Claims

Despite lack of hurricanes, 2006 a busy year for Claims – Focus remains on innovation

Claim Representative Nancy Hanks from Erie, Pennsylvania, couldn't believe her eyes when she traveled to Louisiana and witnessed firsthand the destruction following Hurricanes Katrina and Rita. While deployed to Louisiana to handle Hurricane Rita claims, she established close relationships with several local families. Nancy hasn't forgotten the impact the storms had on all their lives, and she recently used vacation time to travel back to Louisiana to visit some of the families she helped recover from the unexpected.

What would you call a year without hurricanes? For State Farm®, the answer is “still busy.”

After a 2005 hurricane season that brought Katrina, Rita and Wilma, 2006 came and went with no hurricanes hitting U.S. shores. But catastrophes come in many forms.

Each year, State Farm policyholders across the United States and Canada face life-changing events such as tornadoes, wildfires, hailstorms, and earthquakes.  In fact, there were 244 catastrophes declared in 2006 for a total of 821,537 catastrophe claims received in 2006.

Although every claim is different, State Farm responds to each one with the goals of integrity and quality service. “Our brand is about serving our customers. And when our customers experience a claim, State Farm’s claims force delivers that service – promptly, courteously, and efficiently,” said Susan Hood, Claims Vice President.

Beyond handling the large volume of catastrophe claims in 2006, State Farm stressed the importance of innovation and flexibility in every corner of the organization, including its claims function. The Company introduced a revised Select Service® Program, which enhances the customer experience with additional convenience and services and streamlines the auto claim-handling and repair processes. 

State Farm also continues to enhance claim-handling technology in order to better serve our customers. For example, Claims continued to roll out eMedical across the United States, an application that automates many medical bill-handling functions and offers greater claim-handling efficiency. In 2006 alone, this application helped claim associates electronically handle three million medical bills. By mid- 2007, eMedical will be in 47 states. Canada has a legislative initiative underway that will function similarly to eMedical.

The focus on innovation continues in 2007 through many efforts, including the continued U.S. rollout of the Electronic Claim File, reducing paper files and allowing associates to handle catastrophe claims electronically. As another example, the Emergency Advance Card is being tested in three zones as an option for providing additional living expense payments on fire claims. 

“We will always look for innovative ways to improve how we do business,” said Executive Vice President Brian Boyden. “At the same time, we will stay true to the claims philosophy that has guided us for 85 years – a philosophy based on paying what we owe, promptly, courteously and efficiently.”

Select Service Increases State Farm’s Competitive Advantage

The new Select Service® Program is one way in which State Farm® is proactively using its size and buying power to gain efficiencies.  In order to participate in the new program, repairers had to demonstrate they can provide high quality, timely, and competitively-priced repairs for State Farm customers.

Select Service allows the State Farm customer to have everything taken care of at one auto repair location, streamlining the claim-handling and repair processes.  The new Select Service program extends enhanced customer benefits – including pick-up of damaged vehicles within a reasonable distance, guaranteed completion date, national limited life-time repair warranty, and wash and vacuum of the vehicle – to State Farm’s customers. 

Drew Fleming, auto claim representative in Pennsylvania, said he relates the new program to specials at a restaurant. “We recommend the program, but offer the customer a choice,” Flemming said. “After customers learn the benefits, the program sells itself.” Customers comment on the ease of the program and the freedom of choice it offers. If a customer chooses to have his or her vehicle fixed by a repairer who is not a part of the Select Service Program, there is an efficient and customer-friendly process in place for handling their claim.

Select Service is just one example of how the State Farm claims organization is finding innovative ways to make the claim process as simple and convenient as possible for customers.

Select Service should be available Companywide by the end of third quarter 2007.

State Farm® Recovers $1.3 Billion on Behalf of Policyholders

Recoveries have trended upward, changes made in '05 key to upward surge in '06.

There was something odd about the auto claim Brian Jablonski, a Florida claim representative, was reviewing in March 2005.

“The insured was driving his 2002 Porsche Boxster® when the engine stalled and smoke started coming from the engine compartment. Before the fire department could respond, fire had engulfed the entire vehicle, resulting in a total loss.”

Jablonski thought it odd that a relatively new vehicle, an expensive one at that ($33,000 value), would catch fire without warning. The policyholder claim was approved, but Jablonski marked it for further review by the State Farm® CRASH unit, which identifies trends in losses and possible underlying causes, such as manufacturer defect.

Subsequent investigation identified a trend involving problems with the power steering hose in that vehicle. State Farm contacted the auto manufacturer and eventually received $23,000 in subrogation recovery in August 2006.

“I can’t say that my subrogation training ever included this specific example, but I know it helped me think about potential recovery opportunities,” said Jablonski, who is now a catastrophe claim representative based in Missouri.

Successful recovery of payments through subrogation is good for both its policyholders and State Farm

That kind of attention to detail helped fire and auto subrogation enjoy a record year in 2006, both for total dollars recovered and percentage of indemnity paid.

Subrogation is a process insurers use when they have paid a claim and need to seek reimbursement from a responsible third party.  “A key is to make sure the subrogation radar is turned on early and it stays on,” says David Hernandez, Assistant Vice President - Claims. “A great many of our claims have the potential for subrogation.”

Successful recovery of payments through subrogation is good for both its policyholders and State Farm. “The first dollar collected (through subrogation) goes to the policyholder to offset any deductible they may have paid. Only after that deductible has been reimbursed does State Farm begin recovering payment,” says Hernandez.

State Farm recovered a total of $1.3 billion in 2006, which is a 5.13 percentage of indemnity paid. Subrogation recoveries by State Farm have trended upward over the past 10 years, but Hernandez points to changes made during 2005 as key to the upward surge in 2006.

“We consolidated 38 separate subrogation operations throughout the zones into four locations,” he said.

As part of the consolidation, teams worked to identify and implement best practices and improve work flow. While working through the details of the consolidation, Subrogation Services made sure it didn’t lose focus on a key dynamic.

“More than ever, success in our subrogation efforts depends on State Farm’s frontline claim handlers,” said Hernandez. “We emphasize collecting as much information as possible at the start of the claim.”
In 2007 and beyond, the focus on a thorough “front-loading” of information will be bolstered by teams in each zone identifying and pursuing appropriate subrogation opportunities. “In the end, our goal is to return more subrogation dollars to the zones and ultimately to the people we serve – our policyholders,” said Hernandez.

Successful recovery of payments through subrogation is good for both its policyholders and State Farm