David Charles was a whistle blower about wrongful claims conduct long before yesterday’s post, Churn and Burn Adjusting—An Admission From An Independent Adjuster. In a 2014 post, National Flood Claims Do Not Get Paid Properly Because the Only Incentive is to Underpay, I noted that David Charles described a method of claims adjustment – running and gunning – which is very similar to the one posted yesterday about “churn and burn” adjusting:

In reality, the field adjuster has an incentive to adjust as many individual claims as possible but not overpay any individual claim for fear of having to pay any overpayment out of his own pocket. Catastrophe claims adjuster David Charles calls this practice “running and gunning.” For example, rather than accurately estimating one or two losses in a day which may total $200,000, a FEMA percentage paid field adjuster will estimate 8 claims a day for a total of $1,000,000. So long as none of the individual estimates are overestimated, which results in a back payment to FEMA, the field adjuster has the financial incentive to estimate as much possible in total rather than as accurately as possible. If any of the estimates are found later by FEMA to result in an overpayment, the field adjuster may contractually pay out a lot more money from his own pocket than what he may have made in an entire catastrophe. So, “running and gunning” results in massive amounts of underpaid claims because the field adjuster is financially rewarded for that and has a penalty only if he overestimates a loss. WYO insurance attorneys intentionally fail to mention this reality in their speeches about the flood insurance claims process.

The WYO carrier gets paid its small administrative percentage based upon the gross amount paid. It does not have to pay for the WYO attorney’s fees and costs if litigation results from a denial or underpayment. There is no financial penalty to the WYO carrier for underpaying a claim. There is no penalty for providing bad service to the policyholder. The only penalty is the one that the WYO attorneys warn the WYO carrier about—overpayment.

So, when there is a call for the WYO carrier to re-adjust a claim or spend any additional time on a wrongfully adjusted claim, there is no economic incentive for it to do so. There is no penalty for poor adjustment.

Charles testified in front of Congress about these abuses in the Super Storm Sandy claims. I have noted his concern about the change of ethics regarding insurance catastrophe claims:

Your blog is required reading in my world. Before I became a public adjuster, I was very proud of being a General Adjuster. I worked for 30 years for the insurance companies, and I was proud of our profession.

After Katrina, things changed. I represented Citizens of Florida in several hundred commercial appraisals, and I was broken hearted to see the abuses. The guys I ran with paid their claims.It was a cold slap in the face to see how badly Citizens treated their policyholders, and I switched sides at 55 years old, burning all my bridges behind me.

Before that, as a hobby, and to scratch my writers itch, I was a columnist for a baseball website. They knew I was a disaster relief guy, and they asked me to blog about my experience as I headed in to ground zero on Katrina.

Not all company adjusters and IA’s are evil. Many are good people who do the best they can to help everyone they meet. All of my friends in the business were in that category. Sadly, it’s very rare today.

There are many ethical adjusters for insurance companies and many claims professionals that are looking for ways to pay everything owed under the policy. But if what I am being told is true, there is also a lot of unethical gamesmanship by insurers who are inherently causing the problems complained of by my clients following major disasters.

Thought For The Day

There is not adequate whistleblower protection.
—Valerie Plume