Adjusting the Process

Third-party claims management agencies have appeared as a blip on the radar of Canadian independent adjusters, with promises to insurers of cost savings and streamlining business processes. But is this a trend that’s here to stay, or just a passing fad?

At least one source from the United States expects third-party claims management agencies to cross fluidly from the U.S. jurisdiction into Canada. Paul Gross, president and CEO of Harmon Solutions Group’s Code Blue (CB), is planning an “aggressive Canadian campaign to be launched in the very near future.” He recently extolled the virtues of third-party management agencies to patrons of the Disaster and Restoration Contractors Conference and Trade Show in Toronto. But Fred Plant, president of the Canadian Independent Adjusters’ Association (CIAA), is skeptical about the longevity of these alternative claims management systems within the Canadian context.

TAKING CARE OF BUSINESS

Essentially, CB serves as a liaison between carrier and contractor, Gross says in a telephone interview from his Wisconsin headquarters. Simply put, CB’s large-scale call centre takes the first notice of loss 24-7, 365 days of the year. Once a call comes in from a policyholder, CB dispatches a contractor, Gross adds, typically within two hours.

Once on the scene, the contractor feeds photos and documentation of the damage back to CB’s “command centre,” where CB personnel and the insurance carrier’s internal adjusting department can monitor the claim in real time.

“We employ contractors with the latest technology, as defined by the IICRC’s S500 standard [Institute for Inspection, Cleaning and Restoration Certification’s Standard and Reference for Professional Water Damage Restoration],” Gross says. “We hold people accountable to performing that work in accordance with the standard.”

Contractors who meet the requirements are added to CB’s roster at no cost. Gross says contractors have to be equipped with the latest handheld wireless technologies to facilitate real-time communication from the point of loss. The insurance carrier pays a fee, and when a call comes in from the policyholder, CB determines which contractor will be sent to the scene.

The way Gross presents it, the CB process essentially cuts out the “middleman” in the communications between contractors and insurance companies; typically, this is a role played by the claims adjustor. Plant says CB is not the first company of this sort to take a crack at the Canadian market. But he notes a lot of issues are at play for Canadian insurers considering this form of claims management system.

“To do this in Canada, you have to watch the line between the service that you’re offering and loss adjusting service,” says Plant, “because if you’re offering loss adjusting and anything that fits the various definitions of what loss adjusting is across the country, then you must be licensed.”

Definitions vary by jurisdiction, but in Ontario’s Insurance Act, an adjuster is defined as someone who, “on behalf of an insurer or an insured, for compensation, directly or indirectly, solicits the right to negotiate the settlement of or investigate a loss or claim under a contract or a fidelity, surety or guaranty bond issued by an insurer, or investigates, adjusts or settles any such loss or claim…”

MOUNTAINS OR MOLEHILLS?

Gross says his network typically handles minor water damage claims, usually under US$10,000. This is not a self-imposed claims cap, he adds, noting the claim amounts vary from insurer to insurer. When a carrier decides to use CB’s services, the company and the carrier sit down to discuss a reasonable limit of damages, usually between US$10,000 or US$15,000, at which point the insurer’s claim manager is called in to oversee the process.

“This is primarily for smaller claims, because we don’t have a conventional adjusting arm, but we can handle losses of any size,” Gross says. He adds that if the damage is above and beyond the established ceiling, “what we’ll do is invite the company’s adjuster in to manage the claim or at least provide approval on it.”

The benefits of CB’s services to the carrier, he claims, include reduced severity, elimination of the expense of sending an adjuster to the scene and an improved policyholder satisfaction level (which translates into better retention).

Quick response can also reduce the damage losses, Gross notes. “When water is identified and it sits in a structure, it doesn’t stand still — it has all kinds of collateral damage,” he says. Rapid response is key to preventing further damage to the house’s contents or the spread of water damage from one part of the house to the other. “The rapid response is more than just providing a great policyholder experience,” Gross says. “It’s a really efficient way to mitigate the overall loss.”

Plant treats these asserted virtues of third-party claims management agencies with caution. He draws an analogous comparison between a well-established community auto repair shop, ‘Reliable Auto,’ which has an experienced and well-trained mechanic (i.e. the independent adjuster) on staff, to a quick lube service (i.e. a third-party agency). Initially, he says, the cost savings associated with a quick lube and oil change service might seem appealing. In the long run, however, for the really big fixes, a car may find itself in dry-dock without the services of a licensed mechanic.

“Doing the oil changes and minor services are a large part of the business that Reliable Auto does,” Plant observes. But “when everyone leaves and goes to the quick lube and oil shop, one day they will need the Reliable shop for a major repair, and they will get there and find the door locked. The people that only do the oil changes aren’t going to be capable of doing an engine job.”

A MATTER OF TASTE

Gross maintains he has seen “incredible interest from the carrier’s perspective.” Business is booming in the US, he says, and he is anxious to share a piece of the Canadian market pie.

The Canadian portion of the pie doesn’t seem very large at the moment. One industry rep commented that while some companies employ these third-party services in Canada, their use has yet to become an industry standard. Whether or not that would be the case in the future, he could not say. But he questioned whether there would be any net financial gain for a carrier in paying money to use a third-party claims management agency when, at the same time, it has to budget to maintain its own adjusting arm for larger claims.

Plant agrees. He says he has seen companies of this nature come and go over the past 10 years. He maintains his belief that Canadian insurers won’t be so quick to jump the independent adjuster ship.

“When someone develops skill and ability over time, you have to acknowledge what it took to develop that skill and knowledge,” he says. “If you’re in it for the long term, you have to encourage a continuation of that skill and knowledge or it will be lost. I think insurers in Canada are a really sensible group. They are not going to be attracted by some shiny trinkets [and] sacrifice in the long term a valuable service.”