More On Money

In my last entry, I touched upon the importance of reserves in getting your claim paid fairly. This can not be overstressed: if your claim is under reserved, the chances of it being under paid increase dramatically. Now you might be asking yourself why: why doesn’t the insurance company simply increase the reserves?

Typically, the reserves are readjusted early in the claims process. When the loss is first called into the company a claim is created and a provisional reserve is set aside. After the adjuster has initially inspected the loss the reserves will be readjusted to reflect the adjusters opinion of the damage and its’ value. At this point, reserves begin to solidify: like concrete it’s very hard to make changes. The reason for this is simple. The insurance company begins to believe that it has accurately assessed its’ financial exposure. The adjuster believes they have accurately relayed the extent and value of damages. And with the passage of time, both are reluctant to admit to making a mistake.

So what happens if the reserves are mismatched to the loss? If they are less than what is needed, the insurance company will begin the process of attempting to pound the proverbial square peg into the round hole. That is they try and make the loss fit the reserves. This action is different from the normal disagreements that accompany losses. This is tantamount to a constructive denial of what is to the policyholder a covered loss.

When you find yourself in this situation, it is imperative that you remain emotionally detached from the process of the adjustment. Don’t let on that you are frustrated or upset. This only encourages the adjuster to continue down the path of confrontation. Also, don’t speak to the insurance adjuster or anyone from the company, rather, put everything in writing. That way you have a complete record of what is going on.

When you write to the company, explain how their refusal to pay your claim is placing you in financial jeopardy. How you are depending upon their fair and prompt payment to ease your financial burden and how they are letting you down. Ask them to “please help you”. If they insist upon your using their contractor, ask them why they won’t pay enough to enable you to choose a market priced contractor. Ask them why they have to restrict your ability to trade with whomever you wish. So on and so forth… you get the idea.

Write often. A weekly letter imploring the insurance company to help you in your time of need is golden, if you ultimately have to litigate to get your claim paid. The weekly letter is doubly golden if they don’t respond.

It’s a lot of work to get your claim fairly paid, but it’s not impossible.

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.