Adjusting in Case of Emergency

In the dog-eat-dog world of the Canadian property and casualty insurance industry, independent loss adjusting has become the fire hydrant.

Insurers generally like fire hydrants – especially when something is burning. Even something as simple as a hydrant requires maintenance in order to perform when called upon.

Municipalities, even in the tightest of times, keep their fire hydrants in top shape. Insurers depend on it, even insist on it. Valves are checked, flows are tested and water supplies are ensured. These simple, yet vital pieces of equipment even get a fresh coat of paint now and then. But although insurers are quick to call on independent adjusters when they have a burning problem, they are not so interested in maintaining this element of loss-fighting equipment. The day is coming when the adjusting hydrant isn’t going to work anymore.

TALENT RESERVOIR

A reservoir of water is required for a fire hydrant to have any effect. The reservoir of knowledge and talent in the independent adjusting profession is drying up. Most insurers in Canada do rely to some extent on the use of independent adjusters. Just as insurers rely on the proper maintenance of fire hydrants, so, too, should they be concerned about maintaining a bevy of competent independent adjusters. It is not enough to call now and then and expect there will always be someone on the other end to answer. There could come a point when the time between calls will have been too long; consequently, when insurers attempt to turn on the service valve, there will be very little flow or perhaps the mechanism will be completely seized.

Loss adjusting is a profession best learned through experience. Insurance Institute courses and other post-secondary education pursuits are vital in creating the foundation on which a good loss adjuster is built; however, the real structure arises from doing. Over time, adjusters take a career path that best suits the individual, whether handling property claims or casualty claims. Each experience along the way adds to the adjuster’s education and enhances his or her ability to perform. Perhaps the industry may one day be successful in reducing all property claims to simple processes, but that is never going to happen with casualty claims. Property claims are a great training ground for those who will go on to be casualty specialists. A good property adjuster has knowledge of liability matters learned in apprenticeship; that knowledge helps the adjuster to look for subrogation issues in the midst of the property loss investigation and claim adjustment. You do not learn that in a manual or textbook. You learn that by doing. The discipline will be weakened by the loss of property experience.

Insurers and contractors are increasingly handling by telephone the work traditionally done by independent adjusters in the field. As a result, the training ground for independent adjusters – even staff field adjusters – is eroding.

DECLINING NUMBERS

Over the summer of 2006, a committee of the Nova Scotia region of the Canadian Independent Adjusters’ Association (CIAA) undertook a study of the number of people employed in Nova Scotia as independent adjusters over a 10-year period. The broad purpose of the study was to examine contractor involvement in property claims. According to the report, “from 1995 to 2005, the number of licensed independent adjusters in the province of Nova Scotia dropped from 170 to 80. This represents a decline of 90 licensed professionals or 54%.” This is not a trend unique to Nova Scotia; however, it is something about which every property and casualty insurer in this country should be concerned.

The independent loss adjusting profession in Canada is graying. Without the ability to attract new talent to the profession, few competent independents will be left in the field 15 years from now. What then? Insurers will still have the same obligation to their customers. The fires will still be burning. But insurers who use the independent adjusting hydrant for only a basic daily purpose (and the occasional big burn) will find they are holding a limp hose, incapable of fulfilling the promise on which the entire industry is founded.

It is not sufficient for the independent adjusting profession simply to take the position that insurers should hire independents regularly for the good of the industry. Adjusters must demonstrate they have a necessary purpose; that they add value to the equation. The need for the service is well established in this vast and diverse country, but insurer confidence and belief in the value of the service has been diminished in recent years.

The CIAA is addressing these concerns through increased dialogue with the industry. In addition, it is working on an initiative to standardize the licencing of independent adjusters in the common law provinces; this will include mandatory ongoing education.

ADJUSTER RETENTION

Great loss adjusters don’t just happen. They are created over time through experience and training (but more by experience than any other element). They need to start on smaller losses and work their way along. They need to tap into a mentor’s wealth of experience. They need to benefit from an environment that encourages such partnering. Alas, such is not the case today, because everyone is under such pressure to perform and pay the bills.

The first order of business is to get people with good minds and appropriate personalities interested in loss adjusting as a career. Some people with great potential look at what is required of independent adjusters today, see how the profession is regarded in the industry, and say: “No thanks.” Each profession is under pressure to attract new talent: too few people are entering the workforce to replace retirees, and some are just walking away out of frustration. Rates to hire independent adjusters have not significantly increased over the last 15 years; at the same time, the profession must continue to invest in technology and training. Something has to give. If we continue to see suppressed fee schedules (based on today’s current emphasis on expense reduction than loss control), insurers will meet today’s expense-control objective with the real price. And it will be a substantial price, which will be paid in as few as 10 to 15 years.

This is a use it or lose it situation. Insurers that are committed to the use of independent loss adjusters as part of their overall claims strategy, and that do not already have solid long-term programs in place, must look at the “tail” effect of today’s practices. Insurers not committed to dealing with all claims in-house should carefully consider their relationship with independent adjusters; they should commit an appropriate amount of their claims adjustment needs to independent forces at rates and under terms that are fair to all concerned. In addition to appreciating the current value received for an independent adjuster’s services, insurers should view the expense as an investment in maintaining an efficient and capable independent adjusting profession in Canada.

Perhaps the future will see a few insurers that are in need of independent adjusters’ services band together to create a shared entity for provision of that service. The shared entity would be for the exclusive use of the insurers that own it. That sounds familiar. Each responsible insurer is currently examining its pandemic preparedness: independent adjusters will be vital to the continuation of service in such a situation. Those without committed access to adjusting service will be left out.

TWO-WAY STREET

This is a two-way street: the adjusting profession has to do its part to make sure insurers want to use independent adjusters. Adjusters have received the message from insurers; they must continue to increase service levels and add value to the claims equation. It is a wheel and adjusters need insurer support to attract and train people to ensure continuation of the service. Insurers need adjusters to deliver the industry’s product to consumers. The wheel is currently out of balance and each side has its part to play in realigning the wheel and make sure it is rolling along smoothly.

The next time an insurer approaches the adjuster hydrant in search of relief, it must only be for the purpose of putting out a fire. If current trends continue, the independent adjusting profession in Canada will be in ashes – and yet it will be insurers and the insured public that will be burned.