Addressing expectations in the loss adjusting industry

The loss adjusting industry has been facing challenges in recent years. IRP spoke with three leading lights of the industry and a renowned claims specialist to find out how things are changing.

 

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Andrew Thomas

Cunningham Lindsey Construction Practice Head

James Chalmers: How do you view the general health of the industry?

Andrew Thomas: In Australia, the top five insurers have about 80% of the risk. That consolidated market leads to insurers putting more emphasis on supply chain management and trying to get value for money for their economy of scale.

The problem is that they want more for less; they want it faster, cheaper and better.

The problem is something has to give. You can bring in technology to help you but the bottom line is we’re an on-site service. You need a certain quality of person to be paid a certain wage and our salaries are our biggest individual cost. If you want to do it cheaper, you’ve got to use someone less qualified and then service has to suffer.

But there is a huge amount of value in our service, and I think insurers are becoming much more conscious of customer experience and that includes the service we provide. Wherever we go, we represent the insurance company.

If I turn up on site and I’m very professional, then people will think the insurer is professional. If I turn up and I’m rude, then they will think the insurer is rude.

It is crucial for us to demonstrate our worth, and that means delivering value from a claims perspective  and providing customer satisfaction.

JC: What are the biggest looming challenges? 

AT: The biggest challenge over the last 10 years has been resource planning. The insurers want to do all their work in-house but then when a storm hits you get six months of work in two weeks.

Providing your staff with steady work and income has been the biggest challenge; you can’t resource for the catastrophe times because when it’s a quiet time, you’d go out of business. You have to be able to scale up and scale back down, but where do you find qualified loss adjusters? They don’t grow on trees.

JC: What are the biggest opportunities?

AT: Because of the ups and downs, what we’ve tried to do is even out that curve by looking at non-weather related work. We’ve developed our capabilities in other areas, 
like specialised lines.

Even the big insurers can’t afford to hire people to do the specialist work in-house because it’s such a small proportion of their claims.

So there’s been a little bit of horizontal integration but the other key is vertical integration. There are a lot of associated services that go along with loss adjusting where we can grow.

For example, our builders consultancy service has just won a big contract with a state government for provision of building industry services, and that goes way beyond anything to do with the insurance industry. That business is not reliant upon the very consolidated insurance industry. We now have a more balanced customer base, so instead of five customers giving you 80% of your work, you’re now up to 1000 customers giving you 80% of your work.

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Andrew Bart

Crawford & Company Pacific Region CEO

James Chalmers: How do you view the general health of the industry? 

Andrew Bart: The industry is continuing to evolve in response to a market which has changed considerably and will continue to change at an increasing rate.   

The consolidation of the traditional loss adjusting industry has provided a more stable environment for Crawford and several other firms, notwithstanding the recent absence of catastrophic events and the general downturn as a result of the benign weather and change in allocation models utilised by some of the larger insurers. 

JC: What are the biggest looming challenges? 

AB: The advent of far more sophisticated utilisation of data and technology provides both challenges and opportunities.

Non-traditional competitors have continued to enter the market and make inroads in some areas but insurers have also realised that what may ostensibly be a saving in cost i.e. lower fees has in some cases resulted in a significant overall increase in indemnity cost or poor customer experience.   

Insurers are far more selective about what is outsourced and the improvement in triage processes together with the fundamental structural changes in some areas of the market means that the overall volume of work available in traditional areas has diminished.

JC: What are the biggest opportunities? 

AB: Opportunities arise out of segmentation of our more traditional business to focus on niche products and the development of new products. Crawford is a provider of outsourced claims services across a range of products and traditional property loss adjusting is simply one of those products.

We are increasingly less reliant on base-level property adjusting, although it nonetheless remains a core competency which we are focused on continuing to evolve to ensure improved efficiency, customer experience and management of indemnity spend. 

Our Global Technical Services business, which covers major loss, is subdivided into specialist product lines and our forensic accounting business continues to lead the market. Our building consultancy business was launched in late 2013 and has been well received.

JC: What are the positives and negatives of digital technology?

AB: I can’t see any significant problems with the utilisation of digital technology and we see it as a significant opportunity. Android devices, tablets and other tools are used by us to facilitate real-time reporting and communication with insurers, claimants, brokers and suppliers.   

We are constantly exploring other opportunities to utilise technology to drive better customer experience, improve efficiency and improve our outcome-based value proposition.   

JC: How do you see the dynamic between claims preparation and loss adjusting? Do you see more firms working both sides of the fence? 

AB: Good claims preparation benefits the claim process and substantially improves the customer experience. Poor claim preparation creates a risk of significant reputational damage and impedes the claim process. We welcome high-quality claim preparation and work with the best practitioners on a daily basis.   

Some adjusters are working both sides of the street in that they both prepare claims and assess claims. However, in general there has not been a great deal of market acceptance of the practice, with most insurers expecting that service providers declare their hand to be either claims preparers or loss adjusters.  

We act for claimants in limited circumstances and on occasion have specifically been requested to do so by insurers or captives. I consider it unlikely that there will be a short-term wholesale shift in the market to the extent that the majority of our work is sourced from claimants rather than underwriters.   

JC: Where will the loss adjusters of the future come from? 

AB: As Crawford has segmented its business model across a range of products referable to both the type of claim and complexity of the loss, 
we have also redirected our recruitment and training program.   

Contemporary adjusting has seen a far more segmented approach to the industry. At the upper end, practitioners tend to specialise to a greater extent than was previously the case. 

Many of the newer breed of adjusters, particularly those managing high-end claims have professional and other skills not possessed by some of their predecessors. Given time and in particular the right training, these adjusters will provide extremely high levels of service to the industry. Crawford has achieved considerable success in developing adjusters sourced from professional or other areas who have little prior insurance knowledge. 

The investment in such personnel is considerable but the benefits are significant.

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Michael Cooke

Cerno Tasmania State Manager,

Australasian Institute of Chartered Loss Adjusters President

James Chalmers: How do you view the general health of the industry?

Michael Cooke: The loss adjusting industry is not a healthy one. General loss adjusting is suffering from the loss of small claims being allocated to them. 

By volume, around 80–85% of claims are for $8000 or less. These claims were traditionally handled by loss adjusters and formed constant reliable employment for them. They could rely on a steady flow of varying claims, and these bread-and-butter claims gave experience to young loss adjusters and a reliable income to experienced adjusters.

This area of loss adjusting has been whittled away by insurers referring these claims to desktop settlement, allocating structural claims to builders through their builders panel, allocating claims to restorers such as carpet cleaners and insurers using loss adjusting panels with set fee agreements.

The morale of the general loss adjuster is being destroyed by the low fee structure and unrealistic performance requests by insurers, who are attempting to gain market share by having claims settled in quick time.As a consequence, general adjusters have little time and financial incentive to give quality performance in their effort to settle claims.

Experience has shown over the 15-year period that this change has been taking place that the hourly rate for loss adjusters in this $8000-and-below fee scale can at times be grossly inadequate. The dollar value on a loss basis in no way determines the time that may be required.

The increasing demand on the loss adjuster to perform at the highest possible level is creating enormous pressure on loss adjusters across the board.

JC: What are the biggest looming challenges?

MC: General loss adjusters as we once knew them, who were able to report on everything from a burnt carpet to a total commercial loss, may soon become something of the past. 

We have an ageing group of qualified, experienced loss adjusters eventually retiring and the opportunity for training and mentoring of future loss adjusters diminished.

JC: What are the biggest opportunities?

MC: The biggest opportunities are for the loss adjusting firms that can show initiative in being able to adapt quickly to this change.

We already see changes by the larger loss adjusting firms who are offering procurement opportunities to the insurance industry, starting their own building and restoration companies aligned to their loss adjusting firms, offering claims settlement facilities, such as desktopping and after-hours service.

Opportunities do exist, where loss adjusting firms can provide rapid and seamless adjusting with what is now being referred to as first and final assessments. In this area of adjusting, we still see that the role of the loss adjuster is being dumbed down. A first and final results in the loss adjuster carrying out what is realistically an assessment of the claim and not an adjustment. This, however, does give some exposure to trainee loss adjusters of what is the role of the loss adjuster.

There are opportunities for loss adjusting firms to become involved with brokers in a more practical and professional way. Insurance brokers have the consent of insurers to settle claims to a dollar value. This dollar value may be anywhere from $5000 to $25,000. In this role, the loss adjuster would be able to take on the claims management of the loss and report back to the broker, who then effectively is the principal. In this role, the loss adjuster is performing their role as a trained professional and offering their service to the industry.

JC: What are the positives and negatives of digital technology?

MC: Loss adjusting has always accepted technology with great enthusiasm. Technology has enabled the loss adjuster to report directly from the situation, with the principal providing running commentary with digital and video images streaming live. A quick report can be obtained from the scene showing verification of loss, images of loss and a quantum.

The positives are enormous and as a result a claim can be accepted and reinstatement commenced almost immediately.  

A downside to this form of technology is that the loss adjuster is at all times on demand, 24 hours.

JC: Where will loss adjusters of the future come from?

MC: Traditonally, loss adjusters do not come into the industry from school leavers, universities or TAFE colleges. Loss adjusters find their way into the industry while they are employed within the workforce and are introduced to loss adjusting in one form or another.

The loss adjuster of the future will need to be recruited from the ranks of accountancy, engineering and law, as our traditional training ground is diminishing. There is little opportunity available at present within the industry to attract loss adjusters as our industry is not dynamic or progressive enough to make the position of the loss adjuster an attractive one for future employment opportunities. It is in fact a sad indictment on our industry.

The major loss adjusting firms do not have enough scope or financial opportunity to recruit trainee loss adjusters generally.

Insurers are not showing the loss adjusting industry that they see a need for loss adjusters to be coming through to furnish their future needs, as they are not offering incentives for this to occur.

AICLA is offering a Diploma in Loss Adjusting, which is a way for loss adjusters to get a tertiary qualification and show the industry how serious they are about professionalism.

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Professor Allan Manning

LMI Group Founder

James Chalmers: How do you view the general health of the industry? 

Allan Manning: It’s gone downhill since the late 1980s. Insurance companies started to put the squeeze on loss adjusting costs but I think it’s been a false economy. Let’s just say that the average cost is $5000 and the loss adjuster takes 10% say, or $500. If you squeeze that loss adjuster’s fee so it goes down to $450, he now doesn’t have as much time so he’s not mitigating the losses as well as he could.

If the average cost of the claim goes up by 5% because the loss adjuster is not spending as much time on it, that claim then goes up to $5250 so the insurer is $200 worse off.

I’ve been told by some of 
the loss adjusters that some of the insurers are realising it is a false economy and are starting to increase some of their fees.

But I’ve tried to discuss this with some of the procurement officers and the problem is they’re usually from outside the industry and their job is just to cut costs. They’re probably just measuring what the total loss adjustment fee is and giving themselves a pat on the back for lowering that when, in fact, you’ve got to look at a much bigger picture.

JC: What are the biggest opportunities? 

AM: Some loss adjusters are diversifying by starting building consultancies and that sort of thing but you’ve got to make sure you don’t have a conflict of interest anywhere. The loss adjuster is supposed to be independent and keep everyone honest. If you owned the building consulting firm, you’ve lost a certain amount of independence. 

The other concern I’ve got is a forensic accountant isn’t a loss adjuster – they often don’t have the training in insurance and loss mitigation. They’re more trained to pull the numbers apart and build a story and their function is to minimise the claim paid by the insurer.

Our duty was to be independent and to give the client who’s paid a fair premium for a fair settlement and those days have gone for a lot of our customers and that worries me. 

JC: How do you see the dynamic between claims preparation and loss adjusting?  

AM: I think it is changing but it’s down to the individuals. Some work together well and know they can trust each other, whereas some people have got giant egos and resent the claims preparer being there. Some claims preparers think loss adjusters are holding the process back and slowing things down, so they get angry. We have to act professionally. It is a challenge because it’s a relatively new profession, but lawyers have been working against each other for donkeys’ years and work professionally. 

Some insurers allow firms to work both sides but others aren’t comfortable with it at all; you’re either one side or the other. And I think that will change with time. We believe we do the same job – we go and try and get the right answer and we don’t try to rip anyone off. 

 JC: Where will the loss adjusters of the future come from? 

AM: The whole insurance industry has the problem that we’re not seen as sexy. With all the bad press that we’ve had as an industry – that we’re all crooks, we don’t pay claims – what parent wants to send their children to that industry? But it’s been a wonderful profession for most of us. I couldn’t see myself having the interest or love of my job or the financial and emotional rewards in any other profession.

Look at what CPAs did – they were boring but they turned the notion of a CPA into someone who does wonderful things. I’m a CPA but I would rather be known as a claims advocate over any other profession.