Myth Busters! Claims Edition
Christmas is around the corner, and this year I’m asking Santa to bring everyone a dose of education to combat common misconceptions about claims.
Surprise! It’s me! I’m the dose of education! So pull up a chair kids, because Christmas came early:
Myth #1: Claims Quotas
I’ve seen a few LinkedIn posts from plaintiff attorneys alleging that the holidays are a great time to discuss settlements because carriers have “claims closure quotas” that they have to meet before the end of the calendar year. I’m not sure where this myth came from, but it is probably rooted in a deep misunderstanding of closing ratios.
Closing ratios are a way for carriers to ensure that claims adjusters are properly managing claims volumes. Ideally, the adjuster is closing claims at the same rate that they are being filed. For example, if 5 new claims come in during the month the adjuster is hopefully closing 5 claims as well. This ensures consistent caseload volume. The math goes like this:
5 closed claims / 5 new claims = 100% closing ratio
A 100% ratio is ideal, but there are often several factors that affect the trajectory of claims, so that a 100% ratio is not possible every month.
Sometimes, there are a lot of new claims that come in during high seasonal periods (e.g. severe weather events and increased property damage claims), so if the number of claims doubles during the month, but the adjuster can only close the same number of claims, the ratio drops:
5 closed claims / 10 new claims = 50% closing ratio
Closing ratios are measurement tools, not mandates. The closing ratio is one of many various metrics to ensure claims are moving toward resolution and that adjusters are proactively working the claims.
Myth #2: Adjusters Get A Percentage of the Money They Save
Oh brother, I’ve seen some variation of this myth time and again since I started my career in insurance. Adjusters do not receive any sort of percentage based on how much is paid out or saved on the claim. They must adjust the claim according to the policy terms and the applicable state law. Adjusters are paid the same wages regardless of how much the claim settled for.
However, guess who does get paid based on the amount of the settlement?
Plaintiff attorneys
I had always assumed the myth about adjusters being paid based on savings was created to balance the fact that plaintiff attorneys are paid based on the total settlement. There are various reasons why the defense and plaintiff do not agree on settlement valuation, but none of those reasons have to do with the adjuster receiving any sort of compensation specific to the outcome. Disagreements in settlement valuation can be based on dueling IMEs, different opinions on the credibility of witnesses and different calculations of damages.
Myth #3: Adjusters Are Intentionally Dragging Cases Out
Trust me, no one wants a claim resolved faster than an adjuster, but there are a variety of reasons a claim can drag out that have nothing to do with an adjuster. In many cases, the adjuster is waiting for other parties to complete work before they can proceed. They are waiting for contractors to send estimates, attorneys to schedule depositions, subpoenaed records to be delivered, doctors to issue reports. All of this takes time, and aside from sending multiple emails, voicemails and smoke signals, the adjuster’s recourse on speeding up the actions of other individuals is limited.
I also found this myth diametrically opposed to the other two myths. How can they be dragging cases out, when dragging cases out COSTS MORE MONEY and at the same time receive an alleged financial incentive for saving money? Why would they drag a case out if they have quotas to meet for closure? Do we see how all of these myths fall apart when you really sit down to look at them?
Hope you enjoyed your early Christmas present of busted claims myths! If you’re wondering what to get ME for Christmas, you can do me a big favor and tell an adjuster how much you appreciate them. It’s a tough job that doesn’t get the recognition it truly deserves. I haven’t worn the claims adjuster hat in over a decade, but I’ll never stop advocating for them.
But if you still really want to get me something for Christmas AND if you find value in the blog, I would really, truly appreciate it if you could share www.riskfluencer.org with others. Providing content and education about the world of risk management and insurance is important to me, and in order to do that effectively, I need help getting the word out that this content exists.
