I took quite a bit of heat from a number of public adjusters about my September 2012 column, which ignored their role in resolving claims disputes between insurers and policyholders. One caller charged that I must be “prejudiced” against his profession, while another accused me of “acting as if we don’t exist.”
These readers were absolutely justified for feeling neglected by that column—“Small Businesses Expect No Disguises on Claims Management”—which dealt with small-business consumer complaints about the lack of transparency in the claims process raised during a pair of Deloitte focus groups.
I assure you, this was just an oversight on my part. I will try to make amends by going back to basics and re-examining why policyholders might turn to public adjusters in the first place to get a fair and reasonable claims settlement from insurers.
Unfortunately, public adjusters (PAs) don’t have the most stellar reputation. Even those who contacted me to challenge my column’s shortcomings readily conceded that point. Yet they also argued that industry and government officials too often unfairly disparage PAs in general as unscrupulous ambulance chasers who take advantage of uninformed and even desperate consumers while artificially inflating settlements to earn their bounty (in the form of an overly high contingency fee).
PAs certainly dispute that stereotype, and perhaps the industry should sympathize with their plight. After all, insurers and agents regularly gripe about how the average consumer believes carriers are routinely guilty of price gouging when a policy is sold and low-balling when proposing a claims settlement. Indeed, some say one reason for the high level of fraud afflicting the business is that consumers feel entitled to pad or exaggerate claims to balance the scale.
So maybe it’s time for a truce—for insurers and PAs to consider ways to normalize relations between what have traditionally been warring parties.
PAs argue that, while there are bad apples in every field, the vast majority of their colleagues are well trained, licensed, honest professionals who simply protect policyholder rights when a dispute over policy language, the cause of a loss, or the cost of a claim arises.
PAs insist that their job is neither to prolong negotiations artificially nor inflate a claims payment but, instead, to make certain insureds have an expert on their side so a fair settlement is reached. Indeed, PAs say policyholders frequently need public adjusters because everyone else involved in the process works for insurance companies.
In addition, PAs say the deck is stacked against consumers from the start because of the complexity of policy language. One PA pointed to my aforementioned September column, in which I reported that our focus groups found small-business consumers rarely bother reading their policies because they can’t understand all the legal verbiage in them.
Conflicts often arise, PAs say, after disasters such as Superstorm Sandy, with so many claims dependent on whether damage was caused by covered wind or uninsured flooding.
It’s funny, but some of those who reached out to me said it is ironic how insurers often treat PAs with the same hostility they express toward plaintiff’s attorneys. In fact, according to these readers, dealing with a PA seeking a fair settlement should be preferable for an insurer to fending off a lawyer looking to sue them. A PA’s involvement can often avoid a lawsuit, they contend.
Of course, there is one area where linking the methods of PAs and trial attorneys may have some legitimacy, and that’s in how the two charge for their services. Critics of PAs have cited the high contingency fees often levied on settlements as evidence that policyholders really don’t benefit in the end. High contingency fees also fuel the allegation that PAs may be inflating claims just to get a bigger pie from which to take their slice.
To my surprise, one of those who contacted me acknowledged that members of the public adjuster profession were “shooting themselves in the foot” by charging contingency fees as high as 40 percent.
To be fair, this isn’t always the case, with caps on what PAs can charge in many states—usually somewhere in the area of 10-to-15 percent, which seems pretty reasonable. But many states have no cap, leaving it to consumers to shop around rather than take the word of the first PA they contact (or who approaches them) claiming to offer the best deal.
One PA representative, however, warned that, while caps can protect consumers from gouging, caps that are set too low can end up discouraging PAs from providing help except to those with the biggest settlement potential. The same perverse incentives are at work with trial attorneys, who usually prefer class-actions to individual lawsuits because most single-plaintiff cases just don’t offer enough of a potential payoff to make it worth the lawyer’s time and resources.
One point in my column that stuck in the craw of a number of PA readers was the way I went on about how small-business consumers in the focus groups depended so heavily on their independent agent to help them through the claims process—and, if necessary, to serve as their advocate in a dispute.
The PAs were quick to point out that an independent agent is anything but “independent” because they are actually contracted to represent a limited number of carriers. Agents might not be eager to argue a questionable claim with an insurer that writes a large portion of their business—and which may pay them a bonus contingency commission if they maintain a low enough loss ratio—these PAs pointed out.
Agents might also face errors and omissions claims if they have overlooked an exposure (in other words, if it’s their fault a claim isn’t covered). Agents, therefore, have a number of potential conflicts of interest in a claims dispute, calling their objectivity into question.
However, the PAs who got in touch with me were, for the most part, not only sympathetic toward the agent’s position in claims disputes, but they argued that the two parties are natural allies and should have a symbiotic relationship.
“The worst thing that an agent can say to their client during a claims dispute is that there’s nothing more they can do for them,” one PA representative told me. A bad claims experience is often laid at the agent’s doorstep—it’s the agent, after all, who recommended buying a policy from that carrier in the first place. So a bad claim outcome could cost the agent a good client.
As far as the rap against PAs in general being unscrupulous, if regulators believe that to be true, then perhaps they should impose more vigorous oversight. There is a model licensing act in place from the National Association of Insurance Commissioners for states to emulate.
The bottom line is that, since policies are rarely written in layman’s terms and just about everyone else in the claims management process ultimately works for the insurance industry, public adjusters offer a valuable service and are likely here to stay.
The question should therefore be how all of the players in the claims management process might reach a happy medium, where the role of each party is mutually acknowledged and respected to the benefit of the only one who matters in this equation—the insurance buyer.
Sam Friedman is insurance research leader with Deloitte’s Center for Financial Services in New York. He has been a CLM Fellow since 2011 and can be reached at samfriedman@deloitte.com.