Property claims databases can be a treasure trove ofinsights, and can shine a light on valuable opportunities andtrends. For instance, I've been mining data that indicates anaverage overpayment of at least 50 percent on several commonelements of residential claims, namely damage to cabinets andfurniture. Data extrapolated from a report generated by Xactwarefor 2009 upper and lower cabinet claims shows such claims-paidtotals exceeded $1 billion in the review period. That means thatthe amount of overpayments likely exceeded $500 to $600million, while customer satisfaction likely suffered.

The totals I cited would be far higher if costs related toreplacement—for example, electrical, plumbing, flooring, countertops, molding—were included. However, for illustrative purposes, Icounted only item-specific replacement costs, those being the $650million for upper and lower cabinets. Our records at National RestorationsLLC show that approximately 75 percent of cabinet claims arecandidates for restoration at a cost of 50 to 60 percent of fullreplacement. Additional data from the five-state area surroundingour location in Richmond, Va. shows that furniture replacementestimates over the last four years have been similar to thecabinets in frequency and amount.

Understanding the Trend

Why have such large overpayments become the rule, and not theexception? I believe the data points to a trend. Experiencedadjusters are increasingly likely to choose to replace withouteffectively considering the repair option, while young adjusterscoming into the industry are less likely to even ask thequestion.

Prompted by the information I described above, I've beenconducting a survey of sorts with claims managers asking basic questions such as, “Has there been a significant changein the ratio of your claims that are settled by repair rather thanreplacement?” or “Are you satisfied with that ratio?” The answersare almost always, “Yes, the percentage of settlements involvingreplacement is higher than it should be,” and “No, we would like tosee repair used more.”

Speaking From Experience

I, too, would like to see the repair option utilized morefrequently, a conclusion I've reached based on my 40 years ofexperience with the evolving practices and processes of claimsestimating. I'm fortunate to have had a front-row seat to theprogress that has transformed the tools available to the people onthe front lines. I began as a multi-line (auto and property)adjuster in an era when our latest technological equipment consisted of acalculator, a Polaroid camera for documentation, and one of thosenewfangled fax machines. Later, I spent nearly 20 years helping todevelop technologies and services that are nowwidely used to improve the speed and accuracy of claimssettlements, and customer service.

The first tools I was issued for property damage estimates,vintage 1972, were little more sophisticated than a paper andpencil. I was trained to rely on local relationships with lumberyards, contractors, and appliance and furniture stores to estimateprices. By the late 1970s, tick sheets, a long laundry-list ofitems that you checked off as being needed, and the associatedaction of repair or replace came into use. As computerizationbecame more commonplace, my career path shifted, and I wasprivileged to be involved with software-based estimating systemsand sharable databases of timely, market-specific pricing of laborand materials.

Today, property estimating systems can receive pre-populatedassignments from a carrier over a secure Internet connection,either in their office or via Wi-Fi in the field. The databaseprices are updated quarterly, or even more frequently duringcatastrophic events. Laptop or table-based software can walk theestimator through the process line item by line item, drawingrooms, automatically calculating material amounts and laborpricing, and including associated taxes and fees.

Despite this, the estimating portion of software estimating systems is based not onrepair versus replace, but rather remove, replace, or both.Achieving an estimate to repair a damaged piece is typically leftto the discretion of the adjuster. Generally, because specificexpertise in woodworking is required, a bid item is entered if evenconsidered.

As a result, in many claims, an entire kitchenis replaced when restoration of partially damaged cabinets would besignificantly more efficient. In some cases, entire sets offurniture are replaced despite damage being limited to one chair ortable. Again, claims data analysis indicates restoration costs onsuch claims are on average more than 50 percent lower thanreplacement costs.

Most property policies give the carrier the option to decide thebest route to recovery, whether it's repair, or replace. The claimsdata indicates, however, that many adjusters may only seldomcompare the cost of repair versus replace. Why? The answer almostalways involves some combination of tight resources, reduced cycletime, lack of experience, software systems based on “remove andreplace,” or all of the above.

Benefits of Repair

There are important reasons for your organization to evaluateits ratio of repair versus replace settlements for property claimsthat involve such readily repairable items as cabinets, furniture,and other woodwork. The money that could potentially be saved byrepairing damaged goods could be shared with policyholders,improving loss ratios and helping to moderate premiumincreases.

When appropriate, repair instead of replace can improve controlof indemnity expense, reduce additional living expenses (ALE), and reducecorollary damage caused by the replacement process. In addition,appropriate repair determinations can result in faster jobcompletion and improved customer satisfaction. Repair is the“green” alternative, reducing waste due to disposal of materialsand the consumption of resources to replace restorable items.Restoration might often be the preferred choice by thepolicyholder, particularly if the item has sentimental value, ispart of a larger and desirable set of furniture, or is of a styleno longer available.

Take the Next Step

Depending on the systems already in place at your organization,it may be necessary to go back to some of the basics of estimatingand negotiating. To maintain claims consistency, obviouslyadjusters should not be left on their own (as I was in the 1970s)to form local relationships in order to price claims. Repair willbe a realistic option for your adjusters if you provide them accessto a network of craftsmen who are pre-qualified for experience,quality, and credentials, like adequate liability insurance andcriminal background checks.

If you are an independent adjuster, don't wait until the lastminute to conduct your own qualification of local restoration firmsand to establish relationships with experienced craftsmen you cancount on. Make sure the restorer you choose has the skills andequipment necessary to handle more than superficial, cosmetic jobs.A shop should be more than happy to provide you with a tour of thefacility and an explanation of how they handle insurance claims. Aqualified shop should be willing to provide a multi-year warrantyfor the repairs as well as proof of current liability insurance.Work out in advance how to handle trip or estimate fees with yourqualified restorer(s). Some will charge, some won't, and some waivethe fees against the job if assigned. Ideally, it should never benecessary for the adjuster to ask the policyholder to “get anestimate,” since the results can vary widely and include repairs todamage not related to the claim itself. And after all, shouldn't anaccurate and timely estimate of repairs be part of our service toour policyholders?

Despite the extra work that it may take to implement thesechanges, having the option to replace available could prove to beworth the effort for a variety of reasons, not the least of whichare the time and money saved.