Clarifying Coverage D Claims

The property insurance industry is a complex business where claims professionals need to have a vast knowledge of the many different facets of a homeowner’s claim. Temporary housing, or Coverage D, is only a small portion of a homeowner’s loss, but it is an important one.

We work in an industry and in a time when knowledge is power. The more that claims professionals know, the better they are equipped to handle the many unexpected turns that tend to come their way when working a claim. Let’s face it: there is really no single way of handling a file when you are subject to a variety of very diverse personalities in extreme situations. What claims professionals can do is take heed of these five common temporary housing challenges and avoid certain pitfalls that are quite common in everyday claims.

Price Gouging

Price gouging has become all too apparent in recent years when working with landlords, particularly during catastrophes. Once a landlord or private owner hears that potential renters are relocating due to an insurance claim, dollar signs form in their eyes and rents start to escalate. When negotiating short-term leases, it’s important to learn when to offer a short-term premium. On the initial call to a potential landlord, short-term premiums shouldn’t be offered at all until your case has been made and you have received a firm “no.” Too many times, inexperienced negotiators will call and immediately offer a higher rent than what they saw advertised, assuming that the owner won’t rent on a short-term basis. Never assume this because not only are you indicating that money is no object, but also you take away your own ability to keep the base rent to a fair minimum.

The second party that is notorious for price gouging is the temporary housing company itself. Beware of the service provider that promises to give you the best price for their services and offers you extremely low monthly markups while their furniture pricing is higher than average. Offering unrealistic low markups is a common practice to snare business initially, but the important thing to remember is that every temporary housing company needs to generate a profit to keep their doors open. If there is not a practical service fee in the breakdown of costs, the profit is more than likely padded into another portion of the claim. Always pay attention to the bottom line of a monthly package price. If something seems out of the norm, request a cost breakdown. If you don’t like what you see, request an additional quote from an alternate provider.

Lease Term

Choosing a pragmatic lease term for a policyholder’s temporary housing needs may not seem as important a concern as price gouging, but if a realistic time period for the insured to be out of their home isn’t provided, the end result will be the same: climbing claims costs. Claims professionals and carriers prefer that the temporary housing agreement be a direct contract between the policyholder and the housing vendor. Not only is there an agreement between the policyholder and additional living expense (ALE) vendor, but also the ALE vendor has signed a lease with a contents vendor. And because the policyholder is the person who inhabits the unit, they have signed a lease directly with the property.

Selecting an initial lease term that it too lengthy obligates all parties to a temporary arrangement in which those involved will have to continue to pay even if the insured is able to move back home ahead of schedule. Choosing a month-to-month lease seems like a perfect solution, but it also can escalate costs. The shorter the lease term, the more likely your package price will increase due to short-term vendor delivery costs, potential rental premiums, and—depending on your housing provider—a higher monthly markup. It’s important to find a balance and provide the ALE vendor with a best assessment of how long the loss repairs will take. Extending out month to month after an original lease term has been completed is typical, but a temporary housing provider that will work to negotiate out of a longer lease term if repairs are finished prior to the anticipated date is a valuable resource.

DIY Dangers

Depending on the carrier, there are individual claims professionals who choose to assist their insureds with housing personally rather than refer the business to a housing professional. Even when a service provider is involved, unscrupulous landlords and private owners will attempt to take advantage of families who are stretched too thin and wanting to get back to their normal routine as quickly as possible.

If a housing provider is not involved in a specific relocation, the responsibility to watch out for the policyholder’s best interests falls to the claims professional working the claim. A happy policyholder means less phone calls and less stress for the individual claims professional. Most importantly, it means renewed policies.

When an insured finds a potential temporary home, beware of the landlord who attempts to change the rental terms at the last minute, such as lease length, monthly rental rate, or requesting additional or higher deposits. These are warning signs that this particular landlord may not be the best choice when moving forward into housing. It’s effortless to just accept the revised terms and move forward, but be advised that when you begin to see this behavior, there is usually more to come. This might take the form of inattentive landlords who ignore their tenants’ phone calls when an issue arises with the rental property, a large increase in the monthly rent once the original lease term has been completed, and deposits that do not get returned.

Deposits are an especially sensitive topic in the insurance industry. Some carriers feel they should cover it and pay on their policyholder’s behalf, while others feel it’s their insureds’ responsibility. Regardless of which party pays, keep in mind that the only parties who have control of the deposit are the tenant and landlord. The tenant is obligated to complete an initial and final walkthrough of the property, take photographs to reinforce the walkthrough paperwork, and maintain the appearance and condition of the rental unit. The landlord has the obligation to recognize the difference between normal wear and tear and resident damage as well as returning the deposit to the tenant if the unit is vacated in the same condition as it was upon move in. When dealing with an unscrupulous property owner, claims professionals should understand that the deposit isn’t always returned, regardless of the condition of the unit.

Last but not least, watch out for verbal agreements made by the landlord to the insured. Those tend to be forgotten once the lease has been signed and subsequently will cause tension and hard feelings between both parties. Require all agreements in writing prior to the lease being signed so there is something tangible to present when clarification is needed.

Unexpected Guests

Probably the most feared, time consuming, and costliest challenge is the bedbug. Bedbugs were almost nonexistent for years, but they are appearing more frequently in housing at the lowest and highest ends. Many suspect that the cause of the bedbug resurgence is due to the ban of DDT, which functioned excellently as an insecticide but was banned for its carcinogenic effects that can damage the reproductive system.

The struggle with bedbugs is that it’s nearly impossible to determine when and from where they come, and they require a lot of labor to exterminate. If an insured reports a bedbug infestation in a rental unit, the first thing a claims professional needs to do after ensuring the policyholder’s comfort and safety is to call a reputable and professional exterminator. Determine if the issue is, in fact, a bedbug situation and not something else.

Secondly, avoid blaming who you think may have caused the bedbug infestation. It’s rare that even the professionals can determine where the bedbugs came from, so it’s unlikely that a nonprofessional will be able to determine the origin. All parties need to work together as a team to schedule the treatment, coordinate follow-ups, and, most importantly, resolve the issue as soon as possible.

Lack of Diversification

The last common pitfall for insurance companies to be mindful of is partnering with only one housing provider. A lack of diversification can be harmful in a myriad of ways. It creates liability for the insurance company and gives that specific housing provider a superabundance of power.

Also, customer service is essential in every step of the claims process. Don’t be one of those insurance claims professionals who continue to use the same provider despite receiving mediocre service. Don’t let human nature take over and resort to the speed-dial habit because it’s “easier.” If you are not getting excellent service, address it with your current provider. If it does not get fixed, give another provider a chance to win the business.

In the end, communication is the key to creating a flawless process that makes everyone happy. In addition, claims professionals must arm themselves with as much information as they can about temporary housing so that the final decisions they make are based upon facts, familiarity, and insight.