A blog, Overpaying Insurance Claims, caught my attention. The premise was described as follows:

I recently began questioning how much money insurers hand out needlessly because their adjusters don’t have enough training or are so overloaded with work that they can’t possibly handle all of the files they are assigned due in part to a claim a family member recently made.

A few months back, my sister’s dishwasher piping burst, which flooded her finished basement and the kitchen sub floor. She filed a claim and received immediate action because the loss was deemed an "emergency" by her insurance company’s claims triage unit. The field adjuster came out, estimated the damage, and made arrangement for repairs under the company’s preferred contractor program.

The glitch arose when she decided to replace the floor in the basement bath/laundry room with ceramic tile instead of the linoleum that existed before. Being the most honest person on the face of the earth, she was willing to pay the difference on the upgrade.

That’s where the insurance company lost out.

The repairs were made to everyone’s satisfaction and the contractor was paid. My sister called the adjuster and the claims office a number of times to ask how much she had to repay. After a number of excuses — waiting for paper work, too many other emergencies, “we’ll get back to you,” the adjuster is over booked — she resigned herself to accepting more than she felt entitled to.

A comment to that post was interesting as well:

This is not an uncommon situation. You are correct when you say "under trained and over worked".

The upper management of the carriers do not care about the overpayments occurring. They are indemnity payments and can be used as evidence for a rate increase. Besides, people are a cost against the bottom line and the ivory tower wants as low a cost as possible. The line folks have always said bottom line is more important than doing the job right.

Only when the state department of insurance can staff up to verify if a payment is proper and begin to allow the actual costs involved to be included in the rate proposal will carriers maybe start increasing staff to make sure. payments are proper. Still not sure if even then would the carriers upper management staff up properly the needed underwriters and claims staff.

Insurance companies have an obligation to provide a sufficient number of competent and motivated adjusters to promptly and thoroughly investigate coverage, evaluate damages and pay the full benefits available for losses. The example and the comment point to a recurrent claims practice which is not often discussed–many insurance companies do not have a sufficient number of adjusters. This situation creates a number of problems if not corrected.

First, claims payments will be delayed. Without a sufficient number of adjusters, proper adjusting cannot be accomplished. The steps leading to payment–investigation and evaluation– are protracted. Money is usually not provided to the policyholder promptly.

Second, not only can claims be overpaid, they can be underpaid. Adjusters are supposed to explain all benefits available to the policyholder. Policyholders may make decisions to their detriment if they do not understand all their options and all of the benefits the product was designed to provide.

Third, oversight by an adjuster actively working on a claim makes it more likely that that fraud will be caught. Good adjusters usually have good communications with customers, so that customers do not feel they need to pad their claims to get the full amount of benefits they purchased. Without good communication between the adjuster and policyholder, many policyholders believe that an adjustment is a bargaining process and that that they have to make a claim higher than what is fairly owed because an adjuster will simply bargain the amount down.

Fourth, factors affecting the coverage and amount of loss are likely to be overlooked. Without a sufficient amount of time to properly investigate the damage and review the policy, adjusters will not be able to get the job done correctly. Determinations of coverage and damages may be inaccurate. As a result, claims are over-paid or under-paid. Both results are bad for the business and its customers.

My impression is those in the insurance industry acknowledge this is a recurrent problem. The question is what the industry is doing to correct it.

  • Daniel Friedman

    An interesting point.

    As a Public Adjuster whose obligation it is to make sure the insured recieves a fair settlement, it seems to me that the carrier’s understaffing and undertraining reslts more often in underepayment of claims.

    We have seen many situations where the insureds wait so long for a fair settlement that they just “give up”. We have been to many mediations, especcially with State Farm where the company represntative who is requird to have authority to settle the claim admitted that he has no authorization to pay anything no matter how compelling the insured’s presentation may be.

    I always thought that these tactics were employed to protect the carrier’s bottom line and in my experience they are much more common than an overpayment.

    Thank you.

    Daniel

  • SHIRLEY HEFLIN

    …and FIFTH…this unsuspecting honest Insured may one day make another claim w/her ins. co. only to be accused by a mean Defense Attorney (during EUO) of committing fraud by keeping money she knew didn’t belong to her in a prior claim!! Uhmmmm….the names of at least ten such defense attys. pop into mind.

    If I were her, I’d document this overpayment and attempts to resolve same in writing. This will (a) protect her and (b) give the Court Rep. an exhibit to attach to the EUO.

    Geez, I personally don’t reconcile my check book, but I think insurance companies – and every legitimate business/corporation for that matter – should account for every cent expended and taken in.

    SHIRLEY HEFLIN

  • Brian Hunter

    “Second, not only can claims be overpaid, they can be underpaid….”

    Assuming this is true, and it probably is based on the law of averages, how can we have any meaningful data? What is the standard against which a claim is judged over- or underpaid? Is it the proof of loss, or the public adjuster’s estimate, or the appraisal award, or something else? Even if we use the most presumably objective of these, i.e., an appraisal umpire’s award, as a standard, then a good many claims I have seen resolved in that manner have been simultaneously underpaid by insurers and grossly inflated by the insured and/or public adjuster.

    Of course, in most cases, an appraisal award is a legal fiction that may or may not bear a rational relationship to the amount necessary to repair the property; but it is certainly and merely an estimate. Frequently, the umpire’s award is an average of two competing estimates. Regrettably, few court-appointed umpire’s have any specialized training in the construction fields, and many have never written an estimate of their own nor done any kind of construction work. Maybe a better standard is needed.

    What we do not have is reliable data in Florida during the past several years comparing claim payments with amounts spent by policyholders to actually accomplish like kind and quality repairs. (If I am wrong, I would love to see a source.) Changing the law to require insurers to pay actual expenditures, and not mere estimates of replacement cost (some honest, some not, all estimates nevertheless), would bring greater certainty to all the parties, I think. Yet this is opposed by the same folks, i.e. public adjusters, bemoaning the lack of accuracy in claim adjustment.

    And yes, I am a defense lawyer for large property insurers; so like everything, consider the source.

    Brian C. Hunter, Esq.

  • Chip Merlin

    Dan and Brian,

    Thank you for your comments.

    I think Brian makes a good point that there is not public evidence on these points.

    However, many insurance companies have adopted a claims management practice which rates and audits claims handlers for overpayment of claims—these are often called “leakage” reports, analysis,etc. So, the major insurers do try to prevent overpayment of claims through various processes. These claims management techniques are not often reported in the press.

    Brian–perhaps your clients would be willing to provide these reports to the legislators, Office of Insurance Regulation and the press with an explanation about why and how they are used to critically examaine what is paid and how much overpayment is calculated by your clients?

    It is foolish to think that insurance companies do not track and audit closed claims files. They do so, in part, so they can minimize overpayments.

    The Office of Insurance Regulation should request these management claims audits when doing Market Conduct studies.

  • SHIRLEY HEFLIN

    There’s a difference between being thorough and mean (obviously).

    SHIRLEY HEFLIN

  • C Metzger

    Several months ago my house was broken into. The results were theft and vandalism. My renters insurance ended up issuing me a “debit card” containing the amount I was to be paid for damages. When the card came in I used the card until it stopped working. It turns out that “due to a system error” I was paid double. Obviously that money is now gone but the insurance company is seeking reimbursement. How should I approach this? Any advice is welcome. Thank you.

  • charlotte

    I had a fire, the insurance company paid me the building loss and then when we got to the content loss an business income loss part, suddenly my claims adjuster was replaced an the new claims rep says that they over paid on the building and want to recoop over payment from my content an loss income monies, can they do this?

  • leon

    Is there a time limit as to when an insurance company can make claims that they overpaid and want their money returned.
    thanks
    leon