Are independent adjusters and independent adjusting companies fading away? What role do they currently play in the overall picture of the claim-adjusting profession? Are insurance carriers eliminating them from the claim process? Is the economy dictating how and who is adjusting claims? These and many other questions are on the minds of thousands of independents who wonder what the future will hold.
With the relative lack of catastrophes since Hurricane Ike, independent adjusters are starving. Many are finding other means of income on a daily basis, while others are getting out of the business altogether. This is not only true for the less-experienced adjusters, but also for those who have been handling claims for years. Let's address some of the factors driving this trend.
A Lack of Claims?
Perhaps the most obvious reason is that there may be fewer claims. When there are no or very few catastrophes, independent adjusters work daily claims to pay the bills. Carriers that lack staff adjusters to handle incoming daily claims called on the independent companies to cover the overload. They used local and national companies to assist their claim departments when staff were unable to keep up with the influx of claims. When they are able to keep pace with the daily claims, they generally do not employ independents to handle them.
However, things have changed in the last year or so. Carriers have lost money on investments because of the stock market and may feel as though they must make up for their losses. How are they doing this? Simply put, many companies are cutting claim expenses by not using independents. Some still assign out certain claims, but for the most part, carriers are using independents as little as possible to keep their claim cost expense as low as possible.
What are insurers doing to circumvent using independents to handle claims? Many carriers rely on "preferred contractors" to make estimates, take photographs, work up diagrams, and generally to adjust—or as some may say, "appraise"—claims as the eyes and ears in the field for them. A desk adjuster oversees the incoming material and then pays the claim based on the documentation submitted by the contractor, knowing full well that the cost of the claim will be 10-20 percent higher in most cases than it would be if an adjuster had examined the same claim.
So why are claim payouts typically higher when a contractor evaluates the loss? Some might liken the scenario to letting the proverbial fox loose in the hen house. Other possibilities involve failing to identify old damage, items not covered, or more than one occurrence. Why is it that the carriers don't seem to care? It's because they can recoup their losses by raising the premiums of the insured by using contractors to adjust their claims. However, carriers cannot raise the premium of the insured because of the claim cost.
Even though they pay out more for the claim, they can get their money back on a premium increase, but they cannot raise the premium for the cost of adjusting the claim by using an independent. The consumer, not to mention the independent adjuster, is hurt by this process. Not only do they pay more in premiums, but they may also not receive all to which they are entitled from the policy by having a contractor evaluate the loss instead of an adjuster who grasps the policy and coverage terms.
Failing to See the Forest for the Trees
One downside of this theory is that policyholders—already affected by the economy to some extent—pay more money that they really don't have. In addition, as more independents drop out of the business, there are not enough qualified independents to handle claims resulting from catastrophes when they occur. Remember what happened in Florida when five storms hit the state in 2004? Independent companies were scrambling to find adjusters. Some hired "shoe salesmen," offering them a two-day course about how to adjust claims so they would then be placed in the field handling losses. This helped create the mess that Florida is in today.
Conversely, it also helped create a pool of public adjusters five times what it was previously. This has put many carriers out of business or on the brink of ruin. Many of the independent adjusters switched to public adjusting. At the most recent Wind Network conference, one of the speakers from the state said, "We don't understand why our severity of claims has risen so drastically. We don't know if it is because public adjusters are getting involved or if the insureds are not being treated fairly by the carriers and adjusters."
When you hire an independent adjuster to adjust a claim, he should truly be qualified to adjust that claim (and not be an estimate writer or a picture taker). Most independents want to adjust the loss because they are adjusters but are not allowed. They write the estimate, mount their photographs, and send it into a desk adjuster. Many of these desk adjusters have never conducted field work and have very little experience about how to actually adjust a claim.
On a marketing trip recently, I talked with the vice president of claims for a major carrier. "We will not use independents any longer unless we absolutely have to," he declared. "We used them during Hurricane Ike, and they did such a terrible job that we had to reopen most of the claims they handled." What accounts for this supposed clumsiness? Did independent adjusters not perform the job properly? Did they lack sufficient experience to handle the claims? Should fault ultimately fall to the independent adjusting firm that screened the adjusters and thus deemed them qualified to handle claims? Or should we scrutinize the carrier because it essentially was asking for more work with less pay? How about the economy?
Likely, it is a combination of all of the above. Adjusters may lack the experience or requisite qualifications because of improper training. Some adjusting firms hire the "shoe salesmen" because they need the work and want the volume of claims, whether there are enough qualified people to handle them or not.
Many carriers are demanding more work and specific estimating programs, which cost the independent more overhead while dictating the price for the work performed. Finally, yes, it is the economy, too, for the reasons stated above. When the next major catastrophe happens, the vicious cycle starts all over again, except this time there will be fewer independent adjusters to pick up the slack. Fewer insureds will be treated fairly and have their claims handled promptly. This means that fewer insureds will see that friendly face of an adjuster.
It doesn't matter that the adjuster in the field is sometimes the very first person the insured has seen from the insurer to which he has been paying premiums for years. It doesn't matter whether a dollar is paid where a dollar is due. As everyone knows, the claim department is at the bottom of hill and is the first place examined when it's time to cut costs.
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