Loss adjustment is a process of settling claims at a particular cost against the loss caused. An insurer needs to verify an insurance claim made by the insured before its settlement. This is because in the absence of the verification process, the insurer is at the risk of suffering losses.
For example, an insurance company hires a surveyor in order to ascertain the extent of damage a car has suffered. Based on the inspection done by the surveyor, the insurer settles the claim with the insured. The cost accrued in the hiring of the surveyor is a part of the loss adjustment expense.
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Loss adjustment is the amount that is used for giving compensation to policyholders. Such amount is given from the reserves of an insurance company that are kept for the settlement of claims. This reserve is considered a liability as the money kept in it is for future settlement of claims.
Insurers generally have a separate department for claim settlement, and employees who settle claims are known as benefit representatives in life insurance and claim adjusters in general insurance. It is important for insurers to pay fair and restrict unfair or fraudulent claims. Prompt and fair claim settlements are in fact a competitive edge for an insurer.
Adjusters
An adjuster can be defined as a person who assesses and investigates losses for an insurer. He/she decides the admissibility of a claim and determines the extent of payment to be made. In some cases, especially small properties, agents are granted draft authority by the insurer and they function as adjusters. This indicates that they have authority to issue cheques on behalf of the insurer to a specified limit of amount.
In cases where the draft authority does not allow the extent of payment, the agent may still settle the claim and forward the details to the insurer for payment. In cases where the underwriting volume is high in a particular geographical location, the insurer may employ his/ her own salaried claim adjusters, whereas in areas of low business volume, this function may be outsourced to an independent adjuster or a bureau.
Adjustment bureaus were originally owned by insurers themselves, specifically for fire insurance policies. Even though the original ownership has been dissolved, such organisations still continue to be known as bureaus. Sometimes, insurers appoint independent adjusters who may not belong to any bureau. Rather, they are individual experts who may be associated with a number of insurers at a time and bill them directly for the services rendered. Generally, insurers who do not have an in-house adjuster team or a bureau may take the services of independent adjusters.
A special category of adjusters is known as public adjusters, who, in contrast to the adjusters explained earlier, represent a policyholder. The above categories of adjusters are the representatives of insurers. Many a time, policyholders find it difficult to prepare documents and lodge a claim with the insurer. In such a situation, they have the option to take services of the public adjuster who performs the function of claim preparation, filing and negotiation with the insurer.
In most of the situations, the payment method for the adjuster is contingency-based, which is typically a percentage of the claim amount generally around 10 per cent. The National Association of Public Insurance Adjusters grants a professional designation to these adjusters. The designations are Certified Professional Public Adjuster (CPPA) or Senior Professional Public Adjuster (SPPA).
Courses of Action in Claim Settlement
In the case of a loss or a claim lodged by a policyholder, the outcome is usually either a denial or a payment of the claim. In the majority of cases, the liability is admissible and the claim is covered by the insurer, resulting in the payment of the claim. However, there are situations where the insurer opines that the claim cannot be paid. In such a situation, the insurer denies and contests the claim. Payment in such cases is usually denied on two grounds:
- The occurrence of loss is questionable.
- The loss falls outside the scope of the policy.
In both situations, the insurer notifies the policyholder of the denial of a claim through a denial letter stating the reason for denial.
Adjustment Process
In the event of a claim being reported, the adjuster needs to perform a number of steps. These steps are:
Notice of the claim of loss
This is the foremost step in the claim procedure where the policyholder notifies the insurer of the occurrence of a loss. The timeline of the notice and other technical requirements may vary from insurer to insurer.
Scrutiny or investigation
Often known as adjudication, this is a process of assessing claim documents in order to determine the admissibility and extent of payment in the case of admissible claims. This can be done based on the following parameters:
- Whether the policy was in force at the time of the loss
- If it was a newly issued policy, whether the loss occured before it became effective or later.
- If the policy was old, whether the loss occurred before the policy expired.
- Was the contract valid when the loss occurred?
Once the timing of loss is confirmed to be within the policy period, it is determined if the peril that caused the loss is covered under the policy or not. The adjuster then determines if the person making the claim under the policy is covered or not. Once these factors are confirmed, the claim is deemed payable.
Proof of loss
In most cases, the insured needs to submit a proof of loss within the stated period of time of occurrence of the loss, which is usually 60 days. As discussed earlier, a public adjuster helps a policyholder in preparing documents that serve as the proof of loss.
Payment or denial of claim: Once the admissibility is determined, the insurer draws a draft for reimbursing the claimant. In case the claim is not admissible, the insurer sends a denial letter to the claimant that mentions the reason for denial, which is usually:
- The adjuster is not satisfied that the loss occurred
- The loss is not covered under the policy
- The amount being asked is exaggerated
Difficulties in Loss Adjustment
Due to the complex nature of insurance policies and a large number of stakeholders, disputes at the time of claim settlement are bound to happen. It would be excellent if the insurer was to pay all claims to the maximum limit, but that is never the case. A claim can be paid in full, paid after deductions or denied. Many a time, there is a discord between the insured and the insurer when a claim is restricted or denied. Such discord may happen because either the insured is under the impression that the claim is wrongfully denied or there is a mistake on the adjuster’s end.
In the case of a disagreement on the amount of deduction in a claim, most of the insurers provide for a compulsory arbitrator at the behest of either of the parties. In the case of denial, the insured can approach the state regulatory authority for dispute resolution. The state regulatory authority is responsible for safeguarding the policyholder’s interest. Ultimately, the insured can also approach the court as a last recourse.
