In many industries including insurance, statistical data is used to help us navigate through uncertainties. But statistics can be misleading when used for a different purpose than originally intended. Statistical results only tell part of the story, and it is important to understand the context in which they are being used.
For example, the average total property claim settlement between 2016 and 2020 was reported at $13,962. However, this average can be misleading as it includes many low severity claims that can distort results. This can lead to a claim decision maker concluding that the average claim severity amount is acceptably low, (especially for the use of forecasting) and that any emphasis on decreasing the average claim severity amount would not be worth the effort.
However, one or more large losses can significantly impact a property claim director’s fiscal forecast.
Every property claim has some potential to become a “Large Loss” (severity north of $40,000), and the added involvement of a Public Adjuster or an Attorney will increase the likelihood of a large loss settlement.
The unknown habits of the insured can generate a large loss, as in the case of hoarding. Additionally, the insured tends to overvalue their belongings by up to 30%, which can lead to overstated claim amounts due to sentimentality, perceived value of collectables, souvenirs, and hobby items, among other factors.
Settlements based on claimed amounts are almost reckless with today’s high-priced products and the unforeseen future claim liabilities. The likelihood of an Independent Adjuster making contents settlements based on the claimed amount doubles, due to their rate of compensation and the limited time invested to accurately assess, inventory, and valuate contents.
Therefore, an operational focus on reducing contents claim leakage is worth the effort and is vital for continued success.
Reducing contents claims leakage requires an active workflow of expert contents valuation for each claim. This offers access to materials or expertise currently lacking, tackles settlement overpayments, creates cash for investments, and provides flexibility in your workforce to better manage claims.
Expert contents valuation firms understand property claim settlement concepts and have specific knowledge of residential, commercial, and specialized products, providing an ROI in the range of 1100%.
Given the close connection between the fundamental business model of an insurer and its investment strategy, streamlining contents claims, reducing adjuster time spent to input and value contents, and especially the reduction in settlement leakage, offers the insurance carrier the opportunity for generating higher returns.
To reduce contents claim leakage, it is important to create an operational workflow that works against it. This can be achieved by initiating a process to consistently submit all contents claims to an expert valuation firm, expecting short turnaround time, excellent customer service for insureds, and accurate replacement costs. Additionally, a valuation firm like Claimplus will provide reporting to track your success at reducing contents leakage.
By taking advantage of expert contents valuation capabilities, carriers can offset future liabilities and create more opportunities for investments to build industry strength.
Reducing contents claim leakage is vital for carrier survival. While statistical data can be misleading, it is important to understand the context in which it is being used. Every property claim has some potential to become a large loss, and the insured tends to overvalue their belongings, which can lead to overstated claim amounts. Therefore, an operational focus on reducing contents claim leakage is worth the effort and is vital for continued success.