Claims Adjuster

A claims adjuster is the individual who handles an insurance claim on behalf of whoever engaged them: they inspect or otherwise investigate the loss, determine whether the policy responds to it, put a number on the damage, and recommend what should be paid. The National Association of Insurance Commissioners, the standard-setting body for the state officials who regulate insurance, defines an adjuster in its glossary as "a person who investigates claims and recommends settlement options based on estimates of damage and insurance policies held," and separately defines an independent adjuster as a "freelance contractor paid a fee for adjusting losses on behalf of companies." Both of those work for the insurer. The role that does not is the public adjuster, whom NAIC describes as an "independent claims adjuster representing policyholders instead of insurance companies," and who is hired and paid by the policyholder.

The name varies by who is writing. NAIC's own headword is the bare word "Adjuster." California's statute, which devotes an entire division of its Insurance Code to the subject, calls the person an "insurance adjuster" and titles the governing chapter the Insurance Adjuster Act. "Claims adjuster" is the phrase most consumers use and most job titles carry, and all three name the same function.

Who pays the adjuster is the fact that organizes everything else. A staff adjuster is an employee of the insurance company. An independent adjuster is a contractor the insurance company retains, often to absorb a surge of claims after a catastrophe or to cover territory where the insurer has no staff. In both cases the person inspecting your kitchen is being paid by the party that will write the check. That is not a scandal and it does not make the estimate wrong; insurers have a regulated obligation to investigate claims reasonably, which published material on the claim process covers. It does mean the number in the estimate is one side's valuation, arrived at by that side's methods, and a policyholder who treats it as an objective measurement has misunderstood what document they are holding.

Licensing reaches less far than most people assume, and the gap is deliberate. California's Insurance Adjuster Act, at Insurance Code sections 14000 through 14099, makes it unlawful to "engage in a business regulated by this chapter, or act or assume to act as, or represent themselves to be, a licensee" without a license, and section 14021 defines an insurance adjuster as a person who, for any consideration, investigates in the course of adjusting or otherwise disposing of a claim on behalf of an insurer. But section 14022 exempts "a person employed exclusively and regularly by one employer in connection with the affairs of the employer only" where an employer-employee relationship exists. The practical effect is that the Act licenses the contractor and not the insurer's own employee. Requirements differ by state, so this is California's line rather than a national rule, but it is the shape of the question worth asking: an adjuster is not necessarily licensed simply because they are adjusting.

The same statute anticipates the two things that go wrong in a long claim. First, adjusters change hands. California requires that where an insurer assigns "a third or subsequent adjuster to be primarily responsible for a claim" within a six-month period, it must give the insured a written status report summarizing the decisions and actions substantially related to the claim's disposition, including the amounts of loss to structures and contents and all items in dispute. That provision exists because a claim passed between four people loses its own history, and the burden of reconstructing it otherwise falls on the policyholder. Second, the same section requires the insurer to tell every claimant that they may request copies of "claim-related documents," a defined category that includes repair and replacement estimates and bids, appraisals, scopes of loss, drawings, plans, third-party findings, and the insurer's own loss-adjustment calculations, and to provide them within fifteen calendar days of a request. Attorney work product, privileged documents, medically privileged information and documents indicating fraud are excluded. Asking for the file is a defined right in that state rather than a favor.

After a declared disaster the licensing picture changes again. California's emergency provision requires a licensee or qualified manager supervising nonlicensed adjusters to ensure each of them reads the insurance department's most recent notice and adjuster handbook within fifteen calendar days of beginning claims-adjusting activity in the state. That rule exists because catastrophe surges are staffed quickly, which is exactly when a policyholder is least able to tell an experienced adjuster from a new one.

A public adjuster is the mirror image and is regulated separately. The point to carry away here is only that the category exists and that its economics are the reverse of the other two: the policyholder engages and pays the person, so the incentive runs the other way. The detail belongs on its own page.

After a loss is reported, the insurer assigns the file to an adjuster, who confirms the policy was in force, reviews the coverages and exclusions, inspects or otherwise investigates the damage, and prepares a written estimate itemizing what it would cost to repair or replace what was lost. The estimate is then reduced by the deductible and adjusted to the policy's settlement basis, and the insurer issues payment. Where the policyholder disagrees with the amount, the first step is usually a re-inspection or a competing contractor bid; where that does not resolve it, most property policies contain an appraisal clause.

The appraisal clause is the part most policyholders have never read, and it is a real remedy. California's statutory policy language for residential property and earthquake claims sets out the mechanism: if the insured and the insurer fail to agree on the actual cash value or the amount of loss, either may demand appraisal in writing, and each side then selects "a competent and disinterested appraiser" and notifies the other within twenty days. The two appraisers pick an umpire; if they cannot agree on one within fifteen days, a judge of a court of record where the property sits selects the umpire on request. The appraisers value the loss, state actual cash value and loss separately for each item, and submit only their differences to the umpire. An award agreed by any two of the three, once filed with the insurer, determines the amount. Each party pays its own appraiser, and the umpire's expenses are split equally. Note the one limit worth knowing in advance: in a government-declared disaster, appraisal may be requested by either side but cannot be compelled.

A hypothetical, to show what the process costs as well as what it recovers. Suppose an adjuster's estimate for storm damage comes to $18,400 and two contractor bids come back at about $28,000. The policyholder demands appraisal. Their own appraiser charges $1,800, the insurer pays its own appraiser, and the umpire's fee of $2,400 is divided equally, so the policyholder contributes $1,200. The award lands at $24,300. The gross improvement over the original estimate is $24,300 minus $18,400, or $5,900; the policyholder's own costs are $1,800 plus $1,200, or $3,000; so the net gain is $2,900. The figures are invented for the arithmetic. What they illustrate is real: appraisal is worth invoking when the gap is large relative to the cost of running it, and not when it is small.

Pros

• Someone with training in loss valuation looks at the damage, which is faster and usually more accurate than an untrained estimate from either side.
• An independent adjuster gives an insurer surge capacity after a catastrophe, which is the difference between a claim being inspected in two weeks and in a season.
• The estimate is written and itemized, so it can be compared line by line against a contractor's bid rather than argued about in the abstract.
• Where a state has adopted them, the status-report and claim-file rules give a policyholder a defined way to find out what the insurer has actually decided.

Cons

• The two commonest kinds of adjuster are paid by the party that pays the claim, and the estimate reflects that side's methods and assumptions.
• Licensing does not reach every adjuster: a staff adjuster employed by the insurer is outside the licensing statute in at least some states.
• Catastrophe surges are staffed with adjusters brought in quickly, and a policyholder cannot tell experience from a business card.
• A claim reassigned repeatedly loses its own history, and reconstructing it generally falls on the policyholder.
• Appraisal costs money and takes time, which makes it a poor remedy for a small disagreement even when the policyholder is right.