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By MATTHEW BRODSKY, senior editor/Web editor of Risk & Insurance®

A large property insurance claim can turn into a soap opera, with dozens of high-end, big personalities trying to steer the plot line. It's not a secret to claims experts, or any risk manager who's faced one, that settling a large loss has only gotten more dramatic, and difficult, in the last couple decades. A new survey about property claims sheds some light on why.

Only 17 percent of time/element claims, on the other hand, were settled before the end of the period of liability, while 68 percent took one to 12 months after the period for settlement.

The general trend, however, is that larger, complex losses are taking more time to settle, largely because they involve more and more people--more people with their own judgments.

"It's really a question of the extent that discretion plays a role. ... The more (people) you involve in the process, meaning outside adjusters, attorneys, more insurance companies and their representatives, and so on, the more judgment there is, not the less," said Bruce B. Thomas, managing director of Transurance.

Problem is, as well, some of this judgment isn't well informed. Claims experts interviewed for the survey noted how younger adjusters don't have their training and experience. Many risk managers don't have experience going in either. And the brokers selling them their property policies, added Thomas, have little claims knowledge and could pass on faulty assumptions about what those policies cover.

"What brokers and carriers might not say is, 'There is an inherent limitation here,' " explained Ware Preston, also a Transurance managing director.

That leads us to our key takeaway from the survey: That when a claim is all said and done, insureds end up footing more of the bill for a loss. Property insurance only covers 65 percent to 75 percent of total economic damages from an event, the survey showed.

Not to fault property insurance. It just can't cover "value creation."

"It's just the nature of the beast," said Ware (whose firm, it must be said, offers a product that's meant to fund that remaining 25 percent to 35 percent gap).

BUT ...

It must also be said that the survey only included 16 respondents (though Thomas attested to their collective, impressive experience--461 years and 2,370 large claims settled among them--and industry representation).

Risk & Insurance® only had to ask one additional claims expert to look at the results to get into some other potential issues with the findings.

Harvey Goodman, principle with Goodman-Gable-Gould/Adjusters International, agreed with 75 percent of the survey.

The other 25 percent? Take the question about what types of outside professionals were hired by the insured. Goodman took umbrage with the fact that he and his colleagues--public adjusters--weren't even an option.

"Which is kind of funny," Goodman said, adding that personally he's handled as many as 100 large property claims over his career.

Insureds bring in Goodman and his colleagues to make sure their interests are being represented as the claims resolution plot unfolds. And we're not just talking about large Fortune 1000 clients. He's dealt with $50 million companies with multimillion dollar losses and no in-house risk management.

"They are so thinly staffed they often have no resources to dedicate to the insurance claims process," he said.

Goodman disagreed with the survey's finding that insureds' expectations about the extent of their insurance coverage diminish significantly during the course of claims settlement. His experience is that expectations increase the longer a settlement takes.

The veteran adjuster also didn't agree with the key takeaway, that property insurance can never fully cover a loss. Sure, there might be disagreement over numbers. But there is coverage out there to cover other economic hits, like loss of value and potential damage to business relationships: for instance, extended business income coverage.

Most importantly, Goodman stressed, it's up to insureds to properly measure their loss. If you don't ask for the right amount, you're not going to get it.

January 11, 2010

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