Claims Are Avocados
When I was a kid, I spent a lot of time with my grandparents. One of my favorite features of their home was their giant avocado tree. I was swimming in avocados, unaware of the harsh reality that I would someday have to pay an arm and a leg to maintain the avocado rich diet I had become accustomed to.
As an adult, I am now an avocado connoisseur. So when I tell you that avocados are a perfect analogy for claim development, I know what I’m talking about.
What is claim development?
Officially, it’s the process by which the ultimate cost of the claim becomes known over time, and it encompasses the changes to the total incurred as additional information becomes available.
Unofficially, it’s like an avocado.
Claim Development Based on the Avocado Lifecycle:
Day 1 (unripened): You have a fresh claim, you have no idea how this will turn out since your claim has not yet developed. Initial reserves are conservative since you don’t have much information, and your total incurred will likely be low.
Day 3-4 (ripe): The ideal avocado. Time has passed and you know more. Medical reports have come in. Depositions have been taken. Compensability has been confirmed. Your reserves are more likely to reflect the true outcome of the claim now that you have gathered the appropriate information.
Day 7 (overripe): This is like the avocado that you set on the counter and forgot. It soft with black spots inside. Did you ignore red flags? Forget to manage litigation? Fail to settle when you had the chance and now it’s going to trial? The reserves will need to increase to reflect this new reality.
Avocados need time (and the right conditions) to develop favorably. Claims are no different. And just like avocados, claims have unfavorable conditions that can cause them to spoil.
Late reporting: This is the equivalent of paying $5 for a Hass Avocado (the BEST kind) and then leaving it in a hot car. It will be VERY difficult to salvage.
Inadequate documentation: The equivalent of buying an avocado without knowing what kind it is. I’ve already professed my love for Hass, but what if the grocery store had no signage and you ended up buying a Bacon Avocado (scientifically proven by my taste buds to be the worst type of avocado). Documentation is important.
No Claim Reviews: Claim reviews are the equivalent of squeezing for ripeness. You have to squeeze to check if the avocado is ripe. And you need to have regular claim reviews to determine if the claim is developed.
With claims and avocados, time is needed for development, but too much time can be your enemy. Keep this in mind when you take a look at the total incurred for your most recent fiscal year. It’s going to look low, but that’s only because those claims are unripened avocados.
