Are Property Insurance Claims Getting Harder to Settle?

Author:Mr Joseph Whalen
Profession:Farella Braun & Martel

How much of a typical large property claim (property, builders risk, business interruption, and extra expense losses in excess of $5,000,000) actually gets paid by insurance, and how long does it take to settle a large claim with an insurance company? After 20 years of consulting on a variety of large property losses, I have my own ideas, but unlike smaller losses, for which statistics are regularly compiled, very little information is publicly available about large property claims. This is partly because they are relatively infrequent, but primarily because the settlement process tends to be highly confidential and limited to a small set of experts and consultants.

I was recently asked to participate in a survey that attempts to bring more information to light about the large claim process. The results of the survey confirmed what I have observed myself, that resolving large claims has become more difficult over the past 20 years, multiple claim disputes at various stages within any given claim process are common, insureds often incur expenses they believe are covered by their insurance but are not, and large claims are taking longer to settle.

The survey of independent insurance consultants and other insurance experts, conducted by Arthur J. Gallagher & Co., concluded that property insurance usually pays only about 75% to 85% of the final amount claimed (85% for physical damage, 75% for business interruption and 85% for extra expense), and even these figures are misleadingly high, because they are percentages of the final claim amount which has usually been reduced in earlier stages of the claim process. The total of all economic damages associated with a large property loss that end up being paid by insurance is only 65% to 75%.

The survey responses also suggested reasons why settling these claims has become more difficult. These most significant, from my experience, include:

There has been an increasing tendency for large projects/properties to be insured by multiple participating insurance companies, each with a seat at the settlement table, often making resolution more difficult; With more insurance companies on a single risk, insurers may rely on outside claim managers with varying and often unclear authority, who add an additional layer of participants into the claim process; Competitive pressures, soft insurance markets, and lower interest rates, have caused insurers to be even more recalcitrant about paying claims; Claim adjusters within insurance...

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