Containing Chaos

When disasters strike, it pays to be prepared. Major corporations know this and use extensive resources to develop processes and plans for use in the event of a catastrophe that potentially could involve hundreds or thousands of claims. Whether a toxic spill, plant explosion, derailment, or other mass tort event causing bodily injury or property damage claims, companies need to coordinate efficiently, respond quickly, and effectively manage claims arising from such an event.

Once an initial crisis has passed and emergency responders go home, the hard work of managing claims is paramount, both from a reputational and financial perspective. The use of leading technology, especially in disaster planning, communications, and claims management systems, can be of great assistance in determining the success or failure of a company’s response.

Planning, Coordination, and Communication

Proper planning involves more than working with civil authorities and the media to get out in front of a catastrophic event. Although those are essential, it involves more than just a spokesperson on the scene responding to inquiries and getting out the company’s message. Rather, proper planning needs to take into account all facets of the corporation that ultimately will be required to assist in a coordinated response to myriad scenarios. It requires accurate assessment and prioritization of the tasks involved to resolve the situation.

To be effective, a plan’s protocols and procedures need to be not only comprehensive and ingrained in key personnel, but also readily available when needed to ensure proper implementation. In these instances, Web-based information, documentation, and tools should be easily accessible from a company’s intranet via laptop, tablet, or smartphone, which also will prevent uninformed personnel from making poor decisions.

Whatever the scenario, good coordination and communication among corporate, legal, risk management, claims, public relations, IT, and accounting personnel will be necessary for a successful response. In many cases, government affairs, compliance, and technical support personnel also will be included.

More and more, outside vendors specializing in various aspects of the response will be involved. Management of third-party vendors—clean-up companies, adjusters, third-party claims administrators, or legal and public relations firms—will need to be accomplished in a unified manner across departments.

Unlike normal day-to-day business, these coordinated operations will have to be flexible, allow quick response, and work in a stressful environment with high demands on people, processes, and communication. The chain of command must be clear, and areas of responsibility must be established and communicated to all involved, including outside personnel. In instances where responsibilities overlap, decision-making processes should be thought out ahead of time to avoid delays and confusion. The use of training and easily understood protocols is necessary to avoid delays, indecision, and inconsistency.

Communication is the key to this coordination. Establishing methods of gathering and recording information and communicating the messages and decisions made are essential. Email and Twitter may be effective ways to distribute communications to large numbers of people, but are they effective information-gathering tools? Other communication systems, such as dedicated websites with secure blogging features, may be more effective and give decision-makers better knowledge of the facts at hand and the opinions of others in order to make better decisions.

Claims Management Process

Woven throughout all of this is the claims management process. In a large loss event, enterprising plaintiff’s attorneys will respond swiftly to bring claims against an insurance company, whether in the form of class-action lawsuits or individual claims. Government agencies may pursue regulatory claims against a company for environmental, financial, or public safety reasons. How a company responds to these claims, both strategically and procedurally, can save time, money, and reputation.

Successful claims management involves a unified response and strategy. Once corporate and legal personnel have decided on a clear strategy, it takes the whole team to implement that plan. Whether you’re dealing with quick settlements or protracted litigation, it is vital that everybody understands the risks and helps the process. Technology can assist in getting the right message out to everyone involved, whether through video conferencing or Web-enabled meetings. Coordination among internal lawyers, outside counsel, public relations, and risk management in implementing the strategy will lessen the financial and reputational risks to the company.

Claims Data and Reporting

Even prior to the development of a claims-handling strategy, technology can help inform a good decision. Image databases can be used to upload video or photos immediately, allowing for the situation to be seen hundreds of miles away and to record the aftermath as the details unfold. The use of templates, databases, and reporting tools can allow for real-time monitoring of claims activity. In these types of situations, dynamic electronic data is best. Electronic data coupled with robust reporting capabilities makes analytics possible quickly so an accurate picture of the potential number of claims and claims liability can be hypothesized. Also, it allows for timely response to potential regulatory compliance or insurance-related issues.

The use of templates, input screens, or other uniform methods of gathering information on potential claims can greatly assist decision-makers. Uniform data can be entered more easily into a database and analyzed quickly. Not only can biographical, situational, transactional, and other information be captured, but logs of communications with claimants and their representatives can be tracked, as well. Metadata—data that provides information about other data—related to who entered information and when can be stored automatically, and could prove useful in later stages of the claims process.

If medical and financial information is being gathered, proper security measures need to be put in place to prevent another adverse event. This can be achieved easily through the use of logins, passwords, or other security measures. Access to certain fields and complete datasets, both input and output, can and should be restricted to ensure confidentiality and security. Database design and access limitations can ensure Health Insurance Portability and Accountability Act (HIPAA) and other regulatory compliance.

The use of robust databases and analytics also can assist in data quality and fraud detection. For example, having a process in which information entered into a database is subject to certain parameters and verification will result in better quality data and allow for a more accurate assessment of claims. In some instances, this can be achieved with the use of a production or reporting database, whereby raw data only is added to that database and analyzed after it has gone through the quality control processes in place. Robust and reliable data also will allow for easier detection of duplicate or fraudulent claims.

It also is extremely helpful if the data is accessible via the Internet, which presents a variety of advantages. It allows for the analysis and reporting on the data to occur anywhere without geographic limitations. For example, analysis and summaries can be posted to an accessible site so that corporate and outside counsel can get an accurate, up-to-date picture of the claims and fully understand the situation. In some instances, it can be useful to have query builder tools built into the site so that custom summaries or reports can be obtained instantly based on the user’s needs.

Consideration should be given to how financial information related to claims is tracked and stored. Ideally, the entry and storage of this information will be compatible with a company’s accounting and financial systems, and could feed directly into those systems. This data can be used not only for expense tracking and disbursements, but also for budgeting and potential insurance reimbursement, as well. The ability to separate costs related to an event for regulatory or insurance purposes is something that often is overlooked and expensive to create after the fact. Oversight of third-party vendor costs also can be made more manageable if the right quality control and approval processes are put in place and tracked through electronic workflow systems.

Document Management

Another facet of the claims management process that technology can benefit is the storage, categorization, and retrieval of documents. Documents may include scene images, media reports, status summaries, or legal and medical details—information seen as key to a decision-maker. Giving access to complete event documentation limits errors and ensures that everyone is working with the same information.

Similar to claims data, Web-enabled document management systems allow everyone on the team to gain access to important information across geographies. With electronic claims files, the team can evaluate the risk and potential liability of specific claims more easily and analyze potential settlement values. Claims with similar information patterns can be recognized and resolved in a similar fashion, and support for cases that may go to trial on an expedited basis is available.

Using technology to effectively manage documents also can save time and money if claims go to litigation or in the event of disputes regarding insurance. Responding to requests for information is simpler and less costly with fewer mistakes.

Risk Assessment

Taken together, all of these tools allow a company to accurately assess the potential liability of a mass tort event. More accurate data ensures better estimation of total costs and more accurate financial reserving and reporting. This can help the bottom line, especially in instances where full resolution of claims might take years. Putting this process in place before a mass event occurs, rather than after, will prevent a company from experiencing a wide range of potential problems—including the cost of gaining control of information after it grows in complexity and lawsuits multiply.

Failure to implement such a process at all may lead to misinformation being used as the basis for financial reports. Many responses to mass tort events include the assessments of total costs made solely based on the prior experience of the outside lawyers and in-house personnel. That prior experience is not always on point with the current event and may increase risk to the company and provide plaintiff’s counsel with the upper hand.

The Sarbanes-Oxley Act (SOX) of 2002 can impose serious sanctions on CEO- and CFO-related errors in the financial disclosures of a company. Section 302 of the act requires the personal certification that the quarterly and annual financial statements fairly and accurately represent the business for the period covered. Ignorance of the facts that are used to develop the financial statements is not a valid defense. Depending on the nature of the misstatement, including management’s underlying intent and the possible effect on management compensation, fines of up to $5 million and 20 years in prison can be levied.

Even misstatements that do not result in such penalties will drive additional work, costs, and public scrutiny. Companies must file Form 8-K with the Securities and Exchange Commission, and securities lawyers may need to be commandeered into action. And, as mentioned earlier, the trail from the initial error that led to the misstatement may uncover myriad internal controls, processes, and data errors that must be fixed. Remediation addressed under duress costs significantly more than in an organized and thought-out process.

It’s safe to say that bad data equals bad processes. A substantial cost of SOX compliance has been the documentation of processes and intended internal controls. Yet documentation alone has not improved a single internal control. The disciplined implementation of these internal controls within processes that are well integrated and understood throughout the organization is critical to a clean flow of financial information. If bad data is showing up in the financials, look for a broken process and a breakdown of internal controls.

Positive Results

Spending the time and money to create a thorough response plan using the right technology yields tremendous benefits that far outweigh the costs. Access to real-time information when coupled with better decision-making protocols ensures that you can achieve superior outcomes.

Those companies that rely on outdated modes of communication and claims-data capture and unrefined claims-tracking systems and decision-making protocols put themselves at risk. Reliance on inadequate tools makes it difficult to maintain an accurate picture of potential liability as it relates to a mass tort event, which places a company directly at risk of misreporting information, spending too much money retrieving information that should have been readily available, and making uninformed decisions.

With the use of technology at the outset of a mass tort catastrophe, having a clear view of the liability and financial picture is attainable from start to finish. Efficient tracking of all costs and claims provides the basis to make informed decisions, including what dollars will be spent, and also allows for detailed reporting when various stakeholders come calling for information. A clear strategy can be implemented to avoid expensive audits and shareholder or insurance litigation.