Risk. Four letters but such a broad topic. We evaluate risk all the time — what to do or not to do, how to do it, how to pay for it, etc.
When it comes to losses, though, new risks come into play. So, should you report a loss as an insurance claim or not? As a rule, we would suggest that yes, you should report a loss, but it can depend on several factors, including the extent of the damage, if there was an injury, whether you were negligent (if it’s a liability matter), and the likelihood others will name you as a party involved in the loss.
Let’s see this in action with a couple of examples.
If an employee of yours lightly strikes a car with nobody in it, no one else is involved (so no chance of an injury), and there is limited damage, it might make sense for you to take care of the loss yourself. Anything other than that, though, it’s better to be safe than sorry — so reporting it would be the way to go.
Here’s why I say that. I know of two recent examples where we consulted with clients and recommended claims be reported for investigation. The first one involved an alleged employee injury. The employee had not yet sought medical attention, and the story regarding how the injury occurred was questionable. On top of this, the employee has been a recent low performer at work and knows it.
In this particular case, there were a few red flags where we felt it wise to allow an adjuster to investigate. This would help us get in front of the matter, control the medical issues if necessary (employer choice state), and push the employee to clarify their recollection of exactly what occurred.
The other example involved serious injuries in an area where our client had performed work. Our client has not been approached by anyone representing the injured parties, but the involved general contractor had been and mentioned to our client that they would soon be approached as well. It is also believed other possible co-defendants are lining up defense counsel to inspect and investigate. All of this adds up to us reporting this as an active investigation claim.
Risks of Reporting Claims
What are the risks of reporting a claim believed to not have validity? Perhaps there is a claim fee. In both of the situations above, though, properly defending a client by investigating, especially early on, would clearly overshadow any claim fees.
For workers’ compensation, perhaps a reported claim could impact a company’s experience modification factor (or mod) score. Since a claim is not calculated into a mod until midway into the next policy period from when the loss occurred, we should clearly know by that time not only what type of injury and treatment is necessary but also whether it is compensable. If it truly was nothing, by that point, the claim reserves should reflect it.
On top of this, not promptly reporting claims to your carrier or third-party administrator (TPA) could lead to a denial of coverage and defense. For workers’ compensation, fines are possible for not following state requirements.
Risk is everywhere. The risk of not acting, or in this case reporting, can be costly. Holmes Murphy’s Claim Consultants and Specialists are always available to discuss and help evaluate this just as any other risks our clients face. Feel free to reach out to us. We’re happy to help!
