8 lessons in handling large insurance claims

Background

A year ago to this day, a tree fell on my house.  It also smashed up my life pretty thoroughly, too.  The developer to the north cut its north-facing “anchor” roots.  Trees grow southwardly.  Lots of rain softens the soil.  Lots of wind loosens the roots.  It almost fell directly on me and some arborists as we were assessing how best to remove it before it fell.

What constitutes a “large claim” for you probably differs from me.  Insurance companies handle multi-million dollar claims.  Mine came in well-under half-a-grand.  It was still the largest single lump sum or concentrated stream of money I’ve ever handled in my life.  I’ve never written checks that big before, whereas I know that others (the 1%) deal with similarly-sized sums on a daily basis, like it’s candy.  Although this experience focuses on house insurance, many (if not all) the lessons probably apply in some form to other (e.g., car, health, etc) insurance.

I’m actually still in the middle of my claim.  I am naively posting this advice now in hopes that by doing so it will confirm that don’t have any more mistakes to make or lessons to learn.  Sadly, that’s probably not true.

The Lessons

Here is what I learned from the insurance part of the experience, consisting of mistakes I made as well as things I actually maybe did right (you guess which is which):

1. Don’t go with a low bid.  That doesn’t mean “don’t go with a low bidder” — go with whomever appears most appropriate for your situation.  But bump the bid up to somewhere near the highest bidder.  Expect and budget for contingencies and extra expenses that occur or get discovered along the way.  This will drastically reduce the number and severity of fights in request for additional money you will need to make.  Insurance companies use two metrics:  first is an absolute maximum reasonable figure, and then an “estimate creep” percentage.  They then use the adjuster and line-item assessments to determine whether to hand out more money.  They always try to hand out less money, whenever possible.  So by submitting a low estimate, you are setting yourself up for a fight later when you inevitably need more money.  Get at least three estimates, and then bump the estimate of whomever you go with up to something close to the highest estimate.

2.  Figure out your priorities.  Do you want the place “back to normal” ASAP?  Or do you want a bit more involvement and control over a more personal and slower process?  This will determine whether to go with the big insurance-based contractors or a smaller (e.g., one or two person) remodeling outfit.  The big “ambulance chaser” contractors primarily only do insurance work.  They fly in, get the job done, and fly out.  It’s a short, intensive, well-coordinated process.  Insurance companies can’t legally admit it, but they prefer such companies, because these companies pamper them, and do their work for them and show them everything they want to see and nothing more (even to the point of using the same software), drastically allowing them to cut their own labor expenses for each claim.  They are often much higher in their estimates.  Expect to do more work to coordinate between insurance and a smaller contractor for the benefit of more control over the project.  You can cut down on that work drastically by asking the contractor to make their initial estimate more in line with a higher estimate.

3.  More transparency is not always better.  Insurance companies operate heavy caseloads.  Keep communications simple, to four items: how much we think it will cost, how much it actually cost, new expenses encountered, and a new total summary estimate.  Document everything on your end, but don’t show them any additional paperwork unless the situation requires it, because your claim rep is already handling a few dozen other cases and is buried in paperwork.  Show them what they want to see:  figures matching up.  They get suspicious when things turn out “too high” (why wasn’t the money we gave you sufficient?) or “too low” (what did you do with that extra money we gave you?).  The Big Contractor software does this automatically.  You and a small contractor will have to do this sort of thing by hand.  If you are doing extra non-insurance work or repairs at the same time, there’s no need to send that documentation to insurance.  That might just confuse them and raise questions that no one really wants to ask in the first place.

4. Adjusters have a lot of discretionary power.  The claim reps in the office do not.  The adjuster is the “eyes and ears” verifying that you are being honest and that the money you need for repairs really is reasonable and appropriate to the situation.  The people in the office have to use simple formulas and can only approve small adjustments.  Be nice to everyone.  They all play important roles in getting you money to get your life back in order.  Being mean or taking frustrations on on them will only hurt that process.  Regardless, if your claim, for whatever reasons, falls outside their internal calculations, rules and discretionary power, you might have to lawyer up to get it resolved.  Just like the “insurance chasing” contractors, there’s an entire industry of “insurance chasing lawyers” who do that sort of work, because it’s such an unfortunately-common need.

5. Get the house stabilized, then decompress and take your time before jumping into the repair process.  It might sound wrong to let the momentum subside. It might make sense to “do it all in one fell swoop.”  By rushing, you risk picking a bad contractor, or a good contractor who’s not a good fit for you or the project.  Assess their honesty.  A mistake in choosing a contractor will set you up for a lot more hurt down the road.  Get estimates from only well-established, highly-recommended contractors.  If anything “feels off,” then trust your feeling and keep looking.  Choose between three solid options (ideally, a high, low and mid).  Decompressing also gives you time to do a thorough job discovering and thus ensuring that all the damage gets repaired.  Yes, technically, you can open reopen a claim within two years for additional discoveries, but it’s a lot easier for them and you if you can cover everything in a single process.

6. Ask the insurance rep or adjuster to keep emergency funds separate from the repair estimate.  Otherwise the insurance company will fold them into the estimate, effectively eating into the startup money that your contractor actually gets, unless your contractor also factors them in.  Likewise, emergency funds can go to you directly, and don’t need to be co-signed by your mortgage company, making it easier to get the repairs done and paid off so you can focus on the bigger project with a calm, clear mind.  Less work for everyone.

7. Work out cash flow expectations with your contractor on the front end.  It can take several months for the next insurance check to arrive.  Several weeks to process it, then send it out to you, then you have to send it to your mortgage company for endorsement, then you have to get it back, deposit it, and wait for the hold on funds to release.  An initial high estimate gives you some additional leeway, but make sure your contractor is prepared to stretch initial funds or work on a delayed payment.  The worst case scenario involves your contractor needing funds to continue work, whereas the insurance company needs work to complete before they hand out more money!  It’s like insurance gridlock.  Break down the project into phases.  You should have enough startup money for the first two or three phases, and should update the insurance company on actual and additional expenses before your startup money runs out, so you can get the next check before the last bunch ran out.  The higher your initial estimate, the fewer times you will need to go through this process.

8.  Be proactive.  Keep your own records in order.  Insurance companies design their record keeping to err on the conservative side.  If you don’t keep your own records in order, you might be leaving money on the table and paying much more out of pocket for repairs.  Track emergency funds separately from repair funds.  Tally all money coming in and going out.  Your contractor should account for all money spent.  Claim early, claim often.  This doesn’t mean submit multiple reports per claim event (e.g., windstorm or falling tree).  Instead, take your time and submit everything all at once per event.  Open the claim and document the damage fairly quickly.  You need to keep proof.  Then submit an addendum after a thorough search for other damage.  Maybe the fence mortally wounded a sapling you planted.  Expect at least two addendums to the initial claim.  Don’t wait for an incident to happen if you can prevent or mitigate it.  $4,000 might sound like a lot to take down a tree that’s leaning, but it’s nothing compared to the emotional and logistical (and often financial) disruption of the tree falling on your house.  Alas, in spite of our most proactive efforts, trees still fall on houses.  That, ostensibly, is why we have insurance.

Lastly, since I’m a tree-huggin’ earth muffin, proactivity means also leaving things on good terms.  I feel thankful that I had a chance to say goodbye to the tree the moment I noticed it leaning.