Techno Rebels

In 1970, Alvin Toffler published Future Shock, the first of a series of books predicting how technology would change our world in ways we could not imagine. Toffler and others warned that advances in technology would propel more changes and eventually reach Technological Singularity; a condition in which artificial intelligence would become just a bit smarter than its creator and capable of creating improved versions of itself—each version smarter than the last. Toffler and others warned of paradigm shifts coming more rapidly, thus being more difficult to keep pace with and even comprehend. In short, his 1970 message was that change is coming; it’s time to start running.

Toffler warned that the more high tech we became, the more we would need high touch with our customers to successfully conduct business. Back then, insurance claims were handled in what seems today a quaint manner. There were two echelons of adjusters—office and field adjusters—who were assigned claims based on their complexity. The routine stolen bicycle or slip and fall were the province of office claims representatives, and a total loss or large fire claim would be assigned to a field claims adjuster. The assigned adjuster would retain responsibility for the claim until its conclusion. Resources used were basic, but they worked well. The adjuster would handle all issues arising in the claim, and there was high touch contact with the insured. In a large claim, adjusters would likely become acquainted with the insured’s family. By the use of good people skills, a friendly atmosphere would be maintained—disagreements with insureds and others would occur, but were carefully negotiated. Conflict is inherent to our function; it’s how conflict is dealt with that differentiates the professionals.

Back in 1970, technology was limited to a black and white Polaroid camera, the Mitchell Manual, a local price list, the National Construction Estimator, and pre-carboned forms. I remember the introduction of the Polaroid being met with disbelief by the adjusters of that time. “Don’t they trust us?” It was the first step in file review and documentation. The phrase of the time was, “If it’s not in the file, it doesn’t exist.” Almost every new form of technology adopted since then has been used toward the goal of better file documentation.

As all boats rise with the tide, most insurance companies have a similar experience with losses and investment incomes. It is the expense quotient where competition with another carrier’s price is waged. In 1970, the average field adjuster handled about four hundred claims each year. The expense associated with the field adjuster—salary, company car, benefits, support staff and offices—amounted to about eighty thousand dollars per year. That made the average cost per claim two hundred dollars—just to throw it on the desk. In contrast, office personnel handled many more claims and were less expensive. Best of all, insurance agencies using their agents’ draft authority did claims for free.

There is a cycle in the insurance claims business that requires five to ten years to complete. It begins when a manager notes the cost of staff adjusters and opines that perhaps a vendor honor system would be best. Longstanding relationships with body shops, contractors, etc. that have always treated the company fairly become an attractive option. Perhaps using them without an inspection would save expenses, with the control being a re-inspection of ten percent of the assigned losses. Capital idea, right?

While this seems like a good idea on the surface, it’s a bit like throwing a fox into the hen house and expecting an honest count of the chickens. That is not to say that vendors are untrustworthy, but there is a laxness that can occur under less controlled conditions. When adjusters stopped by every day, labor rates and the scope of repairs remained at reasonable levels. Left unchecked, there is too great a temptation for the unscrupulous to begin to sell the carrier seven-hundred dollar storm doors. That’s when the average claim paid begins to rise and pro forma managers begin to speculate as to why. Frequency remains steady but severity is up—it’s a mystery. Expenses, however, are down.

Eventually insurers come to the conclusion that there simply must be more oversight. But with no field adjusters, they must hire a few independents to spot check the claims, bringing severity into line. However, it’s costly to hire independents so, once again, expenses are up. Maybe the insurers should put some of their people in the field…and it starts over again.

The point is that insurance companies are often driven to change due to economic pressures. We are a business that attempts to remain in formula. Claims should cost five-percent of the amount paid. The operation overall should use thirty-five to thirty-nine percent of the paid premium. Combined ratios should be in the high nineties to the very low one-hundreds.

But with new technology, changes began to occur. In 1976, the first four-function calculator came into the office. It cost more than one-hundred dollars and was not well received…no tape!

In 1980, the first software program for building estimates arrived—Computer Assisted Structural Estimating (CASE). Field adjusters used check-off, or tic, sheets, data was transferred to the system by clerical staff, and a printed estimate would result. The feeling at that time was that the information had to be correct since it came from the computer—after all, it was printed not hand scrawled. However, even when using the latest and greatest program, mistakes can still be made. For example, one adjuster, by simply duplicating rooms, estimated a furnace and water heater in every room.

In 1984, as supervisor of the first computerized storm office in Collinsville, Illinois where we used both staff and independent adjusters, I experienced three hail storms one on top of the other. Things ran quite well as clerical folks entered claims data and agents sent in lists of policy numbers rather than loss reports. Everything was entered into the mainframe at the regional office that confirmed coverage with a three-part form. One part became the loss report, one the file sticker and one became the index card. We were looking for Captain Kirk to beam down and congratulate us. About two weeks and seven-thousand records later, we indexed the database and it confirmed one record. Panic ensued. Had we lost our complete set of records? Where was Spock when we needed him? It had to be correct because the computer said it was.

We were overrun with home office managers and IT folks advising that we might need to start re-inputting all data. Thoughts of overtime, multiple shifts, and skyrocketing costs filled our minds. Then a thought came to mind from a recent conversation. When asked about computers in his school, my son Ian, a second grader, offered the sage words, “Dad, computers are so stupid you have to tell them everything.”

Reviewing the problem, we noted the insured’s name started with the letter “O” and that the zero was just above the “O.” The database gurus confirmed that the computer tracked records first by number, then by letter. The thought came to me to delete the one record and see what happened. Managers began running around as if their hair were on fire. Imagine some silly claims guy making this kind of suggestion—what next? Computers are never wrong, after all. The argument was simply made that if seven-thousand records were lost, one more wouldn’t make much difference. We watched eyes roll and the knowing smiles toward the simple minded. So when no one was looking, I reached over and hit “Delete.”

The sun rose, the skies became clear and the birds began to sing as the all-wise computer blinked “SEVEN-THOUSAND RECORDS IN THE DATA BASE.” All fell to their knees to thank the benevolent computer for sparing them from ignominious failure. I had to leave the room and giggle; Ian had been right.

We have continued to move forward since then with the Internet and more computers than we know what to do with. Today, replacement costs for everything from a straight pin to a twenty-year old bottle of Scotch Whisky are available via software and the Web at lightning speed. We’ve certainly come a long way, but we have much further to go.

Recently, while getting some work done on my car, I ran into a client who had a claims beef to share with me. His diagnostic computer had been destroyed when the brakes failed on a car coming into the shop. His carrier looked online, received a price quote from a company located in Montana and offered the shop five thousand dollars to replace the device. The trouble was that the company did not have a unit to sell. For my friend, the continuation of business was the critical matter. “Five grand,” insisted the claims handler. “I have an online quote!” The fact that the company did not have one to sell was of little import to him.

Now Ed, my friendly neighborhood auto repairman, is no dummy. He understands what it means when the check engine light flashes in my Suburban. The claims handler had poor Ed completely buffaloed and he needed help. So with my truck in the air on his hoist, and no way for me to escape, I became involved. My suggestion? Tell the claims person to have his irrefutable source ship the machine. A few days later Ed called to tell me how well his new diagnostic machine was working. The claims person had finally come to an understanding of the facts and how the contract was intended to respond.

Toffler warned that high tech would require high touch. Technology is a tool, not a replacement for clear thinking and human compassion. As claims people, we are required to treat our clients with utmost fairness. While we may have an answer, there is no guarantee that it is the correct or even an acceptable answer. We cannot discount that our clients know their business much better than we do, and we would do well to listen to them.

After a lifetime in the claims business, a few basic points remain once all of the soaring ideals have faded.

Thomas McCloskey, CPCU, LIC, an executive general adjuster, has over 39 years in the claims industry and is owner of Risk Associates Inc. in Boyne City, Mich. He may be reached at twmccloskey@aol.com.