As appointing forensic accountants becomes ever more popular, are loss adjusters being squeezed out of their traditional role? Not if better communication is employed between all parties, reports Stephanie Denton
This year has seen a multitude of major losses for the insurance industry, including the Stockline Plastics factory explosion in Glasgow, the Boscastle flood, four major hurricanes in the Caribbean and, at the beginning of this month, the Reading rail disaster.
With major losses a constant in the insurance sector, the Chartered Institute of Loss Adjusters asked a range of experts representing different interests in the industry to come together, discuss the current role of loss adjusters and any changes they may be facing. In particular, those around the table were asked to consider two questions: Are loss adjusters still adding value by mitigating business interruption losses; Is the increasing use of forensic accountants assisting this process?
Susan Willmott, UK major and complex loss director at GAB Robins, began the debate by putting forward the point of view of adjusters. "In the 20 years that I have been in loss adjusting, I have strived to do one thing - minimise loss for the benefit of all parties - and this has not changed at all. Loss adjusters 20 years ago and today are all still striving to balance the losses for all parties."
Other people, however, felt there had been some key developments, the most important being that loss adjusters are becoming less prominent in major claims, as forensic accountants become more so. Richard Henton, representing the broker's point of view, said: "From my perspective, I think if the use of forensic accountants is increasing - and it is - then by the very nature of that statement the role of the loss adjuster must be diminishing."
Heather Parkinson, director of Parkinson Consulting, added that the loss adjuster's role has shifted somewhat, not in its aims but in its application.
"I don't think the role has changed. It still aims to help the insured mitigate the loss and ensure fair and prompt settlement under the policy.
What has changed, however, is the degree to which that role is fulfilled." She explained by saying that a major loss might see the proper team of professions but with a smaller loss, say less than £1m, which to the insured is still a major loss, they are not perhaps dealing with quite such a professional team.
"The methods we use may have changed," conceded Ms Willmott. "The need for more detailed analysis has come to the fore because of the complexities of the businesses we are dealing with. There will be claims where an enormous amount of analysis is required and it is self evident that the loss adjusting fraternity does not have the capacity to do that work."
Steve Parry, property claims manager for AIG Europe, backed this but added that for some claims loss adjusters are exactly the right people to use. "There are certain business interruption claims that loss adjusters can deal with quite easily. They are relatively simple calculations and the flow of information comes through them, so why would you incur another cost when it is a fairly straightforward process for them to calculate that BI loss?"
He went on to say that loss adjusters remain a key part of a team in other major losses. "We see a loss adjuster as a team leader and, if you have a major incident, the best thing to do is to have a dedicated loss adjuster on the BI side and then build people around them who can spend the time and have the resources to actually get the claims information," he explained.
Discussions then turned to why forensic accountants are being used more by insurers. Mr Henton said that he had been offered three reasons from senior claims people in insurance companies. The first is because insurers believe the loss adjusting market does not have the capacity to deal with larger or more complex BI claims.
This view was supported by David Pigot, managing director of the risk consulting practice at Marsh, who added: "I think there are fewer people going into loss adjusting and so we are never going to get up to the level where they can handle those major losses."
This view was echoed in Mr Henton's second reason, that insurers perceive a lack of technical expertise within the adjusting market. "There seems to be a general lack of talent, and existing talent is moving away from the loss adjusting world. There is no new talent coming into the loss adjusting industry," he argued. "There are still some very respected people but they can't deal with all of the major BI losses within their company."
The third and final reason, according to Mr Henton, is that insurers are increasingly using forensic accountants to get around panel arrangements.
He said: "Some claims people see it as a way around procurement issues within the insurance market. If insurers are tied into panels with regard to loss adjusters, and through these into pay structures, it is hard to devote the time and expertise to losses. However, forensic accountants are outside this process."
Mr Henton's justifications for the use of forensic accountants were met by some disagreement from other experts around the table. Mr Pigot felt that insurers had brought panel problems upon themselves. "The very creation of panels has caused one of the troubles as far as adjusting is concerned. Because insurers want to pay so little for the adjusting service, there is no longer the same training whereby people gradually work their way up and end up dealing with the larger losses."
At this point, Harry Roberts, director of technical and product assurance at Cunningham Lindsey, argued that there is no lack of ability and skill in loss adjusting. "This is a myth. There is plenty of good talent coming through."
He also felt that teams were not being downgraded according to the size of the loss. "I'm happy to go along with the concept that we do not always have all the resources on a major loss but I reject the suggestion that the quality of staff put on claims of a lower value is not a proper professional team. Lower down the scales of losses we don't always get the team of people we should - and that to some extent may be the function of the amount of money insurers are willing to pay."
Everyone agreed that forensic accountants are now a common presence on major loss claims, so Andy King, president of CILA and chair of the meeting, asked the group how helpful they found them during claims settling.
Mr Pigot supported the use of forensic accountants but noted that on occasion they get too involved. "I think it's excellent and they really do assist us in the process but sometimes they go into too much depth and get too bogged down in the information," he explained.
Keith Tuffin, partner at forensic accountancy RGL, defended the level of detail pursued by explaining that this is an integral part of the job: "Some of the analysis is done and you don't know where it is going to lead you. The insurer or adjuster has to trust the accountant that the analysis needs to be done to find this out."
Ms Parkinson, however, felt strongly that forensic accountants do not always help with BI issues. "I have dealt with claims where forensic accountants have hindered the insured in their mitigation steps early on. The forensic accountant does have to have information to fulfil their role but there can be a tendency to collect masses of information at the wrong stage."
Mr Parry agreed but felt this was not always the fault of the forensic accountant. "Sometimes the accountants might go off on a tangent and give you what we call 'information overload' but that is partly down to the loss adjuster. They are controlling the claim and should be guiding the forensic accountant," he said.
According to Mr Henton, this is not always easy. "It is important that if forensic accountants are to work with the adjusters in a true partnership, then the loss adjusters themselves must have a high level of expertise, otherwise they tend to be ignored by forensic accountants."
At this point, Mr Tuffin interjected, saying: "This goes back to a branding issue of what the accountant is there to do. The phrase 'accounting consultants' has been hijacked by the big firms that wanted to package a range of accounting services under forensic accounting - and the industry has gone along with that. There is a branding problem the industry could help improve."
Mr Pigot then suggested brokers could be a way of getting over this problem: "The broker is important in this, they should know their client because they should have built up a relationship with them. And, as long as the adjusters and insurers have a good relationship with the broker, the broker can help by smoothing over the process and gaining trust so that when decisions are made, everyone is happy."
The loss adjusters present also felt that they could help to change misconceptions about their sector. Mr Roberts said: "If the perception is that loss adjusters don't have the talent coming through, then we have to change that. We also have to build up individual loss adjusters, stressing that they will be there leading a team and working hand in hand with insurers."
Ms Willmott concurred, adding: "We have more people capable of handling large losses than are sometimes able to do them, because insurers want to work with a limited number of people who they know well. The important thing is to bring those people to the major loss, as part of the team, so the insurer meets them and becomes happy they too can do the job."
The group felt forensic accountants also have a role to play in changing their image so that insureds do not see them as confrontational. Ms Parkinson explained: "Sometimes the experts don't necessarily make the right impression with the insured. And if the insured perceives that the insurer's team is being confrontational, then you get that response in return. We all need to be a bit more careful about how we ask for information."
The general consensus, therefore, was that forensic accountants are here to stay and play an important role in settling major losses; but that they are part of a team that loss adjusters lead, meaning communication is key to the success of the relationship. Mr King summed this up by saying: "Issues arise when people do not know what their role is and people are not pulling together. This is an issue the whole industry needs to address."
Mr Roberts concluded: "A team is a group of people who work together, not just a bunch of individuals. On a loss, you need to get a team of people who want the other people to do well. Only when you get this will you succeed in settling a claim in a way that keeps everyone happy."
- Graham Cave executive director of Chartered Institute of Loss Adjusters
- Richard Henton previously director of claims consulting and audit at Aon, and due to take up a similar role at Willis in 2005
- Andy King president of CILA Heather Parkinson director at Parkinson Consulting
- Steve Parry property claims manager at AIG Europe
- David Pigot managing director, risk consulting practice at Marsh
- Harry Roberts director, technical and product assurance at Cunningham Lindsey
- Keith Tuffin partner of forensic accountancy at RGL
- Susan Willmott UK major and complex loss director at GAB Robins.
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