How carriers and adjusters respond to property losses can reduce the impact of the claims as well as the costs, according to Lynne Jurek Shannon and Doris T. Bobadilla, defense attorneys with the Galloway, Johnson, Tompkins, Burr & Smith law firm.
Both said the strategies for cost containment on property damage claims remain the same across the country.
“Adjusters no matter where in the country they are can work by the same rules and use the same types of tips in order to accurately and as inexpensively as possible handle their claims,” said Shannon. “The types of claims are the same and the objectives of cost containment are the same.”
The attorneys reported that nearly 73 cents of each premium property casualty dollar goes to staffing, investigation, defense and resolution of claims. Evaluating expense costs alone won’t reduce this figure; rather, a careful examination of the claim will, the attorneys said.
Cheaper Doesn’t Equal Better
According to Shannon, in order to manage costs on a claim appropriately an adjuster must analyze the claim. Common misconceptions involve the retention of inexpensive experts. “Sometime we think we are containing costs by avoiding an option that may appear to be a greater expense, but in the long run it actually saves costs and improves the time to settle a case.”
The goal is to improve final performance through claims cost control while increasing customer satisfaction by promoting consistent, fast, and fair claims settlements, they said.
While the hourly rate an expert charges is part of the overall retention decision, it’s important to confirm the expert is knowledgeable for the type of claim being presented.
“They should hire the appropriate expert depending upon what type of situation they have. Whether they are engineers to go in and one, investigate the source of the problem and two, if it’s a growing and continuing issue to have them solve that and arrest the problem so that if it turns out to be a covered claim, based on the investigation, they have mitigated the ultimate exposure,” Bobadilla said.
They recommend adjusters advise potentially liable third parties of their responsibility early in a claim and provide notice of their obligation to mitigate damages in the event that liability cannot be determined quickly.
Business interruption and temporary location costs can be limited through early identification and remediation, according to Shannon and Bobadilla. Proactive contact with insureds and contractors on a regular basis helps to avoid costs incurred as a result of waiting for adjuster approval, they said. Adequately controlling losses involves a prompt response time and timely post loss repairs.
As an example, when handling a water damage loss, they described three main categories of water damage an adjuster might see:
- Clean – Water that originates from a source that doesn’t pose substantial harm.
- Gray – Water that contains an elevated level of contamination and has potential to cause discomfort or sickness if consumed or exposed.
- Black – Water that contains pathogenic agents and is grossly unsanitary; this includes sewage and other contaminated water sources.
According to Shannon and Bobadilla, the damage incurred isn’t determined by the color of the water, but rather by the source, the contents affected, time, history, and the characteristics of the water. An adjuster can manage costs by hiring a qualified expert to identify and mitigate the damage quickly.
In addition, they described four classifications of evaporation/drying a retained mitigation company might use to classify a water damage claim:
- Slow – Water loss that affects only part of a room or area or with wet, low permeability/porosity materials such as plywood, structural wood, VCT, or concrete.
- Faster – Water loss that affects an entire room of carpet and cushion. The water has wicked up the wall less than 24 inches.
- Very fast – Water loss that enters the structure from overhead, saturating the entire area, including ceiling, walls, insulation, carpet, cushion and subfloor.
- Specialty – Water loss that involves wet material with very low permeability/porosity.
Knowing drying time classifications for a specific loss allows the handling adjuster to monitor mitigation costs.
Another example, provided by the presenters, involves the handling of smoke damage claims. In order to cost-effectively process these types of claims adjusters must determine the type of smoke; whether wet, dry, or fuel oil. In addition, hidden areas where smoke might accumulate must be examined because this will affect the cost of the claim and the methods used to clean and restore the area. The attorneys emphasized a 72 hour window to remove smoke from fabric before it becomes saturated.
With fire damage claims, both Shannon and Bobadilla recommend adjusters apply CPR. The acronym stands for control the loss, protect the assets and restore the property. Controlling the loss means hiring qualified experts to evaluate the origin and cause of a fire. Protecting the assets requires securing the perimeter of the fire and associated contents. Property restoration requires timely handling of notice to interested third parties and product manufacturers so that the scene investigation can be completed promptly.
There are a number of ways adjusters can control costs, Shannon said. An adjuster can:
- Use proper and certified experts
- Negotiate with vendors
- Assist the insured with relocation in first party claims
- Maintain contact with all parties to a claim
- Utilize resources
- Apply common sense
According to the presenters, the adjuster’s role in cost containment involves attaining a balance between company claims handling policies, existing vendor contracts, claimant and insured requests, cost containment practices, productivity, settlement timing, and equitable trade-offs between client satisfaction and safety.
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