Fri | Nov 26, 2021
ADVISORY COLUMN: RISKS & INSURANCE

Cedric Stephens | For claim-settlement offers, demand explanations first, sign later

Published:Sunday | April 25, 2021 | 12:21 AM

QUESTION: I am seeking your help in clarifying how a total-loss payment under a comprehensive motor policy should be handled by an insurance company. I want to know if the valuation report of the vehicle should or should not be used in the settlement of such a claim.

I commissioned a valuation for my car on July 26, 2019. The market value was estimated at $1.1 million. The vehicle was involved in an accident in September 2019. In January 2021, I was told that the company plans to use the 2021 market value of $830,000 to settle the claim. I have a total-loss release and discharge document for the latter amount to sign to conclude the matter. Should I sign it?

− R.B., Golden Grove, St Thomas

RISKS & INSURANCE: Do not sign and return the form that the insurance company sent you. Ask for more information from the insurer. The company has a legal and moral duty to explain to you exactly how they have calculated the offer of settlement.

I visited your insurer’s website. I wanted to examine a specimen copy of the company’s private motor policy. I did not find it. What I found instead were answers to some frequently asked questions, (FAQs). They provide clues about how senior managers think about selected topics.

The first FAQ that caught my attention partly explains why the insurer was in no hurry to settle your claim. It read: “How long will it take to settle my claim?” The response: “Every claim is different, and the varying factors determine how long it will take for your claim to be settled. Our claims team has the experience and knowledge to settle your claim as efficiently as possible. Providing all the relevant details and documentation will assist in a speedy settlement.”

Absent was any description of the process that guarantees speedy settlement.

I will show that despite the boast that the “claims team has the experience and knowledge to settle your claim as efficiently as possible”, it failed to prove this in the handling of your claim, and the process was anything but speedy.

Examples of other FAQ responses from the insurer included:

• What is a total loss settlement? Total-loss settlement (write off) is offered when the cost to repair … is approximately 60% to 70% of the market value or sum insured; or when the vehicle is deemed irreparable by the assessor.

• What is pre-accident value? The pre-accident value is the current market value of the vehicle at the time of the loss”.

The insurer specifies what the relevant value is “at the time of the loss”.

The copyright mark on the website is dated 2021. It seems fair to conclude from this and the offer of settlement that the claims team did not ‘get the memo’ that defines how market value is to be determined, does not have the basic competence to handle claims like yours, is not being properly supervised, and/or all of the above.

Training matters

The 100-year-old Chartered Insurance Institute, the world’s premier insurance training institution, describes two core competencies for claims handling: Processes straightforward claims in line with organisational policies and procedures and owns authority limits and adheres to organisational referral procedures; and “advises clients when straightforward claims (like yours) are settled and issues settlement cheques when appropriate”.

The problems you have encountered must be laid at the feet of the company’s senior management. They have not taken steps to comply with the claims-handling rules of insurance regulator, the Financial Services Commission’s February 2019 Guidelines for Insurers and Intermediaries.

Motor claims should be settled in a manner that is consistent with what the policies or contracts say. Information published on websites is not necessarily relevant to how these contracts are interpreted. Because most motor policies in Jamaica resemble each other, I will share the wording that is found on another insurer’s contract.

It provides insights into what your policy would say about the settlement. It reads: “The amount we will pay - the most we will pay will be the lower of: a) the market value of your vehicle; or b) the amount you insured your vehicle for. We will not pay the cost of any repair or replacement that improves your vehicle beyond the condition it was in before the loss or damage occurred.”

My Law Dictionary and Dictionary of Insurance Terms defines market value as “the price that goods or property would bring in the market of willing buyers and willing sellers in the ordinary course of trade”. In your case, the reference point should be the market value when the accident occurred.

The insurer’s offer of settlement should not be calculated based on the 2021 market value. Rather, it should be based instead on the September 2019 market value.

Motor policies usually carry deductibles or excesses of five per cent of the market value. If it were determined that the market value of your car was, say, $1 million when the accident occurred in September 2019, the excess would amount to $50,000. Using these illustrative figures, the settlement offer would amount to $950,000.

The difference between this amount and the insurer’s offer is significant and does not inspire any confidence about the claims team experience and confidence or in the insurer’s senior management.

How many claims are there in the pipeline like yours that have errors of the same order of magnitude that were not detected by policyholders and claimants? Additionally, the proposed settlement offer gives the insurer the financial incentive to delay settlement. This is not right – legally or morally.

- Cedric E. Stephens provides independent information and advice about the management of risks and insurance. For free information or counsel, write to: aegis@flowja.com.