Insurers are under continuous pressure to reduce costs while facing increasingly sophisticated and organized threats in the insurance claims arena. Recent reports show that soft-fraud is generally accepted by consumers, with estimates showing that nearly 30% of claims are padded.
Insurance fraud is estimated to account for as much as 20% of claim costs, with insurers expecting an increase in fraud losses. In addition to the wide-spread and rampant acceptance of claim-padding fraud, there are fraudsters that are purposely compounding losses and damages.
Yet a majority of claimants are honest and their need for fair and just compensation, efficiently delivered, remains just as important as ever because, the perception that insurers routinely deny legitimate claims drives costly/restrictive regulatory action, and loss of consumer confidence.
So how do we ensure a just and fair compensation for damages and losses? According to Marsh Risk Management Research’s 2014 US Insurance Market Report, organizations responding to innovative and creative solutions will achieve the most efficient outcomes in response to claims management.
A key issue in many litigation disputes is the assessment of damages and losses. The general approach to damages assessment is to compare the actual outcomes with estimates of what the outcomes would have been ‘but for’ the damage/loss event. There are a host of cookie-cutter approaches to asset valuation, such as software solutions with their host of modifiers, base rates and comparable claims cost schedules. But in fact, this approach only tells us what a fair and just claim could be. For small, routine claims this provides an efficient, cost effective means to settle a claim - in effect compromising an equitable settlement for a quick “satisfactory” resolution.
However, for the organizations that seek innovative and creative solutions, the answer is to engage a professional business valuation expert. Reputable - e.g. experienced and accredited with litigation expertise – asset valuation professionals are utilizing processes that ensure all the facts are investigated and discovery is impeccably documented to support the legal team. Legal precedent – which is valued by the courts - is to rely on historical facts, which by their very nature are more reliable than projections. However, when projections are based on historical business activity and that activity includes R&D or other actions with expected deferred ROI, it is more likely than not that an unsubstantiated valuation will be proposed based on hypothetical assumptions or outright false premises. This leads to the renowned ‘hockey stick’ projection.
Fortunately, the courts also value an objective, independent business valuation. This involves gaining an in-depth understanding of the business – this is where you want to be sure to engage a Certified in Financial Forensics Professional with white-collar crime background, the business’ operating environment, and actual market potential. Equally important is to engage an AICPA certified Accredited in Business Valuation professional who has the expertise and court recognition to present impeccably documented processes based on recognized methodology.