Flying High Against Diversity

Independent adjusters are no strangers to the ebb and flow of the insurance cycle. And with combined ratios skyrocketing, it is not only rates that will have to be addressed. Insurers will certainly be looking to reduce costs, and in particular to find new ways to stretch their claims costs dollars.

This market swing does not frighten Keith Edwards, the incoming president of the Canadian Independent Adjusters Association (CIAA), and secretary for McLarens Toplis Canada. Fears that insurers may increasingly move away from independents and towards inhouse adjusting in order to control claim costs are an opportunity, rather than an obstacle, he says. “When you look back there have been these trends back and forth with outsourcing versus inhouse. Now, my sense is that companies are measuring everything. What will drive this [trend] in the future will be if independent adjusters can deliver this service at a competitive price.”

It will be up to independent adjusters to show that they are more efficient and effective than the inhouse alternative, he says. Independents will also have to compete with other alternatives, such as contractors or suppliers working as agents of the insurer. He gives the example of some insurers training contractors to uncover areas where claims might be subrogated, and paying those contractors based on the amount recovered. “Insurers are constantly looking at their model in terms of customer service and how they’re going to handle that on one hand, and leakage (paying more out on a claim than necessary) on the other hand.”

Edwards says the push on costs is likely to continue for the foreseeable future, and independent adjusters will need to show that they can do the job for less, as well as at a higher quality, than these alternatives.

Cost of doing business

One stumbling block independents face is the high cost of technology. Edwards notes that insurers “expect firms to have costly investments in technology at the same time they are paring rates to a point where the margins are almost non-existent”.

With many insurers, and large adjusters, able to make the investment, the situation is especially troubling for smaller adjusting firms who face a disadvantage if they are unable to keep up with the demand to be “high tech”. In fact, meeting the needs of both small and large adjusters will be a primary focus for Edwards in the year ahead. With consolidation taking the adjusting industry by storm, the nature of the CIAA has changed radically. What was once an association of small firms, is now heavily subsidized by a few large firms. With the exodus of one of those firms last year, the CIAA is responding by seriously evaluating its offerings and revenue base.

“One size does not fit all,” Edwards admits, and the association will have to find ways to be as valuable to its small members as it is to the larger ones, particularly given the challenges those small companies face. “Insurers are increasingly seeking national or provincial arrangements with a handful of [larger] adjusting firms”, making it tough for small firms to compete. At the same time, “these larger companies are paying a large percentage of the costs of the CIAA and we have to be aware that they are watching their costs. We have to represent good value for our membership dollars.”

One area he hopes to address is alternate sources of revenue in order to take the burden off of membership dollars. He plans to meet with member firms in the months leading up to the CIAA’s national convention in September to “get a sense of what they value in what we do”.

Political concerns

One value-added role the association plays is its work with provincial and federal legislators. While no headway has been achieved through CIAA’s efforts to secure government contracts on natural disasters, Edwards says the association does help by bringing in adjusters when an area is hard hit by a catastrophe. Still, he notes, such a contract would be valuable in cases where there is a high number of uninsured losses to be handled.

An example is flood damage, which is not always covered by traditional policies, and where having a national body to handle losses would be invaluable.

Another area of governmental concern is tackling the new privacy legislation, Bill C-6, which will apply to adjusters and other insurance operations in 2004. Edwards notes that there is still some concern from adjusters about what the act requires from them, particularly in terms of security and in dealings with service providers, contractors and even insurers in transmitting personal information. With a good deal of adjusting transactions taking place over the phone, he says, “the consent issue is going to be a big one”. Adjusters will have to be extremely diligent in explaining what a claimant’s information might be used for and in ensuring the necessary consent has been obtained.

The CIAA will launch a series of seminars to help adjusters deal with the new legislation in the coming year. Although the act does not apply until 2004, and may be superceded in the meantime by a variety of provincial privacy and health care information acts, he says early action is required. “Information gathered prior to this without specific consent might be restricted in its use after January 2004. Computer and office systems have to be in place not only in our members’ offices but in those we do business with.”

Edwards belongs to the Insurance Bureau of Canada’s (IBC) ad-hoc committee on privacy legislation, and in this regard foresees problems for the industry in general in the coming months and years. These challenges will be especially serious for larger companies dealing across provincial boundaries, particularly since the industry could face 11 different pieces of privacy legislation as well as other health care information laws to comply with.

One legal issue that threatened to crop up for adjusters, the potential naming of adjusters in bad faith lawsuits, has not come to fruition as yet. Last year, the national association and its provincial counterparts expressed concern that adjusters would face financial loss, even ruin, for actions taken in the course of business. “That hasn’t really developed at this point. That initial concern has somewhat lessened.” That said, Edwards does express concern over the potential that still exists in future. With adjusters subject to “fairly healthy” deductibles on their D&O (directors and officers) policies, a lawsuit loss could result in a substantial pay out by adjusters. “This will have to be reflected in what we charge to our clients.”

Never ending story

One legislative push the CIAA will continue with is its bid to become self-regulating. Adjuster licensing has become a “never ending story”, Edwards says. While the association wants to see uniformity in licensing requirements across the country, “my sense is it’s not near the top of anybody’s [in government] to-do list”. Should a uniform standard ever be agreed upon, the CIAA would like to see itself established as the self-regulatory body to enforce this standard.

Edwards says the association has the ability to measure adjuster performance and that a remedy for complaints from the public is needed in the industry. An important component of this would be adjuster education, an area where the CIAA has made great headway recently. Later this year, the new FCIAA fellowship designation will be rolled out, a program that includes adjuster examinations as a first. Edwards is excited by the potential for the new program, and wants to explore accessibility through online learning in the future.

Around the world

Edwards himself holds impressive credentials as the first CIAA president to also be a member of the U.K. Chartered Institute of Loss Adjusters. His inclination toward adjusting took its roots with his grandfather Ormond Jones, who traveled the world handling claims, including the great San Francisco earthquake of 1906. Jones was also the president of the CILA’s predecessor association.

Edwards began his career with his grandfather’s firm in 1967 where he, in his own words, “adjusted losses in everything from brothels to nuclear power stations”. He immigrated to Canada in 1973, joining P.J. Scott of Winnipeg. Two years later, he joined Ponton Coleshill, and a year later became a partner there.

Ponton Coleshill Edwards later became McLarens Toplis Canada, and over the years Edwards has worked in a variety of loss areas, including condominiums, fraud and arson and now aviation claims. He is also a longtime teacher with the Insurance Institute of Canada (IIC). In the coming year, Edwards hopes his U.K. connection will come in handy as both associations become involved with a newly organized international body including various national adjuster associations.