I. Introduction

Smartsettle is a powerful negotiation support system designed to speed up the process and produce better agreements for many types of situations, from small, simple cases to large and complex multiparty cases. A wide range of cases can be found in the insurance industry, although many cases boil down to relatively simple problems such as the one illustrated in this paper.

 

The Smartsettle process has six phases that can be applied to virtually any type of negotiation case:

1. Prepare
2. Qualify Interests
3. Quantify Satisfaction
4. Establish Equity
5. Maximize Benefits
6. Secure Commitment

It is assumed that the reader is already familiar with the Smartsettle process. As such, this paper gives only terse background information, focusing primarily on the Smartsettle process steps taken to solve a relatively simple three-party insurance settlement case. The third party in this case is a certified Smartsettle Facilitator.

I. Prepare

Parties register, are introduced to their Smartsettle Facilitators, review the process and guidelines, fill out intake questionnaires and sign a Facilitation and Mediation Agreement. They may also identify issues and exchange informal optimistic proposals.

II. Qualify Interests

The other parties in this case, both hypothetical, are called Insurco (the defendant) and Claimant (the plaintiff). They have named their case Car Crash. In the second phase with Smartsettle, parties must produce a Single Negotiating Framework that represents all their interests. The Single Negotiating Framework is similar to a final agreement except for blanks that represent unresolved issues. In this example, parties have agreed to use the following Single Negotiating Framework. In more complex cases, the Single Negotiating Framework may evolve during the negotiating process.

Including the redundant calculated variables, nine issues can be summarized from the agreed Single Negotiating Framework. These are entered into the Smartsettle interface as shown in Figure 1.

Figure 1. Shared Information: The Shared Information window displays data that is shared among all parties. Any number of parties and issues can be modeled with Smartsettle. A Facilitator is participating in this case as a neutral party.

III. Quantify Satisfaction

The remainder of this document follows the negotiation scenario from Insurco’s private point of view. The private data first entered by Insurco includes negotiating ranges for each issue based on preliminary communications (e.g., face-to-face, email, telephone or video conference). Figure 2 illustrates these negotiating ranges.

Figure 2. Private Negotiating Ranges and Walkaway Level: This screen shot comes from Insurco’s private Graphic View. Three packages are displayed. The blue and black packages are imaginary extremes displayed here in order to illustrate the negotiating ranges created by Insurco. Since Smartsettle, by default, orients negotiating ranges so that a party’s most preferred values are displayed on the right-hand side, we can immediately see that, if they were possible, relative to everything else, the blue package would be Best and the black package would be Worst (from Insurco’s point of view). Insurco has set the issues for the orange package on a set of values that would barely be satisfactory to Insurco. The Insurco party believes that any proposal worse than the orange package would be unacceptable, i.e., it would be better to ‘walk away’ to court. It is important to note that the individual values in the orange package are not ‘bottom lines’ for each issue. Rather, the package as a whole represents a minimum required satisfaction level.

Including an issue does not necessarily imply importance, since certain issues may be important to one party but not to another. Smartsettle takes advantage of the fact that issues are not of equal importance to every party. Each issue is associated with a satisfaction graph that defines how important that issue is to a particular party. Users of Smartsettle may define virtually any shape for their confidential satisfaction functions. However, in this elementary example, all the satisfaction graphs are assumed to be simple linear relationships, as illustrated in Figure 3 and Figure 4.

Figure 3. Satisfaction Graph for General Damages: The negotiating range for general damages extends from a least preferred value of $90,000 to a most preferred value of $30,000. Parties may define virtually any shape for their Satisfaction Graph; in this case, the satisfaction graph for General Damages is a simple straight line. Issue Importance is defined as the difference in satisfaction between the least and most preferred values for the issue. In this case, with a very simple relationship between dollars for General Damages and satisfaction, which Insurco decides to measure in $1000s of dollars, the Issue Importance can be easily calculated as ($90,000 – $30,000)/($1000/satisfaction unit) = 60 satisfaction units. Insurco may decide to enter a value of 60 here as the importance of this issue or have Smartsettle calculate the value from other preference information.

Figure 4. Satisfaction Graph for On-going Benefits: Using the same satisfaction scale as determined for General Damages, Insurco assigns a value of 16 to the Issue Importance for On-going Benefits.

If the assignment of importance to the On-going Benefits issue is not intuitive, a party may instead define their tradeoffs using Even Swaps. Even Swaps is a very simple method of defining tradeoffs that any qualified negotiator can understand immediately. The first step is to set a reference package. In this case, Insurco uses a private and confidential prediction of the final result for the reference package illustrated in Figure 5.

Figure 5. Reference Package: The red flags in this illustration are set to values that Insurco has predicted as the final result. These values, which are private and confidential, serve as a convenient reference point for the Even Swaps analysis. Note that Net Value of General Damages, Gross Settlement and Net Settlement are all calculated issues and have a distinct title color in the display.

Insurco next uses a procedure called Even Swaps to create a set of equivalent packages to the established reference package. Figure 6 shows the even swap relating General Damages to On-going Benefits.

Figure 6. Even Swap: The red values are part of a private reference package. All else being equal, Insurco would be just as satisfied with the blue values as with the red values. Using the red values as a reference, the satisfaction gain in decreasing General Damages from $52,000 to $48,000 would be equal in magnitude to the expected loss from increasing the number of On-going Benefits months from 4 to 10. We say that these two packages are equivalent to Insurco because they would both result in the same level of satisfaction to that party. With this information and other similar information relating other issues, Smartsettle’s preference analysis routine calculates a relative satisfaction rating of 86 for each package. Recall that Insurco elected to use the General Damages issue as a basis for satisfaction scale measured in 1000s of dollars. Hence, the rating of 86 represents a value of $86,000 relative to some arbitrary zero package, which in this case is all the extreme left-hand values shown in Figure 2.

IV. Establish Equity

In order to establish equity, parties need to identify a common reference package that divides benefits fairly. In order to find the common reference package, parties must exchange proposals, which they may begin to do at any time. The Smartsettle process encourages parties to be flexible at the beginning, i.e., begin with optimistic values from which they are prepared to concede. In this hypothetical case, imagine a series of concessions, which finally end up with the two proposals displayed in Figure 7.

Figure 7. Proposals: In the left pane are displayed the issue values of a proposal from each party. In the right pane, in the Proposals group, there are red check marks beside the names of these two displayed packages. These two proposals are the result of a previous (not shown) series of concessions. Since this screen is seen from Insurco’s point of view, all package ratings are in terms of satisfaction to Insurco. Insurco’s proposal is worth 80 while the Claimant’s proposal is only worth 64. In the Private group are listed three packages that we saw displayed in Figure 2. Since the Worst and Best packages represent the least preferred to most preferred values for the negotiating range of every issue, we can see that Insurco’s total satisfaction scale ranges from 0 to 141 and any displayable package will have a rating within this range. Insurco’s Walkaway package is worth 68, i.e., Insurco must achieve at least 68 in these negotiations, otherwise it would be better to ‘walk away’ to court. However, Insurco expects to achieve about 86 as indicated by the prediction reference in the Tradeoffs with Even Swaps group.

At this point in the process, the Smartsettle facilitator observes that parties are getting resistant to further concessions and offers to have Smartsettle suggest packages that could be part of a further concession path. After publishing two Suggestion packages, the facilitator asks each party to carefully consider their possible acceptance on any or all of the suggested packages. Figure 8 shows how the screen appears after Insurco accepts one of the Suggestion packages.

Figure 8. Smartsettle Intervention: Smartsettle has suggested two packages in the Published group. In confidence, Insurco accepts one of the packages (indicated by the yellow dot), which has a rating of 72.

At the end of the session, Insurco is pleasantly surprised to find that Claimant has also accepted the same package and that they have reached a baseline (tentative) solution. Parties commonly agree to keep the baseline solution confidential for a specified time until it is determined that no better solution can be found.

Figure 9. Baseline (Tentative) Solution: Smartsettle declares a baseline solution after both parties have accepted the same package. In the left pane, the baseline solution is being displayed.

V. Maximize Benefits

With adequate prior orientation, parties agree to and understand the potential benefit of searching for improvements. Figure 10 shows the results of Smartsettle’s search for an improvement.

Figure 10. Improvement: Smartsettle is successful in finding an improvement for parties that were already satisfied with their baseline (tentative) solution. Because parties each have a different valuation of on-going benefits, Smartsettle is able to adjust this issue along with several others to produce an improvement for both parties. In Insurco’s case, the improvement is worth approximately $1,000. The Claimant is presented with a similar gain.

VI. Secure Commitment

Presented with Smartsettle’s generated improvement for all parties, parties may choose to accept it or revert to the previous baseline agreement. Lawyers or attorneys representing the parties may be intimately involved in the process and have the final agreement all papered and ready to sign. Alternatively, parties may agree ahead of time to have a single legal professional that will take the results of the Smartsettle process and finalize documents for signatures.