Jane Nelson

Vice President of Business Development for Claimplus

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Claimplus Contents Claim article as published in CarrierManagement.com

Property Adjusters: How to accurately value Contents Claims, fast.

Reducing Claims Overpayment Is Vital for Carrier Survival

Author: Jane Nelson

Acknowledging that property claims overpayment is draining investment capital is the first step to reducing severity.

Failure to catch overinflated claims is costing the insurance industry tens of billions of dollars each year. Paying too much or too little on a claim isn’t beneficial to either the policyholder or the carrier. Too often, an erroneous settlement amount is discovered long after a claim has been closed, usually during mass audits conducted on closed files.

Acknowledging that property claims overpayment is draining investment capital is the first step to reducing severity. In our business serving a mutual insurance carrier, $300 million in leakages were averted over a 20-year span. That’s capital better served for compliance and to fatten investment pools.

Data from the Insurance Information Institute reports that between 2017-2021, the average total property claim settlement was $15,091. Exempting auto, this figure seems grossly understated. We rarely see damages under $100,000.

Catastrophe losses have increased over the years. Staffing and workloads can significantly impact how well catastrophe claims are handled. As a result, we expect property and contents claims overpayment will continue to grow.

And though the above-stated Triple-I figure appears statistically accurate, it may be misleading. That’s because averages often include a weighted set of numbers that can sometimes lead to distorted results. In other words, the Triple-I figure likely includes many low-severity losses, skewing the average downward. A carrier’s perception that the average amount cited in the Triple-I study is acceptable may weaken a claim department’s commitment to decrease the average claim severity amount. It just might not seem worth the effort.

While challenges exist at every juncture during the claims process, one that can be particularly tricky to navigate involves contents losses. These challenges can hold up the resolution of a claim and offer many opportunities where over- or underpayments may occur.

Overpayment in contents claims can happen due to myriad reasons. For example, lack of adequately trained adjusters or staffing shortage, failing to obtain or review accurate records related to claimed belongings, limited deployment of fraud detection technology, or deciding to forgo using a third party to sufficiently value the insured’s contents.

Other factors that may lead to claims overpayment include large losses, situations involving hoarding and insureds valuing their belongings sentimentally rather than objectively.

In our experience, the insured, innocently enough, tends to overvalue belongings by up to 30 percent, especially for items such as collectibles, memorabilia, gifts and hobby items.

Every property claim has some potential to balloon to a “large loss” (which we define as severity north of $40,000). Adding cost factors such as litigation, or company-contracted independent adjusters, or an insured’s hiring of a public adjuster in some cases, can easily increase payouts on contents claims.

Containing the scourge of claims leakage requires carriers to commit to making strategic operational changes. Begin by reviewing and valuating the insured’s belongings as soon as possible after the reported loss. Advising the claimant not to relocate items to a different address will also increase accuracy.

A claims department can go about reducing leakage even further by utilizing workflow technology to automate repetitive tasks, driving process efficiency. This might be as simple as allowing the insured the ability to complete and download information about their loss through a portal on the carrier’s website.

Another effective strategy for reducing overpayment is to establish relations with a third party that can handle the heavy lifting required for detailing inventory and valuations. Contents advisors should have access to reference valuation materials and pricing expertise that insurance carriers may lack, including tools that can value each item in an inventory with accurate like, kind and quality (LKQ) values.

When a contents inventory is completed immediately after a loss, an accurate reserve can be made and the time to settlement shortened, reducing risk for overpayment. Quality control processes can be implemented to identify and address areas of waste and inefficiency.

Carriers can create a culture of accountability, enabling employees to do their part to reduce overpayment of contents claims. Insureds should be educated upfront about the importance of documentation and accurate record-keeping.

In brief, to combat claims leakage, insurance carriers can employ various strategies such as implementing a targeted leakage reduction claims process, conducting regular audits, investing in third-party inventory and valuation expertise, deploying fraud detection controls, providing policy awareness and procedural training for claims handlers, and improving communication with policyholders.

Identifying and preventing claims leakage is worth the effort, as it can translate to millions of dollars in gains for an industry operating on thin margins—capital that can be reinvested or utilized to adapt generative AI platforms to expedite underwriting, automate tedious processes and achieve accurate settlement amounts.

As published in CarrierManagement.com

Jane Nelson is the vice president of business development for Claimplus, North America’s longest-established property insurance contents valuation firm. Contact her at claims@claimplusonline.com.