Arm’s Length

SCM Insurance Services acquired two independent medical examiners (IMEs) during the last two months of 2011. The acquisitions represented SCM’s entrance into a medical services market segment that it believes is complimentary to its current offering of insurance and risk management services. In fact, this strategy of owning standalone companies that each provide unique claims services — be they medical, engineering, forensics or data services — is not ground-breaking. Granite Global Solutions and Crawford & Company each own standalone business units that offer various claims solutions, including medical assessment services.

But the common ownership business model has raised some eyebrows within the claims community. A number of high-level, hypothetical discussions are percolating about how courts and arbitrators might view the common corporate ownership structure of independent adjusting firms and IMEs. These discussions are occurring in part because treating injured claimants with fairness and integrity is a linchpin of the claims community. Naturally, the industry is vigilant to avoid any appearance of conflict between the interest of injured claimants in receiving the best possible medical assessment and the corporate financial interests of jointly-owned adjusting and IME firms. For this reason, companies in the industry — including insurance companies, adjusting firms and others — follow strict protocols and contractual obligations to make sure no potential for conflict exists through the common ownership of adjusting and IME firms. This is a sensitive story to tell, but ultimately it is worth telling because it says a lot about the degree to which the industry is alive to the issue of treating policyholders fairly.

Entering the IME Space

At first blush, it seemed to be a garden-variety consolidation story. SCM Insurance Services acquired Riverfront Medical Services, a provider of independent medical evaluations, on Nov. 1, 2011. At the time, SCM said its acquisition signaled its entrance into a market segment “complimentary to the continuum of insurance and risk management services it currently offers its clients.” SCM also made clear that, as part of the SCM group of companies, Riverfront would operate as a distinct business entity.

Shortly after the deal, a discussion started to percolate within the industry about the ramifications of a company owning both an independent adjusting firm (SCM owns ClaimsPro) and an independent medical examiner. The discussion intensified when SCM Insurance Services purchased the independent medical assessment division of Medisys in December. Medisys IMA has a national roster of experienced specialists in a wide variety of medical disciplines. It offers a number of assessments services, including independent medical examinations, functional abilities evaluations, physical demands analyses and more. Medisys IMA was SCM’s second acquisition of an independent medical examiner (IME) in 30 days.

SCM plans to bring Riverfront and Medisys IMA together to form a single unit. That’s the long-range plan. For now, SCM is consulting with stakeholders and clients to determine the best way to undertake the consolidation of its newly purchased IMEs. Until then, Riverfront and Medisys IMA will continue to operate as two separate entities.

People in the claims industry are curious about SCM’s entry into the IME space. SCM Insurance Services started off with adjusting roots in 1986. Over 15 years, the company entered into the investigative services area (distinct from its claims adjusting business) and, over the past four years, the company has ventured into the property appraisal and inspection business, as well as into data management related to its property and risk management services company. SCM-owned companies include:
• ClaimsPro, an independent adjusting company;
• SCM Risk Management Services, a national risk inspection company in Canada that includes a team of loss control specialists, appraisers, valuation professionals and risk managers; and property data analytics solutions, including the iClarify service.
• Forensic Investigations Canada Inc., a national private investigative services company; and
• SCMTech, a technology company specializing in the development of insurance-related software.

How does an IME fit into the picture? “It’s definitely a different style of acquisition for us,” said Corey Smith, SCM’s chief marketing and sales officer. “Other acquisitions we have made in the adjusting field, for example, we call those ‘tuck-in’ acquisitions. In this example, we understand the product. We understand the people that come with that acquisition, and we are able to integrate quite easily and create added value to the customer and internal corporate synergies. This [entry into the IME space] is very different. This is what we would call a ‘platform acquisition.’ It’s a platform to get into a whole new space.”

Smith says SCM’s entry into the IME area is an extension of the company’s growth strategy, which is to continue to add insurance and risk-related services to its portfolio. “Our objective is not to combine all of these companies into one,” said Smith. “They are separate and distinct companies. But we think corporately we could add value to these companies.”

For example, the deal would give Riverfront, which already has a strong presence in Ontario, a national platform, including a presence in western Canada and Quebec. Medisys IMA gains an enhanced proprietary file intake and workflow management solution.

“When we examine the IME space and we talk to our customers, the feeling is that we could take those same core competencies that helped raise the bar in our other companies and apply them to that IME space,” said Smith. “So it’s not at all about integrating [an IME company] with any of our other companies. It’s about creating a standalone company of sufficient scale that warrants an investment in adding technology to the workflow, adding geographical coverage, adding quality control procedures and the ability to capture data in such a way that offers future potential for data analytics. Those are our core competencies and we think we can apply them to the IME space.”

In pursuing this corporate strategy, SCM is not necessarily a trail-blazer, as many in the industry point out. Granite Global Solutions also provides claims management and resolution services to insurance, corporate, government and legal clients. The company’s standalone business units include Granite Claims Solutions, an independent adjusting firm; Sibley & Associates, a full-service disability solution provider (not to be confused with an IME) that provides, among many other services, insurer examinations and diagnostic testing across Canada; Rochon Engineering; and CKR Global, a risk mitigation company. “From an investor’s point of view, owning a number of service providers can give the opportunity to create scale and size — which can be very efficient in providing central services like finance, information technology and human resources,” says Dennis Schembri, executive vice president of relationship management at Granite Global Solutions. “It also helps to have a dialogue ongoing between and among the various providers to provide better service to our insurance and legal clients — for example, in combating insurance fraud.”

Crawford & Company has a division called Crawford Healthcare Management that provides ancillary services to the life insurance, property and casualty insurance and Workers’ Compensation markets. “Crawford has no ownership or financial interest in any IME provider or medical assessment company,” says Heather Matthews, vice president of National Claims Manag
ement Centre. “It does make referrals for IME and various medical assessments through a network of accredited providers as directed by our principals.”  

Services the division supplies include disability management, return-to-work case management, vocational assessments, ergonomic evaluations, physical demands analysis and adjudication of short- and long-term disability claims. Additionally, the division has proprietary software, HealthWorks Advantage, a dynamic, interview-based decision support application for handling disability cases.  This tool allows Crawford to assess the claim proactively to avoid or mitigate anticipated challenges.

There is a temptation among some in the industry to characterize these business models as ‘one-stop-shopping,’ in the sense that so many standalone claims business units are falling under the same ownership, brand or banner. But this would be a mistake, since the individual companies operate independently from one another. As Schembri puts it: “Each of our business divisions are separate legal entities, each with its own president and CEO and senior leadership team. Each has its own sales force and each is focused on providing the highest quality in the industry. That is something each division measures and tracks with determination. It’s what sets all our divisions apart from the average.”

Common Ownership: the Elephant the Room

SCM’s entry into the IME space has triggered a general discussion within the industry about common ownership of adjusters and medical assessment services or other claims service providers. Some have mused publicly about the topic on Canadian Underwriter’s public Web site and in on-the-record interviews. Still, there is an understandably cautious approach to discussing the issue. Some don’t want their concerns about hypothetical conflict scenarios to be mistakenly associated with specific companies, for example. Some are concerned that a discussion about potential conflict scenarios could unintentionally cast doubt on what are in fact sound business relationships within the claims community. Some sources contacted for the story expressed concern that airing their views might well give creative plaintiff lawyers the impetus to challenge business ownership structures on behalf of their clients in auto insurance claims. For these and other reasons, many chose to speak to Canadian Underwriter on the understanding that they would not appear in the story.

In giving voice to hypothetical scenarios raised by anonymous sources, it is not intended for the reader to draw any inferences about specific companies or real-world scenarios. Basically, the discussion here is not about whether or not a conflict truly exists (and certainly Canadian Underwriter does not mean to imply a conflict does exist). The discussion is really about the steps that the claims community has taken and should be taking to avoid any potential for conflict related to business ownership. At its core, this story is about how the claims process works and is supposed to work. In fact, many may see this as a story about why the potential for conflict does not arise when a company owns both an independent adjusting firm and an independent medical examiner (IME).

Defining the Potential for Conflict

For the claims community, treating policyholders fairly and without partiality or bias is at the heart of the claims experience. Rules and regulations around the treatment of injured accident victims are in place to ensure the industry treats injured accident victims with fairness, dignity and respect. A claim is an opportunity for the insurer to make good on its promise to the consumer that the policyholder will be given the medical attention and resources he or she requires to get better after an accident.

Canadian courts and arbitrators have issued numerous decisions holding IMEs and insurers to a high standard related to their handling of injury claims. In Ontario, the courts changed their Rules of Civil Procedure in January 2010 so that doctors must now declare they will remain impartial irrespective of whom arranges for their testimony. Among other things, the changes include the revamped duties of medical experts under Rule 53.03. This rule requires medical experts to acknowledge their duty to “to provide opinion evidence that is fair, objective and non-partisan.” Experts must now sign the Form 53 acknowledgement and attach it to their reports. As a further measure to ensure impartiality, the form emphasizes the medical expert’s duty to the court “prevails over any obligation which I may owe to any party by whom or on whose behalf I am engaged.”

Some say the medical experts’ Form 53 declarations already provide protection against accusations of potential conflict related to the broader business operations of independent medical examiners. But given the watchful eye of arbitrators and the courts looking for any signs of potential conflict, the common corporate ownership of an IME and adjuster might also potentially raise a red flag, some sources say.

For insurance defence lawyers, the following hypothetical circumstance would represent a worst-case scenario. To be clear, this scenario is not based on any real-life episode. In fact, there appears to be very few court or arbitration decisions related to the ownership of an IME. In our fictitious example, a plaintiff’s counsel represents an injured client during a discovery in a court or arbitration proceeding following a motor vehicle accident. The claimant’s representative starts asking questions about the corporate ownership of the IME and an independent adjuster. For instance, what if the plaintiff’s counsel starts asking a doctor who supplies services to an IME about the ownership of the IME and who pays for his services as a medical assessor? The same plaintiff lawyer might subsequently ask an independent adjuster in the same discovery who owns his or her adjusting firm. The lawyer’s questions are designed to establish that the assessor and the adjuster both receive a pay cheque from the same corporate owner. After drawing this link, the lawyer would then ask the adjuster the basis for his or her decision about sending his or her client to a particular IME. The lawyer’s inference would be that the adjuster was mandated to send business from the adjusting division of the parent company to the standalone IME, suggesting a potential conflict between the corporate interest in making a profit and the claimant’s interest in receiving an impartial assessment. Framed in a rudimentary way, this hypothetical example lies at the heart of the industry’s current discussions around common ownership. Some sources say the potential for conflict increases as ownership consolidates over multiple entities, although there are ways to negate the appearance of conflict.

“We live in a world in which we all tend to own a little bit of each other,” says trial and defence lawyer Lee Akazaki of Gilbertson Davis Emerson in Toronto. “If you have mutual funds, then like most of us, we have shares in Research in Motion [RIM]. We have a common stake in that company although nobody would say there was a conflict, because if somebody were to litigate, lawyers involved in that litigation would also probably be owners of a portion of RIM.

“But it’s really not a question of whether a conflict exists, but whether [the ownership structure] would bring whatever transaction — in this case, any arbitrations or court proceedings — into disrepute. That’s really the test. If you have established holding companies with blind trusts to establish that there is no effective control from one or the other and that the only interest is no more or no less than a profit motive, those are ways in which you can get around the appearance of conflict to the extent that it satisfies the average per
son.”

How the Claims Industry Makes Conflict Disappear

For many in the industry, the way in which the claims community operates negates any potential for conflict. Insurance Bureau of Canada, for example, says it’s important to keep in mind that the policyholder ultimately chooses where they go for medical services. They could get referrals from various sources, including adjusters, insurers or their own family physician.

In some situations, an insurer may wish to challenge or review the findings of the claimant’s own health care provider or eligibility for an ongoing benefit. Section 42(1) of the Ontario Statutory Accident Benefits Schedule says: “for the purposes of assisting an insurer determine if an insured person is or continues to be entitled to a benefit under this regulation for which an application is made, an insurer may, as often as is reasonably necessary, require an insured person to be examined under this section by one or more persons chosen by the insurer who are members of a health profession or are social workers or who have expertise in vocational rehabilitation.”

In these circumstances, under the current SABS, an insurer must provide the insured notice, including “the name of the person or persons who will conduct the examination, the regulated health professions to which they belong and their titles and designations indicating their specialization, if any, in their professions.”

The current SABS includes a short section under the heading “Conflict of Interest.” This section states in part: “An insurer has a conflict of interest relating to the provision of goods or services to an insured person if (i) the insurer may receive a financial benefit, directly or indirectly, as a result of the provisions of the goods or services.” This section does not make reference to adjusting firms or IMEs. One way to interpret this section is that an insurer would stand to gain some kind of ‘financial benefit’ if it was seen to be channeling too much of its business to an IME.

To negate any potential of such a conflict occurring, a number of Canada’s larger insurers have established a rigorous request for proposal (RFP) process to establish a “roster” of IMEs. These rosters will typically have anywhere in the range of between four and 20 IMEs, depending on the company. Contracts with these IMEs may last anywhere between one and three years, and the business would be directed equally to each of the IMEs on the roster. For example, if an insurance company’s roster included four IMEs, each of the IMEs on the list would get 25% of the insurer’s referrals.

Insurance companies with their own in-house claims departments might make suggestions to claimants based on their rosters of IMEs, selecting potential referrals from the list on a rotating basis. Other insurers may farm out the business to independent adjusting firms. When business is contracted out to independent adjusting firms, the key to avoiding conflict is in the nature of the relationship between the insurance company and the adjusting firm. Under the terms of most typical contracts between insurers and adjusting firms, the independent adjuster places claimants with IMEs according to the protocols established by the insurance companies. In other words, independent adjusting firms are typically not contractually allowed to place claimants without regard to the insurance companies’ IME rosters and without any instructions from the insurer.

Ultimately, as long as insurance companies — and not independent adjusting firms — determine where claimants might go for medical examinations, the potential for conflict evaporates, sources say. “With this IME product, we do not see a lot of freedom [for independent adjusting firms] in this area, because of the importance of the [medical] assessment and the implications of the decisions that are made around this product,” Smith says. “Insurance companies control the use of this. This is the most robust RFP selection process I have ever seen. These [insurance] companies go through a rigorous process, and that process in their minds eliminates any potential for conflict. There’s complete transparency.

“They [insurance companies] are examining the ownership structure of the [IME] companies, mostly to ensure that these ownership structures can support the product and the value proposition that’s being promised, and to ensure there is no conflict with IA [independent adjusters] or anything else. They make the decision corporately [which IMEs to use], and then their internal staff really has no freedom to deviate from that.

“If it goes to an IA, the IA simply becomes an extension of [the insurance company’s] internal claims staff. That IA is typically bound by the protocols around the usage of IMEs that the insurer dictates. It is very rare, in the cases we’ve examined, where the IA would have complete autonomy to deviate from any sort of protocols and choose whatever IME they wanted. They’re typically tasked directly by the insurance company or they are following the same internal rotation as they other claims staff are.”

Beyond Rosters

Each company’s protocol for handling claims is different. For example, not every company uses a roster approach for assigning claims to IMEs. Larger companies might be able to support a strict competition through an RFP process, but some smaller companies may not. And even if a roster system is in place, “there’s really no one policing” it, as one source says. “They have no one to police the system to see who is getting the fair share of the volume of the business.”

But ultimately insurers have a vested interest in making sure the situation is policed properly, which is why they take such care with IMEs. As one source put it: “Remember, it’s not the IME company and it’s not the independent adjuster that suffer the consequences [arising from a conflict]. It’s the insurer. The IME company doesn’t have to pay [a court-ordered] special award. The IA company doesn’t have to pay the special award. All of the reputational consequences flow to the insurer. It’s their pocket, it’s their brand, it’s their reputation.”

Insurers have been very careful about managing the IME side of the business, Schembri and Smith say. Both emphasize that it would be very rare for an independent adjuster to have absolute freedom to choose where to send a claimant for a medical examination. And even in those rare circumstances when an IA might find itself with some choice in the matter, companies like SCM have a protocol in place, Smith says. The adjuster would request specific IME placement instructions from the insurer, having disclosed the cross-ownership between ClaimsPro and Riverfront and Medisys. If the adjuster does not then receive explicit instructions from the insurance company and is still left to decide, the protocol dictates that the adjuster would not send the business to Riverfront or Medisys. “On the rare occasions when ClaimsPro is expected to use another SCM-owned IME, we’re going to ask [the insurer] to pass or skip over that [SCM-owned] company on the list to make double sure there’s no appearance whatsoever of conflict,” Smith said. “That volume is so small, not only are we comfortable with that, we’re happy to encourage that.”

Granite Global Solutions (GGS) has a similar protocol in place that does not allow for mandated cross-referrals between Granite-owned companies. “The ‘appearance of conflict’ is a difficult thing to manage, so at GGS we have taken steps to ensure it doesn’t exist,” Schembri says. “Our separate business divisions with their independent minds and management — relying on GGS only for central service
s in finance, IT and so on — means they do operate independently and would stand the scrutiny of any customer audit. Combining these back room administrative functions is a matter of efficiency and not connected to the provision of services in the marketplace. We will not take an assignment that could put us in a conflict situation, nor will we mandate referrals between groups. Oftentimes we do get referrals because our superior quality of service is clear, but our primary credo is to give the customer professional and independent advice.”

Akazaki said disclosing the corporate ownership structure is a key step in reducing any potential for conflict. “I think the first thing that anybody who is engaged in that particular ownership arrangement has to do is be completely upfront about it,” he says. “Transparency is important. It’s not just the fact of a conflict but what the appearances are. If you are upfront about it and disclose it to all of the parties — either on your Web site or in the contract document — that’s one way to make it perfectly clear [to the claimant that the IME] they are dealing with has an owner that is an adjusting firm…

“Once you disclose that, it allows parties to object. And if they know about the ownership and don’t object, they can’t later turn around and say, ‘I object to Dr. So-and-So testifying at my arbitration,’ because they knew about that issue all along and didn’t raise it. Then you would be able to lead evidence as to the corporate structure, who owns what shares of what, and what steps have been implemented to ensure the board of directors that controls the [IME] is operating independently of the controlling entities of the adjustment firm. These are the things you would have to put into place.”