PUBLIC ADJUSTERS & 747%–BOGUS!

Due mostly to  the proliferation and growing problems associated with Public Adjusters (PA’s), lawmakers directed the state Office of Program Policy and Government Analysis (OPPAGA) to study and report findings–which it did on February 1, 2010.  OPPAGA was careful to keep judgments and opinions out of its report but, not careful enough to prevent distortions of its  conclusions.

One data point attracting both attention and exploitation (by  “some” PA’s) misleads consumers to conclude a public adjuster averages 747% more payout on claims–a mistruth advertised by at least one PA as being…”according to a government study“.   Here’s the relevant paragraph from OPPAGA’s report:

Policyholders with public adjuster representation typically received higher settlements than those without public adjusters. Policyholders that filed catastrophe claims in 2008 and 2009 generally received larger insurance settlements than policyholders that did not hire these persons. The typical payment to a policyholder represented by a public adjuster was $22,266 for claims filed in 2008 and 2009 related to the 2004 hurricanes (see Exhibit 6). In contrast, policyholders who did not use a public adjuster received typical payments of $18,659. The difference in payments was larger for claims related to 2005 hurricanes, with public adjuster claims resulting in payments that were 747% higher. However, as policyholders pay public adjuster fees as a percentage of their settlement, their net settlement would be lower than this amount.

What was made clear by OPPAGA  but not so much in what “some” PA’s have circulated, is that the 747% was only for “Citizens”, and only for its 2005 storms. Implying it was a statewide figure is statistically and factually bogus.

Failing to recognize how such an inflated figure could be misused, however, is a failure by OPPAGA.  Though it was directed to examine only Citizens claims,  it could have highlighted that Citizens only insures around 17% of Florida’s homeowners and that the more statistically relevant 83% of the private market was not part of its report.

But…there’s more. Look at the graph from which the 747% figure was extracted–Exhibit #6 titled:  “Public Adjuster Representation Typically Resulted in Larger Payments to Policyholders.”

Now figure this; OPPAGA didn’t mention what was happening with Citizens catastrophe claims system after the 04/05 storms.  Remember? It had thousands and thousands of complaints about delays and processing errors. There were even significant issues of fraud; a full scale investigatory panel appointed by CFO Gallagher (upon which I served) was charged to look into the whole mess and make recommendations. Perhaps you recall the very high profile “Kickback” scandal involving the Big Hog motorcycle with Citizens head of claims and an independent adjusting firm? There was evidence that Citizens telephone hold times were 45 minutes or longer and that  it was sometimes unable to  answer it’s phone at all.

But, not so much for the 83%. For the most part, private carriers closed claims and satisfied policyholders; albeit, some better than others.  For the starkest contrast figure that the largest homeowners carrier at the time, State Farm which, in my opinion, has the most sophisticated catastrophe response mechanism in the private market, had very little PA intervention compared to Citizens.  Had OPPAGA been directed to use State Farms data, or that of at least a representative sample of private carriers, there would be no 747% figure to exploit.

There’s more that discredits the 747%. During the time frame OPPAGA used there was no statutory restriction on PA fee’s.  Many were charging 40% of the claim payout; a few were found to have charged even more.  This means inflated settlements in order to provide the claimant a “net” to cover his/her repairs.  Today, PA fees are 75% lower for a catastrophe; limited to 10%.

Then this. If OPPAGA had printed the average of both storm years (per Chart #6) it would’ve been  more accurate than highlighting “only” the year with an obviously inflated result? For example, looking only at 2004 (instead of only 2005) reduces the 747% figure to one a disingenuous PA couldn’t exploit…11%, after allowing for the typical 2005 contingency fee.

To summarize; PA’s don’t mention that use of a Public Adjuster may cause a delay of three months in claim payments…according to a government study.  They don’t mention that after their fee is deducted claimants may have only netted an additional 11% in exchange for a delay of 90 days, again….according to a government study.

Here’s my question…”when a huge catastrophe creates understandable delays in the adjustment process can policyholders get help from their agent, who’s already been paid a commission, is qualified as an adjuster and prohibited by law from charging anything more?”

CONCLUSION:  OPPAGA is to be commended for not taking sides, however…its report should have anticipated misuse by those who do.  Using the information now available from Citizens, the OIR’s recent data call, and information from the private market, OPPAGA should publish clarifications to its February 2010 report setting the record straight and giving context to the 747% figure.

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