Expert Commentary

Personal Risk Management: Making A World of Difference at Claim Time

There are not many things scarier and more overwhelming to a client as having a claim, especially a substantial claim. Most insureds hate insurance because they don't understand it. They are scared because they have a 20-page policy with about a half a dozen coverages and about 20 or so exclusions and limitations. They're scared because they have no idea, when they file a claim, what is going to happen. They are scared because of all the tales of woe that they have heard from friends or others who were "shafted" at claim time by their insurance company. They're scared because they feel completely at the mercy of an adjuster and their coverage interpretation.

Personal Risk Management
June 2005

Personal risk management, as I define it, is providing considerably more insurance coverage expertise and value-added services than are available from traditional insurance sources, in exchange for added compensation (i.e., an annual risk management fee). There is no more important time for applying those value-added skills and services to a client's life than making a difference for him at the time of a claim. There are three major areas in which a personal risk manager can make a huge difference:

  1. Whether the claim is covered at all. How well were the risks identified and coverage designed when setting up the policies prior to the loss?
  2. How smoothly the claim goes for the insured. How well was the insured advised, at the time the claim was filed, as to what they could expect from the insurance company, what type of documentation they needed to gather to support getting fully compensated, and what their obligations were under the policy to the insurance company?
  3. Whether the agent/broker is a strong advocate if a claim is unfairly underpaid or denied. How well did the agent/broker use his or her coverage expertise to override or reverse an adjuster's opinion that unfairly causes the claim to be rejected or unfairly leads to a less than full settlement?

To be an effective coach and, if necessary, an effective advocate for insureds at claim time, personal lines agents and brokers must build a claims handling framework that is ready to respond when a claim is reported.

Creating the Framework

Before brokers can ever properly coach a client as to (1) how the coverages apply to the loss, (2) the pitfalls to look out for, or (3) the documentation needed to support a full payment of a claim, a combination of considerably more than usual expertise on coverages as well as some important resources is needed. Here is some advice for the agent/broker who wants to step up to the next level:

  • Become an expert on every single personal lines policy in your agency. Know the coverages, exclusions, and limitations equal to or better than most adjusters.
  • Know all pertinent state statutes that apply to personal lines policies as they will override policy provisions. Make arrangements, either through an agent's association or elsewhere, to regularly receive updates on changes or additions to the statutes.
  • Learn the claims process step-by-step. Learn this process for every single type of personal lines claim. Discover for each type of claim where claims can go awry, so that you can develop systems and procedures to circumvent those difficulties.
  • Create a sample policy file. Include the most current version of every policy you use and copies of the most commonly used endorsements that are unique to each insurance company. Before any claim occurs, this tool will help you design the proper insurance coverages and avoid coverage idiosyncrasies. It will also help you coach your clients accurately when filing a claim and, if necessary, be an important resource in advocating for clients rights if the claim is mishandled or denied.
  • Subscribe to a credible independent policy analysis service. Choose one that not only includes their unbiased coverage opinions but also cites applicable court cases to support those opinions. Services such as the Fire Casualty and Surety Bulletins or IRMI's Personal Risk Management and Insurance service are good ones. I use them both.
  • Learn the claims handling process for every type of personal lines claim. Discover where each type of claim generally runs into problems or customer dissatisfaction, and create strategies to eliminate or minimize those problems for clients who have that particular type of claim.
  • Put the insured in the driver's seat. Understand the type of documentation an adjuster needs to fully support paying each type of claim and create strategies to coach clients, when they file claims, as to how to best and most easily gather that documentation. This will help put the insured, rather than the adjuster, in the driver's seat in terms of the settlement.
  • Understand dispute resolution options. This includes the "appraisal" clause for resolving disputes over the dollar amount of the property damage loss under an automobile or homeowners policy.

Once you have all these tools and added expertise in place, you can then start making a difference at claim time for your insureds.

Some Examples of Claims Interventions

Here are examples of three different types of claims and how added expertise and resources relating to claims can benefit insureds.

The Stolen Car Claim

When a client's car is reported stolen, right then coach them on how the coverage works. What are the benefits? Pitfalls? What steps can they take to get 100 percent fully compensated for their claim?

Explain how the car-rental/loss-of-use coverage works. Explain that vehicle theft claims are settled more slowly, in case the stolen car is later recovered, so they don't have unrealistic expectations if their claim is not handled speedily. If they did not buy loss-of-use coverage, explain that the policy, after a waiting period of typically 48 hours to 72 hours (here's where you'll need your sample policy), will provide loss-of-use coverage for vehicle theft claims so they aren't hurt by the slower settlement process for this type of claim.

If the car is later recovered, explain that they are entitled to continue to have their rental car paid for until their vehicle is fully repaired and returned to their possession. Make sure that they understand that the deductible applied to that collision damage repair should be the comprehensive deductible (theft claim)—not the collision deductible.

If the car isn't recovered, advise them that the car rental expenses do not end on the day the insurance company makes their settlement offer. (I have seen adjusters, on several occasions, mistakenly tell my client that the day the adjuster makes the settlement offer is the day that the insurance company will not pay further car rental expenses.) Policyholders are entitled to a few additional days of rental reimbursement to allow them to shop for a replacement vehicle.

Explain to your client that the insurance adjuster will try to establish and document the pre-accident value of the car but, if the insured is not happy with the settlement offer, he is not forced to accept the adjuster's offer. Coach insureds on how to document their specific cars’ pre-accident value by getting three value estimates from used car managers in the area. The estimates should be based on what the used car manager would sell your client’s particular car for—with similar features, mileage, condition, etc.—if they had this specific vehicle in stock. Explain to your client that, if the adjuster's offer for their car comes in at less than the average of the three value estimates they have obtained, those three estimates should be offered to the adjuster requesting a settlement based on the average of those three estimates.

Remind the insureds that, in addition to the payment for the value of the car itself, they are also entitled to state sales tax, title transfer fees, and a pro rata share of the license plate fee. On total vehicle losses, sometimes adjusters forget to add on the state sales tax, especially if they are located out-of-state. In Minnesota, that state sales tax represents a whopping additional 6.5 percent!

If the adjuster balks at working out a compromise, go to bat for your client using those estimates. If the adjuster still refuses to compromise, try appealing to a claims manager or supervisor who usually is a little more flexible and a little more seasoned (which is why they were promoted to managers or supervisors in the first place). I have been successful with those appeals over the years almost every time.

Make sure that you are familiar with the policy provisions for resolving disputes regarding value—the "Appraisal Clause"—found in the "Conditions" section of the policy. I have only had a handful of clients over the years actually invoke their rights under this clause, where both parties select their own appraiser and the two appraisers select an umpire. Each party pays the cost of their own appraiser and splits the cost of the umpire. In each case, the expenses of this process, as well as the resolution time, were minimal compared to other alternatives such as lawsuits or arbitration. In each appraisal case, the client ended up receiving quite a bit more value for his claim. Ironically, having my client just send the insurance company a letter invoking his appraisal rights has been enough, in most cases, to get the insurance company's attention and stimulate a settlement compromise.

One footnote to the appraisal process. There is a shortcut I have used, on a few occasions, to resolve vehicle valuation disputes if both the insurance company and insured are willing. Network and find the name of a reputable vehicle appraisal service that is comfortable to both parties. Have them both agree to abide by the decision of this appraisal service and split the cost. In essence, bypass much of the process and skip right to the umpire. Much faster. Far less costly.

Residential Storm Damage Claims

Coach the insured on how to avoid the "claims hell" of being caught in the middle when the adjuster's estimate and the contractor's estimate are miles apart. Coach your client simply to research and pick a contractor to do the work but don't bother getting an estimate. Don't allow the insurance adjuster to come out alone and write his own estimate. Instead, when the adjuster calls, give him the contractor's name and contact information and require that both parties meet at the house and together write an estimate and agree on a price. Remind your client that the policy must pay the cost to actually repair the house—not what your contractor would like to be paid nor what a cost conscious adjuster’s home repair manual says the repairs should cost.

Residential Fire Claims

First, get a full copy of the policy, with all endorsements, and identify all the policy provisions that have an impact on the claim. Meet with the insureds right after the loss and explain each of those provisions to them, including the pertinent coverages, any exclusions or limitations that might apply, and the type of documentation needed to support collecting the full amount of a loss covered by the policy.

Explain how the additional living expense coverage works. Describe how it covers 100 percent of the difference in cost for having to reside elsewhere while their home is being rebuilt, including rents, utilities, mileage, food, etc., over and above what their usual expenses are. Make sure they understand that they won't receive the entire amount—just the difference.

Explain how the replacement cost contents coverage option works. Emphasize that it only pays the replacement cost on items that are actually replaced. For items not replaced, the coverage pays the depreciated value, a.k.a. "actual cash value." Explain that the replacement cost is what it would cost the insurance company to replace the item through their resources—not necessarily what the local shopping mall is asking. Explain that the loss will be first paid at the depreciated value of each item. As items are replaced, additional checks will be issued for the price difference. Point out that they are not required to replace the exact item and that they have the right to upgrade the item to a more valuable item by just simply paying the difference in cost.

Explain their policy obligation to fill out a complete inventory of every piece of personal property that was destroyed or damaged. I strongly recommend that you create your own inventory spreadsheet form, for your insured to use, that includes columns for a description of each item, current replacement cost, sales tax if any, the age of item, expected useful life, name and contact information for the store or catalog or other resource where the price and estimated useful life was obtained, the estimated remaining life, the percentage depreciation (dividing the age by the expected life), the actual cash value (the replacement cost, including sales tax, less the depreciation amount), and the amounts of money withheld pending replacement if any.

Creating this inventory is a lot of work in this format, but considerably less work and much more apt to help your insured collect top dollar than if the adjuster creates this form themselves. If the adjuster does the work, you have the extremely difficult task of going line by line through every item on the adjuster's spreadsheet on which you disagree and you have to sell them on changing their calculation. It's far easier and better for your client's blood pressure if you are proactive and present the amount of the claim in detail. Such a format makes it easy for the adjuster to make a payment and leaves a good track record for both parties as to what amounts are still due for the items they replace. Another huge benefit of the spreadsheet is that clients are able to understand how the process works. They rarely will ever be able understand if the adjuster does the spreadsheet. Over the years, I have found this spreadsheet for personal property claims to be more accurate and much more easily understood than what most insurance companies use.

Explain the debris removal provisions that provide an extra amount of insurance. Explain how the building ordinance provisions work if local ordinances require that the home be rebuilt in a more expensive fashion. Explain that the policy dollar limits on jewelry, furs, guns, silverware, etc., apply primarily to theft losses—not to fire losses—so the client should be compensated for each of these items at the full value.

Explain how the policy deductible should not be applied to the claim itself but to the total amount of the loss. For example, assume that a fire destroyed $3,000 worth of cash, passports, deeds, manuscripts, travelers checks, etc. Typically, these items have policy limits of $1,200—$1,000 for deeds, etc., and documents, $200 for cash. The loss in this case is $3,000. The covered amount is $1,200. If the deductible on the homeowners policy is $1,000, that $1,000 deductible should be applied to the $1,800 of noncovered property claim; it should not be taken off or deducted from the loss settlement either on the building or on other contents. This is an important point to make because a large percentage of the time, adjusters mistakenly apply the deductible to the covered amount of the claim.

As the claim progresses, agents/brokers need to continue to be a resource and coach for insureds as issues arise. If the adjuster is making mistakes or taking an unfair position, jump in and use your expertise, sample policies, policy analysis services, knowledge of state laws, etc., to go to bat for your client and resolve the injustice.


In closing, I don't wish claims on anyone. But for me, the greatest joy in my job often occurs at claim time. There is joy in being able to tell my client their claim is covered because we had arranged the right coverage when we set up his insurance program. There is joy in replacing their fear of the claims process with serenity after explaining what they can expect from the adjuster, the steps they can take to document their claim and make the process much smoother. Finally, as a result of both expertise and effort, there is joy in being able to successfully reverse an adjuster's decision to deny a claim or pay less than the policy provides.

Making a real difference at claim time. It doesn't get any better than that.

For those seeking more examples and information on risks managing the claims process for clients, see Chapter 13 and 14 of Insurance for Dummies available from

Opinions expressed in Expert Commentary articles are those of the author and are not necessarily held by the author's employer or IRMI. Expert Commentary articles and other IRMI Online content do not purport to provide legal, accounting, or other professional advice or opinion. If such advice is needed, consult with your attorney, accountant, or other qualified adviser.

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