| Author |
Message |
Ghostbuster
Registered User
Username: Ghostbuster
Post Number: 330
Registered: 12-2000
| | Posted on Wednesday, August 14, 2002 - 2:56 pm: | |
Clayton, your last paragraph is bullseye. Loss control as well as claims and the agency force have been dismantled by the honchos in pursuit of reduced operating costs. Each quarter something else on the body of the company must be amputated to keep up this never ending cost cutting. As long as the money flows in and loss frequency remains moribund, as it has been this year, their party continues. Tomorrow??? Why, that may never come! Who cares about reality and being responsible and such obsolete trifles as profitible underwriting ratios? If a mold comes along, just double, triple, quadruple the rates. If they can't pay, they can't play.
Yeah, I'm feeling kinda sour right now. But, do any of you folks out there see things any different? Please tell me how things are better now for our industry than they were 30 years ago. Have I been watching too many episodes of 'Leave it to Beaver' and 'Gilligans Island' on TVLand? |
Gil C. Newton
Member
Username: Newt
Post Number: 27
Registered: 7-2002
| | Posted on Wednesday, August 14, 2002 - 12:15 pm: | |
Clayton, I started a post and got side-tracked then I came back and finished mine .In the mean time you had already posted your words of wisdom, and I mean that. I appreciate your comments and believe it or not it give me a whole new look at things. Sometimes you have to hear a different slant to get the message. I am
used to dealing with contracts and while studying, my instructors would mention now and again the policy being a contract. I see your point about being specific. I take your information as a boost up, and I will remember you for it. |
Gil C. Newton
Member
Username: Newt
Post Number: 26
Registered: 7-2002
| | Posted on Wednesday, August 14, 2002 - 11:32 am: | |
As I understand the insurance intent, the product which is insured, regardless of quality must be indemified, RCV,ACV or depreciation taken into account. What ever a person has is the best, in their mind. You are stepping on a rusty nail if you try to convince them otherwise.
Auto is an example, you try replacing a Chevy with a Ford or vice versa and you just may get beat up or shot. If you know that person and they value your opinion you may get by with a suggestion, but I never push a point.
It is amazing the diffrence in the quality of building materials and this is an area people will listen to suggestions if they have gained confidence in your judgement.
I am not trying to pass this off as insurance gospel, I am more illiterate than most in this field. I try only to express an opinion of what I understand and that only. My experience is
dealing with my own claims where the money came from my pocket. This ACV/RCV is my weakest point and I don't know any better way to get an understanding of it than listening to pros give it a thrashing. I hope someone out of the kindness of their heart will post some examples and actual figures for ACV and RCV .....
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Clayton Carr
Member
Username: Clayton
Post Number: 90
Registered: 11-2001
| | Posted on Wednesday, August 14, 2002 - 11:11 am: | |
Alan, the Ghost and John have responded well to your inquiry regarding an agent's involvement and the use of "formulas" for establishing RC.
For years I found Marshall - Swift the best to use for high value / custom dwellings, and Boeckh best for regular / traditional structures up to about $300K or so.
The agents involvement in the process, like anyone else in the total picture, can supply right or wrong data; by design or otherwise. Some agents "sell" quality, some service, some both, some only "price".
My experience with carriers is for the most part (with exceptions) is that there was little or no credability to an agent reported RC. It boiled down to simple issues - getting the correct and sufficient amount of data from the insured, and interpreting and transposing that correctly onto a template RC form or basic software.
Then you have the lending institutions. If you purchase a property with a dwelling on it for $200K, you might as well talk to your Mouse regarding trying to convince them that $200K has no inferred direct relationship to the RC of the dwelling being $200K.
When I was doing a lot of these RC computations, I convinced my insurer clients to remove the dwelling limit of insurance from the assignment form. It provides nothing but distraction to the appraiser setting out to determine the RC of a dwelling. Hindsight now tells me that generated a lot more assignments over time. Once you convince the underwriting manager and the rank and file actual underwriters that the RC appraisal process is a technical endeavor - void of any agent's concern of a "sale" of a policy and void of a lender's concern to cover a purchase price - then the printed policy or application amount is of no consequence to the exercise. I believe that there is a significant "underinsured" ratio for dwelling insurance.
getting back to some things Gil brought to the subject, it is in the carrier's best interests that their underwriting departments c0-operate fully with the claims department and vise versa. Adjusters within a carrier's office (especially regarding commercial risks) should always review the "guts" of a policy - the application, the u/w notes, the agent's memos, the inspection report - before heading out to deal in an intelligent manner with an insured. Good claims departments will always make their field I/As aware of the "guts" of a policy. Far too often the written communication from an agent about a risk did not get properly transposed into a wording that covered the exposures as detailed by the agent. That is "fixable" with a carrier with integrity before the situation turns sour; and you would well know its' basically burnt bagels if the communication was verbal and lost from the u/w's memory or their lack of documenting the conversation into the "guts" of the file.
The risk inspection business - a shadow of its' former stature back when underwriting results were the key and not ROI - gains renewed prominence maybe once a year with a number of carriers when a loss destroys a dwelling and its contents. Then the inspection report - whether basic or detailed if higher value - presents itself as a very useful tool for all manner of reasons in the adjustment process. |
Clayton Carr
Member
Username: Clayton
Post Number: 89
Registered: 11-2001
| | Posted on Wednesday, August 14, 2002 - 10:11 am: | |
Gil, lets go back to your 6.31PM 8/13 post, perhaps some things should be clarified for you and others not familiar with the "policy side" of a carrier.
You suggest the "contract" would be followed by the adjuster. I will conclude your reference to "contract" is that of the insurance policy - there is no room for slack here, the policy must be followed by the adjuster.
You suggest if the adjuster has "reservations" about the content of the "agreement", let it be known. I will conclude that your reference to "agreement" is that of the relevant data on the declaration page of the insurance policy. The adjuster must advise the carrier if he/she has "reservations" (a.k.a. different facts) relative to any information on the dec page - such as considerable difference in the amount of insurance, occupancy and use; etc.
You suggest the contract is approved by the "underwriters" and you would try to follow what they say. I will conclude your reference to "underwriters" (a.k.a. the British term of reference to an insurer) is what is commonly referred to as the carrier. If you are suggesting the "contract" (policy) is approved by an actual underwriter (an employee of a carrier), that is not the proper context of what happens. The actual u/w will approve the "terms" of the contract/policy and allow the policy to be issued. An actual u/w (other than negotiated commercial manuscript wordings) has no input whatsoever in establishing or approving the wording. To - as you suggest - follow what an u/w "says" will give you a quick one way ticket to hell and back. A claims adjuster should never take instructions from an actual u/w. In large commercial exposures, a commercial u/w may liaise with their claims department to relay "intent" or other data that should be conveyed through the claims department to the handling adjuster. |
Kelley
Registered User
Username: Kelley
Post Number: 30
Registered: 12-2000
| | Posted on Wednesday, August 14, 2002 - 5:43 am: | |
One major factor I have not noticed anyone mentioning while working on RC/ACV is the quality of the product. Quality is not based on the NAME brand, that does no mean quality, especially in the contents area.
There are many "big" names out there who have convinced ppl their product is great because they have big advertising bucks.
Take time to study the different type of veneers, overlays & particale board based products on the market.
Know if an item has been re-built, restored or properly reconditioned. Many items can have their useful life restored, they maybe 50 yrs old but in all reality you have to go to the restored date.
As Americans we get hung up on "name brands", which have become a joke !
Take advantage of your time off, go out & do some real reasearch on home building products & contents products & most of all, manf. techniques. |
Ghostbuster
Registered User
Username: Ghostbuster
Post Number: 329
Registered: 12-2000
| | Posted on Tuesday, August 13, 2002 - 9:36 pm: | |
That's right, Gil. They are NOT supposed to overinsure...but they do. As John says, it is too expensive for them to pay for an exhaustive analysis of each Risk apon application for coverage. Actually, that's not completely correct. More accurately, the underwriters have a budget for inspections and are tightfisted about spending any more than they must. You should hear those women whine over paying an extra dollar for a photograph of a ramshackle shed or fence with gang graffitti on it.
So, in the end, it's all a crapshoot. And the easiest route for an agent and company to go is to just write the Risk, particularly new construction, for the amount of the mortgage loan, with maybe some minor tweaking of the deal.
Oh, and John, those valuation programs may be quite accurate, but, they are expensive. And here in the wild & wooly world of El Cheapo Grande underwriting inspections, anything over $1.98 is just not needed when a few cheatsheets with dollar figures and quality levels will suffice.
EXCEPT...that is, when Ms Underwriter wants to spend about $85/hr on a high dollar mansion inspection. |
Gil C. Newton
Member
Username: Newt
Post Number: 25
Registered: 7-2002
| | Posted on Tuesday, August 13, 2002 - 8:49 pm: | |
After reading these posts again and again,
got a lot out of the comments. I can relate to what "GB" says. Lake lots here run from a low of
75K up. The cabins, many of which are CB on Slab
2BR 900 sf. Nothing custom about them. At the most about 36K replacement. Yet when one of these cabins gets damaged, or destroyed a new two story 4BR goes up in its place.
It appears there is an under insurance and an over insurance which is not talked about. If you
are under-insured you pay if you are over-insured you make out like a bandit. In writing
clearance letters, I was privy to many of the transactions on the lake property here and this
is in line with what "GB" brought up.
I don't think the carrier would go along with an over insurance formula or would they?}
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Gil C. Newton
Member
Username: Newt
Post Number: 24
Registered: 7-2002
| | Posted on Tuesday, August 13, 2002 - 6:31 pm: | |
I would think the contract would be followed by the adjuster. If the adjuster has reservations about the content of the agreement,let it be known. After all the contract is approved by the underwriters and personally I would try to follow what they say. Adjusters with more time dealing with these RCV/ACV's may have another
approach. Take this as a question.This is one tough subject, it is all shades of gray to me.
Everytime I think I got a handle on it you guys come up with another what if. Don't stop....
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John A. Postava
Registered User
Username: Johnp
Post Number: 39
Registered: 12-2000
| | Posted on Tuesday, August 13, 2002 - 5:36 pm: | |
Alan:
Sometimes the agent determines the value by using programs like MSB's valuation software or maybe manually by using their publications. I have also seen valuation booklets put out by certain insurance carriers. Some carriers take the agent's application and call the perspective policyholder and ask them questions which are fed into a software program (ususally MSB)and the carrier controls the coverage provided. Other carriers hire inspection companies who either use their own propreietary valuation software or MSB.
Before their merger, Marshall and Swift and E.H. Beockh controlled a very large part of the underwriting valuation market (and still do). Now that they have merged they were for a while the "only game in town" for structure valuations.
SIMSOL's valuation product using Craftsman's Building Cost Manual data or the R.S. Means Valuation Data has only recently begun to market a valuation software to underwriters and just recently won over our first valuation client.
The valuations done at the policy inception usually are not considered at the time of the claim unless the adjuster's valuation is far different and the policyholder will suffer as a result of the adjusters values (remember the Oakland Fires?).
Agents and carriers usually only have a few bits of information on a building when it is being insured. It is just to expensive to fully inspect and value every structure when you consider only a small percentage of buildings are total losses on any given year. Adjusters who have the advantage to walking through a building and getting loads of information on that building can complete far more accurate replacement cost values.
Hope this helps...jap |
Ghostbuster
Registered User
Username: Ghostbuster
Post Number: 328
Registered: 12-2000
| | Posted on Tuesday, August 13, 2002 - 5:26 pm: | |
Well...this is an interesting can of worms. Let's pull this worm out and peruse it. Often, an agent or even the company will insure a property based on what the financed note is. (Yeah, I hear ya, we don't insure the dirt.) This increases the premium for the company and agents commission and keeps the finance company queiscent. Everyone's happy including the Insured as long as he remains ignorant.
In order to justify the Risk to underwriting, an inspector goes out, determines the square footage of the Risk, takes a couple of photos, then multiplies the Risk area by a replacement cost figure based on the quality of construction. After doing this the figure invariably comes out too low for the coverage amount listed. So, some fudge factoring is applied to bring this 'contrived' number in line with the policy amount.
I know this ain't a pretty and perfect picture, but it is the reality out in the field. It's called, 'Goin along to get along'. Eventually, the forces of real estate appreciation and inflation balance things out. Unless of course, the value of our money increases, (or the value of goods and services deflate), same thing, then our whole house of cards will come crashing down on our heads.
Gosh, this is all depressing me. Will someone out there please fix up a pitcher of Rum & Cokes medicinal elixer? |
alan jackson
Registered User
Username: Ajackson
Post Number: 126
Registered: 12-2000
| | Posted on Tuesday, August 13, 2002 - 2:58 pm: | |
Does the agent use any formulas to determine the RCV when the policy is written? If so, does this have any bearing on determining (ADJUSTING) the RCV & ACV if and when a claim occurs?
Does it matter? |
Todd Summers
Registered User
Username: T4summ
Post Number: 24
Registered: 12-2001
| | Posted on Monday, August 05, 2002 - 11:18 pm: | |
My screen is not showing any 5- ? at all but I will try the 6's. |
Todd Summers
Registered User
Username: T4summ
Post Number: 23
Registered: 12-2001
| | Posted on Monday, August 05, 2002 - 10:55 pm: | |
I'm in...
1-1: Determine the age and condition of the damaged property and divide it by the expected lifetime of that particular element using a depreciation schedule that has been approved by the carrier.
1-2: See above and compare to RCV.
2-1: Yes
2-2: If the adjuster didn't get the schedule he was using approved by the carrier.
2-3: See previous posts. I believe that the rationale is that the carrier is willing to include certain high risk materials for an additional premium with certain limitations (namely ACV).
2-4: This is pretty difficult but maybe I can come close...
Depending on the policy and the various endorsements it may be possible for the ACV to exceed the RCV IF there is coverage for appreciated value (as previously discussed), values that are determined as collectible, sentimental etc. (Hello Lloyds of London)or if demand has exceeded supply (as is often the case of a Cat 4 or 5).
2-5: As discussed below... if there is a partial loss where RCV benefits would apply versus a total loss where the policy limits would apply.
2-6: No, Yes, Because.
2-7: Common sense to understand + training to apply.
2-8: My answer is ... Yes, and Yes (with the provision that if a question came up that I did not know the answer to, my response would be , " I don't know, but I will find out and get back to you..")
3-? I don't see these questions posted.
4-1: "Non-recoverable depreciation"
4-2: If most of the loss is to the wall to wall carpeting and the carpeting is completely worn out prior to the loss and there is no endorsement for RCV of carpeting, then the indemnity would be far short of taking care of the necessary repairs.
4-3: Well one example is listed above and the second (of many) is if the contractors invoice is less than the adjusters estimate. Then the indemnity of RCV benefits would be less than what was calculated by the adjuster. ... no wait! You said "other than recoverable depreciation"... so hmmm...
OK got it! If the insured (who was unsure about the age of the curtains at the time of inpection) finds the receipt for when she bought them ! ???
so far so good ? |
Todd Summers
Registered User
Username: T4summ
Post Number: 17
Registered: 12-2001
| | Posted on Sunday, August 04, 2002 - 1:43 pm: | |
I've often wondered why it is that , in Texas anyway, Big Red doesn't take any depreciation (on RCV policies) but FIG does ? ... Does this potential for bad faith you are talking about maybe have something to do with it ? I always thought it was just to cut down on expenses, supplements, etc.
Also I always use a F-9 note explaining the depreciation after each line item...
"Recoverable depreciation on drywall is based on 50 year old drywall divided by an expected lifetime of 100 years." or
"Recoverable depreciation on insulation is based on 50 year old insulation divided by an expected life time of 50 years."
Now... I don't like to take 100% on anything either, BUT , if you know the house is 50 years old and your depreciation schedule says the lifetime for insulation is 50 years, then don't you have to depreciate it 100%? |
Todd Summers
Registered User
Username: T4summ
Post Number: 16
Registered: 12-2001
| | Posted on Sunday, August 04, 2002 - 1:28 pm: | |
Thanks Jim for the great thread. I am just now beginning to read all of the great posts and will try to respon d to as much as I can find the time to. I am on assignment and time is a pretty precious commodity.
I wanted to address the "basis" for non-recoverable items.
It seems to me that yes , while everything wears out eventually, the items that are paid on an ACV only basis are items that wear out quickly and you are expected to have to replace them several times in your lifetime, i.e. Carpeting & fences. Other ACV items are items that are extremely vulnerable to wind or light hail damage i.e. awnings, antennas.
One situation where non-recoverable depreciation can be recovered is with an endorsement.
Another comment I would like to make is that I don't think that there is an adjuster alive that has not improperly figured a common fence and it's depreciation. |
Jim Flynt
Registered User
Username: Jimflynt
Post Number: 391
Registered: 6-2001
| | Posted on Friday, August 02, 2002 - 2:02 pm: | |
Eric, you are absolutely correct that some properties do in fact increase in value, and some well past their original cost.
One of the highlights of my life and travels was to spend a day visiting the Cathedral of Toledo, Spain a number of years ago. The 2nd largest Gothic cathedral in Europe, construction began in 1227 A.D. and was not completed until 267 years later. It always amazed me to know that those who planned the design and started the construction did so aware they would never witness it's completion. Generation after generation of highly skilled artisans: grandfather, father, son, grandson, and great-grandson, passing down their trades, devoted their entire lives and souls to build that which even with today's technology and improved construction techniques, we could never replace. The Spanish artists 'El Greco' and Velazquez were among those who endeavored on this magnificent project. (As a note: if you ever have the opportunity to visit Spain, don't miss the Toledo Cathedral!)
Other similar buildings throughout Europe and Asia are indeed as old or older. And Ghost is correct that public perceptions can in fact play into determining rarity of values.
Most adjusters however, generally only deal with RC (Replacement Cost) or ACV (Actual Cash Value) as the measures of benefit recovery under the vast majority of policies.
There are however, many other methods of valuation which can and are used in more specialized circumstances such as the one you mentioned.
Other recovery methods would include those ordained by Valued Policy Laws , the Repair or Replace Option by Insurers, Stated or Agreed Value Policies (typical for fine art, antiquities, objects difficult to replace, and the Inland and Ocean Marine policies), Original Cost (tenant improvements and betterments), Sales Price (merchantile losses), HPR policies (highly protected risks), as well as "Functional Replacement Cost" (which is the HO-8 policy).
You are also correct that the type of exterior and structural construction (stone versus wood siding for instance) and the fire retardant tendencies of that material, can greatly affect physical and economic depreciation.
That same cathedral in Toledo, Spain would have a far greater value or 'actual cash value' today than an exact same replica located within 25 miles of Chernobyl, so again, we must remember there are many factors which determine actual cash values of risks; some which are positive in influence and some negative.
On the other hand, highly specialized buildings in excellent condition structurally, may lose value (fair market value) due to factors beyond mere 'wear and tear'.
A brand new bowling alley in a smaller town that has lost it's only major employer (hence jobs and citizens) may suddenly have little appeal to a purchaser, the consuming public, or a desperate insured who suffers a suspicious fire.
Specialized restuarants, funeral parlors, movie theaters are among the list of buildings which functionally are difficult to renovate into other uses. Use of property, as mentioned before, is one of many factors which can and should be considered in determing actual cash value or fair market value.
A 'forced' change in use from that intended for a building may in fact actually make the underlying land more valuable than the present value of the building. Forced changes may occur when a 'use' is 'grandfathered' in by zoning and a fire occurs which prevents rebuilding, in a condemnation, or as technology changes and evolves.
We will be exploring these other factors which can affect depreciation as well as those alternative methods of recovery valuation in greater detail in the next few days as our exploration into depreciation continues. |
Ghostbuster
Registered User
Username: Ghostbuster
Post Number: 324
Registered: 12-2000
| | Posted on Friday, August 02, 2002 - 11:34 am: | |
Ahhh, now here's an interesting lil' fly in the ointment! That 'appreciation' of ancient or historic structures has much to do with the prevailing sentiment of public opinion. Here in the good ol' U.S. of A., ( the throw away capital of the world), various special interest groups form with the aim of preserving structures of special interest.
Here in the Big Enchilada, (aka, San Antonio), they are referred to as the lil' ol' ladies in tennis shoes. They, thru the use of such delicate feminine wiles as nagging the living Hell out of their politically connected husbands, have preserved and renovated a variety of structures and increased or 'appreciated' their perceived value. Examples include the Alamo and other old Spanish missions. Other buildings saved from the 100% depreciation of the wrecking ball date from the antebellum to the art deco era. These structures in their restored state have indeed appreciated from their depreciated state.
This analogy can also be applied to the automotive scene. My 1976 Triumph TR-7 in it's current state as a ACV of about $2000. As I continue to restore each componet back to a renewed state to where it is, in effect, showroom new, it will have appreciated to a value of $2500.
Obviously, this example shows the wisdom of having something worth restoring in the first place. But, that's another story involving certain character defects and a psychological predilection for trying to change the course of history and believing in lost causes. (Others of this ilk can be found in the ranks of Confederate Civil War reenactors who maintain that if Massa Bobbie Lee had kept pressing on the flank at Gettysburg's Little Round Top, the world would have been a better place. But, let's discuss that topic some other time.)
So, in conclusion and without further eloquence, no matter how superior the componets of a structure in comparision to their modern equivalents may be, they still are subject to the enivitable forces of degradation we lovingly call depreciation. That depreciation can be reversed, but it must be done prior to the loss. |
Eric Carlson
Registered User
Username: Ecarlson
Post Number: 14
Registered: 6-2000
| | Posted on Friday, August 02, 2002 - 9:30 am: | |
I've spoken with adjusters who have worked in Europe adjusting losses on 400 year old structures. These structures appreciate over the years. Certainly most structures in the U.S. aren't the same class or quality of construction but would not a well build stone or brick structure actually gain some value over time? |
Jim Flynt
Registered User
Username: Jimflynt
Post Number: 390
Registered: 6-2001
| | Posted on Friday, August 02, 2002 - 8:58 am: | |
Well, I see that 'Perfesser Ghostbuster' has beaten me to the classroom this morning, and as usual, he has provided the correct answer, while saying it much better than I ever could.
Ghost is correct that from a practical standpoint, your approach to only depreciating wearable surfaces is appropriate, as well as expeditious when handling smaller moderate damage claims in a catastrophe environment.
Ghost is also correct that 'everything' wears out eventually, therefore every item, every component, every building system is technically subject to depreciation.
Ghost also uses an excellent example in his remarks about the old barn you drive by which is falling down. The example raises the question of whether building items are ever fully depreciated, and I'm sure Ghost would say 100% when the barn is now a pile of rubble lying on the ground.
Now I am not a proponent of actually showing 100% depreciation on estimate items, but I do think there are times when depreciation should not be limited to some arbitrary limit of 50% or less. In fact, a few carriers insist that depreciation be taken to reflect actual cash values up to a depreciation limit of 85% to 90%. (It would be helpful to have some feedback posted by other adjusters of their experiences with limits imposed by carriers or carriers not limiting actual depreciation rates).
Let's remember that depreciation represents any loss of value and numerous factors affect the rate and amount of that loss of value: wear and tear, age, obsolesccence (loss of value which is caused by changes in style, fashion, technology or economics), market value, use, rents/income,
and even location.
As adjusters we 'take depreciation' in order to arrive at an actual cash value in order to determine recovery amounts of benefits to an insured.
Where loss damages to the risk are greater due to a hurricane or tornado, or fire, or flood, an adjuster may well utilize depreciation of more if not all damaged components to more accurately determine actual cash value.
When I write an estimate of 25 to 30 lines or more, generally the estimate will reflect depreciating at least half or more of those 25 to 30 items. On larger and commercial losses, the items on which I take depreciation generally increases proportionately as the loss severity increases.
It seems to me carriers and insureds realize the greater degree of thought and attention that has been devoted to depreciation when we do take depreciation on a majority of damaged items, even while using differing depreciation rates to reflect the differing rates of item depreciation.
We will shortly return to this discussion by looking more closely at the methods of determining actual cash value, and reviewing what the courts have said about those methods. |
Ghostbuster
Registered User
Username: Ghostbuster
Post Number: 323
Registered: 12-2000
| | Posted on Friday, August 02, 2002 - 7:31 am: | |
Well, from a practical standpoint, that manager was right about depreciating only the wearable surfaces. But...
In fact, everything wears out, sooner or later. Whether it be from age, or exposure, or use, or obsolesense, or even a bad reputation, everything depreciates in value from it's orginal new cost. This includes those hidden structural members of a building like the framing, plumbing, electrics, etal. Eventually, it all diminishes in value from both a use standpoint and a monetary standpoint. It just depends on the extent the carrier wants to push the issue.
For an example, reflect on that old falling down barn you just drove by. The years of neglect have caused EVERY part of its structure to deteriorate to the point where no single part of it has retained any value at all. The entire building has depreciated 100%. Every part of this barn has become a 'wearable' surface.
But, in our everyday hum-drum, we deal with the more common items you have illustrated. And, like in everything else, it still comes down to doing what the boss of the day wants until the next boss of the day changes things...again.
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Kile Anderson
Registered User
Username: Kileanderson
Post Number: 154
Registered: 1-2001
| | Posted on Thursday, August 01, 2002 - 10:19 pm: | |
Ok, Jim, here's a good question. What exactly gets depreciated on a building? I was taught only wearable surfaces depreciate? The paint and the drywall but not the framing, the carpet and pad but not the subfloor, the drywall on the ceiling but not the insulation. Is this the way it is done in most companies? I've had a manager in one company tell me to depreciate the shingles but not the felt or the sheathing while another manager in the same company told me to depreciate everything above the rafters, (sheathing, felt, shingles, drip edge, etc). How have you guys handled this? |
Jim Flynt
Registered User
Username: Jimflynt
Post Number: 389
Registered: 6-2001
| | Posted on Thursday, August 01, 2002 - 10:34 am: | |
Something To Think About:
Suppose that an insured owns a building insured for $250,000 with an actual cash value of $200,000 ($500,000 replacement cost less depreciation).
In the event of a total loss, the insured would recover only $200,000. However, if 50% of the building is damaged, the insured would collect the replacement cost amounting to $250,000 (50% of $500,000) in addition to the half of the building which still remains.
Who says depreciation isn't important and sometimes in surprising ways.
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Clayton Carr
Member
Username: Clayton
Post Number: 87
Registered: 11-2001
| | Posted on Thursday, August 01, 2002 - 10:00 am: | |
Some more answers for debate and critique.
(4-1) keeping the term depreciation within the context of insurance, there are two categories (not types - of which there are more than two) of depreciation - recoverable and non-recoverable. Your comment infers an affect on the total indemnity beyond that realized by recoverable depreciation. Therefore, I suggest an explanation of your comment is that any applicable non-recoverable depreciation will restrict the potential total indemnity and leave an insured with an unrecoverable portion of the loss beyond any deductible that is applicable.
(4-2) illustrate a financial model of a Statement of Loss, with a significant amount of items subject to NRD.
(4-3)That is a puzzle.
(5-1) If instructed and required to apply depreciation to labor and debris removal, we will first conclude that the issue is past any reasonable point of discussion with the vendor/carrier; to convince them otherwise. As a cat adjuster you must then decide whether to accept/work the files which have that exposure. If you decide to do so and within the instructions of the carrier, irrespective of having a written directive on how to deal with the issue presented - each such file diary would carry a notation along the lines of; ".... as per your specific instructions we have applied depreciation to labor and debris removal ....". Depending on my personal concern at the time for my relative bank balance, I may add another line; ".... however, we suggest that the reported case of 'Davis vs Mid-Century Insurance' illustrates that this is an incorrect practice ....". As well, the disclaimer on each estimate would reference the issue and include; ".... depreciation that has been applied is in accordance with the insurers instructions ....". However, I raise a question. It all relates to "know before you go". An adjuster just should not expose themselves to this type of thing. How do you ever really know to this extent before you are actually at a storm office meeting?
(6-1) to (6-6) Good questions, but as they are directed to Kile, I'll let him step up the plate first.
(7-1) Yes - imperative. Detailed scope notes are critical to me. It is a terrible feeling late at night trying to put together an estimate and realize at that point that this type of info was not gathered in sufficient detail.
(7-2) Yes - imperative, for a number of reasons. I need this info as stated above. Plus it keeps the insured involved, informed and aware of the effort I am making.
(7-3) Yes - can not imagine doing it without.
(7-4) Yes, it's fairer, and to me reflects in the estimate and reporting that a conscious effort was made to differentiate. I think it also helps "sell" the total package to both the insured and insurer.
(7-5) You can not use minimal, generalized depreciation applications. Depreciation should mirror age, actual physical condition and economic obsolesence if required. |
Clayton Carr
Member
Username: Clayton
Post Number: 86
Registered: 11-2001
| | Posted on Thursday, August 01, 2002 - 12:08 am: | |
It's time to give some thought to some answers to the questions posed.
(1-1) I arrive at a valid and realistic ACV for a partial loss estimate by being aware of any instructions on the issue from the vendor, properly interpreting the specific policy relative to the issue, applying any vendor / carrier specific depreciation factors, or in the absence of the former applying fair depreciation deductions from materials of LKQ replacement costs based on age and condition to consider the actual physical depreciation and any economic obsolesence that may be applicable.
(1-2) For a total loss estimate, the factors above relative to the vendor / carrier instructions are the same. When I get to the point of "doing my own adjusting" - i.e. applying my estimation of fair depreciation deductions - I look at building systems or components in place of LKQ replacement to check myself that the entire (for example) HVAC system is fairly depreciated as well as considering that I minimally depreciated the ductwork but more heavily (if warranted by the factors considered in an ACV computation) depreciated the actual mechanical unit. Subject to the whims of the carrier, I can not ignore the "broad evidence rule" and should explore the structure that was from a market value prospective.
(2-1) jeopardize E&O - yes, basis for a bad faith claim - yes; if sufficiently harsh or vindictive - if truly excessively improper and triggered the bad faith "triggers".
(2-2) It is the adjuster who computes the loss based on his/her attendence and observations of the damaged property and applied the incorrect schedule. Steps the adjuster should take to avoid such a bad faith risk would be to inquire of / and obtain from - the carrier depreciation "tables" or inquire through the vendor if the "tables" the adjuster intends to use are applicable in the locale being worked, subject to justifable adjuster discretion. Of course, the "catch all disclaimer" on the estimate should be of appropriate language to clearly show the intent that the estimate of both RC and ACV factors are subject to insurer review and acceptance.
(2-3) I'm not sure, logic may suggest that the items subject to NRD are rapidly depreciating items (i.e. not lengthy lifespans of utility) and statistics may show that NRD items are those that have proven to be the least often replaced items.
(2-4) Items that have a rapidly declining RC, such as technical or "hightech" items - from microwaves to computers, VCR and other "hightech" gadgets. Real life example, I bought a "state of the art" 2 head VCR 20 years ago, paid $850. and it took two of us to carry it to the car. No one is going to depreciate it more than 80%, so I'd get an ACV of $150. to $170. You would have a hard time today to spend more than $125. for a good 4 head VCR.
(2-5) example - according to DW2 (7/00) - loss settlement, personal property - at ACV at the time of loss, but not more than the amount necessary to repair or replace. So, now I'm down to getting $125. Why, it all goes back to the principal of idemnity.
(2-6) A person should never rely solely on the software "automatically" defaulting depreciation amounts. I think they should be considered as guides; to me it is part of the "adjustment process" to apply a fair depreciation based on what you see relative to the damaged property. If using auto default a basis for bad faith, no, I don't think so - in itself. If I plugged in the right territory/region to utilize and entered the correct material data and depended on the reasonable template depreciation in the software - I don't think that act - if proven to be wrong - would be a bad faith claim, but may be interpreted (if widespread similar usage by adjusters for the same carrier) as an unfair business practice.
(2-7) An adjuster should have a good grasp of the life expectancy of personal property item/class types, and be able to adjust those factors based on their observations of actual physical deterioration noted - a couple in a home with no kids will have their furniture far outlast a family of 5 with 3 rug rats. The adjuster should be aware of normal life expectancies of building materials, systems and components; and become aware of how the geographical location of the loss may vary that life expectancy either way from another region (normally stereotyped to their "home" region).
(2-8) You will encounter one of these "types" every few years of active field claims work. A carrier executive, a major principal at an agency, or some form of attorney. It is a "test", if they put you to the test. While I am on the road I do not carry all 9 of the policies you mention, but will have the relevant one in my clipboard and at least one other in the truck. I will glady go "A-Z" with any of these types regarding their policy (even more comfortable now as we speak regarding my new found ease with NRD) and if I feel I should respond (usually "politically" motivated) to a comparative analysis, I'll ask for a glass of water while I go to the truck and retreive another wording (normally the most basic wording of any I have in the truck). This is why I like to be able to put my finger on the clause/provision that is relative to the question being raised. I did not create the wording, I am not there to defend the wording; but I'll gladly show where the clause/provision is in the policy that is necessary to answer a question.
Look forward to reading others viewpoints. |
Jim Flynt
Registered User
Username: Jimflynt
Post Number: 388
Registered: 6-2001
| | Posted on Wednesday, July 31, 2002 - 11:29 pm: | |
I would like some feedback from adjusters in how they approach depreciation during the intial scoping of a loss.
As we all know, heating systems depreciate faster than electrical systems, and 'coverings' depreciate more quickly than structural items.
Many times a risk may structurally be 100 years old yet had major renovations within the past 5 or 10 years. Perhaps a complete renovation or a renovated bath or kitchen.
(7-1) When you scope a larger (though not total) loss caused by tornado or hurricane, do you note ages of major component items in your scope notes?
(7-2) Do you inquire of the insured as to the age of major systems, any major renovations or upgrades, or additions?
(7-3) Do you then use these scope notes when you prepare your damage estimates?
(7-4) Do you generally differentiate among major component items when you apply depreciation rates among those items within your estimates?
(7-5) Do you generally feel as if you are using just a minimal depreciation rate to "help" the insured or are you truly trying to take into account actual condition and useful remaining life of items?
There are no right or wrong answers to these questions, and it seems to me that we might all learn by learning what most are now doing or learning variations in the approach to applying loss valuation provisions.
Please share your techniques and methodology so we can all learn together.
(Message edited by jimflynt on July 31, 2002) |
Clayton Carr
Member
Username: Clayton
Post Number: 85
Registered: 11-2001
| | Posted on Wednesday, July 31, 2002 - 10:08 pm: | |
Well folks, thank you Jim, Ghost & Lee.
Since my first sortie into the USA claims world and my exposure to Non Recoverable depreciation, I've looked hard and listened long to find something that wasn't there.
I see now it is as simple as when the policy loss settlement section says items x.y.z, are settled at ACV only - that in effect is the NRD "clause".
I feel pretty foolish that it is that simple, I've read and read over the years trying to grasp this one element so I could understand it better - looking for that one paragraph that had the words non-recoverable depreciation in it.
It is clear to me now, a clearly laid out policy provision. For as long as I will remember my address, I'll remember "ACV only" is the reference to NRD; and I'll remember where and how I became comfortable with the term.
Thanks for the help. |
Jim Flynt
Registered User
Username: Jimflynt
Post Number: 387
Registered: 6-2001
| | Posted on Wednesday, July 31, 2002 - 9:48 pm: | |
Clayton, I believe the policy wording regarding non-recoverable depreciation you are looking for can be found in the ISO HO policies as follows:
"3. Loss Settlement. Covered property losses are settled as follows:
a. Property of the following types:
(1) Personal property;
(2) Awnings, carpeting, household appliances, outdoor antennas and outdoor equipment, whether or not attached to buildings; and
(3) Structures that are not buildings;
at actual cash value at the time of loss but not more than the amount required to repair or replace."
Fences are considered structures that are not buildings.
Version ISO HO 00 03 (04 91)
The identical language is also found in the same place within the ISO HO 00 01 and ISO HO 00 02
I'll respond to your other question in a separate post.
(Message edited by jimflynt on July 31, 2002) |
Kile Anderson
Registered User
Username: Kileanderson
Post Number: 153
Registered: 1-2001
| | Posted on Wednesday, July 31, 2002 - 9:29 pm: | |
Jim, thanks for the test. I see your point. My last post wasn't meant to sound cocky or boastful. It's just that I have very rarely run into situations where this has been a problem because I work for a carrier that sells mostly RCV policies. The only time it really comes into play is on Manufactured Home policies and even then I have never had a problem explaining to the insured in simple straightforward language what depreciation is and how it is calculated. I've only been questioned on it a couple of times and when I was I was able to negotiate with the insured a fair figure for depreciation.
I always explain to my insureds how to claim their RC benefits and if necessary what depreciation isn't recoverable. The point I was trying to make is 99% of the time I have had no problems with depreciation and maybe that's why this thread isn't taking off the way some people feel that it should.
Obviously I am interested in learning that's why I'm here. I want to be the best adjuster I can be and I'm more than willing to listen to anything anyone can teach me. I will keep reading this thread and hopefully learn something that I will one day apply on the job. |
Lee Mushaney
Registered User
Username: Red
Post Number: 15
Registered: 3-2001
| | Posted on Wednesday, July 31, 2002 - 9:02 pm: | |
Yep Ghost, life is so complicated and just the issues we have discussed in just the post on this one thread should tell the newbees, the want-to bees and those who think they is adjusters there is NO SUCH THANG AS TO MUCH KNOW-N'S. I am not trying to put anyone down here but there are so many varibles and possibilities in this business just knowing the minimum about adjusting claims is going to put you at risk of being privileged to work for all those Insurance Carriers and Vendors. |
Clayton Carr
Member
Username: Clayton
Post Number: 84
Registered: 11-2001
| | Posted on Wednesday, July 31, 2002 - 8:58 pm: | |
The neighbour thing was a bad example of the root of what I was getting at, but yes, the split loss and deductible came as a surprise to me when I did the first of that type in California.
I'm still muddy on the theory / concept of NRD. Was it something brought about years ago as a soft stop to reduce losses or ease premium increases? Much like the deductible jumps over the years from the days gone by of $50.?
I don't have my policy binder with me right now, but I want to be able to know where the NRD is related to in the wordings, other than DP2.
I've never felt I had good logic or explanation for an insured for NRD, just template answers that I wouldn't want to hear much of on a hot day. If I knew more about it, I could "sell" it with conviction as I can do with R-D.
Sorry to press, but it's an issue I am not yet comfortable with. |
Ghostbuster
Registered User
Username: Ghostbuster
Post Number: 322
Registered: 12-2000
| | Posted on Wednesday, July 31, 2002 - 8:19 pm: | |
Yep, Ms Mushaney, our fairest damsel of Bakersfield, if one resides within the confines of a state wherein a shared fence is a legal mandate, as is yours, then the ACV fence repairs must be split twixt the benefactors of that scraggly old collection of sordid lumber. We can also bring up the split deductible issue as well, if no other elements of the loss are present.
Hokey smoke, Bullwinkle! Why is life so complicated? |
Jim Flynt
Registered User
Username: Jimflynt
Post Number: 386
Registered: 6-2001
| | Posted on Wednesday, July 31, 2002 - 7:26 pm: | |
Thanks to all who responded since my last post, and I will be responding to many of the issues raised momentarily.
However, I was quite struck by Kile's comment: "most of us feel that we have a pretty good handle on depreciation or have never really had it come up as a major issue" and wonder if that truly reflects a consensus opinion among most adjusters, and cat adjusters specifically?
My own personal opinion, is that most adjusters treat depreciation almost as an afterthought and in a generally off-hand way. Many rely on the depreciation templates within estimating programs or carrier depreciation schedules for contents. Most adjusters are unaware of some state laws which may affect depreciation technique/process, and very few explain the depreciation recovery process adequately, if at all, to their insureds.
And many insureds suffer needlessly because their adjuster either doesn't know policy depreciation provisions, fail to follow them, and generally fail to explain them fully to the insureds.
I would like to pose the following questions specifically to Kile in the hope that he can shed more light on how he would handle depreciation scenarios, and also to see if the comfort level he has with this topic is as secure as he leads us to believe.
(Don't worry Kile, most adjusters will soon learn their depreciation knowledge base is not as strong as they thought).
So with your permission, here goes:
(6-1) Under what if any catastrophe circumstance can an insured receive or recover benefits for non-recoverable depreciation taken by the adjuster? Further, on catastrophe assignments, do you specifically advise your insureds of how they could possibly receive and/or recover benefits for this non-recoverable depreciation? If you answer No, WHY NOT?
(6-2) You are handling a wind loss in a coastal state which is a "valued policy" state, and your insured suffers a covered loss which is 75% of insured value. The house is 50 years old. How would you calculate depreciation and what effect will it have on the indemnity benefits due your insured?
(6-3) Your vendor sends you up to Wilkes Barre for a wind storm where you are the only adjuster there handling claims for your carrier. (Heck you don't even need to be licensed to adjust in Pennsylvania!!)
Your insured has an HO-3, $250,000 coverage, $250 Deductible. Wind causes $20,000 damage to 25 year shingle roof which is 10 years old, and $20,000 siding damage to 2 of 4 sides of aluminum siding both of which are covered losses. House is 25 years old. Siding is 15 years old.
What depreciation factors would you use for this claim, and what ACV payment would you recommend to your carrier for payment?
(6-4) Under one policy circumstance, you are required to first amortize damaged items before applying depreciation. Please describe that situation.
(6-5) Kile in the roof damage example which you used, you suggested that damage to a 12 year old roof with 25 year shingles is as simple as 12/25. How would you then calculate depreciation on 25 year shingles when the roof is 23 years old?
How would your calculations differ if the same 25 year shingles were wind damaged in their 30th year?
(6-6) Kile since you mention you have not had depreciation come up as a major issue, I am curious if you could ennumerate or perhaps suggest any possible circumstances that might trigger depreciation becoming a major issue in a claim assignment?
Kile, I look forward to your earliest response, and value that since you have a pretty good handle on depreciation, that you will not mind sharing your knowledge and experience.
I'll be back with more on this topic momentarily.
Stay tuned.......
(Message edited by jimflynt on July 31, 2002) |
Lee Mushaney
Registered User
Username: Red
Post Number: 13
Registered: 3-2001
| | Posted on Wednesday, July 31, 2002 - 5:49 pm: | |
Ghost:
Clayton just thru something else in your mix on the Fence. He has a neighbor, so woops there goes an additional consideration that has to be addressed when properly completing the statement of loss. |
Clayton Carr
Member
Username: Clayton
Post Number: 83
Registered: 11-2001
| | Posted on Wednesday, July 31, 2002 - 3:01 pm: | |
Thanks Ghost, I understand and have dutifully applied the approach you have given an example of. However, other than the FWUA DP policy, which does clearly state ACV only for x,y,z, items; other USA HO wordings as I recall have not been so specific and further some carriers "list" of items (not personal property) subject to ACV only (i.e. N-R dep) differ.
I would like to put my finger on it in a policy, as I can in the DP2 Loss Settlement section.
The concept in general has little logic to me, the lowly garbage can has recoverable depreciation, but my fence to keep the neighbours dog away from sniffing it slides permanently into worthlessness as a non-recoverable depreciated item. |
Ghostbuster
Registered User
Username: Ghostbuster
Post Number: 321
Registered: 12-2000
| | Posted on Wednesday, July 31, 2002 - 2:28 pm: | |
Uhhhh...Clayton, didn't you know that what counts is what the adjuster says and not what the policy says??? Why, if it weren't for this time honored concept, there'd be no bad faith law on the books at all!
Anyways, Non-recoverable depreciation. It is differentiated from normal depreciation by the fact that you, (The Fine Insured), don't recover it with the rest of the normal depreciation after repairs are done. I.E. Let's take your plain jane Homeowners policy and the topic of ratty old fences in a wind/hail storm.
On our sacred Statement of Loss, we show the various componets of the loss. We gots the roof and its depreciation of 25%. We gots the siding and its 30%. And, we gots the garbage cans and their 20% depreciation. So far, the depreciation is recoverable after the construction dust settles and we have our reciept in hand from Walmart for the trash cans. (Are ya with me so far?)
Now, what about that damaged fence out back that is 50% worn out? Since the policy says that fences are at ACV only, we list the fence replacement and the 50% depreciation.
The fence depreciation is the only depreciation that cannot be paid. It is nonrecoverable.
So, on the Statement of Loss, we total the RC, deduct the total depreciations to arrive at the ACV, apply the deductible and issue the first check. Then, as a footnote over to one side, explanations and computations as to what is recoverable and what is nonrecoverable depreciation are outlined.
There are variations on this depending on the carrier outlines, but it all works out the same in the end. (Have I missed anything so far?) We then close the file and months later, the cleanup folks get to reopen it and take care of the loose ends. But, that's just the nature of the business.
|
Clayton Carr
Member
Username: Clayton
Post Number: 82
Registered: 11-2001
| | Posted on Wednesday, July 31, 2002 - 1:24 pm: | |
No, I could not equally well teach this subject.
There is one aspect of depreciation that I do not understand. It relates to your question (2-3), Non-Recoverable depeciation. It is a concept that does not exist in Canada and a term I had not heard, until I worked in the USA.
I can dutifully apply the concept, but, I find no basis or specific reference to it in the residential policies I have been exposed to. I've always liked to be able to refer to a wording for applicability of any claims concept or practice and understand it so I can when required comfortably relate it to the insured. Further, I have come across a carrier that (in concert with their general stance of no depreciation under a pretty hefty limit) do not consider any N-R depreciation.
Therefore, I await with interest, some background on this issue, rational, and how to read that from a policy. |
Kile Anderson
Registered User
Username: Kileanderson
Post Number: 152
Registered: 1-2001
| | Posted on Wednesday, July 31, 2002 - 10:30 am: | |
Maybe no one is responding because most of us feel that we have a pretty good handle on depreciation or have never really had it come up as a major issue. I mean after all if you have a 12 year old roof that consists of 25 yr shingles then the depreciation is 12/25. Pretty simple and don't most people know that depreciation only applies to material not labor? Obviously things get a little fuzzier when you deal with things like paint or personal property, but that's why most companies have depreciation schedules and if all else fails simply negotiate the depreciation with the insured. Is it really this complicated? I haven't had a problem with it in handling claims. |
Jim Flynt
Registered User
Username: Jimflynt
Post Number: 385
Registered: 6-2001
| | Posted on Wednesday, July 31, 2002 - 9:32 am: | |
ENLIGHTENING FACT:
In Davis v. Mid-Century Insurance Company, Davis’ roof received $1,500 in hail damage. Mid-Century applied depreciation to labor and debris removal and paid Davis $464.
Through discovery, Davis learned that Mid-Century (and its parent company, Farmers) profited by approximately $17,000,000 by uniformly (and improperly) applying depreciation deductions to labor and debris removal. The jury awarded $17,000,000 in punitive damages.
(5-1) What does this case mean to you as a cat adjuster?
|
Jim Flynt
Registered User
Username: Jimflynt
Post Number: 383
Registered: 6-2001
| | Posted on Wednesday, July 31, 2002 - 7:50 am: | |
As a proponent and student of the 'Aristotelian model' of learning, (which embodies questions, then answers, then more questions, then more answers), and using that model, we now return to the earlier discussion of depreciation.
In earlier post, the following comment was made:
"depreciation may affect the insured's total indemnity payment well beyond receiving additional benefits under recoverable depreciation"
(4-1) I invite anyone to explain what was meant by that statement.
(4-2) I ask that someone provide an example showing how an insured's ultimate indeminity benefits could be significantly altered through depreciation other than recoverable depreciation.
(4-3) Please explain at least two different ways in which depreciation (other than recoverable depreciation) could affect the ultimate indemnity benefit to an insured.
It's no fun (to me at least) to post the questions AND answers here (after all, I already know the answer) so, here's your chance to 'shine' while providing some of the building blocks of reasoning for students to learn why the depreciation process is so vital in insurance.
Wisdom comes from learning the reasoning every bit if not more so than memorizing some generally pet answer.
Imagine as a cat adjuster you are sitting at the kitchen table with your insured, as Clayton points out, and he/she has asked the questions above. Could you answer them honestly? Could you answer them adequately? If not, WHY?
Clayton, I know you could equally well teach this subject, so please don't hesitate to jump in and move this topic along as the 'spirit moves you' or to add components which I miss.
(Message edited by jimflynt on July 31, 2002) |
Jim Flynt
Registered User
Username: Jimflynt
Post Number: 382
Registered: 6-2001
| | Posted on Wednesday, July 31, 2002 - 7:23 am: | |
Clayton, Ghost, and Eric: Thanks for your kind comments and feedback.
For those who have not yet elected to participate, I am reminded of the old Quaker axiom: "Proceed As The Way Opens".
Sooner or later, others will move when the spirit moves them; whether here, in a courtroom defense for unfair claims practices, or in a storm office pleading with a supervisor to be allowed to remain on storm despite a carrier or insured complaint.
One of the driving reasons behind deciding to post the current topic, is that failure by cat adjusters to inform and explain the policy depreciation provisions and process to insureds is probably one of the leading reasons that claim files reopen on 'clean-up' (and thus one of the major reasons that cat adjusters lose their 'holdbacks'). And that is one of the primary reasons cat adjusters don't get "called back" to the 'next' assignment by vendors.
I recall an experience whereby a cat adjuster from South Carolina flew to California along with his wife to work a large scale windstorm. His upfront out of pocket expenses with rental car, airfare, hotels, and incidentals was around $2,500.00. Assigned all of the claims for a large carrier in one rather moderate sized town, he was licking his chops at the prospects of making a rather nice income for what would be a 3 month storm assignment. That is, UNTIL, his next claim was at the residence of the President of his carrier's largest agency. Especially when he could not explain the depreciation process to this insured. Most especially when it became apparent to this insured (insurance professional), that this cat adjuster did not have enough knowledge and correct understanding of depreciation to meet the expected standards of the area's largest agent. Demanding that the carrier send this adjuster home, the cat adjuster was terminated and left holding the bag on the $2,500.00 plus, out of his own pocket personal expenses.
As for the rest of the story, the same adjuster was sent home again by two other vendors and/or carriers within that next year for his same lack of knowledge of depreciation among other things; and now is no longer employed as a cat adjuster.
Clayton is correct that construction estimating knowledge is only one part of cat adjusting. People skills, policy knowledge, and awareness of emerging trends in the industry remain equally vital to the success of those who choose to call themselves cat adjusters.
Now with that little diatribe out of the way, I will be returning later today to the continuation of this discussion.
It is my fervant hope this thread will rise to the level of an AIC or even CPCU "class" on the topic of depreciation, and will provide those cat adjusters who participate, the knowledge and confidence to handle any aspect of depreciation under almost any situation under most of the standard policies. Having that as the ultimate goal of this thread, participation will insure that cat adjusters will not fall into the incompetency trap that my friend from South Carolina did; and you will start reclaiming more of your holdbacks, garnering more professional respect from your peers, vendors and carriers; and having happier more satisfied insureds.
In the end, this thread was intended as a first "learning module" for what is hoped will become a complete online insurance training and education "package" to be offered exclusively here on CADO, and I sincerely invite others to jump right in to lead in the process.
Clayton, Ghost and Eric, please stay tuned and jump in as the spirit moves you.
Before we are done here, I think that not only our newer adjusters, but many 'old timers' may well be surprised at perhaps how little they too, know about the critical subject of depreciation.
Stay tuned folks, the tough questions are coming........... |
Eric Carlson
Registered User
Username: Ecarlson
Post Number: 13
Registered: 6-2000
| | Posted on Wednesday, July 31, 2002 - 1:46 am: | |
Jim, as the others have said this sounds like a great topic but I can't comment on much other than point 6. I have recently had my eyes opened about how depreciation is handled by some in the industry. Without divulging any names I will say that I recently spoke with a couple of different adjusters, one who has in the past used "random" depreciation generated by a software program and another who used a 10% "default" depreciation for about a year without realizing it. HELLO! As a software developer it scares me to think that someone will blindly accept something just because a computer spits it out.
I remember way back about 30 years ago when I was a Cub Scout and we did a little play at one of our award dinners. I played the part of an old man (with a "floured" wig for gray hair) who walked into a room with some kids sitting around a box covered with tin foil that was supposed to be a computer. They were sitting around using it to do calculations for their homework or something to that effect. As the sage old man I unplugged the computer. The "kids" got kind of confused and threw up their hands and I shook my head and walked out the door. I didn't realize at the time that I would see the fulfillment of that little scenario within my lifetime.
From a legal standpoint, anyone who uses software for any type of task needs to take a minute and read the long-winded license agreement before they install the software. For example, here is a generic version of a paragraph from our product's license agreement that can be found in one form or another in almost every software license agreement:
A. Product X is being licensed to you and is provided on an "AS IS" basis, for your personal or business use. Company X makes no warranty or guarantee as to the software's performance or stability. Company X disclaims all warranties with respect to the software, including but not limited to the warranties of merchantability and fitness for a particular purpose. Company X is not responsible for any special, incidental, indirect, or consequential damages. In no event will Company X's liability with respect to this license agreement exceed the amount you paid to Company X for the software.
I'm not too much on legalese and I definitely wouldn't count too much on a paragraph such as the one above to cover my backside if I caused a major disruption in someone's business with "bad code" but I do think the overall concept is correct. The person using the software is ultimately responsible to make sure it does what they expect it to do before using it as part of their business process.
So my guess for question 6 would be "yes". I think a case could definitely be made for Bad Faith or Unfair Claims Practice if software was relied on too blindly. |
Ghostbuster
Registered User
Username: Ghostbuster
Post Number: 320
Registered: 12-2000
| | Posted on Tuesday, July 30, 2002 - 1:39 pm: | |
Actually, guys, where is the usual foo-fa-raw in general? Either, everyone but us is out humping files, or they got a haircut and a real job, or they just don't care. Maybe the space aliens came and snatched them?
I can think of several important topics here that have not attracted much of a nibble of interest. Issues, such as this one, need to be aired out.
In any event, everything depreciates, even our hot little bodies. |
Clayton Carr
Member
Username: Clayton
Post Number: 78
Registered: 11-2001
| | Posted on Tuesday, July 30, 2002 - 11:03 am: | |
Ladies and gentlemen, excuse me, but I just can not stay quiet any longer.
Jim certainly doesn't need me or anyone else to wave his flag for the effort he puts into this site, and when our views differ I'll likely be the first to say so.
However people, and if I grasp the intent of whom this thread is for, the people whom I am addressing are those with at least less than 36 months of actual field claims experience; whether that took 3 years to accumulate or 8 years.
For all you "construction types" out there ready to conquer the cat claim world, what you see on this thread is real time examples of what you will be faced with at someone's kitchen table or alone late at night when there is no one to tap for the answer. Your construction "skills" give you somewhere between 33% and 49% of the "tools" needed to handle general property residential claims. I sincerely envy your skill level at construction and I do wish mine was stronger and better, but, without a good grasp of what is before you on this thread - it is not worth a brass screw.
I am amazed there has not been a lively response to this thread. This type of thread should / could be one of the great benefits of this site.
If you are afraid or embarassed to offer your answers here - what confidence do you have in your work product that is submitted to the paying client?
Come on people, this is the place to tune your skills and not just wait to read someone's answers.
Sorry Mr. Flynt for butting in, but if you are choosing to invest some (a lot) of your time in offering this type of forum; it burns me that no one is taking advantage of it - and I dare say there are lots that need to. |
Jim Flynt
Registered User
Username: Jimflynt
Post Number: 381
Registered: 6-2001
| | Posted on Monday, July 29, 2002 - 11:54 pm: | |
We build on this discussion of depreciation and ACV versus RCV by exploring a few questions we each might want to ponder, and more importantly, comprehend and be able to answer honestly.
After all, one of the services we offer (and a duty as well) is to be able to explain policy provisions to our insureds, and this includes the depreciation process: how it is determined, why some items are non-recoverable, and how depreciation may affect the insured's total indemnity payment well beyond receiving additional benefits under recoverable depreciation.
So here are some questions for you to think about, and your comments and answers are invited.
(2-1) Is it conceivable that an adjuster applying an improper depreciation schedule to an estimate could inadvertantly jeopardize his E&O coverage or even more seriously, establish the basis for a Bad Faith claim by an Insured?
(2-2) Why might the use of an improper depreciation schedule for an estimate in settling a claim be more attributable to the adjuster than the carrier in a Bad Faith action? What steps might an adjuster take to protect him/herself from such risk?
(2-3) What is the rationale behind some insurance policies treating the depreciation on some items as Non-Recoverable Depreciation?
(2-4) Under what scenarios is it possible that the ACV of an item might actually be greater than the RCV for that same item? Can anyone provide examples?
(2-5) With regard to Question # 4 above, what policy provisions could come into play under such a scenario? Why?
(2-6) Is your ability to properly establish a reasonable and realistic depreciation schedule on estimate items dependent on your computerized estimating software "automatically" doing it for you? If so, could that give rise to you being accused of a Bad Faith or Unfair Claim practice?
Why or why not?
(2-7) What is the minimal standard of knowledge of depreciation which you feel an adjuster should necessarily have?
(2-8) You are assigned a claim for a hurricane loss, and upon visiting the loss, discover the Insured is President of the insurance company for whom you are working. Could you intelligently discuss with him/her the policy depreciation provisions? Assuming he/she wanted to test your adjusting knowledge of their ('yours' as well if you think about it) insurance company's policies, could you explain the differences in how depreciation is treated under the more prevalent policies: DP-1, DP-2, DP-3, HO-1, HO-2, HO-3, HO-4, HO-6, HO-8? If you answer "NO", why not?
I leave these questions for you to ponder (especially for the 'NewBee' and newer adjusters) presently, and in the next few days, we will explore these and other depreciation problems and techniques as well as the policy provisions in order to expand our individual and collective knowledge.
Please feel free to comment, ask additional questions, share your depreciation 'war story' or post comments related to this important topic.
(Message edited by jimflynt on July 30, 2002) |
Jim Flynt
Registered User
Username: Jimflynt
Post Number: 380
Registered: 6-2001
| | Posted on Monday, July 29, 2002 - 5:20 pm: | |
Over the course of the next few days, this thread will be used for a timely discussion of how to arrive at ACV values in partial and total losses.
I will be "layering" facts into the thread as the week passes in order to make the scenarios more realistic as well as complicated.
The initial questions posed here for CADO readers and cat adjusters are:
(1-1) How do you arrive at a valid and realistic ACV (actual cash value) for a partial loss estimate?
(1-2) How do you arrive at a valid and realistic ACV for a Total Loss Estimate?
Please feel free to post your answers to these questions as well as any comments on depreciation techniques and the distinctions between ACV and RCV.
It seems to me this discussion could be especially timely with the possibility of large partial and total damages this time of year since we are approaching the middle of hurricane season. |
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