Claims - October 2015

are no checks and balances that apply to
other insurers. If you don’t have a penalty
system, then any number of bad behav-
iors evolve out of it.”
Erickson says he has never been asked
to change a report in favor of an insurer,
but that it is possible that some compa-
nies will write what they think the in-
surer wants to hear. “Insurers just want
to know what they owe. It’s easier for
them to write a check than to fight it.
With things that are borderline, we give
the insured the benefit of the doubt and
the carriers appreciate this. It either did
or didn’t happen.”
Multiple experts believe that the issues
with the changed engineering reports
were blown out of proportion by the
mainstream media and exacerbated by at-
torneys, politicians and others seeking to
take advantage of the situation. However,
that does not excuse any companies that
participated in these practices.

As far as the claims he’s handled, Major says that he was not aware of anyone trying to manage the outcomes of the investigations. However there were incomplete estimates. “An adjuster may spend 25 minutes in a house and write an estimate for only half of the damage, like $100,000 for $250,000 worth of damage.” He said he found gross underpayments in scope pricing and saw less than a handful of adjusters who went out of their way to write proper estimates. The majority wrote deficient ones.

But he says that the responsibility
doesn’t fall solely on the adjusters. “The
NFIP is not informing the adjusters. They
are not being educated on what could be
damaged and are not being instructed on
what to look for.”
If there were changed reports or defi-
cient estimates, they are only part of the
problem. Homeowners bear some of the
blame for not having the proper coverage
or not understanding their coverage and
policy limits, a fact confirmed by Luck-
man. “They didn’t know their policy lim-
its and what it covers. They had no idea
what their coverages were.” She said the
first thing she does for clients is provide
them with an explanation of flood insur-
ance and what it does and does not cover.
“Policyholders are stunned to see that.
They didn’t read their policies when they
purchased them.”

Software challenges

The software used by the adjusters to create the estimates also contributed to claims being underpaid.

“Xactimate is part of the problem,”
said Bach. “It is a tool. The pricing sys-
tem is only as good as the person who is
inputting the information and the home-
owners always end up on the short end
of the stick.”
The issue is not with the software, but
with the numbers used to create the es-
timates. “The Xactimate price guide is a
massive problem,” says Major.” Xactimate
says if the price is different, you have to
change it. CAT adjusters are instructed
not to change the pricing in Xactimate.
You have to price it correctly, but most
adjusters don’t know how to use it to
price estimates correctly.”
Major says it is critical for the insurers
to change the prices in the estimating pro-
gram so they will be accurate. “If you don’t
alter it, it doesn’t change, and that is part
of the Sandy problem. Everything written
in Xactimate with repressed pricing keeps
the non-cat database down for the regu-
lar claims in the insurance industry. They
have to put catastrophe pricing in because
it’s a very different set of circumstances.”
Filing supplemental claims has also
been a huge issue with the NFIP, says
Charles, who has been involved in di-
saster relief and catastrophe claims for
almost 40 years. “Private carriers know
there will be supplemental claims after a
major disaster and will set up a clean-up
operation. The government did not and
it’s been impossible to get a supplemental
claim approved,” he said. “The estimates
had to go through Xactimate or Simsol to
have them look at it.” Charles says he has
since gotten the NFIP to agree to change
that requirement.

Luckman adds that the NFIP “ insurance companies were asking for ridiculous amounts of information for supplemental claims.” She described one case where they submitted a contractor’s invoice with line items spelled out, a letter of satisfaction, proof showing the invoice was paid in full, and the insurer still asked for proof of the payments to the contractor and the withdrawals from the insured’s bank account. She says that under the review process, FEMA will accept more of this information at face value.

While there is hope that the reviews by FEMA will result in more money for homeowners, many have opted not to pursue them because they don’t feel it is worth the additional time and effort. Others are concerned that they may have to return funds they’ve already received because of duplicate payments.