In the last five years, cover for claim preparation costs has been written into policies more frequently.
Prior to this policy cover expansion, the cost of the appointed loss assessor or brokers’ in-house claims specialist would be paid for by the policyholder. The basis of the fee typically being a pre-established percentage of the final settlement figure. On rare occasions, the fee would be based upon an hourly charge agreed on between the assessor and their client/policyholder.
As loss adjusters, we welcome the opportunity to collaborate with experienced practitioners representing the policyholder. More often than not, this leads to a more efficient claim journey and allows the policyholder to focus on recovering and running their business without having to worry about handling the claim. When a loss adjuster, insurer and claims specialist work in partnership, we witness stronger claim outcomes.
When claims preparation costs cover was introduced, typically as a policy extension, it was new to most claims handlers and insurers. The cover is normally triggered for losses of a certain type and level. For example, a property and/or business interruption loss above of £100,000 may come with a limit of liability, typically between £25,000 and £100,000, however often much higher. Some policies specify a limit per claim and in the aggregate for the period of insurance. Wordings might specify the claims specialist that can be appointed; this is typically found on bespoke policies written by a broker.
Recent high-value COVID-19 business interruption claims on policies which had significant claims preparation limits in place caught a number of insurers by surprise. The potential level of financial exposure they had for certain types of claims — in particular when there was no pre-incident agreement in place for the form of charging — was unexpected. There is now a heightened focus on this type of cover going forward.
For loss adjusters to set a reserve and consider the claim presented, we need to first know what basis of charging, if at all, has been agreed upon with insurers. We also need to understand what activities must be considered under this cover. In the first instance, let’s consider the scope of the cover provided under this subject clause/extension. Some policies provide a brief definition with terms like preparation, presentation or certification of a claim, however, they vary, with some simply acknowledging claims preparation costs on the schedule or in the policy with a limit.
Negotiation and time spent debating adequacy and compliance with warranties is another factor to consider. Some policy wordings specifically exclude negotiation as a covered head of expense. While it’s not the intention of the cover, on occasions, it’s difficult to identify and separate.
When cover is agreed to be set at an hourly charge, the key issue, as mentioned earlier, is what activities to include and which ones to disallow. Time sheets will be requested and considered by the adjuster. Debate and dispute can sometimes arise in relation to an hourly rate being charged where the policy cover is for ‘reasonable’ costs, which can be open to interpretation.
On claims where there is no pre-agreement based on charging (hourly or percentage), difficulties arise when this subject matter isn’t raised until the end of or latter stages of a claim. We often see disputes arise which culminate in the level of payment to the policyholder being less than the financial agreement they made when they appointed their claims specialist, and what they are required to pay. Any financial shortfall for the customer in payment is evidently not the intended situation since this type of cover was provided.
The level and basis of the agreed fee between claims specialists and their client does not typically change when there is cover under the policy. Consequently, where cover is in place, the argument put forward is that this should simply transfer to insurers at the claims specialist’s normal market rate, the only potential restriction being the limit in place under the policy.
Quite simply, all parties should have agreements in place before a claim on what activities are covered under this clause and the basis of charging. It’s not recommended to leave this step until the end of a claim and risk disputes which culminate in the customer not recovering their full outlays.