loss adjustment explained

In a perfect world after a loss the insurer and policyholder work together to measure and settle a loss. An amount is agreed upon and the claim is paid. Unfortunately, in the real world there are many factors that complicate this seemingly simple process. It is understandable that after paying insurance premiums for many years, policyholders expect to be made whole for their losses quickly and fully without a lot of work or aggravation. However, policyholders often become frustrated once they learn that they have to prove their claim, prepare it, substantiate it and then ultimately negotiate a settlement with the insurance company. All of this is taking place under the watchful eye of the insurance company, adjusters, underwriters, supervisors, accountants, engineers, experts and often attorneys. There are many reasons why an insurer might devalue the loss or deny all or part of a claim. There are also several methods which a claim may be resolved from negotiation, appraisal, arbitration, mediation and/or litigation.

Its apparent that an organization's or homeowner's priority is restoring the business or getting their life back in order and not preparing and negotiating an insurance claim. Claim preparation may not be viewed as a crucial and urgent step. However, the work involved in preparing and negotiating a claim may be one of the most important, challenging and difficult steps in recovery. There are many duties, obligations, provisions, endorsements, exclusions and calculations that may need to be considered including but not limited to: valuations of actual cash value and replacement cost values, real property values for coinsurance computations, recoverable and non-recoverable depreciation, application of deductibles, additional coverages, extensions, special limits, proofs of loss, non-waivers, repairs vs. replacements, broad evidence rule, apportionments, time element coverages, salvage values, subrogation, ordinance or law, appraisal clause, pairs and sets, liberalization, vacancy conditions, agreed values, functional building valuation, condo association bylaws, open peril forms, expediting expense, extra expense, continuing expenses, stock valuations, state statutes, extended and contingent business income.

The loss adjustment process is often long and tedious involving many different parties and factors. Simple claims may be settled within a few months, but more frequently losses are complex with delayed recovery efforts and the process can last many months to several years. The individuals involved often have varying interests, knowledge and expertise which may not always be in line with the policyholders goals or interests. Not everyone is familiar with the technicalities of loss adjustment process and often communications and information are misinterpreted, neglected or not presented properly. Insurance companies and their adjusters face many constraints on approving what is submitted based on the understanding that claims must be investigated, substantiated and verified before settlement can take place.

Insurance companies each have their own philosophy and protocol about claims handling. In our experience we have seen it vary from office to office, from year to year and from adjuster to adjuster. However, one thing is certain, Insurance companies are businesses and provide their products and services in order to make profits. While claims represent a significant expense to the company, in reality claims are also needed to justify the need for insurance.

Insurance Company Perspective

Generally speaking insurance companies handle claims with the intent to honor their contractual obligations. However, they also may look for ways to minimize these costs. They may argue loss costs submitted by the insured, hire experts to challenge or disprove certain aspects of a claim or delay settlements which may result in frustrating insured's into agreeing to lower settlements. It is not the insurance companies responsibility to identify all of damage or losses that the policyholder may have incurred, nor is it their responsibility to seek out and highlight all of the available types of coverage that may be available under the terms of the policy. The insurance company does have a fiduciary duty to verify claims submitted by the insured yet they should not use this as an excuse to challenge, reduce or deny valid claims. Therefore it is expected that insurance companies will seek to verify claims and minimize their obligation just as it understandable that policyholders will seek maximum recovery under the terms of the policy.

Policyholder Perspective

Policyholders who experience losses want to be paid quickly, completely and fairly. However, the reputation of the insurance industry and the need for the industry to be so highly regulated has left people suspicious of whose best interest is at heart. The insurance industry is one of the most highly regulated with respect to virtually every facet of its operations. From rates, financial strength and capacity, to underwriting, policy wording, sales, ethics and of course unfair claims practices.

Many claims are settled as they should be but there is no shortage of horror stories in the news or heard from family and friends about claims be unjustly delayed, denied or undervalued. Legal recourse is always an option, but can be extremely time consuming and frustrating without guaranteed results. Some insurance companies have used these tactics knowing that only a small percentage of claims will be litigated, and those that are can usually be settled for less than what was originally being sought by the insured. Denials, delays and undervalued claim payments allow insurance companies to hold on to more of their money for longer periods of time and incur the benefits of time values, interest and alternate investments.

Policyholders need to understand that they are responsible for identifying all of their losses and making claims under relevant sections and within the provisions of their policy. They should expect to be challenged on losses that may not be fully clear, supported or where gray areas exist.

However, there are common goals and these include mitigating the loss quickly and reducing costs. Everyone wants to see that people's lives and businesses are returned to normalcy and that claims are completely resolved. Its is advantageous for all parties to maintain positive and productive relationships as each party relies on the other for protection and compensation beyond the loss and into the future.

Adjustment Process Key Activities

1. Contact with the Insured

2. Policy review, verification, analysis and interpretation

3. Nonwaivers agreements and Reservation of Rights

4. Advance Payments

5. Investigation of the loss

6. Site visits and statements

7. Organizing and documenting

8. Retention of experts

9. Scope sheets, estimates and reports to the company

10. Proof of Loss filings

11. Decision making and authority

12. Negotiating

13. Salvage and subrogation