Insurance Companies: Overview

Knowing how insurance companies handle personal injury claims is invaluable to increasing the settlement value of your claim as well as reducing the stress and anxiety of the process. Insurance companies and adjusters have far more knowledge and expertise in handling personal injury claims than the average claimant. Claimants, on the other hand, just want a fair and reasonable settlement.  A tension arises because the uneducated Claimant does not know whether he/she is getting a good settlement.  This asymmetric knowledge and expertise makes it naturally hard to trust the adjuster. Additionally, the average claimant does not know or recognize all the factors and “data points” that are used to push your personal injury claim to its maximum value. Adjusters certainly do no volunteer this information because it would cause them to pay out more money.

When you are done reading this Module, you will:

Know How to Navigate the Claims Process – personal injury claims move in a predictable manner.  At the highest level, you open the claim, you get medical treatment for your injuries while the insurance company monitors your claim, you prepare a demand, you negotiate, and then you settle. Obviously there is much more to each aspect. ClaimClinic takes you deep into each area. You will understand the nuances, pitfalls, and opportunities for each step of the way.

Increase your Chances of the Best Settlement – being comfortable and confident with the process will enable you to maintain control over your own claim.  Much of what happens in your interaction with your insurance company derives from control and respect. Personal injury claimants who do not understand the process end up relying on the adjuster for advice on how to handle and document their personal injury claim. That is a classic conflict of interest. You should not rely on a person whose job, performance rating, and bonus are all tied to closing as many claims as fast as possible for the least amount of money.  Knowing the process will avoid this trap.

Be Comfortable Talking to Insurance Adjusters – Insurance adjusters use a certain vocabulary that the average person won’t understand.  You are going to be comfortable with all concepts of the claims process.  You will not be nervous or think you are in over your head.  You are also going to understand their job.  At certain points in your claim’s process, you are going to signal to them that you know how they work and strategically offer them information that will make their job easier. This will tap into the powerful psychological tactic of reciprocity.  It is human nature to want to return a favor.

Reduce your Stress and Anxiety over your Claim – There is always stress and anxiety over the unknown, especially when you are injured and your goal is to get your life back and to get fairly compensated.  Dealing with insurance companies can bring a whole host of emotions – frustration, anxiety, or uncertainty to name a few.  Knowing the entire process will eliminate these concerns and put you in a comfortable, professional place from which to handle your own personal injury claim.

How Insurance Companies Get Claims Started

Once you contact your insurer and the other driver’s insurance company, the company’s claim manager will assign your claim to an adjuster.  In many instances, the company will assign one adjuster for your property damage claim and one for your personal injury claim.

Generally, the adjuster or customer service representative opening your claim will walk through the following topics with you:

CAUTION:  While it is okay to tell the adjuster about what medical treatment you have received so far, DO NOT tell them with any specificity what your injuries are. The safest answer is to tell the adjuster you are just beginning medical treatment and you don’t yet know what all your injuries are – that you are waiting for the doctors to evaluate and diagnose you. The reason you want to be cautious is sometimes you forget to mention a pain/injury that later becomes a big deal. Some adjusters will “box you in” during your initial conversation with a list of injuries and then not acknowledge other injuries later because you did not mention it during your first call.  So, you want to be vague enough to leave yourself room to identify and claim injuries that your doctors diagnose after this initial call.

Claims Index Search

One of the things the insurance company will do as part of opening your claim is run an ISO Claims Index search on you. Homeowner insurance companies and auto insurance companies maintain a joint database where they share information on all their claims. The insurance company will always run your name, date of birth, and SSN if they have it, through the ISO claim database to see if you have any other claims.

They do this for several reasons:

1. For their Special Investigations Unit (SIU) which will look at the report to see if you so many claims that they want to investigate fraud.
2. To see if you are litigious and have lots of prior personal injury claims, even if they are justified.
3. The claims database sometimes lists the amount of money you accepted to settle other claims.  This will give the adjuster an idea of whether you are willing to take a low offer to settle your personal injury claim.

Reserving Money for Claims

Insurance companies make money by taking your premiums and investing them in the financial markets.  They don’t have a pool of money off to the side to cover claims.  Instead, they try to keep their money “working” as long as possible before pulling it out to pay claims.

Adjusters do what is known as “reserving” a claim.  A claim reserve is an estimate of what a claim will cost. The reserve represents money that is pulled out of investments and set aside for the eventual payment of your personal injury claim.  Precisely when in a claim’s timeline a case reserve is established varies by company and by line of insurance. Some companies require that case reserves be established immediately after the initial investigation is completed or within 30 days from notice of claim. Other companies defer setting case reserves for as long as three or even six months, so that sufficient information can be obtained to set a relatively realistic reserve. Until that time, these claims usually carry an average reserve.

You should immediately contact the Adjuster if your injuries or their diagnosis change so the Adjuster can change their Reserve to reflect the change in the nature of your claim.  For example, you may have started your claim thinking you only strained your neck.  But, 6 weeks into treatment and after an MRI you now have a herniated disc.  This changes the value of your case substantially so you need to proactively update the adjuster and make sure they change their reserves AND have the authority to continue to handle the claim given its change in value.

Adjusters are under great pressure to correctly reserve a claim. Reserving is one of the most important aspects of a claim to insurance companies and adjusters.  They are constantly reviewed to make sure they are reserving appropriately.  If they over-reserve, the insurance company is losing money by pulling money out of investments unnecessarily.   On the opposite side, an adjuster can also get bad performance reviews for drastically under-reserving a claim, especially when the adjuster did a poor job investigating the claim. Adjuster bonuses and promotions are sometimes tied to how good they are at reserving.  Insurance adjusters earn their performance reviews by being accurate when reserving and settling within the set amount. They are penalized by “reserve stepping”.

Reserve stepping is when the adjuster reserves must be adjusted up or down after the initial reserve is set because the adjuster miscalculated your claim’s value.  This is one of the reasons a claim adjuster will not want to settle a claim for $10,000 if she had set the reserved at $9,000. She would fight very hard to settle the claim for under $9,000 so she does not have to adjust the reserve, explain to her supervisor why she was inaccurate, and be penalized in her performance review later on. If the claim adjuster makes a mistake when reserving bodily injury claims, then the settlement negotiations will drag for a long time. Why is this troubling? The answer is quite simple. The claim adjuster is not looking at the severity of the injury and/or the facts of the accident. They are looking to settle the claim within the amounts he/she decided in the first seven days of the life of the claim.

Ask your adjuster on the first phone call when they will set their Reserve.  This shows that you understand the process (how else would you know what reserving is?).  It will also give you a timeframe in which you can provide them documentation or evidence to support setting a good reserve so the adjuster does not get into reserve stepping.

Closing Claims

While there are lots of little things insurance companies need before they will close a personal injury claim, the two BIG things are:

1. Proof of Liability; and
2. Proof of Damages

The adjuster must have both documented in their file.  This is why it is so important to give the adjuster every “data point” possible about your claim.  They can’t give you money unless they have documents supporting every type of damages you are asking for.  Where you usually see this trip up a claimant is lost wages.  You just can’t tell the adjuster what you make.  You have to properly document lost wages by usually providing a document from your HR department or your supervisor setting it out.

Proper proof of damages also affects your medical expenses and pain and suffering.  You need to have a bill for every medical expense you are claiming.  No bill means the adjuster is not putting that number in the list to be added up.  Also, if you claim a part of your body was injured, you need to be able to point to a medical record that states your complaint of pain or has a diagnosis that matches your injury. Otherwise, you don’t get “credit” for that injury.  The adjuster must have a document with the injury and/or pain complaint before they can enter it into their claims adjustment software.

The take away here is that documentation is everything.  The more thoroughly documented and packaged your claim is, the more “acceptable” information the adjuster has to support making you a fair and reasonable offer.