Dangers Of Relying Insurance Company Services To Compute Values In Insurance Claims

Dangers Of Relying Insurance Company Services To Compute Values In Insurance Claims

Let's start with a basic fact: No claims standard in statute, rule, or common law stipulates that claims settlement should be cheap or based on the lowest possible number.

Given that, if an analysis of the insurer-vendor relationship shows that a major incentive for vendor selection is the vendor's promise to cut claim costs, the relationship is almost assuredly suspicious in nature. A blatant objective of saving money casts doubt on the fairness and impartiality of that claim process.

That is, however, exactly what you see with several of the most popular claim valuation services, such as Enservio "Shopping" and Insurersworld.com (IA). Insurers World advertises the fact that they have their own warehouse of items that they offer to the Insurance Carrier at discounted prices, and also states that they have relationships with such vendors as Amazon.com in which they receive additional discounted prices on items that are not available in IW's warehouse:

"With our warehouse containing thousands of items from many major brands, we are able to replace almost anything We also have relationships with vendors such as Amazon.com, so we can replace anything that we don't stock on site.This means one stop shopping!"

Enservio has recently partnered with "ReStoreMall.com" to create the brand "Enservio Shopping", which will function as a service aimed to incline insureds to purchase their claimed items through Enservio.

"The ReStore Mall is an exclusive benefit, provided by top insurance companies to their claimants as they ReStore their contents and home."

It seems clear that the objective is to pressure the insured to replace all claimed items through Insurers World's online portal. The rub is, however, that he or she would be acting on falsely conveyed information.

Insurers World does not mention one crucial fact that their "appraised" values are only reflecting their "discounted" rates which are below market value. The insured does not realize that the pre-existing business relationships that Insurers World has established with vendors (and their own "warehouse" of their own stock for sale) allows them to offer Like Kind and Quality replacement items at discount, below replacement cost.

So, what happens if the insured does not choose to make their purchases with Insurers World?

Simply stated, the value of their insured loss will not accurately represent the amount of the insured's loss. As a result, the insured will not be able to fully replace their claimed items, and become whole; in fault by the Insurance Carrier.

It quickly becomes apparent that valuation methods such as Insurers World's program, should not, and cannot provide accurate valuation for an insured's claim.

Another point to consider with regards to these types of valuation methods is the "Law of Agency", an aspect of commercial law which deals with the contractual, quasi-contractual, or non-contractual relationships when legal relationships of a Third Party are created by an Agent, authorized by the "Principal". Under Agency Law, the insurance adjuster, who is "outsourcing" his or claim responsibilities to an outside party (such as Insurers World) must ensure that any and all methods of the outside party are in compliance with principles governing the claim process, such as, but not limited to:

Fairness and impartiality

Transparency

Competency

After even a brief analysis of Insurers World's methods, can anyone ensure that these principles are being met? My opinion and concern on the issues pertaining to Insurers World's valuation methods is also supported and demonstrated in a related case, stemming from the use of software packages used in valuing un-insured/under-insured motorist bodily injury claims. Although the referred case is in reference to bodily injury and not personal property replacement, the actions are the same, and the result is the same the Insurance Carrier is quoting inaccurate values for claimed items in favor of the Insurance Carrier.

We will use one of the most popular website/software programs used by Insurance Carries as an example, Computer Science Corporation's (CSC's) software, "Colossus". According to CSC's Web page:

-Colossus is the insurance industry's leading expert system for assisting adjusters in the evaluation of bodily injury claims. Colossus provides adjusters access to your company's claims data within a defined BPO framework for evaluating injuries, treatment, resolution, impairment and general damage settlements. Colossus helps your adjusters reduce variance in payouts on similar bodily injury claims.-

Because Colossus's marketing rests on a promise to cut bodily injury costs, (please refer and compare to Insurers World's approach cited above) critics allege that insurers use Colossus and similar software programs to reduce the amount of money paid out and hide the faults of the program.

Another example of how cost-cutting imperatives can cause problems appears in McGowan v. Progressive Preferred Ins., 637 S.E.2d 27 (Ga. 2006), a recent Georgia case. In McGowan, plaintiffs alleged that insurance companies cut a deal with CCC Information Services to intentionally undervalue automobile property damage claims on totaled vehicles. CCC uses a computer program as a "data base" from which it derives a vehicle's estimated value in the local market.

In Hayes v. Allstate Ins., 758 So.2d 900 (La. App. 2000), determined for many factors, the methods utilized by CCC to determine vehicle values was "not reasonable".

Concerning CCC's use of advertised vehicles in its comparison, Mr. Smith testified that, to make a proper determination of the value of the vehicle advertised, it would have to be physically inspected. Additionally, we note that the advertised vehicles do not indicate the size of the engines for purposes of comparison to Ms. Hayes' vehicle. Allstate, which is in the business of adjusting automobile claims, should have realized that such information was not sufficient to provide an accurate comparison. Hayes v. Allstate Ins., 758 So.2d 900 (La. App. 2000)

These cases clearly demonstrate that trepidation is necessary when utilizing valuation methods like Insurers World's. To be clear, I see no problem with the usage of these programs to aid in the claim process; however, they should not define the claims process. The insured should be notified of Insurers World's practices, and all claimed items should be valued at the replacement cost value. If the insured chooses to replace their contents with Insurers World, then, in my opinion, the insured is entitled to the cost savings of purchasing in bulk, and the insurance carrier should not profit of the insured's decision to utilize a bulk purchasing service. It is my opinion that regulators should prohibit Carriers from using Insurers World or any other discounted service to set value on claimed items.

Maybe in an "Insurer's World" this practice is fine, but in my world, it is a demonstration of suspect claim practices.

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