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A risk manager's guide to managing adjusting fees.

Kevin M. Quinley, CPCU, is vice president of risk services for Hamilton Resources Corp. in Fairfax, VA.

Most risk managers buy adjusting services. Consequently, they are constantly seeking ways to manage and, wherever possible, cut these costs. However, cutting adjusting expenses to the bone makes no sense if money must be spent elsewhere due to inept or delayed investigations. Still, there are ways to lower costs without compromising the quality of service. Here are several ways to accomplish this.

Negotiate a flat fee per claim. Most adjusting firms will typically quote a flat rate for cases involving routine claims that can be turned over quickly. These include medical-only workers' compensation and collision damage to company cars. However, while these firms will also quote flat rates on many third-party losses, they rarely do on products and professional liability claims.

Perform certain tasks in-house. Why pay an adjuster $40 an hour to gather police reports or medical records when these tasks require no special training? Photocopying is another example; some adjusting offices charge 25 cents per sheet to photocopy. Collating documents and gathering and photocopying records in-house can be done by a clerical staffer in the risk management department.

Be prompt with the adjuster's requests, Do not waste the adjuster's time by having him or her repeat requests for much-needed information, such as important documents or an interview with an employee for a statement or authorization to settle a claim. Time wasted will ultimately cost money. Risk managers should evaluate their own departments, procedures and work schedules to make sure they do not hinder adjuster efficiency Surely the adjuster serves to please the client, but behaving as if a claims investigation is a low priority will incur unnecessary expenses.

Periodically audit adjusting bills. Do not just process bills; challenge charges that seem excessive or do not make sense. Questioning a bill every so often demonstrates to the adjusting firm that the risk manager is vigilant about watching adjusting costs. Invoices should list exactly what work was performed, when and by whom, as well as related expenses. They should also be clear, legible and itemized by time, broken down into tenths-of-an-hour increments. Certainly, the risk manager should not raise issues for the sake of raising issues. If the bills seem fair and accurate, there is little need to follow up.

Establish billing guidelines. Establish and enforce billing guidelines to avoid misunderstandings down the road and help manage adjusting costs. Simply having written guidelines sends a strong message that the risk manager is cost-conscious. If given to the adjusting company at the outset, guidelines need not be lengthy or detailed. They may include such items as the travel-expense policy, permissible expenses and those requiring pre-authorization, billing frequency and notice requirements on hourly rate changes. Guidelines should also specify those adjusting tasks not billed to the risk manager, such as reviewing correspondence and setting up files.

Exchange fee concessions for volume commitments. If one adjusting firm is used exclusively for case assignments, the firm should offer a discount on its hourly fee. Naturally, the higher the volume, the greater the buyer's leverage in extracting fee concessions. However, beware of using hourly rates as the chief yardstick for costs as these fees can be deceptive. If a low fee causes claims to be funneled down to the least experienced adjuster, it is obviously no bargain. I.F, however, the risk manager can see to it that quality people do the job, the fee will be a true economy.

Request budgets. Consider requiring a budget up front, especially when big cases are involved. Risk managers increasingly use budgets to monitor and control legal fees. While perhaps not appropriate for every claim, budgets are suitable for serious losses which represent a sizable commitment of adjusting time and expense. Keep in mind that the budget is an estimate, not a guarantee. Some adjusting tasks are dictated by situations and people over which the adjuster has no control, such as other claimants and attorneys. Nevertheless, experienced adjusters should have a rough idea of the basic investigating and reporting tasks involved in each case.

Establish a billing threshold. The adjuster or adjusting company should notify the risk manager whenever the bill reaches a specified time or dollar figure. The threshold amount matters little, as long as it is reasonable. It gives the risk manager a chance to step back and assess where the company is headed and how far it wants to go on a particular claim. For instance, should the firm consider settling the claim given the mounting adjusting costs? Likewise, if the alarm is sounded during the first week of claims-handling, the risk manager may suspect that something is wrong. The billing alert also sends a message that the risk manager is concerned about costs, and thus may inspire adjusters to act efficiently.

Limit assignments. The easy way to handle claims adjusting is to simply turn over a case to a company and request a full investigation. In economical terms, however, it is better to study each case to see if a full investigation is required. Maybe one statement and one appraisal is all that is needed. Specify up front the investigative functions to be performed with each assignment. If the adjuster suggests more steps, consider the rationale behind his or her recommendation.

Risk managers should remember that as buyers of adjusting services, it is important to be economical yet reasonable. Decide how much of the claims adjusting can be done in-house and how much would unnecessarily overburden the risk management department. There is a fine line between taking on too much and taking on too little. Also, beware of adjusters who spend their time meticulously documenting every last detail when they should be managing the claim. Some adjusters lay into the file with heavy charges, because they believe the bill will be slashed later on.

Pick and choose the areas for cutting adjusting expenses. No one should be a spendthrift, but a reputation as being a tightwad is counterproductive. Risk managers should learn to view paying for quality adjusting services as an investment, with the payback being money saved by fighting fraudulent, exaggerated and questionable insurance claims.
COPYRIGHT 1990 Risk Management Society Publishing, Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1990 Gale, Cengage Learning. All rights reserved.

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Title Annotation:insurance claims services
Author:Quinley, Kevin M.
Publication:Risk Management
Date:Nov 1, 1990
Words:1029
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