Loss adjusters face the future

Loss adjusters are no longer the impartial arbitrators of claims, recommending payments to insurers that are invariably approved with little fuss and bother. When you consider the sums involved, it is no wonder insurers wish to be far more involved in the claims process.

This does not mean the adjuster's role is any less important or less demanding. In many ways, the role is more stressful, as adjusters must be aware their judgments are likely to be challenged and, if insurers think a mistake has been made, they will be expected to pay for their shortcomings.

What has caused this change? Globalisation, power of the customers, demands of the financial markets, pressure on costs, survival of the fittest and speed of change have all been contributory factors. As a claim gets larger, so the issues normally become more complicated and the pressures increase.

Insurers expect adjusters to look after their interests and reduce their claims bill. The modern-day adjuster, therefore, tries to steer the parties towards a settlement recognising the financial pressures on the two parties of the contract.

The financial director of the insured seeks to maximise the recovery from insurers, while the claims officials of the insurers are under pressure to reduce the claims spend. The broker's role can be crucial in managing the client's expectations on an ambitious claim. Reducing the claims spend while retaining the business is often best achieved by negotiating an early settlement.

The globalisation of business has caused major changes to occur both from the insured's and insurer's points of view. Pressures to reduce costs from customers are in direct conflict with the financial demands of the stock markets for growth in sales and profits.

Computers roll out statistics, comparing and analysing results in every available combination of ways. Financial pressures encourage creative accountancy to enhance the figures. With their experience, adjusters can often see through these figures better than an accountant.

So how do adjusters undertake their duties? It is no longer a case of gathering information, giving guidance on the business recovery and waiting for the insured to submit the claim before the real work starts.

The modern approach is far more front-loaded. It involves managing a team of specialists from within the adjuster's office and working with other specialists appointed by the insurers. The contribution of an experienced project manager is important, as is keeping the insurers in the loop and taking note of their views.

The adjuster must ensure the recovery of the business is managed to a plan, which also allows the necessary details to quantify the loss to be assembled. If everyone has played their part, then the later stages of the loss should be relatively easy and nasty surprises and contentious issues should not arise. There may still be some arguments over business trends when measuring the sales loss.

Depending on the degree of advanced planning by the insured, the first few days after a major event must often be used to allow the insured time to come to terms with the situation.

The main effort in this period should be towards stabilising the situation, stopping further damage, protecting property, making the site safe and reassuring staff and customers. As soon as possible, organisation needs to be introduced to the recovery programme.

But a word of caution on rushing decisions in these early days to mitigate the business interruption loss: sometimes there is an overriding need for action, but a short pause while the options are properly evaluated can often save a lot of problems later. Rushed decisions made in all good faith may turn out to have been ill-advised

The insured has a responsibility to mitigate their losses and must do what they think is best for their business. The support of insurers is vital to the recovery process. The adjusters must be closely involved with the decision-making process and must caution the insured when decisions do not appear to be in the best interests of insurers within the maximum indemnity period of the policy.

Sales must be carefully monitored and the insured must be warned about complacency when sales start returning to normal. There is sometimes a sting in the tail, as it often takes customers time to make alternative supply arrangements.

There are three important issues which arise on many major losses and these are briefly referred to below.

Temporary premises/moving production
Restoration of production is an absolute priority and this often involves moving production to other premises. The problems are not always properly evaluated. Costs often escalate and, when the new facilities become operational, there is the problem of how to return things to normal.

While outside, consultants can be employed to assist, the insured's technical production staff will need to be actively involved. These resources are often inadequate to cope with a major event. While the temporary production is being set up, technical staff take their eyes off the ball. Would it have been better to concentrate on getting things back to normal at the loss location?

Rationalisation
A large proportion of major losses lead to additional rationalisation of the insured's business. While reinstating the destroyed building and replacing the machinery and plant may be the text book basis for settlement of the claim, will the customers still be there when production recommences?

Transfer of production to other plants, often in another country, may represent the best way of minimising the loss to the company. It can, however, be difficult to unravel the correct payment for insurers.

While long indemnity periods give greater protection and better bargaining stance with insurers, it is rare for a business interruption claim to run through to the end of a long indemnity period. When the moment is right, a negotiated settlement may suit both parties.

Pressures from customers
The approach to customers has to be carefully handled. After a major loss, customers often appear supportive, but this does not last long when their own businesses start to suffer. When products are no longer on the shelves for a retailer or when production starts to be affected from shortage of supplies, buyers become impatient.

Globalisation has produced smaller numbers of large customers. Cost savings achieved by focusing business to preferred suppliers, single sourcing, dedicated plants and just-in-time deliveries have all been factors in influencing how customers react. It is common for approaches to be made for: