It's All About Money

Insurance companies keep two sets of accounting records. No the second set is not the set that details all the money flowing into their accounts from policyholders, rather it’s the set that tells regulators how solvent the company is. While insurance companies use Generally Accepted Accounting Principals (GAAP) accounting to track money, they also use Statutory (Stat) accounting as a litmus test of their solvency. What’s the difference? Broadly speaking the two accounting methods address what can be called an asset and how the company handles liabilities. The following caveat applies for all you accountants reading this. This is a broad simplification and is not meant to be a treatise on insurance accounting.

With GAAP Accounting almost anything of value is called an asset. However when statutorily accounting for assets only those assets of high quality are counted. Liabilities in GAAP Accounting can be amortized over the expected lifetime of the liability. However with statutory accounting liabilities must be fully funded upon their recognition. This is where your claim begins to go astray.

You see insurance companies set aside money to pay claims. This money is collectively referred to as reserves and reserves are accounted for on a file by file basis, so reserves allocated to one file can not be transferred or reallocated to another file. Now you may be saying to yourself … blah, blah, blah… what does this have to do with me?

If the insurance adjuster assigned to your claim does not recognize the severity of your loss and as a consequence does not accurately report that severity back to the insurance company, not enough money gets set aside to fully reimburse you for that loss. Or to put it another way, if the insurance company under reserves your claim, chances are they are also going to under pay your loss.

Think about this. The insurance adjuster is the eyes and ears of the company. What that adjuster sees is what the company sees. What that adjuster hears is what the company hears. Now add to that a propensity towards minimizing the claim payments so as to maximize shareholder profits and you have the makings of a perfect storm. Unfortunately, you’re the one being tossed about in your time of greatest need. If you have the financial resources to repair your home and fight it out with the company great, but if you’re like most of us and need the insurance money to make repairs, this can be very intimidating.

Nothing is so difficult as to get someone the see damage when their job depends upon their not seeing damage. There are some things you can do. First and foremost, like the scouts, Be Prepared! Do your pre-loss homework: take pictures of your property, collect and save receipts for major purchases, make a home inventory. When a casualty loss occurs photo document the post loss condition of your property. As you are taking photographs try to take pictures from the same angles as your pre-loss photographs. This gives you the ability to compare and contrast the two sets of photographs. Take close ups as well to document the nature of the damage. Put together a list of everything damaged by the event and then make a copy of that list to give to the adjuster. Get the adjuster to review the list with you and document any disagreements. Get repair estimates that respond to the list you developed rather than the damages the adjuster develops. If you feel you are being ignored, don’t take it personally, get professional help. Call a Public Insurance Adjuster to assist you in the claims process. You can find on by going to your states public adjuster association. In Florida it’s the Florida Association of Public Insurance Adjusters www.fapia.net . If your state doesn’t have a public adjuster’s association go to the National Association of Public Insurance Adjusters www.napia.com

The object is to get the company to set aside sufficient money to pay your claim fully. If they don’t, chances are you’re going to need help. If you make the decision to seek assistance seek it sooner rather than later.

Hurricane Dolly

Every hurricane as a similar issue: wind vs. wave. How this issue plays is determined by how much money is at stake and successful the industry believes it will be in transferring exposure from the casualty policy to the flood policy. Hurricane Katrina is the classic example. Immediately following Katrina, the industry began floating positions about the large extent of flooding associated with this storm. The mantra was flood, Flood, FLOOD and FLOOD. No amount of evidence to the contrary dissuaded them from their position. The industry hired a cadre of experts to support their position and began denying (rather successfully I might add) claims that might otherwise have been paid. Why do I say this?

Most people mistakenly believe that property insurance policies insure property. Truth is they don’t. They insure people. The property is simply the subject of that insurance. This affords the insurance company the freedom to decide which risks it wants to indemnify the policyholder against and which it does not. Guess what? Flood or should I say FLOOD is one of those risks it does not wish to insure against.

In Katrina a lot of properties were damaged by flood. A lot of those same properties were also damaged by wind. This of course raises yet another issue: chicken and egg. If flooding preceded the wind the insurance company has a very strong argument to limit the loss other wise payable. If wind is first on the scene if becomes increasingly difficult to attribute damage to flood.

The weather channel tonight stated there was a significant number of damaged roofs and broken windows. They also mentioned flooding. No comparisons were made with Katrina.

Now consider this: lets say hypothetically that Hurricane Dolly damages a roof and breaks a window or two or three. Water enters the house through the damaged roof and broken windows: a lot of water. Imagine a fire hose pointing at your house in a hundred mile per hour wind. How much water to you think would enter a broken window.

That water is going to saturate the property in short order. Much if not all of the interior finishes, fixtures and personal property are going to be significantly damaged if not considered a total loss. Now flooding occurs. My question is this: how has the flooding caused any more damage?

It hasn’t. The proximate cause of the damage is wind and the insurance company not Federal Flood should be paying the loss.

If your home was damaged by Dolly, take good photographs. Pay particular attention to broken windows and damaged roofs. Inside your home document any damage that appears to originate above the water line. Be sure to document the water line as well. Use a tape measure to capture the exact height of the water. Remember the burden is on the policyholder to prove their loss. If you have questions email be at bill@sasclaim.com I’ll do my best to help you out. Good luck!

So Good

The other day I met with an adjuster out at a loss. I had heard of this adjusters reputation through the grapevine and the grapevine did not have much good to say about him. Anyway this adjuster shows up with the usual insurance adjuster repertoire of tools: tape measure and camera. This guy was so good that it only took one “o” to spell it and you started with a capital G.

My point in telling this story is not to rant and rail at every adjuster with whom hubris is a personality trait, but rather to point out as I’ve done before that some times losses are not open and obvious. Yet adjusters routinely show up without the tools necessary to do their job beyond what is obvious. The village idiot can see damage that is open and obvious; it takes a professional to see damage that is not.

Here’s the rub: the policyholder depends upon the insurance company to send out a professional adjuster. Those sent out however by and large are not professionals. I know it, you know and the insurance company knows it.

I say the insurance company knows it because they don’t trust these people with authority to agree on scope or price. They don’t trust them! Now here’s my question: if the insurance company doesn’t trust the adjuster they send out to adjuster your loss, why should you?

Causation Disputes

Lately it seems that insurance companies have been taking issue with losses by asserting a difference of opinion as to causation. For example, take an insured who reports wind damage to their home. The insurance company hires an “expert” to examine the home. This “expert” (I put “expert” in quotation marks because I find that many of them have a predetermined opinion as to causation) comes out and following a casual inspection of the property opines that the home suffers from a variety of ills relating to deferred maintenance or some such argument that is similar in nature.

The insurance company in turn takes exception to the claim citing the wear and tear, deterioration, inherent vice and latent defect exclusions or the improper maintenance language under the concurrent causation section of the policy. The insured is left blinking like the proverbial deer in the headlights.

Understand this is little more than a tactic. Most houses suffer from maintenance related damages. Whether it’s a broken roof tile from someone walking on the roof or a pipe under the sink that leaked for a few days before anyone noticed it, every house has some blemish, some flaw. The question here is whether the maintenance is responsible for the loss or some casualty is responsible such as the wind in our example.

Insurance policies are unilateral contracts between the policyholder and the insurance company. The policyholder is given the option of accepting the policy as written or going somewhere else. Because it is a unilateral contract any ambiguity is automatically decided in favor of the policyholder. Unfortunately, many insurance companies are using “experts” to try and remove ambiguity from the claim adjustment process.

Now in our example, even though the house may suffer from wear and tear or deterioration or latent defects etc… when those conditions serve to weaken the structure and make it more susceptible to wind, the proximate cause of the loss becomes wind not wear and tear and the loss should be covered. In reaching this conclusion I ask myself a simple question: did the loss occur absent the casualty. If the answer yes, then wear and tear may be responsible. If the answer is no, then the casualty (in our example wind) is responsible and the merits of the claim should be considered in the context of the cause of loss.

A repositioning of the loss as wear and tear is improper and you should take a stand against the company when they attempt to do this.

Pre-Storm Preparation

While TS Bertha (7/6/08) has prompted me to expound upon storm preparation, this advice is good for any storm, hurricane, flood, winter storm, earthquake etc… Following a major catastrophe, reports of losses are made in staggering numbers prompting insurance companies to begin hiring contract adjusters to handle the increased claim volume. Most of this staffing increase takes the form of contracts with independent adjusting firms who begin the mad and sometimes frantic search for bodies. I use the term bodies intentionally in that every company has their “A” list adjusters and their “D” adjusters as well as all categories in between. As you can imagine, “A” list adjusters are the best and the independent adjusting firms try and keep them busy all year long so as not to loose them to the competition. “D” list adjusters are called upon only as a last resort, but on major events they are going to be called in to adjust claims. As the policyholder, you have no idea whether the adjuster assigned to your claim is top notch or an also ran. You won’t get this information even if you ask for it. Let’s face it, who would be willing to admit they were marginal. Don’t waste your time asking it’s not material.

What is material is your ability to demonstrate your loss: be able to prove the extent of damage and document that damage.

Before and after pictures are great for this type of proof. The difficulty arises with the before component of this equation. Most people never think about loss before it happens and are caught unawares and unprepared for loss after the fact. This lack of planning is compounded because the policyholder calls the insurance company to report the loss and for all intents and purposes abandons the determination of their loss to the insurance company adjuster: who may be an “A” adjuster but more likely is something else.

This company adjuster arrives on scene with their camera and tape measure to determine the loss. You show the adjuster the damage and the adjuster only includes a fraction of what is shown in their report to the insurance company. In the interim, you begin the clean up and repair process. Then the much anticipated check arrives in the mail and bingo you’re not satisfied. What happened?

In a nutshell, lack of preparation and naivety combine with incomplete reporting to create the perfect post loss financial storm.

Now consider this scenario. Pre-loss photographs are taken and post loss photographs are taken utilizing the identical views. Additionally, post loss photographs are taken of close ups of the property damaged by the storm. Before shots are contrasted with after shots and the differences labeled. The whole package is then given to the adjuster with a letter requesting these photographs be forwarded to the insurance company. You have a much better chance at getting a reasonable recovery than simple hoping for one. Obviously the better the photograph the greater the ability to distinguish and document the differences between the pre and post storm conditions.

This action will not substitute for having the right tools to prove loss, but will greatly aid you in obtaining a recovery as compared to abandoning your claim to the insurance company adjuster.