Claims Adjusting

This article focuses on claims adjusting. It provides an overview of the claims adjusting process, public adjusters, and the future of claims adjusting. The relationship between claims adjusting, insurance and settlements will be described. The growth in claims operation technology as well as the issues associated with claims adjusting after natural catastrophes will be addressed.

Keywords Claims; Claims Adjusting; Claims Operation Technology; Insurance; Public Adjuster; Settlements

Insurance & Risk Management > Claims Adjusting

Overview

Individuals and businesses purchase insurance to protect against losses and perceived risks. Examples of insurable risks include death of a spouse or key employee; fire, flood, or earthquake damage; interruption of business; theft; vandalism; or terrorist acts. When an individual or business experiences a loss for which they have purchased insurance, the individual or business files a claim with their insurance company. A claim refers to the notification to an insurance company that payment of an amount is due under the terms of a policy. Insurance claims, which generally fall into the categories of property damage, liability, or bodily injury, are handled by claims adjusters, appraisers, examiners, and investigators. These insurance professionals are responsible for the fair and accurate settlement of claims.

Claims adjusting, also referred to as claims examining, involves the investigation of insurance claims, the negotiation of settlements, and the authorization of payments. Claims adjusters, or claims examiners, work with insurance appraisers and investigators in insurance investigations and claims resolution to determine the value of insured items and rule out insurance fraud. Insurance companies may hire independent claims adjusters or create an in-house claims department to assess, evaluate, investigate, and process all insurance claims.

The following sections provide an overview of the claims adjusting process, public adjusters, and the future of claims adjusting. This overview will serve as a foundation for later discussion of the growth in claims operation technology as well as the issues associated with claims adjusting after natural catastrophes.

The Claims Adjusting Process

Claims adjusters are responsible for processing insurance claims. In the event of natural or man-made catastrophes or disasters, such as earthquakes or terrorist acts, claims adjusters may be in the field evaluating claims and preparing reports for extended periods of time. Due to the unpredictable nature of losses and claims adjusting, claims adjusters tend to work outside in a wide range of environments. For example, claims adjusters must be ready to visit roadside automobile accidents and collapsed buildings. Claims adjusters work around the claimants' schedules and requests for evening appointments as much as possible. The range of claims adjusting activities includes interviewing the claimant and witnesses; consulting police and hospital records as appropriate; inspecting property damage to determine the extent of the company's liability; and consulting with relevant professionals to attain an expert opinion or viewpoint.

Claims adjusters use new forms of technology to increase the speed and efficiency of claims review and processing. The main tools of claim adjusters include laptop computers which make insurance information readily accessible, digital cameras to capture images for reports and transmit images for review by insurance companies, and cell phones for in the field communication. Insurance adjusters increasingly record claim details and information directly into their computers creating an immediate claim file for shared use by adjuster and insurance company. Once the claims adjuster has gathered all relevant information, the claims adjuster prepares a report with, as appropriate, photographs and written or recorded statements. The claims adjuster negotiates with the claimant and resolves the insurance claim. When claimants contest the claims adjuster's decisions or insurance fraud is suspected, claims adjusters aid attorneys in representing and defending the insurance company.

Public Adjusters & Other Alternatives to Insurance Adjusters

There are two claims scenarios when the services of claims adjusters working directly for the insurer are not used. First, insurance claims may, in claims without suspected fraud or complicated coverage, be handled cooperatively between the insurance company and the relevant service provider without the aid of claims adjusters. Cooperative appraisal between insurers and service providers and contractors, such as builders or doctors, is a growing trend undertaken to increase efficiency and reduce costs (Plant, 2006). Second, in some instances, individual or business claimants may choose to hire a public adjuster rather than accept the findings of the insurer's claims adjuster.

Public adjusters, or independent loss adjusters, serve as advocates for the policyholder. Public adjusters, who prepare and present the claim to the insurer, earn a percentage of the benefits or settlement. Public adjusters work for the claimant rather than the insurance company. Public adjusters work with their clients to prepare and present claims to insurance companies as well as negotiate a settlement in their client's favor (Hofmann, 2006). Public adjusters are advocates for their clients and are paid by the client, often out of the proceeds of a claim (Reitz, 2011). Licensure for public adjusters do not necessarily have the same requirements as independent adjusters (Elias, 2012). In the United States, public or independent claims adjusters are unofficially grouped and governed by the National Association of Independent Insurance Adjusters (NAIIA). The National Association of Independent Insurance Adjusters, which was founded in 1937, is an association of 300 property and casualty claims adjusting companies. The National Association of Independent Insurance Adjusters operates to uphold the following functions and principles: Cooperate with the insurance fraternity to ensure a cordial relationship between the independent adjuster and the public; guide the activities of independent adjusters so that the highest standard will be encouraged and maintained; and attempt to find solutions to matters concerning and affecting both the association and its individual members.

The Future of Claims Adjusting

There is debate in the insurance industry about the appropriate role and scope of power for claims adjusters. The debate may be characterized as claims processor versus claims adjuster. Uncomplicated claims are thought to require only the lowest level of insurance expertise of claims processors rather than the higher-level of expertise held by most claims adjusters (Plant, 2006). In the United States, the qualifications and licensing requirements for claims adjusters vary by state. Numerous states have a voluntary professional designation in addition to a licensing exam. Claims adjusters generally specialize in one category of insurance claim such as homeowner claims, business losses, automotive damage, or workers' compensation. Claims adjusters tend to have a wide range of skills such as the following: Interpersonal and communication skills, knowledge of architecture or building trade, familiarity with insurance law, computer skills, and driver's license. Claims adjusters working for insurance companies generally operate under company license while public adjusters are generally required to file a surety bond. A surety bond refers to a bond issued by an entity on behalf of a second party guaranteeing that the second party will fulfill an obligation or series of obligations to a third party.

According to the U.S. Department of Labor, 263,280 people worked as claims adjusters, appraisers, examiners, and investigators in 2012. In 2012, the average annual salary for claims adjusters, appraisers, examiners, and investigators was $61,530, up from $44,220 in 2004. The majority of these claims adjusters, appraisers, examiners, and investigators worked for insurance firms rather than as independent contractors. Increasingly, insurance companies are working to reduce costs by using customer service representatives to record the specific details of claims. This practice allows claims adjusters to spend their work hours assessing losses and developing claims reports. The U.S. Department of Labor expects that the need for claims adjusters will increase, and a shortage of claims adjusters may result, as the population ages and the number of active insurance policies grows. While the job of claims adjuster is made faster and more efficient through the use of new technology, the job of claims adjuster cannot be fully automated. Individuals are, and will continue to be, needed to inspect damages and mediate between claimants, experts, and insurers.

Applications

Claims Operation Technology

Claims adjusters use new technology such as networked computers, cellular phones, and geo-positioning devices to increase the speed and efficiency of claims reviewing, processing, and reporting. In addition, claims adjusters use and increasingly rely on computer applications designed specifically for claims adjusting activities. For example, the SMART technology implemented by CGI Adjusters Inc. allowed adjusters to file reports, pictures and estimates electronically. The SMART technology allows adjusters, clients and vendors real-time access to claims data online (Del Greco, 2007). Mobile devices, such as smartphones and tablets, are ideal for taking into disaster areas where there may be nowhere to plug in a laptop or even a landline to call headquarters. Insurance industry software developers saw large investments in 2013 by insurers looking to upgrade to faster, more efficient, and more versatile tools (Who's buying what, 2013). The insurance industry is experiencing increased claims activity and expects that this trend will continue. Increased claim activity is associated with a rising number of natural and man-made catastrophes around the world. Examples of catastrophes that produced millions of claims include Hurricane Katrina and the September 11, 2001, bombings of the World Trade Towers. The insurance industry, adding only a few hundred adjuster jobs nationwide between 2004 and 2013, looked to technology to increase the efficiency of existing claims adjusters and prevent shortages in claims adjusting services. The new technology is designed to be integrated and cloud based.

Insurers are investing new claims adjusting technologies in response to the rising need and shrinking claims adjusting talent pool. The new claims adjusting technology (though a costly initial investment) is expected to have a cost-saving function. Insurance companies are investing in a wide range of technology including systems and software. Examples of claims adjusting systems include Next Gen, Xactimate, and MSB IntegriClaim. An Allstate insurance agency in Northbrook, Illinois, created the Next Gen claims system in 2005. The Next Gen claims system is a web-based collaborative tool accessible to everyone in a business associated with or working on an insurance claim. The new claims adjusting computer programs are intended to be easily maintained and updated as well as easy to use and teach to new personnel (Golia, 2012).

Claims adjusting faces the following technology challenges: Streamlining, automating, overhauling, and upgrading.

• Streamlining claims adjusting: Insurance companies are working to integrate and open the access to claims systems for all involved with a claim.
• Automating claims adjusting: Insurance companies are working to automate claims technology to allow for the system to assess a claim and instruct the adjuster about how to respond.
• Overhauling claims adjusting: Insurance companies are working to replace or enhance their claims management systems in response to new reporting and risk disclosure requirements of the Sarbanes-Oxley Act.
• Upgrading claims adjusting: Insurance companies are working to upgrade existing claims systems and add new technologies without making the original systems obsolete.

A new area of claims adjusting technology includes predictive systems that analyze the records and histories of medical personnel to find trends in overmedication, over-treatment, and fraud. Problems with new claims adjusting technology include the interaction, and potential incompatibility, between old claims technology with new technology. Some companies address incompatibility issues by building new, service-oriented systems atop their older claims systems. This compatibility effort can be accomplished through the use of web portals. In addition, the installation and training times for employees to learn new claims technology may slow business operations. In some instances, claims technology is improved rather than replaced or augmented. The geographic information system (GIS), used for mapping damages to properties and real-time fraud analysis, is one example of a widely-adopted, improved claims technology tool (Hays, 2007).

Issues

Claims Adjusting After Catastrophes

Insurance protects against the losses associated with natural and man-made catastrophes. Examples of natural catastrophes include hurricanes, floods, tornadoes, and large hailstorms. Examples of man-made catastrophes include terrorist acts and nuclear power plant explosions. In response to the increase in geopolitical risk and potential changes in weather-pattern due to global warming, individuals and businesses are increasingly purchasing catastrophe insurance. The loss associated with and resulting from natural and man-made catastrophes is processed and adjusted by claims adjusters. Catastrophe adjusters have different working environments and claimant relationships than traditional claims adjusters. Catastrophe adjusters tend to focus exclusively on the losses and claims associated with catastrophic events.

The emotional and physical losses created by catastrophes create a volatile local and national environment in which catastrophe adjusters are often viewed by the press and the public as symbolizing the insurance industry as a whole. In 2005, there were 650 natural catastrophes reported worldwide. The insured losses associated with these natural catastrophes exceeded $75 billion. In the United States, the 2005 hurricane season was reported as the worst season ever recorded with the most damage and largest losses. In 2005, Hurricane Katrina had a significant impact both on the insurance industry and the Southern economy. Long-term insured losses from Hurricane Katrina neared $50 billion. As a result of hurricane Katrina; Louisiana, Mississippi and Alabama experienced large catastrophic losses. While commercial insurers generally settled Hurricane Katrina claims with speed and efficiency, residential insurers have, in some instances, resisted settlements. Insurers and claimants continue to debate whether or not the vandalism, looting, and mildew that accompanied Hurricane Katrina amounted to a second event separate from the original storm and wind damage. Damages and losses related to looting, theft, vandalism, fire, flooding, wind, and business interruption remain contentious issues for insurers and claimants.

The destruction caused by Hurricane Katrina has made numerous once inhabitable communities uninhabitable. Populations have been forced to abandon towns due to a lack of lodging, a shortage of gasoline, lack of electricity, and inaccessibility. Claims adjusters were challenged to process and adjust claims in inaccessible areas and areas where policyholders no longer resided. In many cases, insurers sent catastrophe insurers into the area with mobile claims center-RVs. In addition, claims adjusters were challenged by infrastructure problems in Louisiana, Mississippi and Alabama. For example, as a result of Hurricane Katrina, countless street signs were missing, landmarks gone, mailboxes destroyed, and houses unrecognizable (Cornejo, 2005).

Following Hurricane Katrina, catastrophe adjusters were overwhelmed by the huge volume of complex insurance claims that required immediate attention, resolution, and settlement. The phenomenon of holding claims adjusters accountable for the perceived wrongs of the insurance industry as a whole occurred following Hurricane Katrina. In response to the shortage of claims adjusters, Louisiana and Mississippi passed emergency directives that allowed public adjusters to operate in their states. By December 2005, over 1,500 public adjusters had registered in Mississippi and Louisiana. Public adjusters worked in the Hurricane Katrina aftermath to take inventory of losses and damages, hire appraisers and engineers, and negotiate with insurance companies over settlements. Public debate about the role and responsibility of claims adjusters, both public and private, increased as the Hurricane Katrina damages and losses were totaled. A debate arose in Louisiana and Mississippi as to whether public adjusters should have a cap on their fees and what, if any, licensing requirements are appropriate (Beller, 2006).

In addition to fostering debate about the roles and responsibility of insurance adjusters, Hurricane Katrina raised two other issues: The need for increased use of technology in the claims process and the need for greater self-promotion in the claims adjusting industry. First, the destruction, losses, and insurance claims resulting from Hurricane Katrina raised awareness in the industry for the need for geo-positioning devices capable of locating a claimant's damaged items and properties (Hays, 2007). Second, the claims adjusters who processed and adjusted the Hurricane Katrina claims were part of the effort to increase recognition and respect for the work of catastrophe adjusters.

The National Association of Catastrophe Adjusters (NACA), founded in 1976, contributed to the Hurricane Katrina effort by mobilizing and organizing its members. The National Association of Catastrophe Adjusters served as a central resource for all those in need of claims adjusting services. The National Association of Catastrophe Adjusters is dedicated to improving professional standards, insuring working relations with one another, and promoting the general welfare of the individual members. The National Association of Catastrophe Adjusters' stated mission is to provide a professional organization focused on excellence in catastrophe insurance adjusting for members through education, shared resources, and technology. Claim adjusters are eligible for membership in the National Association of Catastrophe Adjusters when they have a minimum of four years catastrophe property adjusting experience. In addition to the efforts of National Association of Catastrophe Adjusters to help organize claims adjusters post Hurricane Katrina, the International Society of Catastrophe Managers formed in 2006 to promote and formalize the efforts of catastrophe workers. The International Society of Catastrophe Managers is dedicated to promoting the professions of catastrophe managers, natural-hazard scientists and engineers, catastrophe modelers and other catastrophe professionals who work in the insurance and reinsurance industries or for related organizations.

Hurricane Rita followed Katrina later the same season, dealing Gulf residents and insurer's a second blow. Superstorm Sandy in 2012 affected the entire eastern seaboard but did particularly extensive damage in New York and New Jersey, where it came ashore. Sandy posed many of the same problems for claims agents as Katrina, that is, inaccessibility of devastated neighborhoods, damaged infrastructure, power outages, and scarcity of lodgings. Katrina and Sandy were among the most costly hurricanes in U.S. insurance industry history. It is worth noting that, had they happened today, a number of early twentieth century storms including the 1900 Galveston hurricane, and several in Florida would be even more costly than Katrina, with the 1926 Great Miami Hurricane topping the list at an estimated $125 billion in damages (Gusman, 2013).

The Federal Emergency Management Agency (FEMA) publicly supports the efforts of catastrophe adjusters and encourages the public to gain an understanding of the difficult situations within which catastrophe adjusters' work. The Federal Emergency Management Agency acknowledges that claims adjusters face the following problems: Professional catastrophe adjusters are often asked to perform extraordinarily difficult work under grueling circumstances and subjected to environmental contaminants such as mold, fiberglass, fuel, and sewage; professional catastrophe adjusters are in the field, away from family, for months on end; professional catastrophe adjusters generally do not receive any compensation until the proof of loss is signed; professional catastrophe adjusters generally must purchase their own computers, software, equipment and training; professional catastrophe adjusters feel their jobs are being jeopardized by automation; and professional catastrophe adjusters are often perceived to represent the insurance industry when, in reality, professional catastrophe adjusters are as subject to the practices of insurance companies as the claimants themselves.

Ultimately, the insurance industry is experiencing growing pains as it works to insure increased natural and man-made catastrophe risk exposure. Claims adjusters, as the most public face and representatives of the insurance industry, will likely continue to be targets of public displeasure over insurance issues.

Conclusion

According to the National Association of Claims Adjusters, claims adjusters are dedicated to settling insurance claims in the most accurate way possible. Claim adjusters are required to work closely with claims investigators, examiners, and appraisers to satisfy the needs and rights of insurers and claimants. In the final analysis, claims adjusters serve as intermediaries between insurers and claimants. Claims adjusters, who may be employed by either the insurer or the claimant, are often caught between the best interests of insurers and claimants. As a result, claims processing and adjusting is often a complicated and contentious process. A claim and final settlement may be influenced by the nature of the claims adjuster's employment.

Terms & Concepts

Catastrophe Adjuster: A claims adjuster who processes and adjusts claims resulting from natural and man-made catastrophes.

Claim: Official notification to an insurance company that payment of an amount is due under the terms of a policy.

Claims Adjuster: The individual responsible for processing an insurance claim and recommending an accurate settlement.

Claims Adjusting: The investigation of insurance claims, the negotiation of settlements, and the authorization of payments.

Federal Emergency Management Agency (FEMA): The federal agency responsible for reducing the loss of life and property and protect the nation from all hazards, including natural disasters, acts of terrorism, and other man-made disasters, by leading and supporting the nation in a risk-based, comprehensive emergency management system of preparedness, protection, response, recovery, and mitigation.

Geopolitical Risk: Any peril that arises from geographic, historic, and societal variables related to international politics.

Insurance: A contract under which one undertakes to pay or indemnify another as to loss from certain specified contingencies or perils.

Public Adjuster: Individuals, employed by a claimant, who prepare and present the claim to the insurer as well as negotiate a settlement in their client's favor.

Sarbanes-Oxley Act: A law, enacted in 2002, which introduced highly significant legislative changes to financial practice and corporate governance regulations.

Settlement: Proceeds from an insurance policy to the insured under the terms of an insurance contract.

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Suggested Reading

MacLennan, D. (2007). Benefit adjustments for multiple annuity starting dates, part 2. Journal of Pension Benefits: Issues in Administration, 14, 36-42. Retrieved July 20, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=25046540&site=ehost-live

Spencer, V. (2005). Making a name for adjusters. Canadian Underwriter, 72, 18-19. Retrieved July 20, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=16137260&site=ehost-live

Thomason, T. (1994). Correlates of worker's compensation claims adjustment. Journal of Risk & Insurance, 61, 59-77. Retrieved July 20, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=9411156498&site=ehost-live