That magic moment . . . no, we aren’t launching a new dating site. What we’re talking about is that specific point in time when a claim could and should have been settled and for some reason, often one beyond the control of the examiner, it wasn’t.
What does the timing of a settled claim have to do with a risk manager? Turns out, quite a bit; it impacts reserves, financials, risk thresholds and much more.
Therefore, an important question to ask as an industry is, “how can we make sure that we have eliminated or mitigated obstacles to effectively settling a claim? In our next Peer Dialogue, let’s dig deeper into the issue of settlement authority.
Missing the moment
Let’s start by looking at some of those obstacles that block the settlement of a claim. Here are few of my “favorites.”
- The defense attorney didn’t adequately convey the intent and content of a discussion with the applicant’s attorney.
- An important call wasn’t routed to the examiner.
- The team didn’t feel empowered to take that critical next step.
- The necessary settlement size was too high, or the settlement authority was difficult to obtain.
Worth the effort
Settlement authority is used by employers and insurance companies as a financial control mechanism to make sure that claims are not settled for more than their true value. The issue of settlement authority is growing in terms of awareness and concerns. It’s a popular topic on industry LinkedIn posts. I also hear often from judges and attorneys about their frustrations with settlement authority as a basic obstacle that obstructs efforts to resolve claims.
Failure to settle claims in a timely manner can be broken down into three parts. The first two are performance issues:
1) The person in the authority protocol fails to analyze the claim value and obtain settlement approval on a timely basis.
2) The defense attorney received settlement authority but failed to communicate or negotiate a settlement timely or effectively.
3) The claimant refuses to settle and/or the applicant’s attorney will not settle unless it’s on the steps of the courthouse or a judge pressures the attorney to be responsive to a reasonable settlement offer.
There are other reasons for settlement delays. Many a bit more esoteric and difficult to recognize. Consider that there is a natural and understandable bias for examiners to do what they are most comfortable with, and to avoid those tasks where there is a lower comfort level. (Think back on your own early career for validation of this point.)
Some examiners (and even supervisors) are intimidated when they must take claims to managers (or those with higher authority). While understandable, this fear can result in delays in requesting and obtaining settlement authority. Also, a lack of established protocol or backup for approvals of large settlements can lead to delays. If an organization requires CFO approval for large settlements and that individual leaves, gets sick, etc., what happens? Are there backup protocols? If not, there should be.
Long-held or traditional policies and procedures may also impact settlement. Artificial settlement authority levels can become the culprit of delays rather than the intended control level. For instance, I have seen examiners who had $25,000 settlement authority; settle many of their claims for $24,999. While some claims with significantly more exposure languished. This prompts the question, were all the claims worth $24,999?
Taking the right steps
From the reality of personal interactions, to the stagnation that can occur when policies aren’t refreshed periodically, there’s much to be gained from a new look at the settlement authority processes.
However, if the reasons for improving claims settlement authority are clear, the “how” in the equation is less easy to define. Your TPA, claims manager, or those responsible for developing your claims strategy should be taking the following steps:
- Partner with a claims’ administrator who will give you the information and support needed as a risk manager to validate changes in settlement authority procedures. TPAs and managers need to empower risk managers to come forward and to communicate openly when they have a strong settlement case for review and approval.
- Establish clear expectations with your claims’ administrator on the processes and timing to obtain settlement authority. For example, at the point of maximum medical improvement or permanent disability or denial of the claim.
- Ensure your partners educate, inform and share vital information with you as well as relevant members of your team. Many examiners don’t understand the impact their settlement philosophy can have on an organization’s bottom line. Settlements should not be viewed as spending company dollars. Work with claims administrators that educate their team and yours on the larger picture with regards to the financial benefits of settling a claim.
- Demand your claims’ administrator is meticulous when setting reserves. Setting consistent and accurate reserves helps empower examiners to request and receive appropriate settlements. Request the data analysis you need to adjust reserves as needed and work to create an environment of collaboration that will continuously ensure reserves are always set to optimal levels.
- Establish clear timelines and responsibilities. Having a written process for the authority timeline, which includes expected response times and clear responsibilities, significantly improves the process. Timelines are especially important and beneficial if a hearing is upcoming. Authority timelines allow the examiner to back into how much time is needed to secure authority.
The above is of course far from an exhaustive overview of steps to take to improve and empower an organization’s settlement authority process. Consider the issue of comorbidities, which can significantly complicate some settlements. And, let’s not forget the Medicare set aside process, which is easily a book unto itself. The point is to review all the processes that affect settlement authority and ask if they still apply or if it’s time to update.
Our goal: The happy claim
From examiners to risk managers to CFOs, when it comes to settling workers’ compensation claims, the motto should be, “a closed claim is a happy claim.” It’s not rocket science. We all know that the longer a claim is open, the costlier it becomes. We’ve all seen the fact that open claims rarely get better. The takeaway message for us all should be that the sooner a claim is settled, the sooner . . .
- the organization reduces cost and liability, freeing up revenue and resources for other priorities;
- the risk manager and claims examiner can focus on other cases;
- and, most importantly, the injured worker achieves resolution and can move forward with his or her life.
Let’s keep these points in mind as we all seek to find better ways to improve settlement authority. What are your thoughts and experiences with regards to settlement authority? What are some examples of settlement authority you’ve seen and personally experienced (good and bad)? Please share with your peers, and let’s keep the dialogue open.