The Insurance Claim Process: A Guide On What To Expect
The reason you have insurance is that it’s there when you need it, and understanding the insurance claim process will give you a background into what goes into claim settlement. This is a guide for property and casualty claims only, such as General Liability, Car Insurance, and Workers Compensation; health insurance is outside the purview of your local friendly tea-spilling agent.
In my dealings with claim representatives, I know enough to say this: those who would say the insurance company begins the proceedings by looking for a way to deny coverage are incorrect. It is their job to be thorough, which means reviewing all the policy forms, terms, conditions, and exclusions. The claim representatives or claim adjusters must answer to their own bosses, but do you think they want to hear you yelling at them for 20 minutes about the denial letter you got? Not only that, but why open the insurance carrier up to future litigation for not paying a claim that should be covered?
At the end of the day, the insurance company is obliged to pay a legitimate covered claim under the terms and conditions of the policy. If you have an insurance agent go to bat for you, they might be able to assist you in making the process easier.
The Insurance Claim Process: The Incident Occurs
There is no claim unless something happens. Maybe you got rear-ended by someone at a red light. Perhaps the pipe your plumber “fixed” caused a major leak and ruined your kitchen. Mayhap your accountant was negligent in managing your finances and cost you a large sum of money. All of these are incidents which could give rise to a claim.
Sometimes, like in the case of the business insurance type Employment Practices Liability, something may snowball into a claims issue later. Say someone were terminated in March, but a suit isn’t initiated until September. Perhaps in March you were not aware that this would lead to litigation, but once it does, you should report the incident. Technically, if you suspect it’s close to happening, that’s when you should notify in the insurance company.
Applying to General Liability, it also happens that the incident does not happen until after a job is over. For example, your carpenter might build a deck onto your house and move on to his next project. The deck collapses a month later because support struts were not properly placed. This is an example of a “completed operations” claim.
As you will see, the time of the loss is an important factor. You will also see that this stage is the time to start building the paper trail.
The Insurance Claim Process: Claim Is Reported To The Insurance Company
You know what? There is also no claim unless someone reports it to the insurance company. How are they going to pay for something of which they are not aware? Before going any further, let’s address this: under your insurance policy, whether it is your auto insurance or errors and omissions policy, you have an obligation to report the incident to the carrier upon knowledge, or within a reasonable period of time. Significant, inexplicable delays in reporting a claim can result in negative consequences, up to and including denial. One would assume you do not want that to happen.
Any insurance agent long enough in the tooth has seen claims reported a year or more after the incident happened. Put yourself in the insurance company’s position for a moment: does this seem odd or suspicious? Your agent will pass the information along, if they get it, but with no guarantees.
Gather the pertinent information as soon as is practicable and call your insurance carrier or insurance agent. If the latter, they will then pass this along to the insurance company, but either way, it’s ending up with the company. (Reminder: Your insurance agent is NOT the insurance company. The agent has no authority to settle claims or tell you if you are covered, but the insurance company does. The real world is not like the State Farm commercials where they snap their fingers and get handed a check. Even they know it’s not that easy.)
The Insurance Claim Process: Initial Investigation Begins
One the claims representative knows the key players and (in a general sense) what happened, it’s time to dig deep. Expect that the adjuster will want a recorded statement from you and the other parties involved. If you have not yet furnished copies of invoices, medical bills, financial statements, photos, estimates, and documentation along those lines, be ready. Remember, they can’t pay a claim if there is no evidence to support it.
Did you begin building the paper trail right away? If not, you could be caught at a disadvantage. I have seen clients struggle to get claims paid because time had passed and they didn’t keep copies of invoices or work orders. Do not let this happen to you, and DO NOT make up any documentation. The last thing anyone wants is SIU (the Special Investigations Unit) showing up in the middle of their claim. By the way, those are the people who investigate insurance fraud and bust the appropriate chops. Every insurance company, like Arbella and The Hartford, has one.
The claims representative will match up the facts of the case to the language in the policy. It may not be more than 200 pages of legal mumbo-jumbo to you, but many insurance policy forms have been rigorously worded and reworded for legal clarity. The person handling your claim has probably examined the wording before and (ideally) knows what they are doing.
The Insurance Claim Process: Reservation of Rights
This is a step that many claimants may never see. If may come to a point in the claims investigation where there is ambiguity. Perhaps not all of the evidence to support your claim is coming together, or maybe for whatever reason, you are not cooperating with the process. (Pro tip: COOPERATE WITH THE PROCESS.) In this instance, the insurance company has a set play called, and it’s the Reservation of Rights letter.
This could be a multi-page letter you get in the mail from the insurance company. It would lay out what the carrier understands to be the facts of the case and the policy language. Furthermore, they would state (in more stuffy and formal terms) that they are not sure what the hell is going on, but they reserve the right to deny the claim down the road. Is it a pre-denial letter? In some respects, but not every claim that sees a Reservation of Rights issued is going to be denied. Also, just because you DON’T get a Reservation of Rights doesn’t mean your claim will be paid.
It may be that the claims representative understands part of the claim to be covered, and another part to be in a coverage gray area. The Reservation of Rights says to you that the insurance company is still looking into the claim but can pull the plug at any time.
The Insurance Claim Process: Final Determination of Coverage
At the end of the investigation, the insurance company has to figure out what to do. If they determine that the policy contains coverage for your claim, you’re moving on to the final step — getting your money. In the event they have reason to deny the claim, you will get your denial.
Either there is coverage within the policy or there is not, but there might be other reasons why you get denied. We have already established several of them, but bottom line: if you do not comply with the terms of the policy, you are not getting paid. If the insurance company asks you to call them back for a statement or send your invoices for your expenses, and you don’t, that is a problem. Do you think they will pay you if you supply them no evidence? Sorry to be a jerk about it, but that’s the reality.
Whatever the case may be, if the insurance company denies the claim, they have to provide a written rationale. Insurance companies tend to take denials seriously as they know there could be litigation in certain circumstances.
The Insurance Claim Process: If Covered, Your Claim Is Paid
For most people, getting the check for indemnification is a happy time. For others, it might be an acceptable conclusion to a long and painful process. Finally, for others, it might leave them feeling a little incomplete.
So, you thought you were getting all your claim paid, didn’t you? If you suffered a property loss, you may encounter something known as holdback. Here’s how it works:
If you suffer a loss of property, say to your personal belongings, the insurance company will pay you the actual cash value of what it’s all worth (which is to say, its value less depreciation). But, if your policy is on a Replacement Cost basis and you want the full value without depreciation, you have to, you know, replace the stuff.
Holdback in this case is the difference between the cost to replace your things and the value of them minus depreciation. Once the goods are replaced (and you can prove it), then the holdback amount will be paid. You could also encounter holdback if, for example, repair work is being done for you but is not yet complete. The insurance company would then wait until the job was done before paying the claim so they know exactly how much to pay.
In the event this is a homeowners property claim about a pair or set (e.g. custom-made salt and pepper shakers), if covered, the insurance company has a few options. They can pay you on an actual cash value basis for the difference between what the set was worth before the loss and after it. The insurance carrier may also replace or repair whichever part(s) of the set was involved in the loss.
The Insurance Claim Process: If Necessary, Subrogation
After all the dust settles and you make off merrily with your check, the insurance company still has unfinished business. You see, there is a little something in your policy called the “transfter of right of recovery” condition. The right of recovery is also known as subrogation.
Because the insurance company has done this investigation, they know the score. If you, their client, are responsible, they pay the claim and close their file. In the event, however, that another party is partially or fully at fault, the policy says the insurance company can take action to try and get its money back. They can and will pursue other negligent parties.
The best real-world example of this is an auto accident in a no-fault state. If you get rear-ended, your insurance company will pay to fix your car (or total it, if it’s a piece of crap). Then they will turn around to the other guy’s insurance company, tell them their guy was at fault, and demand reimbursement. Thereafter, they will squabble and bicker and maybe work out a deal.
As the insured, you will probably not be involved with this step. In my years in insurance, I have only ever seen one or two clients interested in this part of the process. Take your money and run, and let the insurance companies fight over the rest behind the scenes.
The Insurance Claim Process: El Fin
At the end of the day, yes, insurance companies have a lot of money and the business exists to pay claims. The claim representative has to do their best to help you, but also to answer to their own bosses. If they can find a way to cover your loss, they will, but if they have reason not to, you will find out. Reporting and dealing with a claims process can be stressful, but it is important to keep and open mind and let the insurance carrier do its job.
If, however, they are not keeping you in the loop, reach out to them or have your agent get involved on your behalf. Hopefully, you will be able to navigate your insurance claim process without the need for assistance, and without a long wait for a resolution.