For AUP in Claims, Objectivity and Training Expertise is Key

Even though hurricane season 2024 has passed, claims professionals are still hard at work processing claims and damages in the aftermath of hurricanes Helene and Milton.

Insurers expect to see an influx of activity in Appraisals Under Policy disputes this month following hurricane season. For example, policyholders in Florida are approaching the 60-day window to submit documentation for AUP claims and dispute damages related to Hurricane Milton.

Under a heightened urgency to resolve claims, insurance professionals are advised to treat AUP adjustments with objectivity and rely on their skills as qualified adjusters to look at these claims with a fresh set of eyes to find a fair outcome for both the policyholder and the insurer.

What is AUP?

It’s not uncommon for someone in the insurance industry to need a refresher on how AUPs are resolved.

AUPs allow insurers and policyholders to seek an impartial resolution when they cannot agree on the amount of loss or damage covered under the policy.

Most insurance carriers have AUP language written into policies that says, in the case of a fundamental dispute about the value of a claim, a policyholder has the right to request an appraisal within a time limit set by the policy.

Policyholders and insurers hire their own expert appraisers to evaluate the damage and assign an AUP adjuster to serve as an appraiser to objectively review the facts of the claim, inspect the property in question, produce a scope and estimate that serve as a tool for negotiation and ultimately help resolve the matter of value that is at question. Both sides agree to an umpire that helps facilitate a settlement if the two designated appraisers cannot arrive at an agreed settlement.

It’s important to note that AUP adjusters do not determine policy coverage or any other aspect of the claim other than the damage under dispute. AUPs happen completely aside from the rest of the claim, following a clear delineation of responsibility and objectivity on the part of the AUP adjuster.

In many cases, the policyholder is a homeowner, disputing an estimate or cost incurred on any type of damage to their property—a roof, drywall, carpet, a total loss due to a fire, anything can be disputed. However, appraisals can happen in many different types of policies, including commercial property, marine, automobile, business interruption and fine art and jewelry—any policy that insures physical property where the value of damage could be disputed.

Ultimately, AUP adjusters are responsible for giving a fair and objective view on the fundamental dispute at hand and resolving it in a way that does not create friction for the homeowner or the claims professional that did the initial adjustment.

AUP Best Practices

As fair and objective experts of the claim dispute, AUP professionals must be prepared and practiced in evaluating and adjusting claims fairly.

AUP claims professionals must approach AUP adjusting with empathy and objectivity to the process as a best practice. It is critical that they are not perceived as a “hired gun” to reduce a claim settlement.

Many variables play into how AUPs are resolved, and the value of disputed damages are assessed, including market conditions, timing of response, complexity of the claim, material quality to be used for the repair, location of the loss, location of specific material, or the supply and demand of experts available that can help the policyholder with the specific type of damage.

Conflicts can occur when expectations do not align with what gets executed within the estimate or even post-repair. AUP adjusters must objectively navigate conflicts between differing opinions on repair costs between contractors hired by the policyholder, whose estimates may differ from costs estimated by the insurer’s adjuster.

This is where a skilled claim professional overseeing the AUP adjusting shows their value. AUP adjusters must really understand the dynamics of a claim, review all the documentation in the claim and adjust it to the unique circumstances of the dispute. This comes with years of experience and continuing education to stay relevant with current construction and issues of cost relating to a claim.

At Sedgwick, we require our AUP claim professionals to become certified and accredited in this practice and have at least 10 years of experience as an adjuster. It’s important for both the policyholder and the insurer to feel confident in the AUP adjuster’s ability to serve as either a hired appraiser or umpire in the dispute, fairly and objectively resolving the scope of damages and the valuation of repairs needed.

All parties involved in AUPs are also advised to act with clear and timely communication. Though claims are regulated on the state level, which impact the timeline for resolving appraisal disputes, most states require insurers and policyholders to act in good faith to avoid unnecessary delays and resolve disputes within a reasonable time. However, these regulations are vague and open to a degree of interpretation.

Either party may cause delays, refuse to cooperate in good faith, or struggle to agree on an umpire to oversee the dispute, leading to delays or court intervention. Disputes are resolved quickly and amicably when parties are cooperative and rely on open lines of communication with the appointed AUP umpire.

AUP adjusting is all about finding solutions for providing equitable value on specific damages within claims. The solution may not be exactly what the policyholder or the insurer had in mind—but claims evaluation is a process of adjusting, not exacting. With their objective viewpoint backed by training and expertise, the adjuster serving as an appraiser or umpire is crucial to finding a fair solution.

McCallum is vice president, specialty operations, at Sedgwick.