Rules of Engagement

An adjuster accepts a number of responsibilities related to claim processes when performing work on behalf of an insurer.

The adjuster must manage the entire claim process to achieve a fair and ethical claim settlement. Each state's Unfair Claim Practices Act establishes strict ethical conduct and claim handling standards. Those standards are supplemented by regulatory guidelines created by each state's insurance department. Some of those guidelines include acknowledging and acting promptly on communications with respect to a claim, affirming or denying coverage within a specified time, and adopting reasonable standards for investigation of a claim.

The claim professional must have a comprehensive understanding of insurance policy provisions and how statutory or case law will impact claim resolutions. Facts and events are constantly changing, and it is up to the representative to identify when there is a need to utilize the knowledge and expertise of a forensic expert — engineers, lawyers, accountants, and other consultants — who provide assistance in determining the cause and valuation of a loss.

The adjuster has a duty to provide prompt, diligent, and professional service. The insured or claimant has a reasonable expectation of prompt contact after filing a claim. Even more compelling are state mandates that establish specific time parameters for the acknowledgment of a claim once the insurer has been notified. Specific timelines on reaching a claim settlement also may be imposed. The claim representative must act professionally in the investigation and provide clear instructions to all parties so that expectations and state mandates are met.

Adding a forensic expert to a claim investigation creates another set of responsibilities for the claim professional. For example, with more parties involved, additional communication becomes necessary. Prompt communication and clear explanation of the investigative process will prevent any allegation of unfair claim practices. The adjuster will be required to complete additional status reporting, with increased file management review.

As for the experts, they need to be familiar with applicable state insurance guidelines and should avoid creating a situation in which the insured or third-party claimant can charge that an investigation is resulting in unnecessary delays in claim resolution.

RULE TWO:
Know When to Hire an Expert

Though retaining and managing a forensic expert can add complexity, it also can supply the clarity necessary to promptly and fairly settle a claim. Forensic experts can add value in resolving three broad claim-related issues: causation, coverage, and cost.

In causation issues, an expert is needed to ascertain the cause of a loss. Examples include:

• A cause-and-origin expert determining the reason for a house or vehicle fire.
• A structural engineer establishing the cause of a building collapse.
• An electrical engineer identifying the failure of mechanical equipment.
• Sometimes an expert is needed to assist with coverage determination. Examples include:
• An engineer or consultant determining whether a home sustained actual hail damage.
• An attorney researching case law to decide if an insurance policy will cover an insured or claimant.
• An electrical engineer investigating alleged lightning damage to a heat pump.

In other cases, an expert is needed to quantify an indemnity settlement or time element cost or assist with managing claim expenses. Examples include:

• A forensic accountant evaluating a business interruption claim for a restaurant.
• A construction consultant determining incurred costs for a newly constructed building by a general contractor.
• A physician reviewing the course of treatment for a claimant who sustained a broken hip.
• A salvage broker ascertaining the value of fire-damaged inventory in an electronics store.

RULE THREE:
Draft an Effective Assignment Letter

Claim professionals are busy people who take their diaries, internal claim handling procedures, and state regulations seriously. Centralized work environments, claim assignments that cover wide geographic areas, and a variety of time constraints often limit their ability to effectively select, assign, and use a forensic expert.

Writing an effective assignment or retention letter adds to those time constraints. However, the hour or two it takes to draft a letter typically is time well spent. A detailed letter is the best method to document an assignment and will reduce the frequency of phone calls, faxes, and e-mails between the expert and adjuster as work gets underway. It also provides written confirmation of the insurer's efforts to comply with state claim settlement practices. Finally, since the expert's time is money, it can help control the final bill.

A claim professional should answer the following questions in the assignment letter:

• Who are the parties involved in the claim? Provide names, addresses, and contact phone numbers to allow the expert to quickly communicate with all parties and promptly investigate a claim.
• What are the facts of the loss based on the adjuster's initial findings? Provide the date of the loss, the initial cause (if known), other experts involved, and the location of the evidence. This will allow the expert to confirm — or raise questions about — information obtained by the claim professional.
• What does the adjuster need from the expert? Document what services the expert is expected to provide to avoid any miscommunication or mishandling of the claim assignment.
• What is the deadline for completion of forensic services? Provide a timeframe for expected conclusion of the expert's work.

Items such as scope and deadlines can rightfully change during the course of the investigation. Even so, it is still important to define them up front, based on the claim professional's initial understanding of a loss. In addition to helping the expert understand what the adjuster is asking him to do, it sets an appropriate tone for the engagement by making it clear that the claim professional is going to manage the expert's work and hold the individual accountable for performance. In return, it is good practice for the forensic expert to respond with an acknowledgement letter confirming his understanding of the assignment and detailing fees and billing procedures.

Sample Assignment Letter

Date
Contact name
Contractor/consultant/expert's company name
Address
Email address

Contact name
Insurance company/client's name
Address
Email address

Re: Claim number
Policy number
Insured
Loss location
Date of loss
Reference number

(Sample opening for use by an independent adjuster)

This letter will confirm our phone instruction on (date) with (contact person) with your company.

As you know, we have been assigned by the (insurer or client) to perform an adjustment of the loss reported as referenced above. We have been instructed by (insurer or client) to provide this request for your specific services on their behalf.

OR

(Sample opening for use by an adjuster with an insurance company)

This letter will confirm our phone instruction on (date) with (contact person). As you know, the above-referenced claim has been submitted to (insurer).

We are requesting your services as follows:

(Generic examples of service requests)

• Perform origin and cause investigation on (date/time), meeting with (all concerned parties)
• Secure appropriate evidence, utilizing chain of custody signed document
• Complete appraisal of damages to building
• Value the business interruption claim sustained by the above-referenced insured

(Include other specific loss adjustment requirements and deadlines for completion of work based on claim circumstances)

Should you require or suggest further activity, please contact me immediately for discussion. Please forward your report and documents upon completion via email to (all concerned parties).

Per our discussion with (expert or other initial contact at expert's company) an initial budget of $x,xxx has been established on this instruction.

Please be advised that the invoice for services is to be billed directly to (insurer or client) and sent to (insurer, client or adjuster) for review. We will then forward the invoice to (insurer or client) for further consideration.

Should you have any questions, please contact our office.

Regards,

Name
Title
Company
Telephone

RULE FOUR:
Learn the Art of Budgeting

One of the most essential duties delegated to a claim professional by an insurer is the management of indemnity expenses. The insurer gives the adjuster a fiduciary role in evaluating the merits of a claim and negotiating settlements on its behalf. Hiring an expert adds expense to a claim and can impact an insurer's operational budget.

Just as the claim professional must manage indemnity expenses, he must also budget the expenses involved with retaining a forensic expert. Many insurers have established fee agreements and billing procedures with forensic experts. Those contractual arrangements do not negate the adjuster's responsibility for properly managing the expert's time and related costs.

Establishing and communicating a budget for services to the expert and insurer at the start of the engagement can help avoid misunderstandings about invoices at the end of the process. As is true with the scope of work and deadlines, it can seem more of an art than a science to initially set a budget. However, the expert's work usually falls into five phases that the adjuster can use to define the scope of work and estimate hours and costs:

• Phase I: Receive assignment; review claim documents; make verbal or written contact with parties; provide professional opinion on loss and strategies to resolve.
• Phase II: Travel to loss location; interview witnesses; gather information; inspect evidence; take photographs; obtain official reports from responding authorities; review documents on-site.
• Phase III: Additional research or investigation after inspection, additional investigation after uncovering new facts of the loss, follow-up inspection at a different location, written correspondence.
• Phase IV: Report preparation with captioned photographs, additional written correspondence to insured or claimant, evidence retention, storage costs.
• Phase V: Trials, depositions, arbitration, and mediation.

The complexity of claims varies, and no rule of thumb exists for producing a cost estimate. Rather, claim professionals need to rely on prior experience and relationships built over the course of a career to determine a reasonable estimate. Adjusters without sufficient experience in working with experts should talk with other adjusters or managers in their offices, or contact adjusters who work near the area where the loss occurred and therefore are familiar with local experts.

RULE FIVE:
Frequent and Clear Communication Is Key

It should be clear by now that effective initial communication is a critical element of a successful experience with a forensic expert. However, that need doesn't end with the assignment letter. While setting clear expectations may eliminate unnecessary back and forth between parties, additional dialogue during the course of the assignment is essential, particularly if the claim professional expands the assignment, changes a deadline, or adjusts the budget.

When using an expert, the adjuster typically needs to be even more proactive about file management than usual, and should diary regular contact with the expert. The more severe or complex the claim, the more often they should be talking.

Insurers entrust claim professionals to interact with people during stressful times in their lives. The quality of the claim experience will form a lasting impression — either negative or positive — on the insured that, carried out over enough claimants, can add or subtract from an insurer's bottom line.

Done well, the work of a forensic expert can improve the claim experience and strengthen the relationship between adjuster and client. Of course, the opposite also is true. Just as wise adjusters know when to involve an expert, they also know that mastering the rules of engagement with them can provide a fair and timely outcome for all.