A Modern Guide to How Risk Managers Are Engaging Property Loss Advisors
Guest User
Updated February 18, 2021
When my career started in the early 90’s as a licensed public insurance adjuster, my co-workers and competitors were simply known as “public adjusters.” Many public adjusters only contacted risk managers when their employer sustained a large property loss at one of their assets from a catastrophic peril such as a fire, earthquake or hurricane.
The public adjusters’ proposition for the risk manager and affected business was as follows:
The public adjuster would propose, negotiate, and charge a fee of 5-10% depending on the size of the loss and other considerations such as the anticipated service hours, market conditions, and risk factors (e.g., complications such as coverage issues) involved with the specific claim.
The public adjuster would sell the service, which would alleviate time and the burden of handling and managing the claims process from the risk manager and/or other employees of the business, and the value such as the extra dollars (or any extra insurance benefits) that would potentially come from a subject matter expert’s know-how who was working exclusively for the business and not the insurance company. While public adjusters believe that their service and know-how would be more valuable than the cost of the public adjuster’s fee, the risk manager and their superiors need to buy in to the same.
The problem for public adjusters is that certain risk managers and businesses feel, at times, that this proposition is too esoteric and/or theoretical. Additionally, even when the risk managers or businesses feel that they could really benefit from a subject matter expert advocating on their behalf, 6% of a $7,000,000 claim is still a large contract to award to an unknown entity in a post-catastrophe pinch, and sometimes risk managers and/or businesses pass for this reason alone. The problem for risk managers and businesses is that they sometimes discover too late into the claims process on large, complex claims that they are often overwhelmed and/or undercompensated without a property loss consultant working on their side of the table.
Every Claim Is Different
Father Cavanaugh said in the movie Rudy, “Son, in 35 years of religious study, I have only come up with two hard incontrovertible facts: there is a God, and I'm not Him.” Similarly, in my 27 years of property insurance loss consulting, I have only come up with two hard incontrovertible facts in connection with catastrophic and complex commercial property insurance claims, “Every claim is different and absent a loss exceeding the policy limits, there is no finite settlement number.”
It does not take much imagination or professional insight to realize every claim is different. There is little standardization in the commercial insurance claims process since there are numerous types of perils, insurance companies, exposures, policies and contracts, states with their own set of regulations, and, most explicitly, individuals throughout the industry.
Over the years, I have heard insurance company adjusters say about catastrophic commercial property claims, “I will pay the same amount whether there is a professional loss consultant working for the policyholder or not.” I do not think this is an accurate statement. In fact, it simply makes me chuckle when I hear it.
With that said, I have many good professional relationships with insurance company adjusters and would say over the last 25 years or so, I would have become friends with several of them if I thought it was appropriate. Moreover, I do not think there are more bad actors working for the insurance companies than there are bad actors acting as property loss consultants for policyholders or in any other industry or walk of life. However, I think it is a more accurate and appropriate statement for an insurance company adjuster to say, “I will evaluate a claim with the same professionalism whether or not the policyholder utilizes their own advisor.”
Some of my reasons why insurance company adjusters are not paying the same amount whether there is a policyholder advocate or not, and, absent a loss exceeding the policy limit, there is no finite settlement figure in connection with large commercial property insurance claims, are as follows:
The scope of a building loss is almost always subjective and/or in the eye of the beholder, and even when the building scope is actually straightforward or agreed upon between the policyholder and the insurer, three different contractors will still give you three different prices.
Even when physical inventories between the parties are identical, there tend to be varying opinions on whether the business’ personal property should be repaired or replaced, the cost to repair or replace, and/or the salvage value.
There are also typically subjective depreciation issues involved in most commercial property claims.
Moreover, even when the period of restoration is not disputed between the parties, what a business would have made during the downtime if there had been no fire or hurricane is certainly debatable as well.
I could go on and on and on.
Opportunities for Public Insurance Adjustment Firms
In recent history, after disasters such as Hurricane Georges in 1998, 9/11, the 2004 hurricanes in Florida, Katrina in 2005, Ike in 2008, Hurricane Irene in 2011, and Superstorm Sandy in 2012, there were so many opportunities for qualified public insurance adjustment firms. The whole industry thrived and many of MLA’s competitors saw no need to evolve its service offerings.
While MLA Claims has engaged in numerous typical public adjuster jobs over the years such as small contingent percentages on large claims in the days following a loss, we recognized the “large ask” for what it is, for example, a potential hurdle to establishing a relationship with a risk manager or business.
For over 20 years, MLA has been adding service lines and more flexibility in how it charges (e.g., charging hourly or utilizing blended fee arrangements) to provide services and fees in a manner that risk managers prefer and/or could more easily purchase. Today, MLA has a Fortune 500 company and Director of Corporate Insurance that outsources its entire property claims department to our firm for an annual flat fee arrangement. Also, we participate in numerous other assignments such as limited scope, hourly work, or entire projects on blended fee arrangements. With that said, there are still plenty of small to medium-sized business owners that prefer a straight contingency fee arrangement after a large claim.
At times, MLA Claims engages on an hourly basis for a limited period of time early in the process. This way a risk manager and business can have a professional working on their behalf coordinating the necessary emergency and/or temporary repairs, identifying potential areas of conflict by delivering expedited insurance policy analysis, and attending the initial site meeting(s) with the insurance company’s adjuster(s) and/or other experts, as well as ascertaining whether there is potential subrogation. MLA often provides its findings for these limited engagements in a deliverable report that includes immediate damage assessments and/or estimated quantum loss ranges. Sometimes our engagement ends here or a credit for these hours is provided and applied to a contingency fee arrangement to handle the claim to its conclusion.
Hourly and Flat Fee Arrangement Services
Other hourly or flat fee arrangement services MLA Claims provides to risk managers and businesses that are alternatives to the percentage of the recovery relationship include but are not limited to the following:
Perform commercial building and business personal property replacement cost valuations
Calculate warranted business interruption limits of coverage
Consult on insurance policy renewals
Identify business insurance and commercial insurance coverage needs and gaps
Insurance Producer (Agent) of Record selection and evaluations
Insurance policy review pre- and post-placement
Development of claims handling and best practices manual
Appraisal services on disputed commercial property claims
Litigation support for commercial property claims
Hourly or flat fee property claims adjustment services as partially described in this blog
Today, a much larger percentage of MLA’s competitors are in fact now starting to identify as being property loss consultants or property loss advisors that are also licensed public insurance adjusters. This allows risk managers the flexibility of only buying a limited portion of available property loss consulting services and/or entering fee arrangements that they prefer.
About The Blogger
Bob Landow specializes in resolving large residential and complex commercial property losses stemming from catastrophic events such as fires, hurricanes, earthquakes, and floods across the country, throughout the Virgin Islands, Mexico, and in Puerto Rico.
Bob has handled all types of claims for clients ranging from homeowners and small businesses to Fortune 500 companies and large municipalities. Bob’s experience includes handling a residential fire for a national celebrity; a mine collapse for an energy company; a power failure for a major acute care hospital, and a hurricane that caused wind and/or flood damage to hundreds of city-owned properties including office buildings, fire and police departments, and wastewater treatment plants for one of our nation’s most populated cities.
Bob assisted Universal Health Services, Inc. in reaching a $264,000,000 settlement relating to damage resulting from Hurricane Katrina to three separate hospital campuses in New Orleans, Louisiana.
Bob is a licensed public insurance adjuster in over 30 states and jurisdictions. Bob earned a B.S. in Consumer Economics from the University of Maryland and an MBA from Georgetown University’s McDonough School of Business. He lives in Villanova, PA with his wife, Arlyn, and their three daughters.