Insurance Test: How Helpful Is Claims Unit?
An insurance policy is only a promise; when you buy, it’s what you see. What happens when you make a claim is what you get.
People who buy homeowner’s insurance, or the equivalent for renters or condo owners, don’t really know if they’ve chosen well until then. The differences among comparable policies are minimal but there can be enormous differences in claims handling. “The best thing we have to sell is our good claims service,” says Al Pitt, field property claims manager for Allstate Insurance in Northbrook, Ill.
People often say they buy homeowner’s insurance in case their house burns down. Indeed, the biggest insurance claims (in dollars) do involve fires or catastrophes, but “only about 1% of fire claims are total losses,” says Dave Hurst at State Farm Fire & Casualty Co. in Bloomington, Ill., the nation’s largest home insurer.
Most insurers find theft the most common cause of homeowners’ claims, but not the most costly. The average theft claim at State Farm is $1,080, a third the average fire claim.
Haggles Expected
Speed is a stated goal of most claims departments. The policyholder may report his claim via a local agent or a national (sometimes 800) number, and the company puts a claims adjuster on the case. If the claim is small (under $1,000 perhaps), the agent may be allowed to settle it, or the claims office may tell the customer to get something fixed and send the bill. Widespread losses get special handling: Allstate got more than 22,000 claims from one Denver storm several years ago and had almost all settled within six weeks.
But consumers generally expect a haggle, with cause. If a profit-making company must hand out money, it wants an estimate of cost, and perhaps several. Claims adjusters, says Hurst, “would have something to say about how something is fixed and who does it.” They might also negotiate very closely: A burned-out family’s claims for meals and clothing while they’re without a home, for example, would be adjusted downward for the fact that they’d have to eat anyway and they’d get to keep the clothes.
The most common haggles are over theft, although they can illustrate an insurer’s modus operandi . Most companies start by limiting coverage on silver, jewelry, money--portable items most appealing to thieves--and some apply a special, higher deductible to theft claims.
Theft claims are also examined with a special care because there’s less to examine. Unlike roof damage, a theft loss is “out of sight,” Allstate’s Pitt says. It’s “probably,” says Hurst, “where there’s the most potential for fraud or something close to it”--usually a tendency to “upgrade the items” stolen.
Common Sense Dictates
Insurers therefore weigh the policyholder’s presentation, seeking a paper trail of the sort required by the Internal Revenue Service. They may want a police report on the theft, indication of the date each item was purchased and the price paid, and if no receipt is available, a product warranty, a photograph, a notation on an inventory--”something to indicate that the thing really existed and this person owned it,” says Hurst.
If the loss sounds questionable, the claim is investigated further. “Common sense indicates when something sounds suspicious,” says Pitt. “Truth has a way of sounding truthful.”
Thereafter, the particular coverage chosen determines the reimbursement. Personal property (including a home’s contents) can be insured for “actual cash value” or “replacement cost”--the latter simply the current cost of replacing such an item. Actual cash value is replacement cost minus depreciation, which is a calculation of value lost since it was bought. If something “has a life of 10 years,” says Hurst, “and it was destroyed or stolen when it was 5 years old, it was 50% depreciated.”
Obviously, the haggle starts with the replacement cost, particularly when the company owes the full amount. “We try to achieve the lowest price possible,” says Hurst, either for the same product, if still available, or for something comparable.
The policyholder may have to submit estimates: If the item is unique and available only at one place, the company may accept the price after checking with the store. The company may also have a computerized list of commonly stolen items--cameras, TV sets, electronic equipment--with prices: The lowest available becomes the insurer’s allowance.
The company may also have an in-house or outside buying service, and generally, says Pitt, “we offer to replace the item because we can get a better price.” Some outside services provide either merchandise or price quotes, and if the item stolen or destroyed isn’t available, “we can check the features--19-inch screen, remote control, stereo sound”--and supply something comparable, says Stuart Bell, chief financial officer of CUC International in Stamford, Conn., a membership organization that sells merchandise to consumers.
Here’s where hassle may be added to haggle. Some insurers will have the merchandise shipped to the consumer and will call the claim settled. But others use a cumbersome two-step process. They send a check for actual cash value based on their determination of the lowest replacement cost, then make the consumer buy the item and present a receipt for the rest of their reimbursement. Similarly, if the service doesn’t have an item or the policyholder doesn’t want a “comparable” one, the insurer usually limits payment to the quoted price and pays in the same two stages.
All this hassle guarantees that insurers generally won’t cover replacement unless something is replaced: If it isn’t, the policyholder gets only the actual cash value, which removes some “incentive for fraudulent claims,” says Pitt. The principle, says Hurst, “is that if people have an insured loss, they should be covered for it, but not make money. We put them back in the same position they were in before the loss.”
