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Page 3: Insurance adjusters rewarded for shrinking claims checks

By Joe Frey
insure.com

Tightening the screws

A fabulous trip to the Caribbean

How'd you like to spend three days in the Caribbean for doing your job well? That's just what The Hartford asked its claims adjusters in the Northeast.

The Hartford conducted a contest between June 1, 1999, and May 31, 2000, to boost the number of crashed cars that were sent to the insurer's direct-repair shop facilities, known as Customer Repair Service Program (CRSP) shops.

CRSP shops, like other direct-repair programs, give The Hartford discounts on parts and labor charges in exchange for a steady flow of crunched cars to repair, which helps reduce the overall cost of claims. While direct-repair facilities might show aplomb in repairing vehicles, it's possible the insurer is using those shops to shortchange claimants.

The Hartford's CRSP contest was held monthly, with claims adjusters who showed the most improvement in referring customers to CRSP shops and adjusters who referred the most customers to The Hartford's shops earning cash bonuses: $500 for first place, $300 for second place, and $200 for third place. In addition, the monthly winners automatically qualified for a shot at the grand prize — a Caribbean cruise for two.

A company brochure advertising the contest, obtained by insure.com, tells adjusters, "Together, we can provide our claimants best-in-class customer service, while positively impacting the bottom line."

Cynthia Michener, a spokesperson for The Hartford, says the contest was a one-time program open to auto insurance claims adjusters, conducted in order to improve customer relations by providing claimants with better repair options. Michener says that CRSP shops have indeed increased customer satisfaction and policy renewals, while cutting claims expenses for The Hartford.

Critics of claims adjusters' performance evaluations — including former claims adjusters themselves — acknowledge that an adjuster's goal could include more than just reduction of claims payments. Handling claims more efficiently by improving response time to claimants is often another goal. Claims personnel evaluations from State Farm and Allstate obtained by insure.com also note that adjusters are graded on their ability to investigate claims thoroughly and their willingness to participate in continuing education courses.

Appropriate professional goals notwithstanding, former claims employees speak of a corporate culture at Allstate and State Farm that breeds mistrust between the claimant and the adjuster.

Efforts such as sending more claims to the legal department so that State Farm can fill its litigation quota, sending more medical claims to independent medical examiners, and putting all communication to claimants in writing, rather than speaking to them face-to-face in a personable manner, are designed to "tighten the screws on claims payments," the former claims rep says. And what most claimants don't realize, other former claims personnel say, is that steps such as these are part of companywide settlement strategies designed to lower claim payments and maintain the company's bottom line.

"There are people taking advantage of the system," a former State Farm claims representative who wishes to remain anonymous says. The former claims adjuster notes that insurance fraud is a real problem, and that "it is perfectly fair for the insurance company to investigate claims that appear to be suspicious. But when those efforts become so extreme as to infringe on the rights of all claimants, that's not appropriate," he says.

Gainsharing the wealth

The Big Three aren't the only companies that have adopted incentive-based programs for adjusters. Other insurers compensate their claims personnel for a job well done, as long as that job reduces claims payments. Progressive Insurance Co.'s 1999 annual report, for example, outlines the Year 2000 plan for "gainsharing" and how the insurer will measure an employee's financial performance to calculate his or her bonus.

Employee bonuses at Progressive are essentially determined by how much that employee can bolster the company's bottom line. Progressive employees have the opportunity to earn between 8 percent and 135 percent of their salaries as part of the gainsharing program, with senior executives and top managers getting a shot at the biggest bucks. Rank-and-file employees can earn up to 8 percent of their salary as a bonus if they can augment Progressive's profitability.

And how do claims employees increase the company's profitability? They aren't cutting back on the number of staples and paper clips they use, sources assert. They're allegedly cutting back on settlement checks. "The only way an adjuster can participate in gainsharing is by cutting the claims payments," alleges Matt Sharp, a Reno, Nev.-based attorney.

Progressive vehemently denies that its adjusters are shirking their duty to pay claims properly in order to bolster their share of the company's wealth. "Does gainsharing influence the amount paid on an individual claim?" asks Leslie Kolleda, a spokesperson for Progressive. "Absolutely not."

The quandary

Compensating employees for their job performance is a common business practice in the insurance industry. But when claims adjusters are asked directly or indirectly to reduce claim payments to unfair levels in order to boost their employer's bottom line, a quandary develops: Can an insurer deal with claimants fairly and in good faith if it has asked its claims employees to reduce payments? No, says attorney Anderson. "There are quotas insurers can impose on adjusters, but one of them can't be, 'If you pay more than $50,000 in claims, your raise won't be as good."