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Charles R. Schader is senior vp and chief claims officer in American International Group Inc.'s Domestic Brokerage Group in New York. Mr. Schader, who joined the insurer in 1984, recently spoke with Business Insurance Associate Editor Rupal Parekh to talk about claims operations at AIGwhich in 2006 processed more than 450,000 domestic claims.
Q: AIG hasn't always been known for having a stellar claims management record. For example, according to a RIMS Quality Index survey back in 1998, AIG ranked poorly compared with several of its major competitors. Why might AIG have performed poorly at that time? And what has the company done to improve its claims handing services since that time?
A: Why it had the reputation in 1998 is hard to identify, going back that farbut it was probably more around loss adjudication and service issues. Certainly, we have changed our focus, but sometimes reputation drags, and changes more slowly than reality itself.
Today, particularly in areas like workers compensation and property, we have taken initiatives to become more of a service-oriented company, and have made great strides in the last decade in that regard.
I think part of the reputational issue is that we do write difficult lines and we don't write on standard forms, and that probably leads to more claims disputes than most other companies who are writing on standardized forms.
We do current "voice of the customer surveys" of our insureds, and we're really ranking very, very high. In workers comp today, we're ranking as high as any of our competitors, and that's been consistent over the last three years. Most of the stories that I hear today tend to be legacies, like somebody who wasn't happy back in 1998 or had a disappointment on a particular claim. So it is an old issue. However, it is one that haunts us.
I have to say that I go out to our offices and discuss (our claims reputation) in groups. We talk about what we want our reputation to be, we are constantly trying to raise our consciousness and go the extra mile to eradicate the historical reputation. During Katrina, we bent over backwards, provided monies for living expenses and personal items, cartons of water and cell phones to insureds. That's the way we want to be viewed today. And, more importantly, that's who we are.
Q: What qualities are essential to being a claims professional?
A: What I most expect of the claims executive staff is leadership.
Next...is a high degree of technical competence. In the areas we are responsible for, you need to have a mastery of those areas and the issues to help our underwriters do their jobs.
The skill set needed is not just the technical set of claims competence, but also includes operations skills and an understanding of technology's potential.
Also important, I think, is interpersonal skills. As a claims professional you are dealing not only internally with your own staff but with other parts of the organization like the marketing staff, and insureds, regulators, lawyers or medical providersand each are a little bit different and their needs are different.
I look for innovation, the higher up in the team people are, the more broadly I expect their business perspectives to be, and everyone is in charge to improve the organization.
This is an industry today where we have a dearth of skilled examiners coming in the pipeline. Studies show that, in recent years, 87% of our property and casualty examiners have 10 or more years of experience. Although that is a very experienced workforce, it's not a very good omen for the future, in terms of who is coming in behind us. That puts the burden on us, on managers to be going out there and getting people excited about the insurance industry and claims adjusting.
Q: How has technology changed your day-to-day claims functions? What can you achieve now that maybe you couldn't before?
A: Four years ago, we went to paperless filing. Between 2002 and 2004 we developed and installed our "i-claims" system for the handling of primary casualty and workers compensation claims. i-claims creates and uses totally electronic files; paper files have been eliminated entirely. The cases are set up, coverage validated, bills paid and customer service inquiries are handled in two operations hubs, one in Alpharetta, Ga., and one outside of Kansas City. The files are then electronically transmitted to examining offices throughout the country for adjudication.
The i-claims technology improves customer service as it makes files instantly accessible from anywhere in the country, and response times have been slashed. There are no longer the issues of missing documents and lost files.
The other benefit of i-claims is that it provides the ultimate flexibility in how we organize our offices because it supports both centralized and decentralized alternatives...when Hurricane Katrina made our New Orleans workers compensation claims office physically unreachable, our electronic claims files were rerouted to other offices throughout the country where claim adjusting continued unaffected.
Over the next several years, that system will be installed in all of our U.S. claim locations, for all lines of business.
The other technology that we use that has extraordinary capabilities is what we refer to as the "eRoom," (EMC Documentum eRoom) which permits real-time collaboration among a multitude of users working in different locations. Our catastrophe forecasting group uses the e-room to gather information from insurance divisions throughout AIG very quickly when a natural catastrophe like a hurricane, earthquake, fire, plant explosion occurs anywhere in the country. The e-room can identify potentially affected insureds and rapidly gather coverage information from our diverse underwriting areas and enable rapid investigation and response.
AIG also has a proprietary application, which we developed, which marries our insured property database with the hurricane modeling capabilities we acquire from Risk Management Solutions. Now, even before landfall, we are able to project where a hurricane is likely to most impact AIG insured properties and begin directing our staff and outside retained property adjusters to the most affected locations.
Q: How is claims processing tied to product innovation at AIG?
A: We see trends, and then we help underwriters to try to avoid risk in the future, or perhaps to develop a product that fills a need out there.
An example fairly recently was a product that we recognized provided gap coverage retrospectively where a casualty insurer in an excess layer had gone bankrupt. This gap coverage that we are now underwriting really came from the claims (department) because we were the ones dealing with it when we were trying to adjust losses and there were gaps in the coverage for the insured.
That was an opportunity that we had; we saw it first and developed the product in collaboration with the underwriters.
Q: I understand that AIG claims professionals sit side-by-side with underwriters during the underwriting process. Could you explain how this works, and the benefits of claims and underwriting staff collaborating?
A: We adopted that philosophy of co-locationhaving them side-by-sidein our severity areas, property/casualty and financial lines. The information transfer goes both ways. Underwriters understand what the risks are, and claims people understand what the needs and requirements are of our insureds. Some of the meetings are formal, some of them are informal.... The result of that type of collaboration is a better and more responsive product.
Q: In which lines are claims the most challenging to adjust, and why?
A: Although their characteristics may be very, very different, every line of insurance presents its unique claims-handling challenges.
Workers compensation is characterized by high volume, significant regulatory mandates, and generally lower-value claims than our severity lines, such as excess casualty and (directors and officers insurance).
Providing excellent, individualized service and applying state-of-the art medical management for loss mitigation, while complying with tight regulatory timeframes and deadlines, are challenges any successful workers' compensation insurer must address.
Severity lines, such as excess casualty and financial lines, deal with individual cases of potentially high exposure, generally in litigation, and often involve complex legal issues.
Our examiners must understand these legal issues and their consequences, possess excellent analytical and negotiation skills, and effectively develop cost-effective resolution strategies.
Q: How have demands for transparency and changes in business practices brought on by regulators' investigations into the industry affected claims processing at AIG?
A: Actually, it hasn't really had a great impact on claims, because to a large extent claims have always had to be transparent. The files are all available and we are audited by many different entities. We have always had an almost religious fervor to have the files speak for themselves, so the documentation has to be there in the claims file. Our internal audit division wants documentation to make sure what we are doing is appropriate and judgments are explained in the files, and all of that is a form of transparency because there is nothing secret in the processand that pre-existed former issues in governance regarding AIG.
I do have to say that during those last few years when there was certainly the potential for distraction...we would tell people that "what you are doing is right now," "You don't have to be concerned," and "When this is all over you have to be able to demonstrate that you continued undistracted to maintain that level of quality performance." I am very proud how my folks in claims performed during that stressful period.