Departments of Insurance throughout the United States regularly conduct examinations of insurance company claim files. These are known as Market Conduct Examinations. The Claims Spot recently noted in 5 Claims Issues Cited for Non-compliance on Market Conduct Exams & 3 Tools to Avoid Them, recurrent wrongful claims practices by insurance companies since 2006 that are not being corrected by the insurance industry. Those highlighted wrongful practices were listed and then explained to be correctable with "basic" action:
1. Failure to acknowledge, pay or deny claims within specified time frames
2. Failure to pay claims properly (sales, tax, loss of use)
3. Improper documentation of claim files
4. Failure to communicate a delay in the settlement of claims in writing
5. Use of unlicensed claims adjusters or appraisers
All of these findings could have been avoided with enforcement of best practices and an internal review process. With some basic actions, a company can minimize or eliminate their risk of being out of compliance.
Numbers one and four seem to answer this post’s question about the frequency of delay. The strong probability is that number two is not the result of paying too much. It does not take a genius to figure out that it is more expensive to properly and promptly adjust claims because an insurer has to hire and train enough motivated adjusters looking for all the damage that a catastrophe causes. Not finding all the damage because adjusters do quick and insufficient investigations would seem to save claim expense dollars and claim indemnity dollars that should have gone to the policyholder.
Adjuster Don Phillips and Gary Greenfield had an interesting exchange in their comments to Frank Artiles guest post, Everyone Must Participate In The Political Process. Their observations mirror my impression of the inherent profits that are wrongfully gained as insurers fail to spend a sufficient amount of time and effort looking for all the damages or by placing roadblocks to recovery which lead to many policyholders simply giving up. Here is what Phillips first wrote:
I agree with the statement that it is the dishonest Floridians that cause problems. However that sword cuts both ways:
Isn’t it also dishonest for an insurer to fail to promptly investigate a claim and pay for everything covered under the policy?
I disagree with the suggestion that if a claim is made more than 3 years after a loss it is somehow "dishonest". My experience as a claims manager of many years for insurance companies and now as a public adjuster with the people making these claims is that they are far from dishonest. What I have found in the majority of these cases was that the policyholder was always in disagreement with the original adjustment of their claim. However, those policyholders felt powerless to dispute the insurer’s hired "experts".
Policyholders are not litigious by nature. They often do not bother to seek legal counsel and insurance companies often end up not paying claims because policyholders simply give up and drop the matter. Until recently, most policyholders did not know what a public adjuster was or how public adjusters could help them. They certainly do not understand the full rights and benefits afforded to them under the policy. Many insurance company adjusters forget to explain those benefits, and the "forget" is being polite.
Does the delay in pursuing these claims cause a hardship on the insurer? I would say yes. Does that hardship trump the insured’s right to be compensated for legitimate covered damage? I would say no.
As long as the delay has not prejudiced the insurer’s ability to investigate the claim, than all this ruckus about late reporting is nothing more than an attempt by insurers to not fairly compensate their policyholders. Often, the delay in reporting the full amount of damage is brought about by insurance company adjusters not closely inspecting structures for all the damage. And, I often wonder if that failure to closely look for and then pay all the damage is by mistake or a calculated method of underpaying a claim. (emphasis added)
Public adjuster Gary Greenfield then challenged Phillips:
You ask, "Does the delay in pursuing these claims cause a hardship on the insurer?" And you answered "yes."
What hardship is that? Please explain that to me.
From my view, the insurer benefits significantly from the delay. It has been getting premiums paid and investing those funds between the time of the loss and when the claim is paid.
Significantly, if the delay is the result of systematically not finding loss and the full amount of damage as you suggest, delaying payment is a carrier’s claim profit strategy.
Insurers, by not spending the time and effort to find and test for all the damage, especially the subtle damages done to roofs and the fastening systems caused by high wind events, then they are leveraging the scale of economics hugely in their favor at the expense and hardship to their policyholders.
Sadly, policyholders pay for these wrongly unpaid damages by having roofs that wear out and need replacing far before their useful life would normally run. (emphasis added)
The reason the Florida legislature passed the pro-consumer legislation following the 2004 and 2005 storms was because of the various claims problems caused by insurance companies. Delay was rampant and so was underpayment. These laws should not be changed, but strengthened. The insurance industry’s own consultants say that "basic" changes could stop the delay and underpayment of claims–which has not stopped, according to their own vendors and consultants.
On Friday, I started my "going to the client" campaign that will start to show how insurers really operate. In that case, Hartford delayed, dictated how a fire loss would be repaired, and then underpaid a significant commercial developer. If insurance companies act wrongfully in the claims of policyholders with affluence and influence, insurers will act wrongfully on any claim. My client’s story will be videotaped, shown on this blog, and sent to his representatives. I suggest that my colleagues and public adjusters start a similar campaign to explain what is really going on in the claims industry rather than do nothing and listen to or read propaganda of insurance lawyer lobbyists.
Indeed, Representative Dean Cannon, a Republican leader in the Florida legislature, told me a story of how his homeowners carrier caused difficulty and delayed paying his claim. Things have changed since my discussion with him, and the question now is whether our elected leadership is going to do something about insurer transgressions and protect their constituents or continue the trend that started a year ago by placating the insurance lobby that has been funding many of the campaign coffers of our elected leadership.