The value of Alternative dispute resolution with large claims

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Any senior claims officer working for an insurance company will know that when a large claim is not dealt with the way the client or broker would like, immediate complaints are registered and if a reduced offer, delayed settlement or especially when a rejection of the claim occurs, immediate threats of litigation or a dispute is declared. These disputes often take a large amount of time to resolve (if they ever are resolved) and are often very expensive. They leave the client with a bitter taste with the Insurer which often results in the relationship being broken.

It would be far more beneficial for both sides if a quick inexpensive mediation or arbitration process could be agreed up front with the client, before any such dispute is declared so that in most cases a quick resolution can be obtained to allow the process to go forward. Many countries have established Ombudsman offices and have been given powers to make binding calls on claims complaints. This could include for poor service or decisions made by Insurers that the client does not agree with. It is a cheap and informal way for an objective party skilled in the laws of insurance to mediate and if necessary then give a binding decision, so the parties can move forward with the claim and the relationship. Litigation does not work well in these situations given the increased cost of litigation which has made it almost an unaffordable option even for mid-size companies and even for insurers the option of litigation needs to be carefully managed.

The problem with various ombudsman is they do not like to get involved in the large and complex claims, it is more the small commercial and personal lines claims they play a critical role. This does not stop an Insurer though from establishing an acceptable alternative dispute resolution process for the bigger claims. Internal independent adjudicators can be contracted by the insurer to make quick and objective solutions with the claim. This could be an experienced loss adjuster, retired insurance specialist or even a strong insurance attorney with the specific mandate to provide a decision quickly and fairly. The issue is mistakes can be made and the bigger the value of the claim or the more complexed the claim, the more nervous ether side may be in allowing a quick resolution to the dispute, but it has certainly been my experience even in large claims. Courts also make mistakes, matters take years to resolve and the only winners in these matters are the attorneys. Settlements are only agreed after years once both sides have paid large costs and the interest implications start to become a reality. My message would be don’t wait for this bitter experience, put alternative dispute resolution agreements into the policies before the dispute comes, it will be well worth it.

by Danny Joffe : Chairman of Klapton’s Ethics, Nominations & Remuneration Committee