As I mentioned in a prior post, I was recently given the opportunity to meet with one of the foremost experts in the insurance industry. We discussed compensation for insurance adjusters, specifically bonuses. When I worked for an insurance carrier, the bonus structure for all employees was a two step process. First, like most industries, individual performance must merit a bonus. The second step, however, involved a favorable combined ratio, a measurement of the insurance company’s underwriting profitability. It factors in premium dollars written, operating expenses, and claims dollars paid. The lower the combined ratio, the more profitable the company is.

It doesn’t take a rocket scientist to figure out that if you want a bonus, you need to do your part to help lower the combined ratio. I learned this very quickly, as do most insurance company employees. It really is the first step of the indoctrination process where the company aligns your interests with its own. This creates a major problem in the claims department. The only way claims employees can contribute to lowering the combined ratio, is to pay as little as possible on each and every claim that crosses their desks.

If you ask a claims adjuster to describe the profession, you will likely get the company response that it is to assist the insured through the claims process. As an example, Farmers Insurance Group’s website states that their “Claims Professionals… will guide you through the claims process – inspecting your property or vehicle if necessary, determining and investigating covered damages, and helping you better understand your policy and its endorsements.” This sounds great; its sounds like their commercial; it’s the reason you bought the policy; and it is the agreement you thought you made.

But when you look at this situation through the adjuster’s eye, the whole game changes. The adjuster, who the company advertises as your guide though the claims process, has an incentive to pay you as little as possible. It is usually an unspoken directive, but the message is clear. Managers will give a presentation on the bonus structure and then will give an update as to the current combined ratio. The unspoken message could not be any more clear; the more money the adjuster can save the company, the lower the combined ratio. The lower the combined ratio, the better chance the adjuster has for a bonus. It is a perverse conflict of interest that cannot be cured without a monumental shift in the way the insurance industry operates.

  • James W. Greer, CPCU


    I read and respect the Merlin Law blogs religiously…and even though after 33 years in claims, I’m still a “carrier guy”, I generally agree with them. I do think, however, that the opinion expressed in this post is just a little over-reaching…

    Bonus programs are just as often based on consistently based upon “quality performance”, and that rarely means cheating policyholders out of what they are due. It means paying the right amount for the right reason(s). In addition, it is rare, if ever, that these bonus programs reach down to the individual claim level.

    Certainly, there are those carriers, big and small (and I’m sure we could agree on a few specific examples after about 10 seconds of discussion), but it is unfair to cast such a wide net.

    Perhaps the better message would be to watch carefully for those bonus programs, objectives, and acts that depict such inappropriate behavior and pride oneself on being able to differentiate between those who also pride themselves on fairness to the policyholder.

    On the other hand, perhaps I am too jaded by half of my career being spent with a carrier that still had a heart and moral compass…at least it did at the time I left. Who knows what it would have evolved into nearly two decades later.

    I’m just sayin…


    James W. Greer, CPCU
    President/AE21 Incorporated and the
    Association of Property & Casualty Claims Professionals (PPCP)
    (800) 820-4550

  • Tom
  • Jim,

    Thanks for reading and commenting, however, on this one we may have to agree to disagree. On my first day as staff counsel for a major national insurer, I was taught about combined ratio and what it meant regarding profitability. After that portion of my “onboarding” I sat wondering what that had to do with my work as a defense attorney. The very next part of the speech was informing me how my year end bonus was driven by the combined ratio. To me it was an unspoken directive to do my part to lower the combined ration.

    In the claims department, you do not have control over the operating expenses of the company; you do not have control over the pricing of the policies. The only thing you can do to improve the combined ratio is lower your average claim paid. The fact of the matter is that the insurance industry has shifted to position where the claims department is being used as a profit center.

    Simply put, if an adjuster is in a position where their compensation is directly linked to company profitability, they do not have an incentive to pay out company money. This is an inherent and incurable conflict of interest.

  • phillip m sanderson

    I had a break in at my storage unit ,there was no dammage to the unit and that’s what the sheriffs dep stated, baised on that I was first sent to State farms claims unit. When I didn’t agree with the adjuster over the price of some very expensive stereo units vintage 1979/1081 2 sets of speakers and various other items related to the stereos. I was told that she had decided that I was tryinmg to commit Ins fraud. And that their special investagions unit would handle the claim from there. After several months of their supposed investgateing I gave them 11 names to follow up on includeing the sheriffs office they only contacted one person their agent. They sent me a notice that according to them there was doubt that any theft had occured. They then cancled the policy efective 1 day before I took it out. needless to say check hasn’t been cashed. I have been trying to get every item that the adjuster used in making his decision fo almost a year. “I accidently” posted the story on face book and got 3 phone calls wanting to suddenly send me information that will prove that there was a break in and that I have figgured who It was. Sso if in doubt do all the investigation work yourself. Tthen post it where the world will see it you just might get the same results.

  • Melanie

    When filing an insurance claim, you have a choice of being ripped off by the insurance company, or ripping the insurance company off yourself. There’s no middle ground. Oh, happy day. And you wonder why people commit insurance fraud. I wouldn’t do it, but it’s not surprising that it’s so common. Insurance companies have no one to blame but themselves. And they’re well aware of it. Unfortunately, we all pay for insurance fraud through increased premiums. We suffer because the insurance companies pass their losses off to legitimate policyholders. They have to pay adjusters bonuses or there wouldn’t be an incentive to rip off the general public. We ALL GET SCREWED! Insurance companies need to go back to indemnity, not huge profits. There’s a big difference between protecting the bottom line, and ripping people off because they can. It all changed in the mid 90s. Delay, deny, defend. The three D’s. Insurance companies don’t have to pay a claim until a jury forces them to. PATHETIC!

  • Sue

    Is it illegal and/or a conflict of interest to be a Property/Casualty Insurance Adjuster for an Insurance Company, and as well be working for a Contractor for roofing etc., then to use that knowledge of Insurance Adjusting when the homeowner is having the work done under an Insurance Claim ? Then, to use that knowledge as an Insurance Adjuster to work the system to gain more money off the insurance then originally quoted for the job?