One of the most offensive examples of insurance company claims managers losing their ethical way is when they demand that their insureds risk life and limb to immediately investigate their roofs after a hail storm. Most insurance policies require “prompt notice” of loss. But, does the insurance company ever warn its customers they must risk their lives to climb on their roofs or pay money for somebody else after every hail storm?
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Property claims adjusters are supposed to promptly evaluate damage, investigate coverage, and provide full benefits to policyholders. Adjustment is about giving the customer the service promised and paid for when the policy was purchased. This service is not paid with "indemnity dollars," but with insurance company claims expense dollars, which insurance companies must spend to make certain their policyholders are promptly and fully receiving benefits.


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It’s no secret that Citizens Property Insurance Corporation routinely treats policyholders like numbers on a page. Despite its title as the state’s largest property insurer, Citizens consistently gets the most complaints from policyholders, earning a reputation as the worst property insurance company in the state — and in a state like Florida, that’s really saying something.


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Insurance companies and insurance industry advocates consistently point to insurance fraud as a reason for higher insurance premiums. But, if insurance fraud is such a problem, why are property insurers still reaping massive profits? With profits like these, is there really justification for consistently raising premiums?

Revenues

Profits

Rank

Company

Fortune 500 rank

$ millions

% change from 2009

$ millions

% change from 2009

State Farm Insurance Cos.

(mutual)

37

63,176.7

2.8

1,762.8

129.9

Berkshire Hathaway

(stock)

7

136,185.0

21.1

12,967.0

61.0

American International Group

17

104,417.0

1.2

7,786.0

N.A.

Liberty Mutual Insurance Group*

82

33,193.0

6.8

1,678.0

64.0

Allstate

89

31,400.0

-1.9

928.0

8.7

Travelers Cos.

106

25,112.0

1.8

3,216.0

-11.2

Hartford Financial Services

117

22,383.0

-9.4

1,680.0

N.A.

Nationwide*

127

20,265.0

-2.3

959.0

33.9

United Services Automobile Assn.*

145

17,946.1

2.2

2,637.4

-12.7

Progressive

164

14,963.3

2.7

1,068.3

1.0

Loews

168

14,621.0

3.5

1,288.0

128.4

Chubb

185

13,319.0

2.3

2,174.0

-0.4

Assurant

285

8,527.7

-2.0

279.2

-35.2

American Family Insurance Group*

358

6,491.8

0.6

487.1

89.6


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Dennis Wall is a veteran commentator on various claims practice issues and on advice to avoid bad faith accusations. In Hurricane Report: Acting in Good Faith,I found his point regarding what every insurance company should do when faced with partial payment situations following catastrophes to be dead-on:

The clear lesson from these recently enacted and revised state laws is this: Good faith claim handling — particularly of claims for policy benefits and proceeds in the aftermath of a hurricane or another catastrophe — requires prompt payment for any part of a claim that is reasonably covered.

What constitutes "prompt" payment? It may vary from place to place, depending upon the local law, but the same concept still holds true. A claim should be paid within either a reasonable amount of time or within a specific time period dictated by local laws — usually 30 days — of that portion of any claim that is reasonably proven as covered by the proof-of-loss statements. (emphasis added)


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In several of my older posts, I wrote about different ways some insurance companies have tried to make a profit by changing the way a claims handling department is operated. The following posts touched upon ways that claims handling employees can be compensated for meeting different types of goals set up by the insurer that, in effect, turn a claims handling department into a profit center: The Big Picture in Discovery of Insurer Claims Practices; Don’t Forget to Consider the Severity of Your Claim; Don’t Forget to Consider the Severity of Your Claim: Part II; Plaintiffs are Entitled to the Claims File in a Bad Faith Lawsuit. Some insurance companies also determined that they generally pay less on claims when the policyholder or victim is not represented by an attorney. As a result, it has become more appealing to an insurance company to resolve a claim with an unrepresented individual, and some carriers have spent money, time and energy implementing policies or procedures with the goal of dissuading policyholders or victims from hiring an attorney.


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A very fine insurance defense attorney, Brian Hunter, made a comment to yesterday’s post, Do Insurance Companies Overpay Claims? with the following observation:

"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 umpires 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.


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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.


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