CIP Courses , CAIB Courses, CRM Courses: Essentials of Loss Adjusting C110

Chapter Six – Evaluation and Negotiation

Describe how to evaluate documentation submitted to prove the existence and value of items claimed.

What does a loss adjuster consider when comparing repair estimates?

How does a loss adjuster handle the overhead and profit portion on work to be done by an insured?

What can a loss adjuster do to verify the authenticity of invoices?

In a judicial setting, what are the two main elements to the issue of credibility in proving a loss?

Introduction to Evaluation

· as the information accumulates the adjuster is always evaluating and re-evaluating the claim as a whole searching for fair assessments

· comparing estimates means comparing the labour rates, and the quality of material used for the cost

· If the insured has decided to fix the car herself, then the overhead and profit that an independent repair shop would make are perhaps not warranted. The insured did not incur the same expenses as a professional.

Evaluating Claim Documentation

· the claim must be substantiated, the adjuster must be satisfies that the claim submitted is authentic

· fraud has been perpetrated by insured’s producing receipts that belong to someone else the documents appear authentic but the insured never owned the property

· check the invoice numbers if the dates are not in order but the invoices are the receipts are probably bogus

· if it is believed that the documents are fake the adjuster must be resourceful to prove it – false documentation is illegal

· test of credibility, may be asked by jurors to weigh testimony against its inherent probability or improbability in order to test its creditability – two elements include:

1. the information disclosed

2. impression the witness makes

Introduction to Evaluation

adjuster is always evaluating and re-evaluating the claim as a whole
when repair estimates must be evaluated an adjuster asks for the costs to be itemized
if repairs are high then the overhead and profit from an repair shop may not be warranted
comparing prices and evaluating is important

Evaluating Claim Documentation

insured will have receipts or visual documentation
adjuster should know under what circumstances the receipts were obtained
documentation may be authentic but could the property of someone else
check invoice numbers
documentation might be false
test credibility
two elements to the issue of credibility

information disclosed
impression the witness makes

Explain the basis of evaluation for replacing items damaged, the pair and set clause, and the parts clause.

List the 8 bases of evaluation used in claims.

List three methods used to determine actual cash value.

How would a loss adjuster resolve a claim subject to the parts clause of a property policy?

Claims Issues on Evaluation

· expectations must be managed early in the claims process to pave the way for a reasonable and fair settlement

· to avoid misunderstandings the insured must be immediately informed how the policy wording operates to cover replacement cost

· Depending on the item in question one or more of the following might be a component of evaluating the item and may require negotiation:

1. market value

2. actual cash value

3. replacement cost

4. competitive pricing

5. like kind and quality items

6. scientific judgement

7. safety requirements

8. court decisions

· actual cash value is the fair value of the item at the time of the loss – following methods can be used to determine reasonable cash value

1. replacement or repair cost less depreciation

2. fair market value

3. income value

4. special value to owner

· not all standards are appropriate or are applied in the same manner to each claim – handling a claim for vehicle damage an adjuster may take into consideration :

1. original cost of the car less depreciation

2. price the car could have sold for

3. standard book value of the car

4. cost to replace the vehicle with a comparable model

5. court award of the value of the car

· when an item has been damaged it must be replaced with a new one

· the adjuster must consider whether the property was realistically improved, it is up to the adjuster to prove that the improvement changed the values of each item

Pair and Set Clause

Pair and Set – prevents an insured from claiming the total loss of a pair or set because part of it has been lost or damaged

· the individual parts of a set do not necessarily represent equal portions of the total value of the set

Parts Clause

· prevents the from claiming a total loss if only one part of an item of property has been damaged or lost

Claims Issues on Evaluation

insured to be informed on how the policy wording operates to cover replacement cost

Depending on the item in question one or more of the following might be a component of evaluating the time and may require negotiation:

market value
actual cash value
replacement cost
competitive pricing
like kind and quality items
scientific judgment
safety requirements
court decisions

The following methods can be used to determine a reasonable ACV:

replacement or repair cost less depreciation
fair market value
income value
special value to owner

Not all standards are appropriate or are applied in the same manner to each claim. In handling a claim for vehicle damage following a car accident an adjuster may take into account the following:

original cost of the car less depreciation
price the car could have sold for
standard book value of the car
cost to replace car with a comparable model
court award of value of car

Pair and Set Clause

found in property policy conditions prevents an insured from claiming the total loss of a pair or set because a part of it has been lost or damaged
loss adjuster negotiates with the insured as to the value of the part in relation to the whole

Parts Clause

parts clause prevents the insured from claiming a total loss if only one part of the property has been lost or damaged

Discuss the insurer’s obligations when it has chosen to invoke the replacement clause.

What procedure would a loss adjuster follow when the replacement clause of a property policy was invoked?

Replacement Clause

· when the adjuster is unable to agree with the incurred about the value of damaged property insurer may chose to follow the replacement clause

· the insurer has the option to repair, rebuild, or replace the property damaged – the insured must be informed of this in writing within 30 days and repairs must begin within 45 days

· the insurer may be estopped from exercising the replacement option if the insurer has already agreed orally or in writing to settle in cash

· once the insurer has successfully invoked this condition the policy is no longer a contract of indemnity but of repair, replace, or rebuild

· insurer may be sued from any delay in completion

Replacement Clause

if adjuster is unable to agree with the insured about the value of damaged property, the insurer may choose to follow the "replacement clause" in the additional conditions of policies in the common law provinces and in general conditions of policies issued in Quebec
once the insurer has successfully invoked this condition, the policy is no longer a policy of indemnity
changes to a contract to repair, rebuild, or replace for the particular claim

Outline the various approaches that can make claims negotiations proceed smoothly.

How does the loss adjuster prepare for negotiating the value of a claim with the insured?

Explain the win win approach to negotiating.

Using Negotiation Skills

· results oriented form of communicating

· knowing what needs to be accomplished and reviewing all information in advance is helpful

· determine how much the claim is worth and if the policy limitations will affect how the claim will be paid

· flexibility requires that we react quickly and alter behaviour to reach a set goal

· make a fair offer to reduce the time needed to create a fair offer

· by using listening skills we can identify what is important to the insured, questions asked should refine the information needed

· be fair and flexible allow the insured to explain their needs and try to find a way to accommodate those needs

· always be cooperative, friendly and pleasant – being abrasive will break down negotiations

· develop as many issues as necessary for negotiation do not narrow to one issue

· when a concession is made make sure that sound reasoning supports it, do not make a concession if the claimant says ”that’s not enough”

· negotiations are based on specific objective criteria, we must separate the problem from the people focusing on interests and not positions

· when an insured makes a counter offer it must be substantiated

· adjuster will negotiate an amount to recognize work the insured has done (completing labour themselves as opposed to hiring a professional)

· use a win-win approach – the loss adjuster looks for solutions where each party feels they gained something – it is about realistically and fairly evaluating the claim under the policy to come to a reasonable settlement

· broader more general questions must be reduced to specific to narrow the negotiation to a “nuts and bolts” level

· conflicting information may be present during negotiations, preparing fully and having notes and claim details to refresh memories from the claim or earlier sessions will ease the process

· when the insured shows a willingness to accept the basis for the claims evaluation the adjuster can move onto the settlement

· how a question is asked is as important as the question itself – politeness and permission is more likely to grant you a complete answer

· recognize when something is said that the insured does not understand or agree with and talk it out to resolve

· provide all information to help the insured understand the basis of the settlement

· in the rapport building you may loose focus of the conversation – the conversation must be returned to the objective of negotiation

Using Negotiation Skills

negotiating is a results-oriented form of communicating
be honest, fair and earn trust
use listening skills and be flexible to the needs
make sure that sound reasoning properly supports it
negotiation based on tangible issues
we negotiate we must separate the problem from the people
adjuster explains the boundaries of the settlement
usually an adjuster will negotiate an amount to recognize work the insured has done
when possible use a "win-win" or "everybody wins" approach which is very useful
accomplished by identifying the different needs and objectives of the parties
negotiation process is not about persuasion
have specific questions ready

Identify ways to resolve conflicts in negotiations.

Discuss the issue of making concessions during a claim negotiation.

Why is selling back salvage to an insured preferred for small claims?

Describe the four tips useful to resolving conflicts in claims negotiation.

How is a person’s judgement affected when he or she is angry?

How does offending a party’s dignity affect negotiations?

What is the role of the mediator?

What happens when an offer is not accepted in mediation?

How is arbitration given legal effect?

What are the rules of evidence in an arbitration proceeding?

How does the statutory condition of appraisal work in the property policy?

Identify each step in the two part test used to determine whether an insurer can claim privilege over a document.

Resolving Conflicts

· a situation may arise where the adjuster and insured may disagree about something involved in the negotiation

· these differences of opinion can be resolved with good negotiation skills and maintaining terms of utmost good faith

· important points to remember are:

1. separate the people from the problem

2. determine the options for mutual gain

3. avoid being defensive and aggressive

4. focus on the interests of both parties rather than individual ego

· a show of anger may be justified but must be done with control over emotions

· when the other party behaves badly respond quickly and appropriately

· attack the message not the person that may damage their integrity

· look to understand the message behind the words

· offending an insured’s dignity can jeopardize negotiations

Salvage Negotiation

· The adjuster may have the opportunity to sell the salvage back to the insured – for small claims this is preferred

· It saves time and the returns the insurer would receive from a professional salvor in auction or in private sale would be minimal

· Each item salvaged must be evaluated independently

Alternative Dispute Resolution

· Negotiating a settlement may be difficult, the same evidence may lead to different conclusions

· In some cases the issue may be resolved in court but two less costly and time consuming forms of Alternative Dispute Resolution are:

1. Mediation 2. Arbitration

Mediation

· Members of each party meet in private with an impartial mediator to try to reach a settlement

· The mediators help the parties involved define the differences in their positions and work towards a solution

· Mediation is non-binding unless a settlement is reached

· Oral and written offers are inadmissible – this helps the parties to explore all options

· Mediation process can help the parties to communicate more effectively and can bring settlement negotiations to a conclusion quicker than trial

Arbitration

· arbitration is a more formal process than mediation but less formal than going to trial

· the parties involved agree to be bound to the decision made by the impartial third party

· Most claims disputes can be handled within 4-6 weeks

· The decision is legally binding

· There are no strict rules of evidence

· Dispute resolution saves time, money and ill will between parties

Property Insurance – Appraisal

· If there is a disagreement as to the value of the property insured, the property saved or the amount of the loss the statutory conditions provide for appraisal

· Both the insured and insurer would hire an appraiser and they would hire an independent appraiser to decide which appraisal is more correct

To claim privilege over a document, the document must meet a two part test.

1. Was litigation in reasonable prospect at the time the document was produced?

2. If so, was the dominant purpose for the documents production to conduct or aid in the conduct of litigation or obtain a legal opinion.

If the unequivocal answer to both questions is yes, the document will be considered privileged.

Resolving Conflicts

If an adjuster and the insured disagree here are some important points to remember:

separate the people from the problem
determine the options for mutual gain
avoid being defensive or aggressive
focus on the interests of both parties rather than individual ego
anger tends to cloud judgment
tensions may rise
do not risk offending the insured's dignity
look to understand the message behind the words

Interpreting Body Language

1. non-verbal cues play a critical role

2. gestures useful to negotiating may involve touching or moving

Face and head

smiling and the meaning is to be confident and honest
avoiding eye contact may mean trying to hide something
gazing might mean boredom
nodding is showing agreement

Body trunk

turning away from the adjuster may mean disagreement
leaning towards the adjust or coming in closer is interest

Arms

open arms is being receptive
crossed arms in being non-receptive

Hands

open palms mean being positive

Legs

sitting with legs uncrossed means being cooperative
crossing legs is being in disagreement

Salvage Negotiation

adjuster may have an opportunity to see the salvage back to the insured as a resonable cost

for small claims this is preferred

insurer may be faced with donating the salvage or throwing it out

Alternative Dispute Resolution

Property Insurance-Appraisal

when disputes arise they can be resolved using appraisal
appraisals are given to a third party, the mediator
disputes can be resolved in court or alternative dispute resolution

Mediation

representatives of each party meet in private with an impartial mediator to try to reach a settlement
mediation is not binding unless a statement is reached
helps the parties to explore all possibilities
helps parties to communicate more effectively
can bring settlement negotiations to a conclusion more quickly than by going to trial

Arbitration

more formal process than mediation
business like and private
simplifies the process and can be handled within 4 to 6 weeks
saves time and money
using an ADR technique is another way to use negotiation skills

CIP Courses , CAIB Courses, CRM Courses

Essentials of Loss Adjusting C110