Good News for the Consumer
“If Insurance is defined as a risk transfer mechanism, then Loss Assessing could be defined as a loss transfer mechanism.” Jim Flannery, ACII, Director, Balcombes Claims Management
The concept of risk transfer in insurance is a long established one. The premiums of the many pay for the losses of the few. In other words, we transfer our risk to an insurer. We pay insurance premiums to give us peace of mind, so that we can go about our daily lives knowing that we are protected should something bad happen to us.
The transfer of risk is one thing. But the assessment, quantification and transfer of the loss is quite another. Imagine someone who suffers a fire in their home or business? How can they be expected to know how to assesses, compile or negotiate their own claim, when they have never had to do it before?
The public in general have a mis-trust of insurers when it comes to making a claim. Many people can feel nervous or intimidated by having to call their insurer and report a claim, or having to meet with or communicate with a loss adjuster or forensic engineer etc. Many sense that their claim is going to be cut down (and almost expect it), but in addition find the claims process to be time consuming, stressful and difficult.
The role of a Loss Adjuster
When Insurers appoint a loss adjuster, some people are mistakenly of the opinion that the loss adjuster is there to help them. However their fee is paid by the insurance company, and they act for the Insurer; they are not independent. It is up to the policyholder to submit their claim, usually by way of written estimates. The loss adjuster will then ‘adjust’ the claim and make a settlement offer.
In most cases Insurers will hold onto 30% of the settlement amount and this part only gets paid if all the agreed works are completed and VAT invoices for the full amount (before the deduction of the policy excess) are submitted.
New Legislation on Retentions
Following a themed inspection of Insurers in 2012, the Central Bank was not happy with retentions. When it was raised as an issue most insurers responded by specifically including it in the terms of their policy so that they could demonstrate to the Central Bank that they were being clear and transparent about it. However, it has become clear that many millions of Euro in retentions were not being drawn down, thereby allowing Insurers to profit from the misfortune of their policyholders.
The recently enacted Consumer Insurance Contracts Act 2019 restricts Insurers under Section 17 of the Act, to withholding payment of no greater than 5% of the agreed settlement amount for claims of less than €40,000.00 and no greater than 10% for claims greater than €40,000.00.
This is great news for consumers, but it is also good for the Insurance industry. The moral and ethical integrity of the industry is too important for there to be practices in place that have left some policyholders struggling to effect re-instatement to be able to draw down a retention. E.g. a water damage claim agreed at €9,000.00 net of €1,000 policy excess, less €3,000 retention, left a policyholder with €6,000.00. In order to draw down the retention of €3,000, they had to carry out the agreed repairs and submit a VAT invoice for €10,000. Many people couldn’t come up with the additional €4,000.00 and had to carry out patch repairs for the €6,000.00 and forego the retention. Quids-in for the Insurer.
Assessment of Loss & Damage
The transfer of risk is one thing, but the transfer of the loss is quite another. Unless the loss is independently assessed and quantified then the Insurer is not necessarily paying the full measure of the loss, in the first place.
Insurers employ experts to handle the claim for them. However, the policyholder is left to their own devices. Insurers can offer all sorts of “help”, but this is not always in the best interests of the policyholder. The only way for a policyholder to ensure they receive their full entitlement is to have a professional regulated Public Loss Assessor to handle the claim on their behalf. Loss Assessors are the only full-time professional experts acting for the policyholder in relation to property damage and business interruption claims. The Consumer Insurance Contracts Act 2019 will help in relation to retentions and other matters, but unless the agreed settlement represents their full entitlement under the terms of the policy, the insured can still be left out of pocket.