Public Adjusters and Insurers: Time to End the Cold War

For far too long, insurance carriers have viewed public adjusters as opponents rather than as potential allies. I believe the time has come to end this "cold war" and recognize that insurers, independent adjusters, and public adjusters all share a similar goal--fast, efficient, and accurate claims resolution. By taking a team approach, we can collectively do a better job of servicing policyholders who have suffered a serious loss to their homes, businesses, or commercial properties.

Taking a unified approach would be an important step toward bringing the insurance industry more fully into the 21st century, by both improving transparency for the public, and reducing costly inefficiencies for the insurer. Today, many carriers are seeking to control as much of the claim process as possible, often delaying or minimizing settlement offers. I strongly believe that such behavior is shortsighted and ultimately harms our industry.

First of all, these types of claim practices create adversarial relationships with consumers, and can ruin years of hard-earned goodwill on the part of the independent agent. They also have long-term negative consequences, such as creating a feeling of distrust and resentment among the American public.

Let me point out that in today's era of social networking, blogs, and Internet rating services, the policyholder's viewpoint is more important than ever. Today's consumers are plugged in and they don't hesitate to share their opinions at every opportunity. Insurers who don't recognize this fact of life are still living in the 1970s.

Secondly, an antagonistic approach to the claim process fails to take into account the value that independent adjusters can bring to the table. There are both tangible and intangible benefits for carriers who allow their independent adjusters to make decisions in the field. Certainly, a policyholder who believes the claim has been "settled" by the independent adjuster will be unpleasantly surprised to learn that decision has been overruled by an anonymous manager in the carrier's home office.

Finally, insurers should recognize that public adjusters have an important role to play in expediting the claim resolution process. For example, they can explain policy limits and coverage provisions to the insured at the time of loss, and serve as a readily accessible source for documentation related to the claim, saving the insurer time and money. Those are just two of the many benefits of a team approach.

Back to the Basics

Let's take a moment to go back to the basics. Why do homeowners, renters, associations, businesses, commercial establishments, and investors purchase property and casualty policies? The answer, of course, is that they want to protect their financial interests as well as those of their lender.

If a loss does occur, the policyholder wants a fair, accurate settlement as quickly as possible so that the property can be repaired, the business can resume operations, and life can get back to normal. Ideally, the payment of a claim should be exactly enough to restore the owner's property or business to its prior condition.

However, there are many obstacles in the claim process that reduce the likelihood of attaining that goal. One of the major issues is that policyholders--even sophisticated entrepreneurs and business executives--do not understand insurance terminology and the clauses in their policies affecting the claim process. Therefore, one of the first steps for a public adjuster brought in on a claim is to ask the policyholder a series of questions:

o Do you know where a copy of your policy is stored?

o Do you know what the declaration page says in your policy?

o Do you understand the concept of a layered policy?

o Do you know the differences between a business owner's policy and a homeowners' policy?

o If you suffer a loss, do you know how to send in an accurate report?

o Do you understand your responsibilities as outlined in your policy?

o Do you know how to assess your damages?

o Do you know how to submit a proof of loss?

o Do you know the important deadlines contained in your policy?

Invariably, the insured cannot answer these questions, even if the binder or entire policy is right at hand. Let me take a moment to note that there are a number of very good insurance agents who have done their best to educate clients about filing a claim, but unless a loss occurs immediately after that conversation, the policyholder will turn his or her attention to other matters.

Regardless of the insured's level of familiarity with the claim process, the policy's post-loss compliance section is highly complex and almost always misunderstood. Deadlines are not clear. Phrases like the "reservation of rights," which stipulate a policyholder's responsibilities, are almost always ignored or misunderstood without an explanation provided by a public adjuster.

Centralized Processing

The next obstacle to rapid settlement of claims is the growing trend toward a centralized approval process. This places many independent adjusters in an awkward position. They go to a property where a loss has occurred, assess the damages, and advise the policyholder but lack the authority to settle the claim.

In Florida, for instance, Citizens Property Insurance Corporation, the state-backed insurer of last resort, has stripped its adjusters of that responsibility. Instead, they are tasked with scheduling appointments with the home or business owner, examining the damage, taking photographs, and preparing an estimate. Then, the home office reviews the file and makes the settlement offer. This creates more confusion for the policyholder and delays the process.

If the proposed settlement is below expectations, the insured is likely to haul in an attorney or a public adjuster. If the claim cannot be resolved without going to court, there will be steep additional costs for the carrier--especially if there is a bad faith lawsuit in addition to the claim itself.

Even when a claim is resolved without the involvement of attorneys, there are still significant overhead costs to the carrier using a centralized procedure. For instance, every claim must be handled by at least two people--the adjuster in the field and the authorizing manager in the office. In reviewing the file, the manager may find some documentation is missing or incomplete, further delaying the settlement.

Here's another instance where a public adjuster can provide a valuable service for carriers. Many firms have claim software that tracks the correspondence related to a claim, ensuring that both the insured and the carrier receive the latest information in a timely manner. Claim files can be monitored 24/7 for immediate response to document requests. In this way, public adjusters can serve as a convenient, one-stop source of information for insurers, reducing the costs associated with processing the claim.

Based on our experience in multiple states, the traditional approach of allowing independent adjusters to settle claims in the field is still paying off for Nationwide and State Farm. That's because there's simply no substitute for building a positive face-to-face relationship with the policyholder, so a claim can be settled quickly and amicably.

A Cooperative Approach

For insurers, there are other advantages to adopting a cooperative approach with public adjusters. As an advisor to the policyholder, a public adjustor can determine whether a claim has merit, report any indications of fraud, and determine if a certain loss is actually covered, thus saving the insurer time, money, and aggravation. In some cases, when there is no coverage, an insurer benefits from having a third-party professional explain the situation to the insured.

Next, the public adjuster can gather the appropriate documentation needed to support the claim, again saving time and reducing overhead costs. Perhaps more important is the emotional "hand-holding" that public adjusters can provide immediately after a loss. This is an often overlooked benefit that occurs even with a smaller claim, such as damage from a leak, flood, mold, or sinkholes--a problem in many parts of Florida.

To evaluate a property damage claim, a public adjuster may bring in licensed architects, engineers, and contractors who can bring their expert knowledge to bear on the loss. This is particularly important with replacement-cost policies, since building codes are constantly changing. For instance, Florida recently adopted a rule that the entire roof must be replaced if 25 percent or more must be removed.

In addition, a public adjuster can also help commercial policyholders with the business planning process by discussing the likely size and timing of a settlement offer, smoothing the relationship between insured and insurer.

Finally, many carriers don't factor in the long-term social benefits of a cooperative claim payment process. That process can make it much easier for hard-hit local communities to rebuild after a natural disaster like Hurricane Katrina in 2005 or Hurricane Andrew in 1992. In both those cases, the affected area's population base shrunk dramatically, reducing both the number of potential insureds, and future premium revenue streams.

Can There Be Harmony?

Can insurance companies, independent adjusters, and public adjusters live together in harmony? I believe the answer is yes, when all parties involved in the claim process recognize the benefits of a team approach.

There is already an excellent example of why cooperation is better than confrontation. For 12 years, the annual Windstorm Insurance Industry Conference has brought all segments together to learn from each other. At the upcoming 2011 conference in Houston, Jan. 24-27, insurers, independent adjusters, and public adjusters will meet with law, engineering, and construction firms to discuss policies and procedures to resolve claims in the event of a damaging hurricane.

We can take this once-a-year example of teamwork and begin to apply it year-round. Together, we can increase consumer satisfaction, improve goodwill and raise the overall image of the insurance industry.

Daniel Odess, GC, PA, is president of East Coast Public Adjusters, Inc., Miami, which assists clients in Florida, the United States and in international locations. For more information go to www.ecpaclaims.com.