Changes in Catastrophe Adjusting Role Affect Carriers

This year’s increased number of weather-related catastrophes could lead to a reduction in available experienced catastrophe adjusters should additional disasters occur, and produce increased litigation against adjusters, according to a recent panel discussion on the subject organized by A.M. Best.

The panelists suggest the anticipated lack of manpower poses a challenge to insurers and independent adjusting firms as the use of less qualified personnel and company adjusters increases. These could raise quality assurance issues and the potential for subsequent litigation, they said.

According to the panelists, adjusters responding to catastrophe claims have long faced a host of challenges, including the need to respond to claims on short notice, extended working hours and increasing volume of assignments.

Now, adjusters face new challenges as a host of plaintiff-oriented law firms target independent adjusting firms, and claims personnel individually, filing widespread lawsuits aimed at reopening previously settled catastrophe-related claims, said Harvey Lightstone, director of claims for Claims Professional Liability Insurance Co., RRG.

For a time, catastrophe adjusting appealed to retired company adjusters, many of whom traveled full or part time, finding work in damaged towns to finance their retirement. Gaining experience along the way, the adjusters traveled storm to storm, which garnered them the nickname – “storm troopers”. According to the panelists, reporting was vague, with attention focused on the scope of the loss and resulting damages.

The recent economic downturn caused a number of displaced company adjusters to turn to a career in catastrophe loss adjusting. The problem, said one panelist, is that company adjusters don’t have the skills and experience necessary to handle the job.

While many of the skills required to adjust a catastrophe loss mirror those for handling everyday claims, the difference comes down to situations that accompany disaster-related claims. These are the challenges that occur outside of the day-to-day claims handling experience. The situations include:

• handling a large volume of claims

• dealing with damaged infrastructures

• locating insured properties now destroyed

• dealing with a lack of communication due to public utility outages

The panelists suggest that company adjusters should obtain additional training prior to going out on a catastrophe loss.

“Any additional skill set that you can bring to the mix only leads to the greater possibility of deployment on more and more claim operations,” said T. Mark Nixon, president of Nixon and Co. Inc. He recommends adjusters build their skills by adding certifications, such as in roofing and construction.

A number of insurers retain multiple adjusting firms for catastrophe work, said Lightstone. Insurers looking to hire an independent adjusting firm to handle catastrophe loss assignments want to see firms that have strong management teams with staff skilled in estimating and reporting. Nixon and Roberts emphasized good customer service skills as equally important. Specialized training and certifications are also important, said Gene Roberts, assistant vice president/director, Property Claims Operations, State Auto Insurance Companies.

The ability of the firm and individual adjuster to set out policyholder expectations, as well as to effectively explain the claims process, are deciding factors to many insurers, said Nixon. The panelists agreed the adjuster should not rush an insured, especially during catastrophe losses.

The amount of time spent on inspections as opposed to reporting is a major issue for insurers, said Johnny Michalek, general manager of Gulf Coast Claims Service and past president of the National Association of Independent Insurance Adjusters (NAIIA). “In Texas… we are leading the nation in catastrophe-related lawsuits in the last couple of years. It’s important to stress… the importance of properly documenting your file,” said Michalek.

The increase in litigation stems from the inability of a firm or adjuster to recognize the limits of scalability and gauge the number of claims taken in, leading to reporting and servicing issues, according to Lightstone and Roberts.

“By [hurricane] Ike the plaintiffs’ bar…really got involved in filing lawsuits not only against the property insurers, but what was a new phenomenon was that they were now filing these lawsuits against, and serving, not only the insurance companies, but the independent adjusting companies that handled the claims, as well as the individual independent adjuster,” said Lightstone. “They filed those lawsuits by the tens of thousands…Adjusters, individually, have had as many as 100 lawsuits that they have been served with.”

Lightstone said that in most instances, the defense was tendered to the carrier for whom they conducted the work. In 80 percent of the cases, the carrier assumed the defense with the caveat that if a conflict was discovered, the defense obligation could end.

“Where the carrier elected not to defend the independent adjuster they were forced to tender the case to their E&O [errors and omissions] carrier,” said Lightstone.

As a result of the changing face of catastrophe claims handling, insurers will see initial agreements, upon the retention of an independent adjuster or firm, outlining each party’s duty in the event of lawsuits arising from the handling of catastrophe losses, according to Lightstone.

The panelists said they expect this type of litigation to spread across state lines. Lightstone said he is beginning to see similar litigation on claims other than catastrophe losses, a growing concern for insurers nationwide.

While both insurers and independent firms will be affected by the growing litigation, independent adjusters may suffer the greatest impact of all, they said. An adjuster individually named in a lawsuit that becomes a matter of a public record may be hit with a negative credit rating, an issue that might deter future adjusters from catastrophe work and pose even more problems for the insurance industry in the wake of a stormy weather season.