Rising Use of ‘Unlicensed Surrogates’ Worries Policyholder Lawyer

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Growing Use of ‘Unlicensed Surrogates’ Worries Policyholder Attorney

Can insurers resolve claims more efficiently by dispatching specialist providers instead of claims adjusters to determine the cause of the loss and the replacement value?

Some experts say so. Policyholder attorney Chip Merlin of Tampa, Fla., Blogged Oct. 12, states that the use of "substitute professionals for unlicensed claims" is a "big trend in insurance claims" that he suspects are insurance customers doesn't help much.

"These third-party providers are not licensed as insurance specialists under the control of insurance regulators, nor are they trained to recognize the ethical obligations of property insurance specialists to the public, and especially to the insurance customer," wrote Merlin for his property insurance blog.

Merlin specifically mentioned two companies that perform many of the functions traditionally performed by licensed claims professionals: J.S. Hero and Ladder Assist. On his blog, Merlin J.S. Held is an "amazing lawyer for the insurance industry".

However, during a phone interview on Friday, Merlin said good work is not good news for policyholders.

He said that insurers "essentially provide the authority and certainly all the expertise to people who are not licensed".

"It is the Adjusters' job to make sure they pay every penny that (policyholders) are entitled to," Merlin said. Vendors "are not going to tell you all of the benefits that you may have."

For example, Merlin said that a policyholder who has suffered damage to a customs house may have the right to have an architect oversee the work of the contractor. Policyholders whose homes have been destroyed may be able to change the design of the structure by allocating their own funds to rebuild it. Policyholders might not find out they have that flexibility if the insurer sends out a seller instead of a licensed appraiser, he said.

Jonathan hero

Jonathan Held, Managing Director J.S. Held said he valued Merlin's plugs for his company. The admiration is mutual. Held said Merlin was a friend, a good lawyer, and sometimes a worthy opponent. The two are even said to speak to each other during a panel discussion at the upcoming Windstorm Insurance Network Conference.

But Held said he didn't think much about Merlin's premise.

"I'll bring this to the beautiful Brooklyn-ese: It's not a trend," Held said.

According to Held, insurance companies have hired providers to assess the replacement value and determine the cause "for as long as I can remember." And that was a while ago.

Held joined his family's company in 1977, headquartered in Jericho, New York. Since then, J.S. Held has developed into an international consulting company with 1,100 employees. It offers a wide range of services to insurers, including construction, water and fire restoration, and forensic bookkeeping.

According to Held, providers who work for insurers do not try to interpret contracts or negotiate with policyholders. That is the job of the adjuster. Vendors provide expertise in determining the value of a claim and the cause of the damage.

Held said this often works for the consumer's benefit. For example, if a policyholder's air conditioning compressor is hit by lighting, the freight forwarder can dispatch a contractor to investigate the cause of the damage and then repair the compressor, saving the homeowner the hassle of dealing with contractors.

"There is nothing revolutionary," said Held. "The industry has always had an outsourcing model."

Merlin, on the other hand, said the phenomenal growth of Held's company shows that the use of outside providers is increasing. He said he has been representing policyholders since 1985 and during that time more and more claims have been provided by providers rather than licensed insurance specialists.

On his blog, Merlin noted an August 18 article published online by McKinsey & Co., a consulting firm, recommending that property and casualty insurance carriers reorganize their claims operations so that more work is done remotely and online can. The article suggests that freight forwarders “use preferred providers to help customers get the best quality of work”.

In contrast, Merlin said licensed Adjusters are trained to fully investigate claims and negotiate in good faith to achieve fair replacement value. When the vendors do the job, "there is no one out there to explain to people what is covered by the guidelines they cite."

Held suspects that Merlin posted the blog to send a signal to his readers, who are mostly attorneys for other plaintiffs, to look for vendors stepping outside their roles.

"He's looking for a wedge to scream unfairly – unfair claims practice. Bad faith," Held said. "Chip is a very good lawyer. He blogs for a reason."

Merlin said he didn't think too deeply while writing the blog. Nevertheless, Held makes a good impression that providers know their limits.

Both men agreed on this point.

"There is an excellent memory there," said Held. "The reminder is, if you're an insurance professional, stay on your track. If you're an insurance company service provider, stay on your track."

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