A loss is a sudden and unforeseen event that costs an insured person money. After suffering a loss, a policyholder can request reimbursement from their insurance company. This is a complaint.
Insurance aims to restore the financial state of an insured to what it was before the loss. This process is called compensation. If the loss was caused by an event covered under the insurance policy, the insurer will compensate the insured for the value of the loss, not more or less (provided that this falls within the limitations of the insurance policy).
How is an insurance claim processed?
Example
A hailstorm damaged Victor’s house last night. It will cost thousands of dollars to repair the siding, windows, and items on one’s deck, like patio furniture and the grill. Fortunately, Victor has home insurance that covers hail damage. The next morning, he filed a claim with his insurance provider. Victor expects his insurance provider to pay for all repairs. In this way, he will be in the same financial situation as before the storm.
When you suffer a loss, you expect your insurance company to compensate you. However, coverage is governed by the terms of the insurance policy. Insurance companies are responsible for protecting thousands of customers; they cannot settle excluded losses out of simple generosity. Insurers design their coverage to protect as many customers as possible, provided they don’t go bankrupt or charge unaffordable premiums.
When a customer like Victor files a claim, the insurance company will assign an adjuster to it. A claims adjuster handles claims on behalf of the insurer.
We invite you to read our detailed explanation of the role of the claims adjuster below
Example
Nicole is a claims adjuster who works for Victor’s insurance provider. She records every detail Victor gives her over the phone about the hailstorm. She informs him that damage to the house will be covered, except damage to his patio furniture and barbecue. For what? Because Victor purchased an extended form policy. This type of policy provides comprehensive coverage for one’s home (dwelling), but does not protect one’s possessions (movable property) against all specified losses (risks). In its policy, hail is not part of the risks covered for its movable property.
After a severe loss, such as a storm or fire, it is not always easy to determine eligibility for coverage. In Victor’s case, he wants his insurance company to cover all damaged items. However, his policy stipulates that only his dwelling (the house and adjoining structures) is eligible for hail coverage; movable property, on the other hand, is not.
Victor submitted a claim for all items damaged by the storm. His adjuster accepted the damage to the property covered by his policy, the damaged windows and siding in this case. Then the insurance company pays for repairs to Victor’s house. Unfortunately, Victor has to pay for the repairs/replacement of the damaged furniture himself.
The adjuster must also review other aspects of the claim. Insurers use different settlement methods, depending on the type of policy purchased. For example, you can settle a claim according to the replacement value. This means that the insurer will pay the cost of replacing the damaged or destroyed item with a similar new item.
Insurers can also replace goods according to the current value of the loss. More specifically, the insurer offers a settlement based on the value of the item at the time of the loss, while taking into account the age and condition of the item. These settlement bases are found in each insurance policy. The adjuster must determine which settlement formula to apply to the claim.
Public liability claims are much more complicated. Instead of paying for the replacement or repair of the property, the insurer pays for legal fees and compensatory damages.
Compensatory damages are meant to compensate the victim, while punitive damages are awarded against the guilty party. Note that homeowners insurance policies do not cover punitive damages.
In a liability claim, the insurance company must always determine what is covered and for how much. However, one must expect that the legal process has run its course before proceeding.
