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The examples and perspective in this article may not represent a worldwide view of the subject. (August 2010)
A public adjuster is a professional claims handler/claims adjuster who advocates for the insured/policyholder in assisting and negotiating that insured's insurance claim. Aside from attorneys and the broker of record, state licensed public adjusters are also legal representatives, professionals who are entrusted by governments as a lawful fiduciary and who are made available to consumers under either state or federal jurisdiction (e.g. FEMA) to legally and professionally represent the rights of an insured/policyholder during a business commercial, farm, or homeowner insurance claim process, and sometimes personal injury. Their technical knowledge or expertise and ability to interpret sometimes ambiguous insurance policies allow property owners to recover the best possible indemnification for their claims (to indemnify means to be made whole). Although seen many times as adversarial and even treated as hostile by the insurance companies/Carriers who dismiss them as illegitimate non-professionals, public adjusters are generally more competent than insurance companies'/Carriers' claims representatives and/or adjusters and do (almost always) substantially increase the settlement value of the loss due to insurance company/Carrier incompetence or unethical low-balling causing an unfair settlement. Many professionals, and persons who are either incapable due to education, age, or physical impairment, or prefer to avoid the stress of claims handling choose public adjuster representation to guide them through the process and minimize the time which must be spent to file their claim properly. Public adjusting is most beneficial and largely used before a claim adjustment becomes a disputed impasse between a insurance company/Carrier and an insured/policyholder. Public adjusters negotiate with insurance companies/Carriers for an adjustment or settlement. Primarily, public adjusters review your insurance policy to determine the greatest coverage for the loss, assess the cause of loss which will trigger coverage, prepare detailed scope and cost estimates many times using experts in the fields of remediation, toxicology, and construction contractors, engineers, and lawyers to prove your loss. Public adjusters also provide insurance policy interpretation to determine covered and uncovered items and to negotiate with the insurance company/Carrier to a final and fair settlement. Most public adjusters charge a percentage of the settlement.
However, once adjusting has failed and there is an unresolvable dispute, or an impasse between the adjusters (or the claims representatives for insurance companies/Carriers acting as unlicensed adjusters most often) results from adjusting methods, then further adjusting efforts become futile thereby neutralizing public adjuster practices as ineffective (of which many insurance companies/Carriers unfairly capitalize upon). Such an impasse facilitates the need for insureds/policyholders to dismiss public adjusting and instead utilize the policy and/or law methods of either appraisal, arbitration, perhaps mediation, or litigation for the best settlement result. When a insured/policyholder and a insurance company/Carrier adjust a policyholder's claim without a public adjuster (as is most common), and an impasse results, public adjuster practices often produce nothing more than token results, because insurance companies/Carriers are under no obligation to honor a claim presented by a public adjuster when the insurance company/Carrier disputes it. Therefore, the best alternatives for a insured/policyholder is appraisal, arbitration, perhaps mediation, or litigation where insurance companies/Carriers are legally required to honor the results - without being able to refuse the result by disputing it (most often), and others, including public adjusters, can expedite these alternative processes without engaging in adjusting. Public adjusting is least effective when a public adjuster is brought into the claim process after an impasse has resulted.
A public adjuster is a representative of the insured/policyholder who advises, manages, and submits a claim to the policyholder's insurance company. A public insurance adjuster advocates exclusively for policyholders. However, upon an insured/policyholder disputing a settlement with a Carrier, insureds/policyholder virtually always appoint public adjusters to serve as appraisers in an appraisal tribunal (a panel, board, committee or council) where as appraiser, a loss value (not the claim) is submitted to a tribunal (not to the insured/policyholder or the insurance company/Carrier); but, while serving as an appraiser on a confidential, independent and neutral appraisal tribunal, a person with a public adjuster license is actually not serving as a public adjuster in a appraiser capacity or role within that tribunal, because that licensee most often must be independent, impartial and/or disinterested and therefore cannot advocate for an insured/policyholder (being a conflict of interest: A public adjuster must be loyal and report to only an insured/policyholder, where an appraiser (who could have a public adjuster license) cannot have any loyalty to a insured/policyholder but instead must be loyal and report to only the appraisal tribunal - thereby who shall ignore any biased interests of the insured/policyholder - such interests that are not precisely the indemnification value). Despite an appraiser (including persons having a public adjuster license) being appointed and paid by an insured/policyholder to serve as a member of a tribunal, an appraiser must be without bias, not subject to any outside influence (such as the biased interests of an insured/policyholder), and such appraiser shall act in his/her own interest, subjectively, with no loyalty to either the policyholder or the insurance company/Carrier in order to offer an independent and fair opinion of the indemnity loss value to the tribunal so as to help resolve the disputed settlement. Appraisers are generally required to be without any bias or outside influence, be entirely committed to, and with an absolute loyalty allegiance to only: 1) his/her own opinion of the loss value (priority), 2) and to the needs of the Panel (secondary); but never to the insured/policyholder or the insurance company/Carrier (which if so would be a serious contractual and ethical violation and very likely unlawful). Appraisers must comply with and satisfy the needs and requirements of the appraisal tribunal as opposed to the interests of the insured/policyholder (or the insurance company/Carrier), and this concept directly conflicts with the duties of public adjusting which conversely requires biased and non-independent (dependent) partisanship -- a likely fiduciary obligation -- and the maintaining of the interest of only an insured/policyholder of whom a public adjuster serves as an adjuster.
There are three classes of insurance claims adjusters: staff adjusters (who are generally unlicensed and formally are "claims representatives" inclusive of examiners, analysts, administrators, specialists, adjusters, associate, and other titles, who are employed by an insurance company or self-insured entity), independent adjusters (independent contractors hired by the insurance company who are referred to as "company adjusters" because the are actually not independent as they are licensed to only work for and legally satisfy the needs of only insurance companies/Carriers), and public adjusters (employed by the insureds/policyholders). "Company" or "independent" adjusters can only legally represent the rights of an insurance company. Most adjusters are required to pass a state exam proving essential knowledge and competency thus become licensed to practice. Claims representatives are exempt from exams, because only their employer, the insurance company/Carrier, needs to be licensed; so, most claims representatives working for insurance companies/Carriers have never passed a knowledge and competency exam; but, there are some exceptions such as when an adjuster is hired to be a claims representative.
Outside the United States adjusters are adjustors (with an "o") commonly called (or translated into English as) "insurance loss assessors" (or simply "loss assessors") and staff adjusters or independent adjusters are called or translated as "insurance loss adjustors" (or simply "loss adjustors"). However, there is a clear distinction between a loss adjustor, who works on behalf of an insurance company, and a loss assessor who works on behalf of a policyholder.
Licensing and regulation
Currently, 44 states (and the District of Columbia) have in place some form of statutory and/or regulatory scheme which licenses public adjusters. The states that do not are: Alaska, South Dakota, and Wisconsin. In addition, it is important to note that on October 14, 2005, the National Association of Insurance Commissioners (NAIC) adopted the Public Adjuster Licensing Model Act (MDL-228), which governs the qualifications and procedures for the licensing of public adjusters. It defines a public adjuster as "any person who, for compensation or any other thing of value, acts on behalf of an insured", specifies the duties of and restrictions on public adjusters, including regulations for the following: examination, bond or letter of credit, continuing education, public adjuster fees, contracts, record retention, and standards of conduct. In addition, the model act states that public adjusters may only act or aid on the benefit of the insured in first-party claims.
Holding a license in one state only permits the licensed to practice in that state. Although the regulations vary from state to state, the model act states that a non-resident can obtain a license in another state if their home state allows non-residents to apply for a license on the same basis. This reciprocity agreement means that in many cases one can apply for a license in another state without having to pass that state's examination or pre-licensing education requirements. Generally, public adjusters only work with insurance claims related to property damages and the business losses that they trigger such as business income, builders' risk, mechanical and electrical breakdown, extra expense and expediting expense, and leasehold interest; or homeowners' insurance including loss to dwelling structures, personal property, and additional living expenses or loss of rents. Although it is uncommon for public adjusters to handle casualty/personal injury loss or health insurance claims, in some states such as Florida they are legally authorized to handle claims in all lines of insurance except life and annuities.
The public adjuster's main responsibilities are to:
- Evaluate existing insurance policies in order to determine what coverage may be applicable to a claim
- Research, detail, and substantiate damage to buildings and contents and any additional expenses
- Evaluate business interruption losses and extra expense claims for businesses
- Determine values for settling covered damages
- Prepare, document and support the claim on behalf of the insured
- Negotiate a settlement with the insurance company on behalf of an insured
- Re-open a claim and negotiate for more money if a discrepancy is found after the claim has been settled
Typically a policyholder hires a public adjuster to document and expedite their claims, obtain a more satisfactory claim recovery and completely restore their residence or business operations, and insulate themselves from the stress of engaging in an adversarial role with a large corporation. The burden of presenting a professional claim to an insurer can be alleviated by the work of a public adjuster. Policy holders who are not properly indemnified by their insurance carriers may be left with little choice but to hire professional assistance to recover the claim payment to which they are entitled.
Public adjusters must be able to recognize claims that may be insubstantial and disputable and explain such problems to the client. The everyday meanings of terms like "collapse", "partial collapse" and "extent of physical damage" might be entirely different from their legal interpretations, requiring the adjuster to clarify such terms for the client. Regulations regarding the uses of these terms are constantly in a state of flux so it is important for public adjusters to have a firm grasp of the law including the division of legal responsibilities between insurance companies and policyholders.
Most public adjusters are paid based on a percentage of the total settlement. For example, one Georgia company states their average fee is 20% based on the type and amount of the insurance claim. However, lower percentages are used for larger losses being claimed under a policy of insurance. Higher percentages are needed for smaller claimed losses. Smaller insurance claims can have similar costs as larger claims, but because the recovery is less on smaller claims the fee range must be adjusted to compensate for the operating costs - the smaller the claim, the greater the percentage, and vice-versa. All public adjusters are not equal in their abilities to secure policy benefits. Skills of performance can vary significantly between public adjusters ranging from basic to elite expert. Fees of 15% to 20% are ordinary and typical for claimed losses of $100,000 or greater when handled by standard-rated public adjusters. Loss values under $100,000 earn higher fee rates such as 25% to 40% (explained below). Expert-rated public adjusters get a higher fee than standard-rated adjusters. For example, an expert public adjuster can charge 18% to 20%+ on a loss that exceeds $100,000. However, superior experts possess capabilities to obtain the most effective results. Therefore, highly qualified adjusters can be expected to be better skilled at achieving a greater increased benefits settlement amount than an adjuster who is not an actual expert. Adjusters who are experts must be classified and registered as an expert by the government judicial system. Public adjusters declaring themselves to be experts should be verified, because such notice is not always factual. For those public adjusters who proclaim to be actual experts, it's highly recommended that their credentials be validated to prove such qualifications.
Some public adjusters charge a flat percentage or a flat fee set price, while others use a regressive scale. It depends, in part, on the State Law where the loss occurred. For example, a regressive scale can be 25% of the first $100,000, 20% between $100,001 and $200,000, and 15% of any amount beyond that. Claims that are less than $50,000 are considered small claim losses. There are public adjusters who will not service smaller claims at all, while other public adjusters charge a normal range of a 30% to 35% fee rate for insurance claims with a settlement value that is less than $50,000. Public adjusters can charge a lower fee on the total settlement value of the claim, or they can charge a higher fee on an improved settlement amount that is beyond the initial settlement originally offered by the insuring organization. For example, for a $100,000 loss, a fee can be 20% on the whole claim value, where the cost risk can be a shared expense with the client (because the fee is applied to the whole claim regardless of prior payments to the insured/policyholder before the public adjuster was retained), but for a lower fee which is a benefit for the client; or alternatively, if the initial settlement was $50,000, then a public adjuster might accept a 25% fee —not on the initial $50,000― but on any additional recovery settlement referred to as "new money", being a partial claim value of an amount which exceeds the initial $50,000 settlement, where fees apply exclusively to only the additional amount recovered (and not to any prior payments). However, this additional recovery method of "new money only" means that the public adjuster assumes all of the cost risk and expense, with no cost risk shared by the client, hence the higher fee - in effect: the public adjuster handles the entire claim while only getting paid on part of it. Fees applied to the whole claim include a percentage of the amounts already paid (client shares financial risk), however the fee percentage is less, as explained above. (For a claim not covered by the Policy, on a "new money only" claim, the public adjuster could experience a business loss from operating expenses invested that are limited to only improved settlement recovery services when no "new money" is available). There are public adjusters who contract for "new money only" services but charge fees of 40% and 50% to accept that high risk, where any improved settlement benefit, or the new money recovered, is essentially split about evenly between the public adjuster and the client.
It's important to note that some states cap public adjuster fees at levels such as 10% or 20%, and some consumers opine that normal public adjuster fees are standardized, citing 10% on any claim regardless of its value. This is not accurate and cannot work. Such limitations can cause public adjusters to avoid helping consumers with smaller claims altogether when the services' costs can actually become a financial loss if not providing a fair, reasonable and necessary business earnings' margin needed by public adjuster firms in order to operate, just as with any business. Most states do not cap fees for this reason, or alternatively some states allow for a much higher fee cap such as Florida at 20%, Tennessee at 25% (of new money), and Georgia at 33%, while nearly all states welcome public adjuster services for their insuring public.
A number of consumers often espouse this incomplete sentence as if it is a complete statement: "The standard fee for public adjusters is 10 percent." (or even 15% in recent years). But, this assertion is only half of the original statement. The original statement is considered "old school", from prior generations and actually does not reflect contemporary market rates. Generations ago, pre- 1970's, public adjusting firms were generally sizeable, with a large staff and office space, and operated similarly to city law firms. The mainstay of these firms were large losses, such as major fires, floods, earthquakes, etc., but generally not small claims under $100,000. These large public adjusting firms found it both uneconomical to handle small claims for little profit while an increased fee that is greater than just 10% would be needed (such as 35% - 50%) but would also take too much in costs away from the indemnity money that was needed by the insured/policyholder to effect restoration, so smaller claims were avoided. In modern times, many public adjusters are only one or two person firms working from home simply because the Internet has made it possible for modern public adjusters of today to make it affordable to accept the smaller claims that were not included in the practice of the larger firms from generations ago. Also, insurance policies and claims handling applications and rules have become significantly simplified over many years. The larger firms of the past dealt with much more complicated processes, in part because policies were exhaustive with specialized language and legalize. As a result, adjuster training was considerably more complex than it is today, because policies were in the class of business contracts, authored by legal experts and written for lawyers, courts, and independent tribunals, and they were not "user-friendly". Today, policies have been simplified with "plain language", under Plain Language Laws, to be written with "everyday" language and made easier for the policyholder to read and understand ("user-friendly"). So, the public adjuster service has changed to accommodate many more smaller losses because claims have become more simple and affordable to handle and can now be beneficial when handled for higher percentage fees with low operating costs in contrast to the old school large firms who only handled large losses for just 10% but with much higher operating costs. The full and accurate, original statement is: "The standard fee for Public Adjusters is 10 percent for large losses over $100,000." (meaning not smaller losses that are less than $100,000, where the fee increases proportionately to the decreasing size of the loss.) This is historically accurate over generations and has always been a description of a minimum range for a professional fee, not a maximum range. (Minimum fees are risky for a public adjuster and are not considered as being fair and reasonable, and are commensurate with only limited service performance. For example, 10% is a fair fee for a non-catastrophe claim of $500,000 or greater, but generally not less than this amount [for example a $250,000 claim for a 15% fee, or a $150,000 claim for 20%]). To earn only a minimum fee, the customer will help by spending necessary hours to do much of the claim work for the public adjuster to process rather than the public adjuster spending excess hours and doing all of the work for the customer. There are a great many claims now being handled by public adjusters that were not typical in the past, where many of these current claims are smaller, perhaps being $10,000 to $40,000 for example, where some consumers expect a 10% public adjuster fee rate. This cannot work. For a $40,000 claim at a 10% fee, that is just $4,000. This allows for only 10 hours' time plus expense. In general, most claims take many more hours of time than just ten (10) hours. If these consumers were to calculate the number of hours involved, with costs, applicable to the public adjuster market rate, it is easy to realize that a 10% fee is highly inadequate for smaller claims. One firm in Florida publishes that, "Rates for public adjuster fees vary based on location, experience of the public adjuster, and the nature of the matter. Believe it or not, rates may vary anywhere from as little as $325 an hour to $750 an hour or more." Also, the market rate for an expert is at least $350 per hour, which is for only the person who is an expert and does not include the firm's fee for maintaining the expert's employment or the claim itself. Together, a firm's rate and the expert's rate in total will exceed $500 per hour. Therefore, a $150,000 loss that takes 45 hours to settle has a fee of $22,500 ($150,000 X 15% = $22,500 for a contingency fee method; or, 45 hours X $500 per hour = $22,500 time and expenses method [and verification of contingency].) Many larger losses take longer than 45 hours to resolve, hence the percentage fees being 20% or greater (being verifiable by an increase in the number of hours worked). For this example, a 15% fee for a $150,000 claim can be affordable for a public adjuster to invest time and expenses in. But, 15% for a $45,000 claim cannot work, because that equates to just a $6,750 fee, or just 17 hours with expenses. Most claims cannot be settled in just 17 hours, and in reality most claims require a minimum of double this amount of time (however, most firms do offer negotiable fees).
In insurance, the word "catastrophe" is a loss description that must be legally qualified. Not every large loss is a catastrophe under the law. The fact is that there are states like Florida, Iowa, North Carolina, Rhode Island, Virginia and others who are mandated by law to limit or cap public adjuster fees to 10% for catastrophe losses, such as hurricanes or floods, or uncontrollable wildfires. However, everyday claims are not legally classified as "catastrophes", and they are not restricted at a 10% fee, even though such losses might be of large value. For instance, a house fire with $150,000 in damage from a wildfire is a "catastrophe" by law and could be subject to a 10% fee cap. But, a fire loss of $150,000 that is the result from a kitchen cooking accident is not a "catastrophe" under law, and is not subject to a 10% cap, and will likely have a normal market fee of 15% to 25% for the whole claim, not a "new money" only claim (which, although such fee could be subject to a voluntary, negotiated business discount.) The reason for only a 10% limit on catastrophe (only) losses is because it's a volume discount. The fee is lower, but there are a great many claims at just 10%, so public adjuster fees are essentially pro-rated by law just for the "catastrophe" event. The public adjuster firm can earn an adequate profit by handling many claims at a lower fee versus handling fewer claims as normal for the higher fees needed to operate their businesses. But, absent a legally classified catastrophe, that high volume of potential fees does not exist, so public adjuster fees are rarely ever just 10% except for very large losses, such as $250,000 and greater, where at least 60 hours, and in addition to expenses approximating $4,000 will be incurred.
Professional fees must be adequate for public adjusters to cover operating and business costs while still providing sufficient business income returns on those costs. Higher fees on smaller claims having low recovery values are necessary to provide the adequate compensation that a public adjuster needs to accept the costs of providing full services.
Regardless of the fee structure, the public adjuster professional fee will more likely be offset by an increase in the settlement amount on a covered claim. In many jurisdictions, the fee structure must be disclosed up front. It is important to note that a public adjuster cannot obtain more than the policyholder is legitimately entitled to, but public adjusters ―especially experts― generally recover a better financial settlement benefit than the fees charged to their clients, thereby leaving their clients with a net financial improvement of benefits recovery after fees are paid. The indemnity promised and provided for by an insurance policy, or the full potential financial recovery value of an insurance claim, is often not obtainable without professional assistance like that which comes from a very capable public adjuster.
When to contact
While it is not always clear when a policyholder may benefit from hiring a public adjuster, the most benefit is likely to be realized if they are engaged immediately in case of a loss. Shortly after the insurance company receives notice of a loss, an adjuster representing the insurance company will visit the policyholder to gather facts about how the loss occurred, the magnitude of the loss, and the possibility of subrogation. Incorrect, incomplete or inadequately expressed answers to the adjuster's questions may reduce the amount that can be claimed. A public adjuster engaged early in the process, before the fact-finding stage, will have more opportunity to help the policyholder receive a fair settlement for all losses legitimately covered under the insurance policy. However, any time during negotiations with the insurance company and even after a settlement has been received by an insured, a public adjuster may be able to negotiate for a higher amount.
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