Following is Part I of Insurance Recovery Straight Talk By Matthew from Risk Worldwide
Matthew, with Risk Worldwide, is licensed to practice law and focuses on the area of insurance coverage litigation. Matt is involved in assisting policyholders of commercial and residential property lines in understanding their benefits and managing the insurance claim process.
What is Core Claims Process Redesign and What Does it Mean to You?
Do you think your insurance company is looking out for you? Do you think they have your best interests in mind? You may be mistaken, and that mistaken belief may cost you in the long run.
The insurance industry experienced a shift in the late 80s, early 90s. This shift caused the insurance industry to go from equally considering the interests of the company’s policyholders and shareholders to putting the interests of their shareholders first. This change in practice, known as Core Claims Process Redesign or CCPR, has had a huge impact on insurance policyholders and how those policyholders are making everyday claim processes under their insurance policy coverage.
The insurance industry is a socially vital financial safety net for your typical homeowner and your typical business owner. Insurance customers buy insurance policies to protect themselves financially against a loss that could occur due to an unfortunate event, whether it be a theft, fire or natural disaster.
Back in the day, you paid a certain premium for a certain amount of coverage and you had faith that when you bought your policy, you were going to receive the assistance of the insurance company if you ever needed it. You had faith that your insurance provider would help you recover everything that you may have lost under your policy. That included being paid the full amount of your loss. That is, after all, why you buy insurance. Unfortunately, this is not always how the insurance industry works.
Due to the shift in the industry, we are in a system where once you have a loss and report it to your insurance provider, you can’t necessarily trust that the insurer is going to put your interest on par with their own. What that means is that you cannot rely on the insurance company to point out to you all of the available coverages that you may have under your insurance policy. You also can’t count on the provider to pay you the full amount of money that you may be entitled to recover .
Let’s use the example of an auto collision. You have an accident. Maybe it’s the other driver’s fault or maybe it’s your fault, but you assume that your insurance should cover the damage. Now let’s say it’s going to cost $10,000 to fix your car. That is the actual amount that it will take to restore your car to its previous condition. These days, the insurance company is going to try to get away with paying you only $8,000. Not because it’s the right thing to do, but because they are setting that as a benchmark for themselves.
Why is your insurance company trying to get away with paying you only $8,000 even if you are entitled to $10,000? They are trying to underpay you $2,000 because if you stretch that across the board of all of the policyholder claims they receive each year, that gives the company an extra revenue of $100 million dollars. It’s the insurance company’s way of putting their interest above yours and it’s why you have to be very vigilant when obtaining an insurance policy and filing a claim. You have to make sure that your interests are being protected.
Who Are the Players?
The most visible example that has come to stand for this process is the relationship between Allstate and McKenzie and Co. It’s one of the largest consultancies in the world, and they are the ones who developed this Core Claims Process Redesign for Allstate back in the 90s. That is the one we know the most about. As you can probably imagine, the process is not something that the insurance companies want to broadcast. It’s not something they jump up and down and cheer about in commercials or at shareholder meetings. It’s something they like to keep quiet. We do know, however, that McKenzie has also provided advice and worked with other insurance companies like Farmers, State Farm and Firemen’s Fund.
Beyond McKenzie, there are also other programs and consultancies that have worked with insurance companies. Safeco, for example, is a company that has a program called Quantum Leap. This program moves them in the same direction as McKenzie and the CCPR program. This approach to claims definitely cuts across many different insurance companies and different types of policies. It makes sense for these companies to do this because once Allstate did it, they made more money for themselves on every premium dollar charged. When you are looking at publicly held companies with shareholders, your performance is always measured against other companies in your industry. So when Allstate was doing this and Allstate started to reap the benefits and rewards, other companies like Farmers, State Farm and other insurers that were in the same industry were hard-pressed to achieve the same results. The easiest way for them to do so was to follow the model that McKenzie and Allstate showed to them. Basically, in order to compete, these companies had to adopt the same business model as Allstate in order to stay viable in their industry.
What Does CCPR Mean for the Average Consumer?
CCPR, in the most basic of terms, means that your insurance company is not looking out for you. The company is looking out for itself. It means that rather than making a claim to your insurance company and trusting that they are going to take care of you, you have to follow-up with the adjuster and with your insurer every step of the way. You need to look at your policy and understand exactly what it says. You need to ask the adjuster the right questions. If you have a question and if there is a benefit that your policy states that you have and that benefit has not been provided to you, then you need to ask that question of the adjuster. You need to stay on top of the insurance company.
Let’s say, for example, your insurance company says they can indemnify you for x amount of dollars, but you think that you are entitled to more. You need to bring that up. These companies rely on the average consumer to just take the company’s word for it. They rely on the average policyholder to believe that they are really looking out for them. They are counting on you just accepting the first offer they give you. For the most part, they are relying their policyholders being docile, passive and uninformed. If you want to make sure your interests are protected, make sure you don’t fall into it. Do everything you can to get every penny you are entitled to.
- Years of storms bring higher insurance rates (ajc.com)
- Insured for the big one? (sandiegolocals.wordpress.com)
- Catastrophic Losses and What You Can Do About Them (riskworldwide.com)