Why Your Insurance Claim Payout Will Be Too Low: Problems Associated with Estimation Software

money for insurance claims

Technology has changed the way in which insurance companies estimate property damage associated with insurance claims. Estimating software, such as Xactimate, provides a computer database of relevant prices based on geographic region. These prices are set by surveying area contractors about material costs. An insurance adjuster can compile a line-item estimate within minutes using estimating software. An insurance adjuster simply enters details of your claim into the computer, such as dimensions and type of damage to your property, and the software does the rest. The estimate includes labor, materials, and other items needed for repair such as nails, to create a total value associated with your claim.

The use of estimating software by insurance companies is a benefit to policy holders who want their claims settled fast. Insurance providers, such as Louisiana Citizens Property insurance and Georgia Farm Bureau Insurance, use Xactimate and have been able to significantly reduce average cycle time of claims and improve their ability to deliver fast claims service. Estimating software has other benefits, such as it reduces the possibility of human bias and discrimination based on age, race, and gender. However, there are some problems associated with using estimation software. We provide two problems below associated with using estimation software.

Estimating software foregoes individual analysis of damage.

The risk of insurance adjusters using estimating software is that they will rely too heavily on the software’s output, and not enough on the unique details of the damage or situation. In a job role that traditionally has high turnover, the average insurance adjuster may not have enough estimation experience or training. That means they may rely too heavily on what the software tells them and not enough on the situational details and individual analysis of the damage.

Estimating software doesn’t catch errors.

Another problem with insurance companies relying too heavily on estimating software is that the estimate is prone to errors. The first type of error is human error. The insurance adjuster may input dimensions incorrectly, such as the size of the damaged area itself (e.g., room size) and the size of the damaged materials within that area (e.g., height of baseboards).

The second type of error is pricing errors. The software may not have accurate costs for materials, labor, and/or items needed to complete the job such as nails and caulk. Costs may change faster than the software is able to keep track.

The insured bears the burden of carefully reviewing the estimate to ensure it is accurate. The problem, however, is that most insureds do not have the time and/or expertise to assess whether the insurance company’s estimate is accurate. Thus they may give in to accepting it at face value.

What you can do.

Estimating software can significantly improve cycle time of claims and deliver faster claims service. However, property owners filing claims, beware. The use of estimating software may result in poor valuation of damages. This can be frustrating for an insured property owner who may feel required to accept what the computer says, in spite of believing their claim is worth more.

Insurance companies should be held accountable for compiling the most accurate estimates possible. This means updating their pricing lists regularly with accurate information and training insurance adjusters properly to see claims holistically, rather than through the narrow lens of the estimating software.

If your insurance provider uses an estimating software, and it probably does, ask them how regularly the pricing is updated. You should consider a second opinion on your damage if they can’t tell you exactly how frequently and by what method pricing is updated.

Also ask your insurance company to explain how your estimate was adjusted to account for region where you live and for the finer details of your specific damage situation. Again, seek a second opinion if the answer is vague.

Check your estimate line-items very carefully. If you do not have the time or the expertise to assess the estimate yourself, you can always call us, CORE Public Adjusters. We will come out to your property and review the physical damage compared to the insurance company’s estimate. We will give you clarity and peace of mind as to the true value of your damage.

References

Robin Stevenson Burroughs (2013) When Colossus and Xactimate are not exact: how computerized claims adjusting software has not changed the landscape of insurance litigation, Information & Communications Technology Law, 22:2, 109-131, DOI:10.1080/13600834.2013.811816

Xactware Solutions Case Studies https://www.xactware.com/en-us/resources/case-studies/ Retrieved March 6, 2020.

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