Growing Use of ‘Unlicensed Surrogates’ Worries Policyholder Attorney

Can insurers resolve claims more efficiently by dispatching specialist vendors instead of claims adjusters to determine the cause of loss and the replacement value?

Some experts say so. But policyholder attorney Chip Merlin of Tampa, Fla. posits in an Oct. 12 blog post that the use of “surrogate unlicensed claims professionals” is a “big insurance claims trend” that he suggests won’t be of much help to insurance customers.

“These outside vendors are neither licensed as insurance adjusters under the control of insurance regulators nor are they trained to appreciate the ethical obligations property insurance adjusters have to the public and especially the insurance customer,” Merlin wrote for his Property Insurance Coverage Law Blog.

Merlin specifically mentioned two companies that perform many of the functions traditionally done by licensed claims professionals: J.S. Held and Ladder Assist. In his blog, Merlin said J.S. Held is an “amazing advocate for the insurance industry.”

But during a telephone interview on Friday, Merlin said that good work isn’t good news for policyholders.

He said insurers “are providing the authority and certainly all the expertise determinations, to—essentially—people who aren’t licensed.”

“It’s the job of adjusters to ensure that that they pay every single penny that (policyholders) are entitled to,” Merlin said. Vendors “are not going to tell you all the benefits that you may have coming to you.”

For example, Merlin said a policyholder who suffered damage to a custom home may be entitled to have an architect oversee the contractor’s work. Policyholders whose homes are destroyed may be able to change the design of the structure by contributing their own funds to the reconstruction. Policyholders may not learn that they have that flexibility if the insurer sends out a vendor instead of a licensed adjuster, he said.

Jonathan Held, chief executive officer J.S. Held, said he appreciate’s Merlin’s plug for his company. The admiration is mutual. Held said Merlin is a friend, a good attorney and sometimes a worthy adversary. The two are even scheduled to speak together during a panel discussion at the upcoming Windstorm Insurance Network Conference.

But Held said he doesn’t think much of Merlin’s premise.

“I’ll put this in beautiful Brooklyn-ese: This ain’t no trend,” Held said.

Held said insurance companies have hired vendors to assess replacement value and determine causation “for as long as I can remember.” And that’s been a while.

Held joined his family’s company, headquartered in Jericho, N.Y., in 1977. Since then, J.S. Held has expanded to become an international consulting firm with 1,100 employees. It offers insurers a broad range of services, including construction, water and fire restoration, and forensic accounting.

Held said vendors who work for insurers don’t try to interpret contracts and don’t negotiate with policyholders. That’s the adjuster’s job. Vendors offer expertise in determining the value of a claim and the cause of damage.

Held said that often works to the advantage of the consumer. For example, if a policyholder’s air-conditioning compressor is struck by lighting, the carrier can send out a contractor who can verify the cause of the damage and then repair the compressor, saving the homeowner the hassle of dealing with contractors.

“There is nothing revolutionary,” Held said. “The industry has had an outsource model forever.”

Merlin, on the other hand, said the phenomenal growth of Held’s company shows the use of outside vendors is growing. He said he’s been representing policyholders since 1985 and during that time more and more claims services are being handled by vendors instead of licensed insurance adjusters.

In his blog, Merlin noted an Aug. 18 article posted online by McKinsey & Co., a consulting firm, that advises property and casualty insurance carriers to restructure their claims operations so that more work is done remotely and online. The article suggest that carriers use “preferred vendors to help customers receive the best quality work.”

In contrast, Merlin said licensed adjusters are trained to fully investigate claims and negotiate in good faith to arrive at the fair replacement value. With vendors doing the work, “there’s no one out there explaining to the people what’s covered under the policy he said.

Held said he suspects Merlin posted the blog to send a signal to his readers, who are mostly other plaintiffs’ attorneys, that they should be on the lookout for vendors who step outside of their role.

“He’s looking for a wedge to scream unfair—unfair claims practice. Bad faith,” Held said. “Chip is a very good lawyer. He writes a blog for a reason.”

Merlin said actually he didn’t think that deeply when he wrote the blog. Nevertheless, he said Held makes a good point about vendors knowing their limits.

Both men agreed on that point.

“There’s an excellent reminder there,” Held said. “The reminder is, if you’re an insurance professional, stay in your lane. If you’re a service provider to an insurance company, stay in your lane.”