by Jeffrey C. Pellet
featured in the December 2004 edition Claims Magazine, an insurance industry publication


The Financial Benefits of Fast, Fair Claim Settlements

Insurance differs from other businesses in that a "benefit" accrues to the insured, in the form of a check, only after a loss occurs. Up until that point, the relationship between company and policyholder has been largely one-sided. Once a fire, wind, water, or other loss occurs, however, all that changes. The policyholders come to the carrier and expect a check for their particular losses. They expect to receive benefits based on the size and validity of the claims and, let's face it, after years or decades of paying premiums, policyholders may feel that the company owes them.

I have more than 20 years of claim experience as a staff adjuster, general contractor, and now, a practicing appraiser. My job these days seems to be chasing after insurance companies and public adjusters to correctly value losses. All too often, my mission is to force insurance carriers to do what they should have done in the first place: pay the claims quickly and completely. In my days as an adjuster, we were encouraged to "reduce the loss expense" by trimming extra expenses associated with repairs. Bad move. It is one thing to minimize unnecessary expense in settling a claim, but it's quite another to cut short legitimate repairs. A valid claim is a payable claim.
The conflict is obvious: the carrier's responsibility is to write checks for valid claims while simultaneously being assigned to create "profit."
There's nothing wrong with minimizing waste and, certainly, it's appropriate to deny fraudulent claims. But one of the best ways to keep claim costs down is to settle them quickly based on valid information. It is to everyone's advantage to gather as much information as possible from the policyholder on the first contact, then formulate a base payment and set reserves.

Too often, however, the carrier's attitude is, "Let's see what the insured will do" if we try to settle the loss for less than we know it's worth. "After all, why pay more than we have to," the thinking goes. So out comes the low-ball offer.

Sadly, many low-ball offers are accepted. The low-ball isn't necessarily the entire creation of the carrier. Although bad or incomplete information from the policyholder or the adjuster may contribute, it doesn't matter, because the net effect is negative all around.
When a policyholder seeks a professional appraiser after, for example, a fire, a good appraiser will raise issues that the insurance company probably won't. What is being done to address indoor air quality after smoke has permeated the house, contents, ductwork, and air conditioning system? Chances are that the carrier wants to do nothing more than clean the ducts, wash down walls and furniture, and maybe ignore the attic entirely.

A good consultant will make sure the repairs are done properly. To avoid future problems, every effort should be made to scope the problem and costs right, the first time. That way, supplemental payments are eliminated. If the case does go to umpire, however, chances are that the professional appraisal will be upheld. The policyholder is usually given the benefit of the doubt.

Building Distrust

For most claims, the policyholder deals directly with the carrier. Few people retain counsel or a public adjuster at the outset, because they don't believe that they are entering into an adversarial relationship. They have faith in the company they've been writing checks to for so long. However, once they start to see that they're being unfairly treated, they seek professional help, the case drags on, and the old "time is money" adage comes into play.

Getting into this situation is easy to avoid. Simply accompany an offer of settlement with an agreed cost of repair from the insured's chosen repair firm. Failing that, find a neutral third party to verify that what the insured is demanding is, in fact, fair. The policyholder believes the claim person is a professional. Don't let the policyholder down by proving otherwise. Stonewalling is a tactic some claim staff employ to wear the policyholder down. At its worst, it leads to the insured hiring professionals to press their claims. The professional, someone like me, likely will realize that stonewalling is taking place. That's damaging to the policyholder and is, therefore, worth a higher claim value.

I recently encountered stonewalling involving a 78-year-old condominium owner in North Miami Beach, Fla. The carrier took it's time, waiting some 60-plus days to offer a payment. The payment was woefully inadequate and insulting based on the obvious damages. The carrier was notified that I was the insured's elected appraiser. A new damage estimate and property inventory form were submitted and we went to arbitration and prevailed.

Had the carrier acted with dispatch and due diligence from the onset, including and during the appraisal of the claim file, it would now be a closed file as opposed to pending litigation. Stonewalling is sometimes even unknowingly committed. It is easy to lose track of files and time elements in the file. When that happens, the file becomes a festering wound. Left untreated, the wound will require professional outside help One solution is not to overburden claim adjusters with too many files. No one can keep track of 100 or more cases, but that kind of number is not uncommon, and I've seen it go to above 200. Claim management needs to realize that properly staffed claim departments will, in fact, increase corporate profits by avoiding the costs inherent in possible protracted litigation.

The Vendor's Role

Most carriers have a preferred contractor list. This, in itself, can be useful, but it's also a doubled-edged sword. Calling the local contractor to repair a medium-sized kitchen fire makes sense, but if an adjuster recommends a contractor who hires bad subcontractors, that may create a brand new problem. The use of qualified contractors, certified by state or local government, is imperative. Well trained and well managed contractors offer legitimate services and can be of value to any claim staff.

Carriers often use an outcome-oriented vendor, contractor, or repair firm as a shield. Simply put, the carrier's adjuster may say, "We have an agreed price with a contractor." If the insured doesn't agree, however, the file is not going to close. Once repairs begin, supplemental payment requests will start to cross your desk. This is frustrating and unnecessary. The way to avoid it is to keep your policyholders in the loop at all times and respect their estimates unless proven otherwise.

The claim will stagnate if outcome-oriented vendors are used as tools to help reduce losses. In a typical appraisal recently concluded, a carrier employed an outcome-oriented vendor for repairs from a water loss. The contractor did such a poor job, according to the insured, that she was forced to retain a public adjuster, who, in turn, hired an appraiser. After eight months of a bitter and nasty campaign of letter writing and telephone calls, the pattern of delay was obvious. Sadly, after the appraisal award at umpire, this claim went into litigation.

Had the insured been turned over to a well trained professional contractor, the matter never would have escalated into an eight-month nightmare. If the contractor was reputable or not outcome oriented, the insured never would have employed a public adjuster. Each contractor that you employ should have a stellar reputation and personally supervise the repairs. If not, prepare that file for future headaches. The insurance business, like all others is based on relationships. If, on property claims involving the loss of use, the adjuster walks up to the insured with a $1,000 good faith advance payment on that very first visit, confidence will be instilled in the insured at the outset that the carrier intends to do the right thing. It's a good way to start a relationship, and I heartily endorse it.

Clients often tell me, "Had the carrier done me right, I would not be in this mess." So much of avoiding the kind of issues I've outlined here is nothing more than common sense. In the final analysis, if you handle a claim as though it was your claim, you will be heading in the right direction.

Jeffrey C. Pellet is an independent adjuster with Professional Appraisal & Estimating in Fort Lauderdale, Fla. He can be reached at

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