Response to my last post alleging that Florida’s contingency fee system for public adjusters is the “quintessential moral hazard” generated more than the usual commentary; all of it expected and much of it worthy of exploration. None, however, was more worthy than a four page letter from the National Association of Public Insurance Adjusters (NAPIA) penned by Brian S. Goodman, General Counsel.
First, I owe Mr. Goodman an apology. I chose and arranged my words poorly indicating he testified in New Jersey during hearings regarding caps on public adjuster fees. He did not testify. He did submit a letter, however (one which I provided a link to) written on behalf of NAPIA and supporting a 12.5% across the board fee cap in New Jersey. I have changed my previous blog to reflect the error; which I regret having made.
Indeed, it was Jonathan Wilkofsky, Executive Director and General Counsel for the New Jersey Public Insurance Adjusters (NJPIA) who spoke on behalf of NAPIA supporting the cap (12.5%) in Goodman’s letter. He was speaking in opposition to a 10% cap for catastrophe claims only, but described the consequences of failing to implement the NAPIA endorsed across the board cap with words like “nefarious”, “unscrupulous”, and “unseemly”–in essence describing behavior that takes place when PA’s get paid more than 12.5%.
Frankly, I can’t say it any better than Mr. Wilkofsky except to add that in Florida PA’s are paid up to 20%–7.5 points more than the line he and NAPIA drew in New Jersey. You’ll find at one point he even lists percentages that create the “unseemly” behavior and starts with …”20%.”
So, as I said in my last blog…”don’t get mad at me.”
And, don’t take my word for it.
Listen to Mr. Wilkofsky’s public testimony on Assembly Bill 3519 (Financial Institutions and Insurance Committee March 7, 2013; Trenton New Jersey).
Judge for yourself.
Remember, the point in my blog was that a contingency fee system is partially responsible for “claim inflation.” Also that too many policyholders (and PA’s) appear to think collecting for pre-existing damage (just an example) is nothing more than “premium recoupment” or “deductible elimination.”
When you listen to the recording above ask yourself what he meant saying some public adjusters have an “…insufficient moral compass…” when “…building a claim that didn’t exist in the first place!”
While the folks at NAPIA may not advocate fee caps in other states, seems to me Mr. Wilkofsky was doing a stellar job of describing why they should! (See NOTE #1 below)
Still, I want to be fair; especially to Mr. Goodman. So…read his response to my blog. While his points aren’t dispositive, he does provide alternate insights and facts regarding the profession of public adjusting, and more to his credit, he didn’t stoop to threats as others have done.
But, let’s sum it up. Mr. Goodman says…
“…to equate a percentage fee with insurance fraud is an absolutely inaccurate and irresponsible position…”
I don’t agree.
Unlike percentage fee’s of other professions, the PA takes his cut from the property settlement claim amount owed to the claimant. If the claim hasn’t been inflated then the claimant gets less than what was owed which begs against the retention of a public adjuster. Doesn’t such an arrangement at least hold the potential of a moral hazard; especially for larger claims?
How does one align Mr. Goodman’s objection with Mr. Wilkofsky’s testimony, with New Jersey fee limits supported by NAPIA or those in 14 other states or with the Florida DFS press releases stating that PA’s arrested for fraud were attempting “…to inflate losses…in order to increase…commissions…”? (See NOTE #2 below)
If 20% leads to “nefarious” and “unscrupulous” behavior, is it wrong to suggest that a fair and balanced flat fee might curtail that behavior, including fraudulent behavior Mr. Wilkofsky described as…
“…the building of a claim that didn’t exist in the first place”!?
NOTE #1–NAPIA’s legislative blog states the following position on fee caps:
“Currently, 14 states impose reasonable fee caps of some sort on public adjuster contracts. As a policy, NAPIA does not advocate for fee caps. We prefer to see the markets determine the proper fee, knowing that NAPIA members adhere to high ethical standards in dealing with insureds and insurers. Our position has been and remains consistent. We do not advocate or lobby for fee caps. However, when caps are presented as a requirement by a state DOI or legislature, we accept them and work with regulators and legislators to assure that they are fair and reasonable to the profession and the consumer. For instance, when licensing was enacted in Mississippi post Katrina, the proposed legislative and DOI requirement was a 7 per cent fee cap. NAPIA worked with regulators in Mississippi to consider a higher cap, which ended up at 10 per cent. This is consistent with what we are doing now in other states.”
NOTE #2–CS/SB-1770 resulted in a fee for Citizens claims of 10% for initial hurricane claims made in the first year, 20 percent for initial claims made in subsequent years, and 20 percent for all reopened and supplemental claims. It also prohibits a public adjuster from receiving compensation from any source over the statutory fee cap and applies current disciplinary provisions to those who violate the contingency fee cap through “…any maneuver, shift, or device.” For non-catastrophe private market claims the fee is 20%; FS 626.854(11)(b)1.,2.
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