Understanding the Insurance Relationship

At the most basic level, an insurance relationship is simply a contract. It is an agreement between an insurance company and an insured for the insurance company to pay money related to valid claims experienced by the insured. These claims can be based on property damage claims to a residence or to a business, or based on healthcare, or injuries sustained in an automobile accident. The premise is simple. You, the insured, pay premiums to the the insurance company, the insurer, and the insurance company collects the premiums and and invests the premiums in order to pay claims to other insureds. When the system works properly, the insured can receive the benefit of piece of mind knowing that they are protected in case of a disaster or accident, but this is not always the case.

In fact, many people will never even file a homeowners or commercial property damage claim for the entire life of the relationship. This is precisely the type of situation that the insurance company is counting on in order to rake in the profits that they generally reap. Whether it is Allstate, State Farm, Travelers, or Country Companies, the insurance industry devotes an inordinate amount of money, time, and research to ascertaining how to collect premiums without paying out claims. In order to increase profits, and keep shareholders pleased, insurance companies often undertake to deny, delay, and defend legitimate claims in court. This is why insurance companies are regulated.

Since this relationship is based upon a contract, it is generally controlled by state law. In most states, such as Illinois, Wisconsin, and Texas states have enacted insurance codes and entire departments dedicated to managing insurance companies and preventing abuse against insurance. This legislation has developed in direct response to the abuses of the insurance industry and because insurance has become such an important part of American lives.

The Top Five Tricks that Insurance Companies Play

  1. Take advantage of ambiguous policy language – insurance policies aren’t always the easiest documents to interpret. In fact, they often contradict themselves. You may find a section detailing how hail is covered. Then, you may have a one-page endorsement at the very end of the policy that specifically limits that coverage unless the hail does a certain amount of damage, etc. It’s important to really understand what coverage should apply to any type of loss that hits your property.
  2. Take advantage of ambiguous weather data – if there is no photographic or video evidence of the weather event that occurred at a property, an insurance company will rely on weather data taken from centers that regularly track weather such as aiports. If your property isn’t within a mile or two of one of these centers, the weather data available for your property may not accurately depict the weather event that occurred at your property. If this is case, it is unlikely that coverage will be provided despite the actual occurrence of a covered event occurring at your property.
  3. Rely on clients not getting comparative estimates – Far too often in claims handling, insureds don’t seek out a comparative estimate to actual determine if the amount of money an insurance company agrees to pay is enough to actually fix the damaged property. If you don’t get a competing estimate done or hire a public adjuster or attorney to evaluate your claim, it is unlikely you’ll know if you have received enough money to make the necessary repairs to your property until perhaps until after your carrier believes they have settled your claim already. By then, it’s difficult to go back to your carrier to get them to offer more money to cover the difference.
  4. Taking too long to finish adjusting your claim on purpose – when an event damages or destroys your property, an insurance company is bound by certain timelines in which they must acknowledge your claim, inspect your property, and render a claim determination thereafter. However, if a carrier sends an insured a “reservation of rights” letter, those deadlines can be extended for weeks and even months. By stalling the claim payment to an insured, it often makes a property owner more desperate to settle the claim so they can at least begin repairs to their property. This leads to insureds settling for less than it will likely take to fix their property for the sake of ending the claims handling nightmare they have encountered.
  5. Using your deductible against you – an insurance company hopes to satisfy every client that ever files a claim. However, if you work in this industry long enough, you see no shortage of claims that are adjusted that miraculously have scopes of damage to an insured’s property that just-so-happen to be right at or below an insured’s deductible. By writing an estimate that includes some damage, an insured can feel like they were right, that they were damaged by a covered loss. However, by writing an estimate of damages below the deductible, the insurance company doesn’t have to actually pay anything. Of course, every policy has a deductible and every client must pay their deductible even if their property is a total loss, but carriers often scope less damage that what actually exists at the property and often times this number is right below the deductible, providing the carrier with no payment being rendered to the client.