“To Hail With This Weather!”
Claims Journal Article, “The Emerging Hail Risk: What The Hail Is Going On?”
Recently there was an article discussing the increase in claims for hail related losses in Texas. It stated that hail claims have dramatically increased over the past few years. That statement in the article is true. According to The National Insurance Crime Bureau (NICB) insurance claims resulting from hailstorm damage increased 84% in 2012 from their 2010 level. In 2010, there were 467,602 hail damage claims filed. That number increased to 689,267 in 2011 & to 861,597 in 2012 – an overall increase of 84% from 2010 to 2012. Over 2 million hail damage claims were processed from January 1, 2010 to December 31, 2012. During this period, the top five states generating hail damage claims were Texas (320,823); Missouri (138,857); Kansas (126,490); Colorado (118,118) and Oklahoma (114,168). Click Here To See NICB Report.
The author of this article is suggesting that it is not all due to an increase in significant weather events in large cities, but uses the blame the victim mentality. It is the fault of the policyholder for hiring help & the policyholder’s representatives for “injecting themselves into the claims process with the intent to bleed-off whatever money they can into their own pocketbooks.” It is no surprise that the article is written by an insurance company defense lawyer, Steven Badger of Zelle Hoffman.
I want to respond to this article because it published some of the most blatant, one sided & inaccurate opinions of our industry as Texas Public Adjusters. I want to point out the historical weather data that is missing from the article written by Mr Badger.
What The Hail Is REALLY Going On?
According to NOAA National Weather Service, Texas had the following number of reported hail, wind & tornado reports:
So it would stand to reason that with each year from 2010 to 2012 having substantially more severe weather events than the previous years that the claim volume would have increased. The 65% increase in severe weather events in Texas from 2010 to 2012 is the legitimate factor on why claim volume has increased. This insurance company defense attorney would have you believe that the increase in hail damage claims has nothing to do with abnormally large or frequent severe weather storms, but from unscrupulous property owner representatives trying to make a buck off the poor old insurance company. The weather data from NOAA National Weather Service clearly distinguishes that as false due to a substantial increase in severe weather reports during the time period in question.
Mr. Badger’s reasoning for the increase in hail claims, appraisals, & lawsuits is not because the insurance companies are refusing to pay meritorious claims. “Instead, it has everything to do with strangers to the insurance policies in question injecting themselves into the claims process with the intent to bleed-off whatever money they can into their own pocketbooks.”
He would have you, the property owners, believe that insurance companies are under attack & it has nothing to do with actual damage by severe weather events. Instead he gives false allegations that the increase in hail claims is because of all the “money being paid today to contractors, public adjusters, policyholder attorneys, and other assorted crooks and frauds.”
Let’s Start With The Statement, “….it is not because the insurance companies are refusing to pay meritorious claims….”
A little education to the public goes a long way. Let’s start with the book, “From Good Hands To Boxing Gloves: The Dark Side of Insurance” by David Berardinelli. Allstate hired McKinsey & Co in 1992 to improve efficiency & increase profits. The consulting firm developed methods for the company to become more profitable by paying out less in claims. These methods were implemented by Allstate & many other insurance companies in the decade to follow 1992. These methods include “good hands” for those policyholders who accept the low claim amount & “boxing gloves” for those who protest. “Sit & Wait” methods by postponing insurance claim payments, insurance companies can hold money longer and make more on their investments. These methods often wear down policyholders to the point of dropping a challenge.
Are These Methods Working?
More than half of the insurance companies use these methods with success today. Cheating Policyholders = Increase Profits. Below is a financial study Bloomberg did regarding the effects of profits in the time period after Allstate implemented these methods.
Prior to hiring McKinsey & Company, Allstate paid almost $0.80 cents on the dollar out in claims for every dollar collected in premiums. Now they are closer to $0.55 cents on the dollar. Where did that claim payout money go? Not in the hands of the policyholders, but in Allstate’s pocket. Not to pick on Allstate, but they are the pioneer with starting this trend. Now more than half of the insurance companies employ these same methods.
Now that we have looked at a broad view of the methods working against a policyholder when they have a claim. Let’s take a look at an example:
Insurance Company: Allstate
Claim Type: Hail/Wind claim
Property Type: Single Family Home
A property owner in Houston, TX files a claim under his homeowner’s policy for hail & wind damage. The insurance company comes out to inspect the property & improperly denies coverage. Why? According to Mr. Badger, “it is not because the insurance companies are refusing to pay meritorious claims.” This inspection all started with a homeowner who had a contractor look at his roof because many of his neighbors were getting new roofs. So Mr. Homeowner wanted to see if he had damage prior to filing a claim by engaging the help of a local contractor, seems pretty reasonable to me. The contractor informed the homeowner that there was in fact hail & wind damage. So Mr. Homeowner notified Allstate & the claim process began. The contractor was there during the initial inspection & was pointing out the damage to the adjuster. The adjuster decided that he was going to state this hail damage was in fact a blister due to manufacturing defect & not covered under the policy. When hundreds of homes in the neighborhood had their roof replaced by their insurance companies due to a documented hail & windstorm that passed through the area.
Below is a picture of the hail damage for which the adjuster states is a manufacturing defect called a blister.
The contractor knew this was not the case because he has seen thousands of hail damaged roofs. He calls in a Texas Public Adjuster to help. Mr. Homeowner engages the public adjuster to help with the wrongful denial. After the public adjuster’s investigation it is confirmed that the roof does have hail & wind damage. The public adjuster prepares reports of damage valuation & a report of evidence visually showing the difference between hail damage & blisters. The insurance company sends a new adjuster out to meet the public adjuster. The new adjuster states that he doesn’t need an education on what blisters are & states that this is just a roof showing it’s age. Mr. Homeowner bought a replacement cost policy so the age of his roof is irrelevant if there is direct physical damage to the shingles such as hail damage. After much back & forth, Allstate still wrongfully denies the claim.
Below is a picture of what a real blister from manufacturing defect looks like courtesy of AAA Roof Technologies:
It was clear to Mr. Homeowner, the contractor & the public adjuster that the insurance company was not paying a covered loss. So Mr. Homeowner had to engage the services of an attorney. This is what happens all the time in the claim process, insurance companies are not under attack. It is the property owners that are under attack & must hire help to enforce the terms of the insurance policy. There is a reason that the need for a qualified public adjuster & plaintiff attorney exist. It is not because we are trying to get non covered claims paid, it is because of the opposite. With the increased volume of severe weather events occurring in Texas & the resulting volume of claims filed, it is only natural that there will be more disputes on covered losses. The increase in public adjusters getting licensed in the State of Texas is all part of the economic “supply & demand” theory in a free market. If there are a higher supply of claims for which insurance companies are employing methods to lower legitimate claim payouts then the demand for public adjusting services rise. If the demand for public adjuster services increase then the supply of public adjusters who can provide those services will also increase. It is basic economics.
Mr. Badger suggests a few strategies for the insurance companies to help them for what he calls an “attack” on them:
- Engage qualified engineers with real experience in identifying hail damage;
- Refuse to negotiate claims with contractors and other individuals acting as unlicensed public adjusters;
- Hold the insured to its policy burdens;
- Refuse to accept inflated Xactimate estimates but instead require real bids from real contractors;
- Refuse to pay “10+10” overhead and profit when general contractors are not reasonably necessary and their costs not incurred (there is no “TDI Bulletin” or “three trade rule” dictating otherwise);
- Closely monitor appraisals to avoid the inevitable manipulation of the process and race to the courthouse for a favorable umpire appointment; and steer clear of the predictable traps.
- Finally, insurers can also decide to step up and start fighting the worst abusers, not only in the claims process itself, but also in the shady underworld of referral fees, inflated invoices, kickbacks and outright fraud.
These strategies will be interesting to watch unfold in the field during the claim process. Most of these strategies they are already employing. Insurance companies hiring “qualified” engineers is an oxymoron. Insurance companies only hire a handful of engineering firms, they use the same firms over & over. It is usually a sign that a wrongful denial is coming your way when the insurance company assigns an engineer. I think the next big strategy that insurance companies will employ is to refuse to negotiate claims with contractors and other individuals acting as unlicensed public adjusters. Recently Texas passed a new law regarding this exact issue, it took effect September 1, 2013. I am educating the contractors in Texas through workshops on this issue. Part of this education platform is that they will eventually need to have a public adjuster hired on many of their client’s properties to avoid future legal issues. For now insurance companies are tolerating the contractors, but I think this will be the next big wave for insurance companies to limit exposure & lessen claim payouts.
I was very surprised in this Claims Journal article’s content. It was one-sided, impartial & suggests that our industry is filled with nothing but crooks lining our pocketbooks. Which for the majority of us is the opposite of the truth. I think a good hard look in the mirror would serve the insurance company’s representatives well before they point the finger to our side. I think every industry has bad apples, but for the most part a public adjuster’s purpose is to help others who cannot help themselves. If insurance companies did the right thing then public adjusters would not have a job & neither would Mr. Badger who represents the insurance company when their bad behaviors send the claim to litigation.
I would however agree with him on one point, that contractor licensing in Texas would be a needed legislative change that can help avoid impermissible conduct. I think that would be a great improvement & added protection to property owners in this state. I do not see it happening though. Texas has very strong views on government regulations. I will hold out hope that contractor licensing will happen one day in the future. Many of the contractors I do business with also think this is a good idea to rid the industry of the bad apples.
In closing I would like to thank Mr. Badger for initiating this discussion by authoring this Claims Journal article. Although I do not agree with the majority of what his opinions state, I do respect that is his experience & perception. I think there are important issues at stake here & I want to make sure that all sides are represented. There are always two sides to every story & then the truth. What do you think is the truth? If you have stories to share with your personal experience from either side I am interested in hearing what you have to say.