Florida Insurance Consumer Advocate Sean Shaw’s July 23 Claim Dispute Resolution Roundtable Recommendations

A list of claim dispute resolution recommendations made at Florida Insurance Consumer Advocate Sean Shaw’s July 23, 2009, Claims Dispute Resolution Roundtable is reprinted below.

 

Claims Dispute Resolution Roundtable

The following is a list of issues that were identified as contributing to claim disputes along with recommendations to address each issue.

 

EDUCATION – HOMEOWNERS

Issue:

Privacy laws prohibit insurers from being able to discuss the scope of damage with the homeowner’s contractor unless written permission is given.  This makes communication more difficult and forces the consumer to act as the intermediary.

Recommendations:

• Insurers should encourage homeowners to provide their contractor with a copy of the written estimate or scope of damage in order to facilitate repairs.
• Insurers’ should advise homeowners that “written authorization” is needed before the scope of damage to their property can be discussed with a third-party, such as, the contractor. (Insurers and contractors must be mindful of the difference between discussing the scope of damage vs. the repair estimate.)
• Insurers should make insured aware of Ordinance and Law coverage in the policy and that it is only paid after the expense has been incurred. This could be handled in an Insurance Claim Handling brochure.
• Contractors should ask homeowners for the estimate prepared by the insurance company prior to writing a contractor based estimate. However, the contactor should advise the homeowner that the purpose is to compare the scope of damage and that it is not necessary to disclose the amount of claim payment.

 

Issue:

Homeowner driven Improvements vs. Repair – How much of the estimate is actual repair or replace vs. upgrades demanded by consumers (e.g. consumer was going to replace the cabinets anyway and decides they do not want the damaged cabinets repaired, they want them replaced) consumer driven “scope creep.”

Recommendation:

• In an effort to mitigate claim disputes, the insurance adjuster should provide the homeowner with an Insurance Claim Handling brochure containing pertinent telephone numbers and explaining the claim process along with a brief statement clarifying repair vs. replace.

 

Issue:

Homeowners often believe that the insurer’s initial written estimate is the final amount that will be paid to repair the damages of their property. 

Recommendation:

• Insurers should communicate more often with their insureds during the claim process; encourage insureds to contact them if additional damage is found; and advise insureds to provide “written authorization” if they want their insurance company to discuss the scope of damage with their contractor. This could also be addressed in an Insurance Claim Handling brochure.

 

Issue: 

High hurricane deductibles encourage consumers: to get inflated estimates to lower out-of-pocket costs; use unlicensed contractors at lower than market value costs – below average work; not complete repairs to pre-event condition; cut corners on the repairs; avoid permits and inspections; and, drive the prices up contributing to demand surge. 

Recommendations:

• Educate consumers about the consequence of selecting a higher hurricane deductible – insurance agent training.
• Create a pre-tax hurricane savings account. This would require legislation.
• Educate consumers about the need to hire qualified licensed contractors. An Insurance Claim Handling brochure could address this issue and provide website links for verification of contractor’s license and tips for hiring a contractor.

 

EDUCATION – INSURANCE ADJUSTERS

Insurance Adjusters are licensed by the Department of Financial Services (DFS), Division of Agent and Agency Services.  All courses and continuing education courses must be approved by the Licensure and Compliance Section. There are 24 hours of continuing education required (2-ethics, 10-laws; 12-optional).

 

Issue:

Company adjusters may not accurately record the full scope of damage.  Examples: Mold behind walls that have been penetrated by rain or interior ceiling or wall damage from rain entering through soffits or roof vents.

Recommendation: 

• Mandatory CEU training for insurance adjusters that includes an overview of building and construction techniques to enable them to identify areas which may have hidden damage.

 

Issue:

Remove and Replace vs. Repair Costs – There are times when it is more cost effective to replace rather than repair due to the need of specialized skills or materials.

Recommendation:

• Insurance adjusters and insurers should take these issues into consideration when estimating damages.

 

Issue:

Company adjusters and contracted independent adjusters estimates and/or scope of damage reports do not identify damages which must be upgraded in accordance with the Florida Building Codes. 

      Recommendations:

• Insurer should train company adjusters and contracted independent adjusters about the building code requirements in the areas where they will be working and require adjusters to identify damage which may be affected by code upgrades separately on their estimates.
• Estimates for building code requirements should be prepared in a separate estimate.

 

EDUCATION – CONTRACTORS

The Department of Business and Professional Regulation (DBPR) regulates the statutory requirements for building contractors in the State of Florida. Contractors who meet the requirements of Section 489.111, Florida Statutes, must also be certified or registered in the proper classification and meet continuing education requirements in accordance with the provisions of Section 489.115, Florida Statutes. Currently, contractors must complete 14 hours of continuing education over a two (2) year period to maintain their licenses.  All continuing education courses must be approved by DBPR’s Construction Industry Licensing Board.  

Issues:

• Contractors are not aware of the special terms, conditions and exclusions of the homeowners policy; therefore, repair estimates often include items which are not covered.
• Owner driven Improvements vs. Repair – How much of the estimate is actually for repair or replace vs. upgrades demand by consumers (e.g. consumer was going to replace the cabinets anyway and decides they do not want the cabinets repaired, they want them replaced) consumer driven “scope creep.”
• Privacy laws prohibit insurers from discussing a specific homeowner’s claim unless “written authorization” is obtained.

Recommendation:

• Optional CEU course for contractors who handle insurance losses. The course would include: a basic overview of the insurance policy and common policy exclusions; separate estimate for Law and Ordinance Coverage (L&O); claims handling procedures; hurricane mitigation features that could be completed during the repair process; and, the need to obtain “written authorization” from the homeowner to discuss the scope of damage with their insurance company.

 

Issue:

Lump Sum Estimates typically provided by the Remodeling Contractors vs. Detailed Line Cost Estimates used by Insurance Adjusters make it difficult in comparing scope of repairs to scope of damages.   This includes the separation of work that must be done in order to meet Florida Building Codes and Law and Ordinance Coverage

Recommendation:

• Create Best Practices for minimum standards for writing insurance claim estimates (directly relating to the cause of loss) that would include a separate estimate for the Florida Building Code upgrades (Law and Ordinance Coverage) to facilitate application of the appropriate policy limits.

 

Issue:

Substandard workmanship and improperly installed products increase claims; damage would have been avoided if product had been installed properly. 

Recommendations:

• Contractors are held responsible for one year after the completion on construction. However, stiffer penalties are needed for non-licensed person acting as contractors.
• Insurers should have properties inspected during the underwriting process and again after a claim has been paid to ensure that repairs have been made.

 

EDUCATION – INSURANCE COMPANIES

Issue:

While insurers have implemented several claims handling processes, it appears that there is still a need for additional communication with insureds during the claims process.   

Recommendations:

• Develop an Insurance Claim Handling brochure that is handed to the insured by the claims adjuster when he/she inspects the damages. This brochure could explain the claim process and address several of the issues that have been discussed by the roundtable participants.
• Train company adjusters and contracted independent adjusters about the building code requirements in the areas where they will be working and require adjusters to identify damage which may be affected by code upgrade requirements separately on their estimates.
• Require appointed insurance agents to actively interact with insureds when the coverage is purchased and when the policy is renewed to review coverage options.
• Insurance company should inspect the home prior to renewal when a claim has been paid to ensure that repairs have been completed.

 

FLORIDA BUILDING CODES

The Florida Building Commission, which is housed within the Department of Community Affairs (DCA), provides the mechanism for the uniform adoption, updating, amendment, interpretation and enforcement of single and unified state building codes. The Board of County Commissioners or City Manager appoints the local Building Code Administrator, who oversees enforcement and all Administrative Personnel, such as Permit Technicians, Plan Examiners and Building Code Inspectors. The Board of County Commissioners (local government) also has the authorization to inspect all buildings, structures, and facilities within their jurisdiction and, at it discretion, adopt local code plus technical amendments to the Florida Building Codes, in accordance with public notification requirements.  There is a process for interpretation of the Florida Building Code and dispute resolution through the issuance of a Declaratory Statement by the Florida Building Commission and Building Officials Association of Florida, Inc.  Failure to enforce the Florida Building Codes are considered a licensure issue and addressed by the Department of Business and Professional Regulations (DBPR).

Issue:

Florida Building Codes and Compliance – Interpretations differ among contractors, insurance adjusters and local jurisdiction enforcement.

Recommendation:

• Statewide adoption of standards for applying building codes should be considered to alleviate local jurisdictional issues. Establish standardized damage “triggers” (percentage of damage) and requirements for code upgrades and compliance.
• Development of a website to be utilized by insurers and contractors which provides the Florida Building Codes for each county and specifically states the “triggers” for required code upgrades.

 

MORTGAGE COMPANIES

Pursuant to Section 494.0026, Florida Statutes, mortgagees must promptly endorse checks related to compensation for damage to property, contents and additional living expenses.  The mortgagee must also promptly disburse insurance proceeds related to contents and additional living expenses. Insurance proceeds for property must be promptly deposited into a federally insured financial institution.  However, the Florida laws are silent regarding the disbursement of property related insurance proceeds, such as, inspection requirements, payment of interest and when the mortgage payments are in arrears.

Issue:

Mortgage companies withhold insurance proceeds until repairs are made and inspected.  This procedure forces consumers to finance repairs and incur non-recoverable interest charges.

Recommendation:

• The disbursement to property proceeds is governed by the Terms and Conditions of the Loan Agreement. Therefore, it is recommended that we contact the Mortgage Bankers Association of Florida and solicit their support to develop uniform procedures for the inspection of repaired property and the disbursement of insurance property proceeds. The payment of interest on the insurance proceeds for the period that they are held by the mortgage company may be included in the conversation.
• Develop a “draw’ process similar to the process in a “construction” loan.

 

DEMAND SURGE

Labor / Material / Pricing – Is it gouging or market influenced reflection of a shortage of materials and labor to respond to demands or both?

Issue:

A contributing factor to demand surge is the result of 50-60 years of building structures in the path of naturally occurring weather patterns with little regard for the resulting damage. The only way to reduce demand surge is to reduce damage to our structures.

Recommendations:

• Recommend to the Legislature to reactivate the My Safe Florida Home Program (MSFH).  The MSFH program would focus on providing grants to eligible homeowners to make specific improvements that will help reduce property damage and insurance costs.  The MSFH Program would identify projects that meet the state’s goal to reduce exposure and losses.  Recommend grants as a 25% match from the MSFH program with a maximum award capped at $5000.00 in order to reach a larger number of affected properties.
• Require better enforcement of Florida Building Codes during the rebuild process. Every time a structure is rebuilt, it should be stronger and less likely to sustain damage in the next storm.
• Encourage homeowners to not only make repairs, but to also use their own funds on mitigation features that will reduce damage in future storms.
• Encourage the use of standardized pricing formats with up-to-date pricing research that can account for demand surge following an event (post-storm pricing lists).

 

CLAIMS DISPUTE RESOLUTION – OTHER ALTERNATIVES

Issue:

Appraisal – There is not a uniform method for preparing estimates or licensure requirements for umpires.  As a result, umpires often divide the differences between the insured’s and insurers’ estimates.

Recommendation:

• Pursue legislation to bring uniformity to the appraisal process and licensure of umpires. Review legislation that was drafted in 2007.