowners insurance claims are resolved over a period of time through negotiation and with assistance from claims adjusters and contractors; and 2) most insurers are helpful and sympathetic to their insureds and will make every effort to guide insureds through the process.  However, for most homeowners, their home and its contents are their largest and most important investments.  Consequently, it is advisable to consult with an attorney who specializes in handling insurance matters to make sure that you avail yourself of all benefits you are entitled to under your policy.  Additionally, if you feel at any time you are not being fairly treated by your insurer you should either consult with an insurance coverage attorney or seek assistance from your state's Department of Insurance.

When the Oakland firestorm destroyed my home, I had two daughters: Katy, then 6, and Noelle, who was just shy of her 3rd birthday.  My now-former husband and I were lawyers, and, heck, we were insurance coverage lawyers.  We knew we could handle our claim and the situation.  We relocated our family within a week into temporary housing and shortly thereafter went into contract to purchase a new home.  We had no idea what lay ahead.

Replacing even the bare necessities was a huge project.  We were shopping both days of every weekend and almost every evening.  I wanted to keep my oldest in her school and my youngest in her preschool, so I drove a long commute from our temporary housing every morning and evening.  When I wasn’t driving, I was working on the claim or shopping to replace basic necessities.  My youngest cried every night and begged to go home.  Even though we knew how to handle an insurance claim, it was physically and emotionally exhausting.

About a month after the fire, my older daughter came home with a flyer inviting all firestorm survivors to a special day at Marine World hosted by the Oakland, Berkeley and Piedmont fire departments.  I indicated that we probably wouldn’t be able to go because we needed to go shopping for “stuff” for our soon-to-be new home.  Within an hour, Katy had organized Noelle into a joint protest.  They let their father and me have it.  They told us we had become the “no fun” family.  They were tired of not doing anything.  They missed their friends, who now lived away from them, and they missed us.

They were right!  From that day forward, we made sure that we had family day every weekend.  We went to the event at Marine World and reconnected with other relocated friends.  Katy and Noelle got to play with their friends.  We learned to be nicer to each other.  We also learned that not everything had to get done on a certain schedule, and sometimes it was better if it didn’t get done at all.  We learned that we had gotten the most important things out of the fire: ourselves.  We also learned that only those things that had memories attached were truly important, for anything else could be replaced.  None of us has ever placed the same importance on possessions.  For a long time, I resisted replacing many items, as I simply did not want as many things, and frankly still don’t.  Most importantly, we learned the importance of family and community and that we could survive a major loss in our lives and be the better for it.

A number of technologies have now matured to a level where, when used in combination, they offer insurers highly effective means of detecting and preventing even the most sophisticated fraud schemes. As a result, these technologies—which include predictive analytics, link analysis, text mining, in-memory database, and cloud services—will become significant areas of investment for insurers during the next 12–24 months.

A recent Ovum report, Tackling Insurance Fraud, discusses the reasons behind the increased focus on insurance fraud and explains how a range of technologies can be applied to implement a comprehensive and effective insurance fraud system.

Professional fraudsters use sophisticated schemes—such as staged or induced auto accidents, life insurance owned by strangers, or false hit-and-run claims—to illegally obtain significant sums from insurers. Professional fraud schemes often involve complex networks of criminal players within medical services providers, auto repair centers, hospitals, insurance agents, or even insurance companies. The volume of organized professional fraud is low in comparison with that of opportunist fraud by amateurs, but the sums being claimed illegally by an individual group can amount to many tens of thousands of dollars and, in some cases, millions.

The vast majority of insurers have already invested, to some degree, in fraud technology. Although this investment has delivered benefits, it has tended to take a piecemeal approach. Investment is usually focused only on the claims phase. Technology used today is generally not sufficient to address the growing problem of professional insurance fraud.

The continued fragility of many developed economies means that insurance markets will remain extremely competitive for at least the next 36 months, with only muted premium growth, limited room for rate increases, and investment returns that will remain volatile. So, insurers are urgently seeking ways to significantly and sustainably reduce both administration and claims costs. As claims payments typically account for 80% of an insurer's costs (excluding administration costs), reducing them by decreasing the level of fraudulent payouts can have a significant impact on a carrier’s cost base and margins.

With the Association of British Insurers (ABI) estimating that fraud currently adds approximately £50 to each auto policy, an effective fraud strategy can drive significant competitive advantage in a tough market by allowing insurers to reduce premium levels. An effective fraud strategy can also bring additional service benefits. In particular, simplifying and expediting the processing of legitimate claims increases the likelihood that a policy-holder will renew a policy.

There is no single "silver bullet" technology that can fully address the issue of complex insurance fraud. However, technology areas such as predictive analytics, text mining, link analysis, in-memory databases, and cloud services, together with fraud technologies commonly used today (such as rules-based systems and anomaly detection) can be combined to create highly effective systems that detect even the most sophisticated and complex fraud schemes. These systems are able to detect and adapt even to previously unknown fraud techniques that may be employed by professional fraudsters.

To date, most insurers have focused their fraud strategies on the claims process. While this is a critical point at which to detect potential fraud, the effectiveness of a fraud strategy, particularly in avoiding organized criminal fraud, can be significantly enhanced by using technology across the entire insurance product lifecycle. It is now possible to apply technology in real time, at multiple points at which insurers and policyholders interact. For example, the use of link analysis can stop fraud by identifying applicants with connections to others that have either committed fraud or are suspected of doing so.

Professional fraudsters can be very sophisticated. Insurers need to keep rearming themselves if they are to win the battle and help themselves thrive in a tough market.