Are home insurers properly overseeing independent adjusters? FSRA Report

About one-quarter of personal property insurers in Ontario are unable to demonstrate that they’re properly overseeing independent adjusters (IAs), the provincial financial services regulator found in its inaugural home insurance review.

In general, personal property insurers are working to provide fair resolutions to consumers with home insurance claims. But carriers can improve their claims handling processes to better support the fair treatment of consumers, Ontario’s Financial Services Regulatory Authority (FSRA) says.

Released Tuesday, the regulator’s Home Insurance Thematic Review Report identified five areas of improvement in claims handling processes:

• Some insurers can’t demonstrate that they’re properly overseeing IAs
• Different insurers take different amounts of time to settle claims
• Proof of Loss forms policyholders submit to their insurers to make a claim are not used and tracked consistently
• Some insurers do not sufficiently track and report the reasons claims are denied
• In some cases, communication with customers does not happen regularly or sufficiently.

The review looked at the home insurance practices of the Top 20 insurers writing personal property insurance in Ontario, which, based on direct written premiums, represented 97% of the market share in 2021. (This data was self-reported and not independently verified by FSRA.) Nineteen insurers responded to the survey.

FSRA tells Canadian Underwriter they initiated the home insurance review because there were signs consumers were seeing delays in their claims. At the same time, insurers were facing increased pressure due to rising claims costs, inflation and supply chain issues.

One key finding was that while most insurers use IAs “to varying degrees,” some don’t have processes in place to effectively demonstrate oversight of IAs.

“FSRA identified that approximately 26% of insurers surveyed did not have service-level agreements (SLAs) with independent adjusters,” the report says. “The lack of service-level agreements and reviews/audits of independent adjusters may be an indicator of insurers lacking internal controls to ensure business and claims processes support the reasonable and fair treatment of consumer insurance claims as required under s. 5(1) of UDAP [the Unfair or Deceptive Acts or Practices Rule].”

FSRA points out that lack of proper oversight procedures may lead to:

• Delays in claims processing due to undefined timelines
• Inconsistent service quality without mechanisms for ensure consistency
• Limited accountability for adjuster performance, potentially leading to poor service
• Increased customer dissatisfaction from poorly handled claims.

When outsourcing functions, insurers should retain full responsibility for those outsourced functions and monitor them accordingly, FSRA says.

Another finding in the report was a lack of consistent tracking and reporting of reasons for claim denials. Among the surveyed insurers, 16% did not provide data for denials due to system limitations. In 2022, the most common reasons for denials were:

• Other (45%)
• Exclusions and limitations (20%)
• Claim abandoned (18%)
• Below deductible (8%)
• Policy not in force (5%).

Some companies provided various reasons to explain the large number of claims categorized as  ‘other.’ For example, this included limitations in reporting (such as lacking fields to consistently capture data) and duplicate claims opened in error and closed under the ‘other’ category.

“Based on the information collected from insurers, there are potential gaps in the claims tracking and reporting systems of insurers, with a large volume of claims classified as ‘other,’” FSRA says. “Further, from discussions with insurers, these potential gaps may stem from deficiencies and possible inadequacies in both systems and staff training.”

FSRA says the outcomes of the review will inform the development of FSRA’s upcoming Market Conduct Supervision Framework for P&C Insurance, announced last summer. 

 

Feature image by iStock.com/ArtistGNDphotography