The misuse of funds

The misuse of funds

The title of this article, “The misuse of funds”, may seem harsh, but there was no other fitting phrase to describe the story I have to tell. In my vocational position as a Claims Adjuster, and also the writer of this column dealing with insurance issues, I have access to accounts of serious problems which other Adjusters experience in their work. The problem dealt with in this article is so serious, and leads to such an increase of insurance premiums, that I will be preparing an expose on the subject concerning the problems of computerized estimating and the organizations involved in it.

In this instance the problem deals with the divine attributes that an insurance company claims manager places on the computerized estimating system. The system I have in mind at this time is the Xactimate Estimating System which is used by 90% of the insurance companies that sell property insurance in this country. It is also the system of choice of General Contractors who specialize in insurance repair work, especially catastrophe repair, such as hurricanes Katrina and Sandy, as well earthquakes and wildfires. The problem does not lie with the system itself as it is an inanimate creation solely existing to make the adjustment of property damage claims easier and more uniform.

Please remember the Xactimate pricing system, as well as the other systems on the market for insurance companies today, is based upon the going rate for certain repair activities in a certain geographical area. Also of significance to remember is that General Contractors in the certain geographical area under consideration supply the cost amounts for labor and materials that constitute the computerized pricing system.

The particular claim under consideration was reported to a company, which shall remain anonymous, and was handled by an adjuster who shall also remain anonymous, and in turn related to me. The claim deals with the repair work completed on several commercial structures damaged in a catastrophic natural event. The total for the repair work furnished by a qualified General Contractor amounted to $1.4 million dollars. The insurance company paid an Actual Cash Value amount up front to the named insured of $1 million dollars in order to get the work going, with the depreciated total scheduled to be paid upon the successful completion of the repair process.

What concerned the adjuster was the fact the insurance company the adjuster was handling the claim for also received two other bids for the same job. Each of these two additional bids was presented in an estimating format, and the estimates followed the scope of the loss as did the estimate for the company which received the job. The difference in the amount between the General Contractor that was awarded the job and the company that had the next lowest bid was $400,000.

When the question was asked why was the job not paid based upon the estimate submitted by the lowest, or even the second lowest bidder, the answer was that the insurance company wanted to give the insured the benefit of the doubt on receiving a fair payment for the work to be done, and paid based upon the dollar amounts produced by the computerized estimating system for each repair activity needed.

The computerized estimate system is a very unique invention compiled for the objective of making the adjustment process quicker and more uniform. It is not the arbiter of who should be awarded a contract, or what amount should be reimbursed for a repair project. Your insurance policy only owes what it cost to repair or to replace that which was damaged or taken. If two General Contractors are bidding for a job, the Contractor with the lowest estimate presented based upon the work to be done should be the estimate used for the basis of payment, not just because it was an Xactimate, or other computerized estimate system on the market.

In my next article I will be dealing with who owns and controls not only the estimating systems in existence, but also writing the policy forms insurance companies sell to you, and how evaluations will be done concerning who is worthy of a policy.