Is the Property Claims model fit for purpose?
In recent years the landscape of the property claims business in Ireland has been hard hit. Insurers outsource the handling of property claims to loss adjusting companies to act on their behalf. Adjusting firms are invited to tender to work on their panel, as one of their outsourced service providers. Over the years the adjusters’ fees were pitted against each other in a battle for volume, and many Insurers only use two loss adjusting firms on their panel. The adjusting firms were expected to do the ‘volume’ business at below cost on the basis of getting their share of the large claims.
With the advent of the Consumer Protection Code and increased compliance and regulation costs, the adjusting firms were expected to shoulder this cost burden. They endure strict auditing by Insurers to ensure all compliance matters are strictly adhered to…within the letter of the law, but not necessarily the spirit of the law.
The increased level of audits produced ever greater levels of compliance, for no additional reward. In addition, Insurers looked for ‘leakage’ which was deemed to be any claim payments which in their view should not have been paid, or were over and above what should have been paid, and this amount was sought as a refund from the fees paid to adjusting firms in question. This has led to ever more caution and fear, undermining loss adjusters’ autonomy, and their delegated authority status, to reach rock bottom settlements, to the detriment of consumers.
Insurers and adjusters in a continuing drive during the recession years to reduce claims costs, tried to use ‘agreed rates’ as a maximum amount per meter/meter squared for various trades e.g. plastering, flooring, decoration etc. Insurers/adjusting firms set up networks of builders who would agree to do work for these ‘agreed rates’ on the basis of promises of large volumes of work that drove economies of scale. Very soon it transpired that whilst the insurers/adjusters were sticking to their ‘agreed rates’ they were not offering the work to their network builders, who were being used to quote to drive the price down but with no intention of getting the work. The network builders, desperate to get work in the post-crash era, soon realised that they were not being offered the work, and in cases where they were, there were items not allowed for in the ‘agreed rates’ that made it uneconomic or impossible for them to do the works at a profit. The network panels fell apart, with contractors not willing to be used by insurers/adjusters in that way. However adjusting firms continue to quote “we have to stick by those rates or it will be deducted as leakage”, or “they’re XYZ Insurers rates, there’s nothing we can do about it”. This is simply anti-competitive, anti-consumer and scandalous market practice.
The next blow to adjusting firms came when some insurers took a decision to employ their own in-house loss adjusters or contractors to settle claims directly with policyholders. They engaged some of the most experienced and efficient loss adjusters. This has had two side effects. Firstly, some Insurers began handling more of the medium to large property claims in-house, so the loss adjusting firms on their panel no longer get the larger, more profitable claims and yet are still expected to handle the smaller un-economic claims. Secondly, they undermined the relationship they had with adjusting firms, by cherry-picking their staff (and the best claims) and increasing pressure on their survival. Other experienced adjusters have been made redundant or simply cannot perform to the level required to deliver an effective response. The volume of claims on the remaining adjusters has increased leading to serious declines in service levels, response times and claim life-cycle times.
Far too many claimants are treated with unfair duress and with ‘expert’ interpretation of policy liability in favour of Insurers. As the law reform commission recenlty reported, there are too many instances of cover being unfairly denied for spurious reasons.
Insurers sell the intangible; they promise to make things right when things go wrong. However, in the drive to survive and the short-term focus on cost savings they may have un-intentionally hindered their ability to live up to their promise. Certainly there is no possibility of any semblance of being able to cope in a severe weather event if they are struggling in the current quieter times.
Solvency II may be all about capital adequacy, but what about ‘human capital adequacy’? What about customer service and delivering the promise? The insurance business is all about protecting the consumer. The only way to do that is to employ adequate resources to deliver the promise. Consumer protection should not be in the hands of the Central Bank who are the prudential overseers of financial institutions. Proper consumer advocacy needs to be under a separate agency to the one that regulates the regulated entities. One that can enforce service levels, response times and ensure that the spirit of the insurance promise is lived-up to.
Balcombes Claims Management
“Protecting the Policyholder’s Position”
1800 506 700