Some say that claim manuals are essential tools for managing the adjustment of losses. Others view them as dangerous road maps for bad-faith attorneys who magnify any deviation from written protocols. Let’s look at arguments for and against.

In supporting the need for claim manuals, some folks point out that most states require insurers to "adopt and implement reasonable standards for the prompt investigation of claims." California, for example, requires that carriers keep a written claim manual and certify annually that claim personnel have read the document. When an insurance company lacks such procedures, insurance regulators might construe that as unreasonable. Insurers could counter by stating that they have adopted and implemented reasonable standards in a form or medium other than a claim manual.

A challenge arises when outsiders (as in plaintiff attorneys) use manuals to prescribe required bright-line performance standards versus general guidelines that a carrier considers reasonable. So should claim-manual standards function as hard-and-fast rules or merely as general guidelines? Here we find a philosophical fork in the road.

A Roadmap for Bad-Faith Claims?

Some caution against having a claim manual on the grounds that it provides a roadmap for bad-faith attorneys. Enterprising lawyers can point to deviations between actual claim practice and claimant manual standards as evidence of bad faith. Thus, as the argument goes, insurance companies are better off not having written claim manuals. On the other hand, bad-faith counsel could then argue that the absence of written procedures is (in itself) evidence of bad faith. Carefully drafted claim guidelines offer claim-handlers guidance and also support regulatory aims for consistent and fair claim practices.

Andrew O’Sullivan, claims controller with Euro Insurance, says that it is essential for any business to have a claim manual. However, he cautions that any such manual should be constantly updated and reviewed to ensure that it aligns with actual practices. "I notice that when a business does not properly or fully document claim processes, there are misunderstandings and differences in interpretation among individual claim-handlers," said O’Sullivan, adding that a consistent approach to claims achieves stable and reliable results. Claim manuals provide a tool to attain this goal.

Rodney Threat, a Charlotte, NC workers’ compensation claim specialist, says that claim procedure manuals are "necessary evils," as clients, reinsurers, excess carriers, and regulators all want to see them when auditing books of business or claim operations. Threat says it is the job of insurance company leadership to ensure compliance with claim procedures. "Adjusters cannot be perfect; however, without written documentation, it is difficult to manage people, control claim file quality, and evaluate adjuster performance," he said. The take-away is this: Do not include anything in a manual that your operation cannot meet and attain regularly.

Crafting Effective Manuals

In terms of bad-faith worries and claim manuals, it is often better to explain one miscue than to tell a judge or jury that the insurer has nothing in writing for claim personnel to use as their guide, and that there are no minimum performance requirements.

At its best, a superb claim manual is current; addresses known issues; and offers guidance for lesser-known issues. It can be an excellent education tool for adjusters and can represent a company’s best effort to comply with legal and ethical standards. The shelf life of a claim manual deserves recurring attention, though. Competent legal counsel should review and finalize the document, assuring consistency with local laws. Manuals should also include appropriate legal caveats, allowing for deviations within reasonable timeframes to avoid the appearance of inflexibility while preserving the intent that guidelines be faithful to the letter of the law.

Other tips and strategies regarding claim manuals are outlined below:

• Review, update, and "vet" the claim manual regularly. It should not be a static document or a "credenza decoration" that gathers dust. Drafting a claim manual is a job that is never "done" or completely finished. Company management should update it to reflect current practices and standards.
• Make the manual available in an electronic format, on-line to adjusters. Corporate intranets are effective for this. Further, electronic versions lend themselves to easy updating and revision. Adjusters are more likely to click an on-screen tab to access a claim manual than to walk down the hall and physically pull a book off of a shelf.
• In any document preface, include verbiage stating that the claim manual is simply a guide, rather than a book of rules to be followed mechanically or blindly, no matter what.
• Incorporate ongoing training and "refresher" courses with the claim staff periodically using the manual as a resource. A claim manual should be an ongoing cornerstone of continual staff training, not a one-time project that is checked off a list and then forgotten.
• Have outside legal counsel visit the claim department periodically for training sessions, round-table discussions, and Q&A exchanges. Themes here can relate to points and principles contained in the manual, whether they apply to three-point contact, handling suit papers, or drafting reservation-of-rights letters. Ambitious offices could arrange for a bad-faith attorney to visit and speak to what gets insurers and claim departments in trouble. In turn, this might generate ideas about new areas to incorporate in the claim manual, or existing areas to excise.

Some companies, departments, and organizations may think that they can simply embrace the local state unfair claim practice act as the blueprint for their operations and a de facto claim manual. A company’s auditing department can help ensure that adjusters handle claims in a structured and consistent manner. The theory here is that the unfair claim practice act will provide the template in lieu of having a formal, written claim manual.

No definitive answer may exist to the question, "Are claim manuals a good idea?" Differences of opinion abound. The norm is likely to have one, with some companies and operations functioning as outliers. The "bad faith blueprint" argument may not be so much an argument against claim manuals as it is an argument against deviating from sound good-faith claim practices. Fix that problem, and claim manuals should not be a source of worry.