Claims department transforms under Alletto's command

When Raymond J. Alletto joined United Rentals Inc. as its vp-risk management in February 2005, he immediately took command of a situation that was bleeding cash from the equipment rental company.

Although United Rentals had moved most corporate functions to its Greenwich, Conn., headquarters, the 75-person risk management department remained in Modesto, Calif., the former headquarters of its largest acquisition.

Waiting for Mr. Alletto were nearly 6,000 open general liability and workers compensation claims, many of which had not been touched for months and, in some cases, years. Well-meaning but underqualified, United Rentals' staff was administering the claims and 70 unsupervised outside law firms handled the litigation. There were no data systems in place, no actuarial reports and no loss reserves.

"Cash was flowing out the door in the claims department at United Rentals and I just had to shut the spigot off and get my arms around it," Mr. Alletto said.

"The first thing I did was identify good people," including Rita Castro, a veteran litigator who recently had been hired by United Rentals' legal department to oversee risk management, he said.

Mr. Alletto quickly won approval to transfer Ms. Castro out of the legal department and into risk management to become his director of claims and litigation management.

Next, with the daunting task of learning about the status of the open claims and the condition of the claims files, Mr. Alletto called on Ken Gould, his former casualty broker from Hubbell Inc. and GTE Corp., whom he later appointed as United Rentals' casualty broker.

At the time, Mr. Gould, who was at Palmer & Cay Inc. and now is executive vp with Lockton Cos. L.L.C. in Dallas, offered to send in two claims consultants files.

"That's what relationships are all about," Mr. Alletto said. "I pick up the phone on a Monday and Tuesday morning I've got a guy from Boston and a guy from Dallas who have paratrooped in, saying, 'What do you need?' "

The claims consultants confirmed Mr. Alletto's suspicion: The claims files were in poor shape and needed immediate attention.

"My first summer at United Rentals, I (worked) weekend after weekend, 10 to 12 hours a day," evaluating claims and putting action plans in place for each one, Ms. Castro said. "By the end of the year, we had 1,800 open claims."

By July 2005, Hartford, Conn.-based Specialty Risk Services L.L.C., United Rentals' newly appointed liability third-party administrator, had taken over administering all new liability claims.

Upon Mr. Alletto's request, SRS built a dedicated claims team near his Irving, Texas, location that works solely on United Rentals' claims. He developed new guidelines and specialty claims-handling instructions for the claims team, which also received specific training about United Rentals' equipment.

"We maintain very tight controls and are extremely strict about following the guidelines," Mr. Alletto said. "That's what works and will help control claims. We don't interfere with the setting of reserves, but we question it and we discuss it."

SRS has no authority to settle claims and Mr. Alletto and Ms. Castro attend all mediations and trials with loss exposures exceeding $1 million.

New guidelines also were developed for United Rentals' outside counsel, which Mr. Alletto and Ms. Castro overhauled in 2005. They replaced half of the 70 law firms with attorneys each knew.

Today, claims are handled early and aggressively with an eye toward resolution, Ms. Castro said. "That makes a huge difference," she said. In liability cases where United Rentals has a solid defense, the company is not afraid to go to trial.

Thanks to those efforts, United Rentals now has about 900 open workers comp and general liability claims, and the filing rate has been cut by 75% in workers comp and auto and 50% in general liability. Closure rates are ahead of new claims by an average of 20%, and actuarial loss reserves have dropped year-over-year and saved United Rentals more than $10 million.

"The level of improvement that Ray has brought to bear is phenomenal," Ms. Castro said. "And to fully understand what he's done, you have to look at where the department was in 2005 and where it is in 2009. We run like a finely oiled machine."

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