What Should I Know About Claim Procedures?©

Written by: Mark Wolfe, Attorney at Law. The following information is provided as general advice and without charge. Questions about specific issues or situations should be directed to an experienced motor vehicle accident attorney. A portion of the following article is reprinted, with permission, from the Summer 2005 edition of Legally Speaking. NOTE: The following material is protected by all applicable State and Federal Copyright laws. Published July, 2005.

According to statistics released from two major insurance survey groups, 39% of bodily injury claimants were not satisfied with the way the insurance company handled their claim. According to Accenture and SAP America Inc. a three year survey found that 45% of the unsatisfied bodily injury claimants felt the settlement amount was not fair and 20% of the unsatisfied claimants felt that it took too long to resolve their claim. The extensive survey also reviewed satisfaction levels for property and casualty claims. Those consumers who were surveyed were people who had attempted to handle their claim without legal representation or assistance. A review of the process used by insurance companies to settle claims will help readers understand this high level of dissatisfaction.

As has been reported and documented in earlier editions of Legally Speaking, claimants who do not have legal representation are at a disadvantage when dealing with a professional claims adjuster. Claims adjusters are highly trained in the art of “claim devaluation.” This is the process whereby claims adjusters methodically and meticulously review claim information, including personal background information of the claimant, looking for anything that will help them justify reducing the payment of the claim or give them an advantage when making settlement offers. Insurance companies generally follow a three step process for handling claims. Each step in the process involves reducing the amount of money the insurance company actually pays on a claim.

When a covered claim is first reported to an insurance company, a “reserve” is set for the claim. This reserve amount is the most money the company expects to pay on that particular claim. Once the reserve has been set the adjuster then begins the second step which is “claim devaluation.” This involves looking for ways to make sure that the amount of money paid on the claim is less than the reserve amount. Adjusters are trained on how to review medical records and other claim material for “devaluation” points. They also have lawyers at their disposal to review liability issues and other arguable legal defenses.

After a thorough review of claim material and possible legal defenses the claim is assigned a “settlement value.” This is usually done by a claims supervisor and the settlement value is always below the reserve amount. The ratio of Reserve Amount to Settlement Value is strictly monitored by insurance companies to make sure that claims are not being “over reserved.” The adjuster is then given an amount of money to settle the claim. This is commonly called the adjuster’s “authority.” However, adjusters are trained, and are expected, to negotiate a claim settlement for less than their settlement authority. This is where personal background information can be used against the claimant. For example, a review of private financial information about a claimant may reveal that the claimant is experiencing financial difficulty. Knowing this information, the adjuster might make a low settlement offer with a “take it or leave it” deadline. Or an adjuster may find out about a claimant’s past or ongoing legal problems, such as a bankruptcy or divorce, and use that information to “lowball” the claim. The amount actually paid on the claim is known as the ACP (actual claim payment). An adjuster’s job performance rating is often related to his or her ability to settle a claim for less than the settlement authority. The ratio of Authority to ACP is also strictly monitored by insurance companies. All insurance companies conduct internal audits of randomly selected claim files to make sure various claim ratios are within prescribed guidelines.

The whole time a claim is going through this “devaluation” process, adjusters are trained to discourage the claimant from seeking legal advice or legal representation. In addition insurance companies spend millions of dollars each year promoting themselves as “kind and caring” companies so claimants think and believe a fair amount will be paid on their claim without having to get a lawyer. When it’s all said and done, an insurance company is a business. It is not a “neighbor” nor is it a person with “good hands.” Insurance is a business that strives to pay as little as possible on each and every claim that is presented. If a personal injury claimant chooses not to have legal representation then that claimant very well could be the next “dissatisfied” consumer.