Alabama regulators and public adjuster groups are lobbying state lawmakers to pass a bill that would allow the state for the first time to license and monitor the actions of public adjusters. Insurer groups, however, are objecting to the proposal that they say will increase costs.
Unlike most states, Alabama law is silent on whether homeowners with a damage claim can enlist the service of a public adjuster to handle their claim as opposed to waiting for their insurance company’s adjuster. As a result, no one knows how many public adjusters are operating in the state or whether their actions are proper.
Ragan Ingram, Alabama Department of Insurance chief of staff, said the department occasionally gets complaints about public adjusters, but without a method to track their activities regulators can take no action. For that reason, he said, the law is necessary.
“If you are in the insurance business we want to know about you so that if you are not doing something proper we can do something about it,” said Ingram.
Part of the impetus for the bill is the widespread damage caused in the state by a series of tornado outbreaks last year, which stressed the ability of private insurers’ adjusters to handle all the claims.
In January, state regulators said those tornados triggered more than 117,000 claims, resulting in $2.2 billion in damages.
Public adjusters point to that as a reason they should be allowed to operate in the state.
The National Association of Public Insurance Adjusters is backing the bill.
“We very much support the bill, which will protect consumers,” Brian Goodman, general counsel for the public adjusters’ group, said. “It will protect us as an industry by making sure the insurance department can ensure the adjusters are acting in a proper and ethical way.”
The proposal to license public adjusters is not without its critics.
Insurance groups say it would only drive up the price of insurance in the state.
Licensing public adjusters would do more harm than good when it comes to settling claims and holding down claims costs, according to Monique Kabitzke, state director representing the industry’s Property Casualty Insurers Association of American.
A PCI white paper on the issue said that although Alabama has a higher median home value than its neighboring state Mississippi, which has a public adjuster law, Alabama’s overall claims cost is 16 percent lower.
A 2008 National Association of Insurance Commissioners study found that the average homeowners premium in Mississippi equaled $980, compared to the $871 paid by Alabama homeowners, a 12.5 percent difference.
Kabitzke said those higher claims costs reflect the monetary interest of the adjusters, who typically receive a 15 percent commission per claim. “Public adjusters have a vested financial interest to maximize the claims costs,” she said.
The same pattern could be found in other states without a public adjuster law, she said.
Along with Alabama, Arkansas, Alaska, Wisconsin, South Dakota and Virginia do not license public adjusters, although Virginia lawmakers are currently considering such a proposal.
Kabitzke also argued that the use of public adjusters can lead to other problems, such as taking more time to process claims thereby delaying the settling of claims. That is not to mention the prospects for fraud.
“The public adjusters would do more harm than good,” Kabitzke said. “Insurance companies employ their own adjusters who can walk policyholders through the claims process free of charge.”
State lawmakers considered a similar bill last year to regulate public adjusters, but dropped the proposal in part due to objections from the Alabama State Bar. Lawyers were concerned the adjusters’ activities might step over the line and that some of their conduct could be considered practicing law without a license.
Ingram said, however, that in talks with the bar association about the bill those objections are being addressed. He said that despite the opposition in some quarters, there is a good chance the bill will pass this year.
“There is a lot of interest in doing this,” Ingram said. “And I think there is the lobbying muscle power to get it done.”
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