Insurance Claim Clarity

Navigating the Insurance Claims Process with Confidence

Experiencing a major property loss, such as a fire or flood, is an incredibly difficult and stressful event. In this moment of need, your insurance policy is a crucial asset, and understanding your rights and options can make all the difference in a smooth and complete recovery. This article is designed to provide clear, actionable information to help affected community members make informed decisions throughout the claims process.

Below are common terms to understnad as a policyholder.

• Insurance Carrier: The company that issued your insurance policy and is contractually obligated to provide coverage.

• Company Adjuster: An employee of the insurance carrier who investigates the claim, assesses the damage, and determines the amount the company will pay.

• Third-Party Administrator (TPA) or Managed Repair Program (MRP): An external company, such as Sedgwick, Accuserve, Alacrity, or Contractor Connect; organizations that manage a network of contractors and vendors on behalf of the insurance carrier.

• Vendors and Contractors: Professionals, such as builders, plumbers, and roofers, who perform the repair work on your property.

• Housing Vendor or Service Vendor: A company that provides temporary housing or other services, such as content cleaning or emergency mitigation, during the repair process.

• Department of Insurance (DOI): A state government agency that regulates the insurance industry and protects consumers. The DOI can be a valuable resource for filing complaints or understanding your rights.

• Delay, Deny, Defend is an alleged strategy used by some insurance companies to minimize payouts on claims. It is particularly prevalent in complex, high-cost claims like structure or wildland fire. The goal of this strategy is to wear down policyholders, leading them to accept a lower settlement than they are entitled to.

The Insurance Company Adjuster: An Overview

The claims adjuster is the professional who works for the insurance company to assess the damage to your property and determine the cost to repair or replace it. The primary role is to ensure the damage is covered under your policy's terms and to confirm that the expenses for repair or replacement are reasonable and necessary. As long as you follow the terms and limits of your policy, the adjuster is responsible for authorizing payment for all covered expenses. Claims adjusters are not paid a commission or a percentage of the repair costs, so they should not have any financial interest in who a policyholder hires. See more on managed repair programs and third party administrators for conflict of interests and kickbacks in the next section.

A homeowner's insurance policy gives the policyholder a contractual right to have their home repaired or replaced to its pre-loss condition. This includes the right to choose their own contractors. An adjuster or their insurance company cannot force a policyholder to use a specific contractor.

It is helpful to view the adjuster as a manager of your claim, whose job is to verify and approve the scope of work and its associated costs. They are not authorized to pressure you into a specific decision or deny a claim simply because you choose a different path. The claims adjuster or company adjuster is hired and works for the insurance company, they do not charge the policyholder for their service. A Public Adjuster is a separate, third party entity that represents the policyholder against the insurance company, they do charge a fee. 

Initial Claim Frustrations and Clarification

• Delay: This phase involves using various tactics to prolong the claims process. Adjusters might frequently request additional documentation, change personnel on the claim without notice, or simply fail to return phone calls. This strategy is designed to create a sense of urgency and financial hardship for the policyholder, who may be displaced from their home and incurring temporary living expenses. The longer the delay, the more likely the policyholder is to become desperate and accept a low offer just to resolve the situation.

• Deny: If delaying the claim doesn't work, the insurance company may outright deny it. This can be based on a number of reasons, some of which may be legitimate, but others may be spurious or misleading. They might claim the fire was intentionally set, that the damage was pre-existing, or that a specific type of damage is not covered by the policy. Even if the denial is baseless, it forces the policyholder to spend time and money challenging the decision, which can be an intimidating process.

• Defend: This final stage occurs when a policyholder takes legal action against the insurance company after their claim has been denied. The insurer will use its legal resources to defend its position in court, often prolonging the lawsuit for years. This is a high-cost strategy for both sides, but the insurance company has far greater resources, making it a powerful tactic to force the policyholder to settle for a fraction of the full claim value.

Why Adjusters Arrive with Vendors

Once the affected community has moved past the initial frustrations, they will need to navigate the insurance process. There are several reasons an adjuster might show up with a group of contractors or vendors. Some of these are legitimate and helpful, while others are a form of "steering" that may not be in the policyholder's best interest.

• Convenience: Many adjusters and insurance companies understand that a policyholder is stressed and may not have the time or knowledge to find and vet contractors. Providing a list of "preferred" vendors can be a genuine courtesy to help them get the process started quickly.

• Efficiency: Using a network of pre-vetted contractors can sometimes streamline the claims process. These contractors are familiar with the insurance company's pricing models and paperwork, which can lead to faster approvals and fewer delays.

• Quality Control: Insurance companies often have a quality control process for their preferred networks. This can mean that the work is guaranteed and any issues that arise can be resolved directly with the insurer or the TPA managing the program. 

• Extended Warranty or Guarantee: "Program" or "preferred" vendors may be required to provide extended warranties on supplied work as a part of the program requirements. External or third party vendors not approved by insurance programs have a typically one (1) year warranty; IFF recommends to review each entity for quality of work, references and warranty periods to determine which vendor, contractor or warranty works best for your recovery.

However, there is also the potential for a conflict of interest, which is where the problem lies.

• Financial Kickbacks: Kickbacks are a real and problematic aspect of "preferred" or "program" vendors. Some insurance companies and third party administrators (TPAs) have financial interests in the vendors they recommend. By steering a policyholder toward these vendors, the insurance company can effectively move money from its "losses" column to its "profit" column. With TPAs, almost all programs include a kickback to the TPA (and ultimately the Insurance Carrier) for vendors or contractors to stay in the program. 

• Contractor Loyalty: A contractor who receives a consistent stream of business from an insurance company may feel their primary loyalty is to the insurer, not to the policyholder. This can incentivize them to keep repair costs low, potentially cutting corners or using cheaper materials.

• Adjuster Bias: The adjuster may bypass the TPA or managed repair program (MRP), and bring in vendors they know or have personal bias toward; this may not be in the best interest of the policyholder or the recovery process. Ensure to complete your due diligence on each of the vendors, contractors or service providers adjusters introduce you to, and be cautious if the vendors are from out of the area or do not fit the necessary qualifications for the scope of the work.

How to Handle the Situation

If an adjuster shows up with a posse of contractors, you have several options.

• Listen and Learn: Take the information and bids they provide. This can be a useful starting point for understanding the scope of the damage and a baseline for comparison.

• Assert Your Right to Choose: Politely but firmly inform the adjuster that you appreciate the recommendations but wish to conduct your own due diligence and get other bids. If the bids come from vendors within "program," it may cost $200 per bid. As opposed to licensed vendors or contractors local in your area, most will provide a free estimate or evaluation.

• Do Your Own Research: Research the recommended vendors as well as your own. Always get at least two or three bids for the work. This will give you a clear understanding of the market rate for repairs and ensure that the price you are paying is fair.

• Communicate Clearly: Inform the adjuster in writing (email is best) of your decision to use your own contractors or use the program vendor. This creates a paper trail and helps prevent any future claims of miscommunication.

Ultimately, the goal is to make a decision that you are confident in, whether that means using a recommended vendor, hiring your own vendor or identifying the replacement service through your own due diligence.

Understanding Managed Repair Programs and Third-Party Administrators

Many insurance companies partner with third-party administrators (TPAs) or managed repair programs (MRPs) like Alacrity, Contractor Connection, Accuserve, and Sedgwick. These organizations are external to the insurance company and are designed to provide a network of pre-vetted service providers, including contractors, content restoration companies, and temporary housing vendors.

The intent behind these programs is often presented as a benefit to the policyholder: a faster claims process, a pre-approved list of qualified vendors, and consistent quality control. However, it's important to understand the business model to ensure you can make the best decision for your unique situation.

• How They Work: When you file a claim, your insurance company may assign a third party administrator (TPA). The TPA then connects you with a contractor from the pre-approved network. These contractors have an agreement with the TPA to accept work at a certain rate in exchange for a steady volume of business. The money paid to the contractor is processed through the TPA. TPAs may be owned or operated by the insurance carrier themselves. Contractors, vendors and other service providers may be charged kickback fees between 6-12% to stay in the program. TPAs may coerce the policyholder to use "program" or "preferred" vendors to ensure they receive the financial kickback. It is inappropriate, and will not impact a claim if you use program vendors or preferred contractors. 

• Potential for Friction: While some policyholders find this process convenient, others may feel a sense of limited choice. You may prefer to work with a trusted contractor you have used before or one recommended by friends or family. It is essential to know that you are generally not obligated to use a contractor from the insurer preferred list. Preferred vendors may guarantee or warranty work for longer periods of time; ensure to utilize whichever contractor, vendor or service provider aligns with your policy coverage, budget and recovery timeline with the appropriate license, bonding and qualificaitons. 

• Financial interest: Insurance companies may own or have financial interest in the TPA. As a significant portion of the claim is effectively recycled back to the insurer as profit through the TPA, sometimes bypassing the regulatory scrutiny on direct profit margins.

The arrangement creates a situation where the carrier and the TPA have a vested interest in minimizing the cost of your claim. The loyalty of the TPA and its network is not to you, the policyholder, but to the company that provides them with a steady stream of business. It is imperative the policyholder identify, vet and choose service providers, contractors or vendors that align with the policyholder's recovery.

Your Right to Choose

As the policyholder, you have a fundamental right to choose the professionals who will repair your home and the vendors who will help you during your displacement. This right is a cornerstone of a fair claims process.

Here’s how this applies to different aspects of your claim:

• Replacement Housing: You are entitled to be reimbursed for temporary housing that is of a similar standard to your damaged home, within the limits of your "Additional Living Expenses" (ALE) or "Loss of Use" coverage. You have the right to find your own housing that meets this standard, stays within your budget, and is convenient for you and your family. During the course of your claim, and in the initial investigation process; the adjuster may only approve short term or hotel accommodations until the timeline of recovery is approved. This may be a significant retraction in quality of life and stability for a family. The policyholder should take an active role in finding short, mid or long term housing replacement if the damages warrant displacement. Housing vendors or other service providers may not align with your housing preferences, needs or requested amenities.

• Investigation: All large or complex claims need to be investigated for origin and cause. You may find a third party investigator following the same guidelines and criteria for other necessary services; ensure the choice is licensed, insured, bonded and has the necessary expertise or experience required to complete the job at or beyond industry standards.

• Contractors and Services: Whether it’s a general contractor for reconstruction, a mitigation company for water damage, or a contents cleaning service, you have the right to choose the professional company performing services for your claim. It is a good practice to get multiple bids to ensure the proposed costs are reasonable and the scope of work is comprehensive under the coverage of your policy.

Navigating the Process with Confidence

To ensure you have a positive claims experience and that your home and belongings are fully restored, consider these steps:

1. Document and Communicate: Keep a meticulous record of all communications with your insurance company, adjusters, and vendors. Note the date, time, and name of everyone you speak with, and summarize the conversation. Confirm important agreements in writing via email.

2. Understand Your Policy: Familiarize yourself with the specifics of your policy, including your coverage limits for your dwelling, personal property, and Additional Living Expenses. The California Department of Insurance provides helpful resources and guides for policyholders. Contact IFF for additional resources or local experts within the IFF Trusted Network.

3. Vet All Professionals: No matter who refers a contractor to you—the insurance company, a friend, or an insurance adjuster/insurance third party administrator—it is your responsibility to do your due diligence. Verify their license, insurance, and bonding status. Check references and review past work.

4. Know Your Rights: Be aware that in many states, it is illegal for an insurance company to require you to use a specific contractor. If you feel you are being pressured or if a representative suggests your claim will be denied if you do not comply, you have the right to push back. Report any inappropriate conduct to the California Department of Insurance.

5. Seek Independent Advice: For complex claims, you may benefit from consulting with an independent professional, such as a legal firm or an attorney who specializes in insurance law. These professionals work exclusively for policyholders and can help ensure you receive a fair settlement. 

By understanding the landscape of the insurance industry and confidently exercising your rights, you can empower yourself to make the best decisions for your recovery and secure a full and fair restoration of your home.

These tips are intended for educational purposes only. No legal advice should be inferred from these materials.

Navigating the Complex Claim Process