Multiple Shades of Gray: Claims Management Challenges - Real or Imagined?

It is no secret that life and health insurers have an image challenge.

Though claims managers are acutely aware of the challenges in settling complex claims, for policyholders, motivations behind claims decisions can appear murky and the interpretation of policy language full of shades of gray.

To provide comprehensive cover, products have become complex, so how can insurers make sure their terms and conditions are understood by policyholders? Are the reasons for declining claims clearly communicated, ensuring that despite the outcome, the claimants still view the products, insurers, and industry as credible? To foster confidence, insurers must deliver on the promise made when an insurance product is sold. Communication with claimants or beneficiaries must be transparent in discussing how claims decisions are reached, particularly with adverse decisions.

The Need for Clarity in Claims Communications

Declining some claims is unavoidable, but coverage levels should be well-defined, the criteria for valid claims should be unambiguous, and claim decisions should be fully explained. In other words, insurers have an obligation to communicate clearly to policyholders.

Yet reasons for an adverse decision are often anything but obvious. Insurers may fail to prepare the claimant for a negative response, and feelings of shock or anger generated by an unpleasant surprise can be compounded by confusing or legalistic notification language. Policies can be loaded with jargon that invites misinterpretation and leaves the policyholder feeling misled.

Relatively few declines can invite problems, too. When an insurer’s answers appear to contradict a claimant’s beliefs about a policy, the claimant is far more likely to broadcast complaints in social media and on ratings websites, where their posts can attract attention and damage the brand.  Evidence¹ shows that when making insurance purchases, potential customers are more likely to ascribe value or authority to opinions of individuals in a social network over corporate or institutional statements. Increasingly, too, customer complaints can attract the attention of media and regulators.

Banishing the Gray in Policy Language

A lack of clarity also has more direct implications. A foundation of international contract law, the “contra proferentem” doctrine states that any clause considered to be ambiguous should be interpreted against the interests of the party who created, introduced, or requested that clause be included.

In other words, the onus is on insurer to prove, on balance, that an exclusion has been directly communicated and applies to a claim. Insurers would do well to reassess exclusion language. Some basic recommendations include:

• Stating up front the need for an accurate application disclosure and establishing consequences for not doing so.
• Ensuring clear headings, particularly for critical illness coverage restrictions.
• Offering all existing policyholders the option to update critical illness policies every time new critical illness definitions are introduced to ensure their cover is always up to date.
• Reassessing policy exclusion definitions. In a product with an alcohol and drug abuse exclusion, for example, identify how the insurer evaluates whether someone is under the influence or in a condition that constitutes “abuse.”

Pre-existing exclusions are particularly prone to dispute, so insurers should communicate clearly to prevent policyholders from developing the wrong expectations. Exclusion language is rarely as reliable or protective as many insurers think, particularly when the language is poorly drafted. But by keeping in mind the following approaches, claims functions can avoid reputational damage and protect the insurer and the policyholder alike:

• Keep exclusion language simple.
• Get legal review.
• Ensure the processes to appeal decisions are conveyed.
• Weigh whether performing underwriting at claims stage is fair to the claimant and consider any implications of an adverse decision on long-term underwriting processes.

Putting the “I” into Insurance

Perhaps the most powerful means to break through mistrust, minimize disputes, and foster mutual understanding is for the individual claims analyst or supervisor to put himself or herself in the position of the claimant and ask questions:

• If you do not regularly read the fine print for your most recently purchased technology device, is it realistic to expect consumers to read details of policy documents?
• Is the policy language understandable enough that a friend or relative could easily comprehend what is covered and not covered?
• Are you sure you have all the facts – and do those facts make sense?
• If a reporter called you, could you defend your claims decision – and would a “man on the street” find that explanation reasonable?

If the answer to these questions is “maybe” or “no,” then it may be time to rethink assumptions and approach the decision or communication plan differently.

No one is pleased when a request is denied, but a little preparation can go a long way toward maintaining the insurer-policyholder relationship. Those insurers who enter claimant conversations prepared with all the facts and ready to address areas of uncertainty, explain  why a claim is being declined, and provide options for appeal will enjoy higher customer satisfaction scores and  have a better chance of retaining or regaining business.

To conclude, it is essential that insurers have policy terms and conditions that are unambiguously worded and regularly reviewed. Keep the language simple and easy to follow. And if for any reason a particular claim is denied, ensure the ensuing notification is easy to understand and includes references to the relevant clauses in the policy terms.

Communicating openly and managing expectations can go a long way toward building trust among customers and improving the image of the industry as a whole.