So, why should you care about prompt claims reporting?

By R. Bruce Wright, CPCU

Every insurance company asks its customers to promptly report all claims. Insurance carriers even want to know promptly about all incidents that may later end up as claims, even if no demands have been made or if no one has contacted you. But, all too often insurance carriers fail to explain to you why they want these claims reports made so quickly. So the question is, why should you care about prompt claims reporting?

Most insurance companies can cite statistics, drawn from either their own proprietary data or industry data, that show that “lag time” in claim reporting is linked to claim costs, or as the insurance industry calls it, claim severity. Lag time is the length of time between the occurrence of an incident that results in a claim and the date that the incident is actually reported. There are several reasons why increased lag time may lead to increased claims costs. Late reports mean that investigations are delayed, and the facts may be harder to establish as a result of the unreliability of memories over time. Late reports may leave injured parties without a source of assistance in having bills paid. Late reports may allow for others to contact and influence the attitudes of claimants themselves. All of these things could obviously end up in adding to the cost of a claim.

In 2003 a review of the claims reporting process among member of this Utility Program revealed that the average vehicle accident claim report came in 28 days after the accidents took place, while both property and general liability claims reports trailed the incidents that caused them by 38 days. That’s more than a month late! Further analysis of the costs of those claims revealed that injury claims payments arising from vehicle accidents that were reported more than five days after the date of the accident ended up costing nearly 20% more than those from accidents reported within the first five days. That's pretty significant for just five days delay! In GL losses the difference was even greater, with late reported claims costing 78% more than those reported within 5 days. That’s a dramatic difference. Of course, it is possible that the GL statistics reflect some cases where no one knew about the incident until suit papers were received, but those cases should be fairly few in number. And, it’s hard to see how an auto accident could take place without some one knowing about it, but even those claims reports were nearly a month behind the accident date. The question is, “Why?”

Think about the answers to these questions as they apply to your system:

1. What is our process for learning of incidents that could lead to claims?
2. Who is responsible for initiating the reports?
3. Who is responsible for following up and documenting the reports?
4. Who is responsible for filing the reports with this insurance company?
5. What are the timeline expectations we set for the process?
6. What are the procedures for ensuring that the five items above are actually being done as planned? And who is responsible for that?

If you cannot provide clear, crisp answers to each of these questions you may have begun to identify reasons for late reports. Every business needs a process to encourage prompt reporting of all incidents- one that rewards those who do what they are asked to do, and identifies and corrects those who do not. You should regularly review the procedures and requirements for reporting incidents with all employees. You should provide ready access to the forms you expect them to use, along with training on how to complete them. You should have a clear idea of who is to complete the insurance report forms along with an agreed standard for when they must be done. A couple of systems we visit have a “sundown” policy to encourage reporting. The way they typically work is that employees are told that if they have an incident- either an accident or a near accident event- they are expected to report it as immediately as practicable- at once if it is serious; not later than the end of that same workday if it is minor- in other words, the deadline is "by sundown” of that day. No one is ever punished for making a report within this guideline. However, if no report is made that day and management later learns of an incident, workers involved may be subject to further disciplinary action as indicated. This is just one example of a tool to encourage reporting by employees, you undoubtedly can think of others. We simply suggest that you choose an approach you like and use it consistently.

If you can learn about things that go wrong right away, document the facts, and promptly report them to the appropriate insurance company representatives, you will provide timely, early claims notices to your insurance carrier, giving them the best chance to mitigate any losses. In short, you will have taken a positive step toward reducing controlling the cost of your claims.