Time to Build Commercial Property Estimating Skills

Recent catastrophes highlighted a number of challenges faced by the property insurance industry: state insurance plan adequacy, wind vs. flood litigation, demand surge, and a dearth of skilled claims adjusters in the marketplace. Insurance industry experts agree that recruitment and retention of a skilled property adjusters may be challenging in the coming decade.

A decade of insurance carrier cost control measures, managerial focus on claim “processing”, and a lack of ongoing professional training and development, combined with comparatively low salaries, demanding work schedules, and a lack of “glamour” seem to have taken a toll on the professional adjusting work force, as has an increasing number of retirements of seasoned professionals and decreasing numbers of new adjusters entering the profession. This shortage is most acutely felt in the commercial property claims arena.

The complexity of commercial claims leads to complex negotiations during settlement. The carrier is motivated to expedite repairs if the loss is big enough to stop production – especially if payments are being made for continuation of payroll and loss of profits. The insured can be a very sophisticated negotiator, employing consultants and lawyers to negotiate on its behalf. Large insureds can also use the size of their premium as a negotiating tool. It is imperative, therefore, that the claims adjuster be equally qualified and have all the information necessary to negotiate from a position of strength.

Unfortunately, many adjusters currently handling large, complex commercial losses have not had the time or training to develop the skills necessary to truly manage the complex commercial claims adjustment process. Many insurance companies have addressed the adjuster shortage by assigning commercial claims to adjusters who primarily handle residential property claims. This often results in the adjuster calling in a contractor to prepare a scope and estimate of repairs and the adjuster then “redlines” that estimate in preparation to settling the claim. There are pros and cons with this type of handling: getting the insured back in business is typically expedited, but control of the scope of repairs is usually lost. The most skilled claims adjusters are masters in the art of balancing those two conflicting goals.

Because property damage includes claims for business interruption, carriers often need to quickly restore the real property in order to minimize this exposure. An example would be an extensive fire loss at an auto body shop with six bays that are operating at 80-90% capacity or at a small manufacturing facility with 60 employees working two shifts; these types of operations typically occupy simple block buildings with limited improvements. If operations cannot be moved to a suitable, nearby location, it will be imperative to get the insured up and running because the business income loss could be greater than the damages to the building.

Expediting the estimating process to reduce the business income claim may be the leading reason for the adjuster to find shortcuts at this stage of the claims handling process. However, working primarily with a contractor rather than attempting to write his or her own estimate and negotiating with the contractor from a position of strength often leads to deterioration of overall commercial claims severity.

According to the Insurance Information Institute (III), written premiums for commercial multiple peril coverage increased over 53 percent in a five-year period starting in 1999. III indicated the written premium in 2004 for Commercial Multiple Peril coverage, Homeowners Multiple Peril, and Fire only policies was $87.4 billion. The commercial portion represented 33.3 percent of the premiums.