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On the importance of holistic decision making


I was chatting with someone the other day who shared a story of a European health insurer.   Their decision-making in claims looked only at the validity of the claim and nothing else. This of course created a situation where good (and very profitable customers) could be treated correctly but ineffectively – such as one member who had paid over $30,000 in premiums and had not made a claim in 10 years who had a $500 claim denied.

The first problem is that there are two decisions here – is the claim valid and should we pay it? While many organizations treat these as one and the same they are clearly not. We might decide a claim is invalid but pay it anyway based on customer history, lifetime value, potential to churn or something. We might decide it is invalid but not worth the expense of litigating or investigating and so on.

Being thorough about the decisions involved and being holistic when identifying the rules and data that drive the decisions can help you avoid this kind of situation.


Comments on this entry are closed.

  • Neil Raden November 7, 2008, 10:11 am

    Sorry, I fat-fingered that. I find it hard to believe that anyone who was a part of a health insurance company (or claims administrator, etc.) would ever take this position. This sounds like someone speaking who doesn’t understand the industry. First of all, you never make “business” decisions about claims, that’s a cardinal no-no in the industry. Instead, you may take this claims “experience” and persistency into account at renewal time when deciding on the premium.

    However, 10 years is not considered “credible” experience in actuarial terms. In fact, it’s a logn time and people’s health and claims activity tends to increase over time as they age. Also, health insurance premiums are pooled over larger groups.

    No health insurer I know would ever make exceptions to the coverage of a contract. It’s a violation of their own pricing/underwriting and a violation of all of the others members of the plan, who’s premiums would be subsidizing exceptions. It would also be impossible to implement or monitor. Health insurance is for more complex than making a “next best offer” of a book or a sweater.


    • Kadidjath December 5, 2012, 11:36 pm

      It depends on the claim type, and which state you are liivng in. Most states will allow an insurer to drop you, for 2 or more non-catastrophic claims in three years. Non-cat, means, excluding storms that cause massive damage to lots of houses like hurricane ike. Most storms are NOT cat storms.However. If the weather claims are NOT cat claims, they count against you. Even in states which do not allow homeowners to cancel for claims, the insurance companies can find OTHER legal reasons to cancel you like for having unrepaired damage, or doing inspections and finding other increase in hazard issues.

      • James Taylor December 6, 2012, 7:28 am

        The question is whether the long term value of the client and their willingness to refer business etc is included in the decision-making or not.

  • alex November 10, 2008, 1:09 pm

    I understand your view and it is common, I have a bit of experience through the UK market and another view.

    First of you need to distinguish the types of medical insurance, Income Protection, Critical Illness and Healthcare. The first two types I completely agree, you stick the terms of the contract and don’t deviate. A potential small insignificant claim can turn into a monster of lifetime payments. The underwriters stand and fall by their decisions and fully expect claims to be dealt with by the letter of the law. The third has elements of discretion (carefully controlled through decisioning) both at renewal and during a policy’s lifetime.

    For example, a customer may have a moratorium of claims above the neck due to a previous car accident. 10 years pass and they break their nose playing sport and make a claim for reconstructive surgery (proven to be nothing to do with the accident), is this claim simply denied (as stated by the terms) or does it require further investigation and possibly accepting as mentioned by James’ blog, I’d argue the latter.

    I can’t think why you shouldn’t offer High Value, High Churn customers a better experience than simply denied / accepted. Customer satisfaction goes up and if retention improves everyone is happy! I admit you would restrict this to your most valuable customers though ?

    Premiums never go down with medical insurance, they just go up by differing amounts, there is no reason why you cannot use budget allocated here for retention purposes during the lifetime of the customer policy. Other options include subsidised gym membership (popular in the UK), life style and wellness products (online portals to self help guides, subscription based websites and phone centres e.g. Dial a GP). Paying the odd (defined cost claim) to get customers using this products (stick and carrot) is preferable as prevention and self help are infinitively better (and cheaper) than cure and intervention.

    I don’t understand the point about not being able to monitor and report, this is managed perfectly well in other industries but I agree that it has to be carefully managed.

    Another consideration are the pressures of Private Healthcare in UK. The government over the last decade has spent vast amount of our National Wealth ? on the NHS, this has resulted in improved waiting times and people not having to use their policy for smallish problems. This results in fewer claims and people guarding their policy (and premium) for the ‘big’ claim. This means when claims come in you have to manage, and (in my opinion) include an element of business decisioining, to ensure the best outcome for all parties.

    Managing the customer experience is key, even during a claim.


  • Neil Raden November 11, 2008, 11:59 am


    Sorry, I disagree. You said, “For example, a customer may have a moratorium of claims above the neck due to a previous car accident. 10 years pass and they break their nose playing sport and make a claim for reconstructive surgery (proven to be nothing to do with the accident)…”

    Making this determination would and should be based strictly on the merits of the claim, not the customer/insured. In this case, the broken nose has nothing to do with the moratorium and this sort of judgment would/should be applied evenly whether the insured person is a “good customer” or not, whatever that means in insurance.

    Health insurers routinely make efforts to retain good groups, but this never happens on a personal level. Now, if the locus of this decision is at the group level, then I can see some concessions as being useful.

    -Neil Raden
    twitter: nraden

  • alex November 12, 2008, 3:16 am

    Well as I said it’s an opinion (maybe mine only)  based on 7 years of working for a healthcare company in the UK.   Am not qualified to give a blanket opinion on all Healthcare companies.

    Cheers, Alex

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