The insurance claims process and the relationship between the insured and the insurer has changed drastically over the last 20 years. We are seeing more and more materially interested parties involved in the insurance claims process, especially in claims involving large commercial losses. For example, many carriers are relying on independent adjusters, auditors, and third-party claims administration (TPA) firms to be their eyes and ears on a claim, rather than handling this in-house. The more parties who get involved in a claim, adding additional layers between the insured and insurer, the more complicated and lengthier the insurance claims process can become.
Another challenge stems from the contractors. While there are many qualified, experienced, and honest restoration and related contractors out there, there are almost as many without integrity who employ unscrupulous business practices or simply don’t know what they are doing. Some of them take advantage of legal or policy loopholes to ensure they get paid the maximum amount. To combat these issues, carriers often rely on their own preferred restoration contractors, engineers, indoor hygienists, and other specialists to perform the work, and require insureds to utilize these firms. However, these relationships can bring additional challenges because these firms are now working for the carrier rather than the insured and, especially in the case of national franchises, there is an issue of quality control between locations.
This industry demands companies to have the ability to scale during regional catastrophes. Contractors and TPA firms may be faced with unique external challenges if they are not properly prepared to scale, or if their plan is not executed well. They may not be able to provide the proper training to new hires, increasing the margin of error when working losses. Inexperienced adjusters and TPAs might miscalculate scopes and the total cost of the claim. Contractors may put people in project management positions for a large loss who have never manager a project before. We have even seen crane operators who have never operated a crane before. These issues are even more common when the economy is strong and unemployment rates are low.
Not all insureds are honest either, there are plenty of insureds who will try to line their pockets from a claim. They may attempt to take advantage of certain coverages such as contents or business interruption. Or, they may falsify damages from the start. Insurance fraud is a big problem. These customers are usually the ones who talk about litigation early on. They don’t even give the claims process a chance.
With so many changes in how insurance claims are handled, the increasing number of materially interested parties, and the increased frequency and severity of CAT events, it’s more important than ever for all parties involved to understand their respective roles and communicate with each other regularly. Without good communication, it is much more likely that the claim’s process will turn sour – ultimately leading to a slower recovery, possible lack coverage or denial, and in some cases costly litigation.
In this panel discussion, we explored a few of the common challenges and red flags you may encounter when dealing with property damage. Our goal was to provide you with information to help the claims process go more smoothly.