An insurance policy is essentially a contract between the policyholder (insured) and the insurance company (insurer). Unless the policy, as written, is deemed to be unenforceable, the explicit language of the policy generally dictates the responsibilities of both parties. Quite often, however, problems arise because of the way in which the insurance company is handling the claim. The adjuster assigned to handle the claim may be overwhelmed by the number of claims that he/she is handling at any given time. This can result in seemingly unnecessary and unreasonably lengthy delays. It is understandable when the insured becomes frustrated with the entire process.
In addition to the number of claims that an adjuster is responsible for handling, there may be other causes for delays in handling a claim. Since I started practicing law, I have seen a trend toward much younger (and, in many instances, inexperienced) insurance adjusters. It is also worth noting that, in some instances, insurance adjusters may receive a bonus for resolving a particular claim for less than the reserve (the amount set aside to pay the insured on his/her claim).
Delay is the enemy of the insured. He/she wants to be paid on a claim as soon as possible. Delay, however, is, in many instances, the insurance company’s best friend. Think of it this way – insurance companies do not borrow money to pay claims. Instead, they use money (premiums they have collected) that they have set aside (reserves) for that purpose. These reserves are invested and, if it has made good investments, an insurance company makes money off of its reserves every single day that it is able to delay paying on a claim. Basically, each day of postponing payment is another day of interest on their reserves. In many instances it may also be another day in which the insured becomes that much more desperate for payment (and, thus, willing to settle for less). This may not seem like a lot of money on say a $2,000.00 property damage claim, but it adds up when you realize that some insurance companies have over $50 billion in reserves.
So, the moral of the story may well be that insurance companies do not simply make money by collecting premiums. How they choose to invest those premiums and how long they can hold onto them before paying on a claim also factor into the equation. Thus, when dealing with an insurance company, beware of how time is on their side. Therefore, if you do resolve a claim with an insurance company, make sure you have a commitment, preferably in writing, as to when you will receive payment.