Loss adjusting changes urged

The Cayman Islands Monetary Authority’s report released last month concerning the local insurance industry in the aftermath of Hurricane Ivan recommended several changes in the way loss claims are done here.

The report was critical of several aspects of loss adjusting after Ivan, with CIMA concluding that ‘levels of claims handling expertise and professionalism fell well short of acceptable levels’.

Some in the insurance industry, however, do not think all of the criticism was fair.

David Jamison, the chairman of Axis International Loss Adjusters and one of the three main companies that provided claims adjusting services after Ivan, thought the criticism was too selective.

‘If you’re going to look at a situation, I think you need to look at the successes as well as the failures,’ he said. ‘But I understand the focus of the report is to look at what can be done better.’

CIMA pointed to three particular aspects of Ivan claims adjusting as the cause of the problems, the first one being the ‘indiscriminate, over-delegation of claims settlement negotiations by insurers to loss adjusters’.

After Ivan, many insurance companies allowed claims adjusters to negotiate claims up to a certain amount. CIMA found this practice unacceptable.

‘It is unfortunate that at the very time when the insurers’ product is being tested, policyholders find themselves one step removed from those who originally sold the product to them,’ the report stated.

‘Sub-delegation should not be allowed and insurers need to think very carefully about the extent to which loss adjusters should have the authority to settle losses on their behalf…’

Mr. Jamison, who has been in the loss adjusting business for more than 25 years, said having claims adjusters negotiate settlements is standard business practice.

‘It’s extremely common place and, in fact, the norm for insurers to delegate authority to settle claims,’ he said.

The practice is used to reduce the amount of time for claims settlements, Mr. Jamison said.

Bryan Murphy, the managing director of Island Heritage Insurance, agreed.

‘It was in the interest of speed and efficiency why it was handled the way it was,’ he said. ‘When you have claims on 90 per cent of your portfolio, there is no way an insurer can handle that in a normal fashion.’

In one case, the CIMA report stated that an insurance company gave adjusters full authority to settle claims up to CI$180,000, something Mr. Murphy said he found very surprising, and not usual practice.

The CIMA report also took issue with the insurance industry’s use of less experienced loss adjusters after Ivan, although the report stated it did appreciate that resources of international loss adjusting firms were severely stretched because the effects of other hurricanes in the Caribbean and Florida.

Mr. Jamison pointed out that Cayman was unlucky to be hit by Ivan after the other places had already been hit, which meant that many loss adjusters were already assigned before the damage was sustained here. He noted that there are only so many loss adjusters in the world.

Mr. Murphy said he thought the CIMA report did not go far enough in acknowledging the enormity of Ivan, which created claims on more than 90 per cent of insured properties on the island.

‘We will never have enough adjusters to cope with Ivan-type adjustments,’ he said.

Mr. Murphy stressed the need to allow loss adjusters to enter the country freely after a disaster.

‘We need to come to some sort of arrangement with Immigration,’ he said.

The CIMA report recommended insurers make sure they could call on experienced and professional adjusting resources on short notice, and, if necessary, pay advance retainers.

Mr. Murphy noted that retainers, which would be lost if there was no hurricane, would be expensive and would drive the cost of insurance even higher.

‘I take CIMA point though,’ he said. ‘We need to have something of a more formal arrangement with loss adjusters.’

Another criticism of the loss adjusting process in the CIMA report dealt with over-aggressive adjusting of claims.

The report pointed out that there was a good deal of anxiety on the part of Cayman Islands policyholders after Ivan that, if their claims were not settled quickly, insurers’ money could run out.

‘Whilst not suggesting that loss adjusters may have played on these concerns, there is evidence that some assessors promised immediate payments subject to claimants accepting heavily discounted settlements,’ the report stated.

Mr. Jamison said he hoped no one working as an adjuster for Axis would have played on the fears of a claimant.

‘I would be extremely disappointed if anyone in our company did it,’ he said. ‘They would have been in big trouble had we found they had.’

Mr. Jamison said it is not in loss adjusters’ best interest to alienate policyholders because their cooperation is necessary in the claims settlement process.

The CIMA report noted that not once in the many files it reviewed did it come across the working figures of the loss adjusters, which could have been used to justify proposed settlement amounts.

‘Basing settlements on unsubstantiated assessments cannot be good market practice as insurers should have insisted on the sight of such workings,’ the report stated.

Mr. Jamison said loss adjusters keep all of their figures in their files in case of any issues about specific claims arise.

He said it was normal practice for the loss adjusters to maintain those records.

‘It’s a streamlining of the process to make sure clients get payments quickly,’ he said. ‘If you bog down the process with paperwork, things don’t move as quickly.’

The CIMA report noted that loss adjusters often got the deductible calculations wrong in their Ivan settlements.

Mr. Jamison said he did not think it was a widespread problem with all the loss adjusting companies, and particularly not with his firm.

‘Every report is proofread before it goes out, and we would pick up any errors in the application of minimal deductibles,’ he said.

As with sections of the CIMA report that dealt with other aspects of the post-Ivan insurance situation, the industry believes it will correct any shortcomings on its own.

‘The greatest education was the experience we all went through,’ Mr. Murphy said.

Blame should not be placed on just one entity, whether it is toward insurance companies, mortgage providers, or loss adjusters, he said.

‘There are responsibilities everywhere,’ he said, noting that even policyholders must share some of the blame for what happened after Ivan, especially when it came to underinsurance.