A loss occurs. When the cost estimates for repairing or replacing the damaged property (residence, car, furniture, etc.) come in, you may notice a difference between the insurer’s quote and that of the insured’s supplier—sometimes, it’s significant. What should a claims adjuster do when this occurs?

A reminder of your main ethical obligations when estimating damages

Let’s begin with a useful reminder: the claims adjuster’s role^[1] includes determining whether the loss is admissible, and if so, estimating the extent and the amount of damages. Claims adjusters are therefore responsible for deciding on the value of the loss, establishing depreciation, where applicable, and then recommending to the insurer the amount of compensation the insured is entitled to under the terms of his or her contract. 

Claims adjusters must enforce the insurance contract and comply with their legal obligations while guiding claimants through the claims adjustment process.

The compensatory nature of the insurance contract

nsurance contracts are compensatory in nature: their purpose is to compensate for the harm an insured (and therefore his or her property) suffered in the wake of a loss. Theoretically, “restoration” (to pre-loss conditions) is neutral, and neither benefits nor harms the insured. The first step is thus to verify whether the insurance contract includes a specific appraisal method or formula (for example: replacement cost or agreed value^[2]).  If not, the law stipulates that the value of the insured property is determined “in the ordinary manner.”^[3]. However, the “ordinary manner” may vary depending on the circumstances. In certain cases, it may be the market value, the book value (for instance, in the case of certain commercial inventories), or the depreciated replacement cost. Often, it is what insurance contracts refer to as the property’s “actual cash value.” Even in this case, there may be differences between the appraisals you receive, since this is not an exact science, and different factors can influence the results. In fact, the courts often have to examine differing damage appraisals when adjudicating on insurance cases. Furthermore, an estimate of damages may evolve during the claims process if, for example, unexpected events arise during the remediation work. You must therefore never lose sight of the goal: “restoration.”

Though the claims adjuster may task a specialist with estimating the damages, it is up to the adjuster to make the final decision regarding the amount of damages. Adjusters must therefore fully understand the appraiser’s report if they want to be able to both provide claimants with detailed explanations and make recommendations to the insurer.

In the event of a difference between the insured’s quote and the quote the insurer’s supplier (or the insurer’s in-house appraisal department) submits, claims adjusters must objectively:

• Identify the source(s) of the difference,
• Decide whether either side needs to make any adjustments,
• Explain the differences to the insured,
• Adjust their recommendation, if need be, and
• Explain to the insured the basis for their decision.

2. Legal provisions (or “bringing up to Code”)

The Story

After a fire severely damages her home, an insured receives a quote from her contractor for $250,000; the insurer, on the other hand, has estimated the cost of rebuilding at $167,000. Verifications show that the main reason for the difference stems from her contractor including the cost of bringing the home up to Code. The insured is shocked to see that the insurer’s quote is based on the standards in force in 1960, the year the house was built.

The Explanation

Legal provisions are a complex topic. The introduction of new municipal regulations, changes in certain regulations, and updates to building standards can have a major impact on insureds.

Your Role

When analyzing a case, you must always take into consideration the nature of the loss and the type of building, as well as the regulations that apply to the location and the time when the loss occurred.

If you learn of any special provisions that concern rebuilding the property (for example the obligation to install sprinklers in a commercial building after a fire), make sure to fully understand them. For example, check with the municipality. If need be, consult a specialist.

Review the insured’s insurance contract to verify whether they have coverage for new building standards, either in the basic contract or via an endorsement if the basic contract contains any limits or exclusions. Also check the stipulated limits for this coverage (and the wording in the insurance contract). If the insurance contract includes no specific coverage for this issue, you must explain how this will impact the insured. For example, the insured might have to incur additional expenses in order to comply with the new standards if they are mandatory when rebuilding.

What matters is being transparent with the insured and explaining the procedure to her. Sections 21 and 58 (1) of your Code of ethics stipulate that throughout your mandate, you must explain to the insured the whys and wherefores of how her claim is adjusted. This obligation is particularly important at the beginning of the claim, when the insured is usually more vulnerable, however it continues to apply until the claim is fully settled.

To learn more

Read this article: “ L’imbroglio des règlements municipaux ” [The Imbroglio of municipal regulations, in French only].

4. Task sharing

The Story

An insured disagrees with the assessment of the damages that his home suffered in the wake of a fire. He asks the claims adjuster assigned to his file some questions; the adjuster responds that it is up to the insured himself to call the appraiser to find out the reasons for the estimated amount of damages.

The Explanation

A service provider, such as an appraiser, can explain his estimate of damages to the insured. However, the claims adjuster cannot simply rely on the appraiser; he is obliged to provide the insured with advice and explanations regarding the evaluation and the claims settlement, since the adjuster has an overall view of the file, is governed by a Code of ethics, and is bound to act equitably.

Your Role

You must explain to the insured how the calculations are done (the basis of calculation and the percentage of depreciation, if applicable), and the potential impact on compensation and the claims settlement. Your explanations allow the insured to clearly understand the reasons behind the differences, the evaluation and the amount of damages, and how his claim will proceed. You remain responsible for making the final decision regarding the amount of damages, negotiating with the insured (if necessary), and making the recommendation on the amount of “Sharing of roles and responsibilities”.

To learn more

Please review this tool: “Sharing of roles and responsibilities”.

In conclusion, remember that the claims adjuster plays the role of an orchestra conductor in the claims adjustment process. He or she :

• Takes the statement of the insured person;
• Collects additional information from third parties;
• Reviews the coverage included in the insurance contract with the insured;
• Explains the claims process and expected timelines to the insured; 
• Prepares his evaluation report of the claim for compensation that is submitted to the insurer. 

The adjuster remains ultimately responsible for processing and settling the claim, even though he may delegate some of his tasks to service suppliers whose work he then supervises.

In the event of a difference between quotes or a disagreement between suppliers, the adjuster must analyse the quotes in order to identify and understand the differences and discuss his findings with the appraiser and the contractor. If need be, he must suggest solutions to try and break the deadlock; for example, he can suggest a meeting between the contractors in order to arrive at fair compensation under the insurance contract.

^{[1] Sec. 10 ARDFPS.: Investigates insured losses, appraises damages and negotiates the settlement of claims.}

^{[2] In other words, a predetermined value.}

^{[3] Art. 2490 of the Code civil du Québec}