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Public Adjusters For Risk Management

By Kevin M. Quinley, CPCU, ARM
9/27/2000

When Hurricane Hugo tore through South Carolina a few years ago, some insurance policyholders did more than phone their agent. Many, like Charleston's Omni Hotel, also called public adjusters to help them battle their property insurers. Some local real estate firms and shopping malls followed suit.

Often overlooked in the discussion of risk management is the role of public adjusters. Rather than work for the insurance company, as most adjusters do, public adjusters represent insureds in claims against carriers. The aim: to maximize the policyholder's recovery.

Public adjusters typically come into play on first-party property losses, usually involving substantial sums of money. Beyond this, there often must be fundamental breakdown between the insurer and risk manager.

Usually, the conflict revolves around property damage losses and disputes over the extent of loss. Possibly, in some cases, a new risk manager lacks a firm grasp of the insurance policy and all the provisions that can work to the insured’s advantage. Perhaps the amount of the loss is so large that the risk manager wants to make sure he has exercised all due diligence in pursuing recovery.

According to Paul Cordish, executive director of National Association of Public Adjusters, "Insurance companies are in the business of making profit, so they offer as little as possible."

Most instances involving public adjusters are fire and extended coverage losses. Determinations of what constitutes actual cash value are another area. "Courts have probably given 5,000 different definitions of ACV," notes Cordish. Hence, public adjusters can champion a standard, which maximizes the policyholder's recovery.

Moreover, “use and occupancy,” or time element business interruption losses are another fertile area where public adjuster expertise often comes into play.

At some monetary threshold, however, it may make little sense for a risk manager to retain a public adjuster. For minor claims, even disputed ones, it may make little sense. Some have suggested that, if a loss is under $5000, it does not pay to use a public adjuster.

While insurers are not in the charity business, neither are public adjusters. Profit may be a motivator for them, just as it is for insurance companies. Public adjusters are often paid a percentage of the recovery they succeed in obtaining. This is a contingency fee. Most public adjusting firms will structure the fee to accommodate the client, though, and are receptive to time and expense billing.

Public adjusters may insist, however, that their fee is more than offset by the additional recovery they can leverage on their client’s behalf.

A risk manager must justify to herself why she needs a public adjuster to tell her what she is supposed to know already -- what her company is entitled to under the terms of the property coverage. After all, risk managers are supposed to be the ones familiar with insurance policies and coverages.

Calling on a public adjuster might be perceived as an admission of ignorance, and this is one obstacle the public adjuster must overcome.

Jack Kunz, president and director of Alex N. Sill Company, a large national public adjusting firm, cites this as one reason more risk managers do not turn to public adjusters. But he feels risk managers should not feel sheepish. The risk manager relies on outside experts -- engineers, accountants and architects. "Public adjusters," Kunz notes, "are experts at preparing claims, which other experts aren't."

If the risk manager has a valid claim or dispute against the insurer, why not simply hire an attorney? While the risk manager may need an attorney, too, lawyers are not specialists in preparing claims. In fact, some public adjusters owe their referrals to attorneys who bring them in on cases.

Other tips for picking a public adjuster:

Check references. Ask for names of risk managers that they have worked with before. Follow up on those leads. Were the risk managers satisfied with the results? Were there any complaints? Would they use the public adjuster again? What would they do differently this time if they had it to do over again? Ask your company's outside accounting firm to recommend a public adjusting company. If they pass muster with your auditors, they may be a safe bet.

Compare costs. How does the public adjuster propose to bill? Many charge a percentage of the recovery. Some charge a flat fee. Others may plan to bill the risk manager at time and expense. On smaller losses, the public adjuster may get paid 10% of the ultimate adjustment. This is a contingency fee arrangement. For larger losses, consider a sliding scale where the public adjuster's percentage decreases as the amount of loss adjustment increases. Time and expense billing is an option on larger adjustments.

Examine credentials. Professional designations and affiliations don’t guarantee competence, but they indicate that a firm or individual may be reputable. It may be a starting point. Some public adjusters are CPA's. Others may have previously worked for an insurance or conventional adjusting company. Does the public adjuster have a law degree? Is he a member of any trade group of public adjusters? Is the public adjusting company licensed? A "no" answer to this last question should send the risk manager continuing the search.

Each risk manager must decide if using a public adjuster is appropriate. Ideally, the risk manager can retain a public adjuster without feeling like he is burning bridges with his insurance company, or for fear of punitive pricing come renewal time.

For large companies that self-insure their property, especially fire exposures, or for businesses with very high self-insured retentions, dealing with an insurer on a first-party loss may be a moot point or unlikely event. In such cases, even thinking about retaining a public adjuster makes no sense.

For the vast majority of businesses that use insurance to cover their fire exposure, however, cultivating a relationship with a public adjuster may be part of any well-managed risk program.

Some feel that one of the greatest benefits a public adjuster can offer is expediting the settlement. Risk managers are accustomed for some big property claims to take 18 months.

After Hurricane Hugo, one public adjusting company helped settle a $19 million loss in 78 days. For many risk managers who “feel the need for speed,” those numbers will be hard to ignore.