Behind the Scenes: The Real Truth About Insurance Claims

When disaster strikes and you’re left dealing with the aftermath of a fire, flood, or other loss, your insurance company might seem like your knight in shining armor. But after 30 years of navigating the insurance industry and advocating for fair settlements, I’ve learned the hard truth: it’s always about the money.

Let’s pull back the curtain and uncover the real truth about insurance claims, adjusters, and preferred vendors.

Common Myths About Insurance Companies

Here are some famous lines I’ve heard over the years:

1. “We trust our insurance company.”
2. “I don’t want more than I’m owed.”
3. “Our insurance company would never hurt us.”
4. “We’ll see what they offer first.”

Unfortunately, these beliefs can lead homeowners and business owners down a costly path. The truth is, insurance companies and their agents are in business to make a profit. That doesn’t make them inherently bad, but it does mean their interests may not always align with yours.

The Role of Adjusters: Who Do They Work For?

When a claim gets large, your friendly insurance agent is no longer involved. That’s when an adjuster steps in. But here’s the kicker: this isn’t your adjuster. The adjuster works for the insurance company, not you. Their primary goal is to minimize payouts for the company that employs them. While some adjusters may act ethically, they’re ultimately beholden to their employer’s interests—not yours.

Understanding the Fine Print

1. Your Policy Is a Complex Contract

Most people don’t read their insurance policy before signing, and even if they did, it’s written in a way that’s nearly impossible to understand without expert interpretation. Here’s what you need to know:

1. Declarations Page: Lists some limits of coverage but not all.
2. Replacement Cost Requirements: Many policies have an 80% co-insurance requirement. This means you must be insured for at least 80% of your property’s rebuild value to receive the full replacement cost. Fail to meet this, and you’ll face penalties.

2. Mitigation Costs Add Up Quickly

After a fire or flood, emergency services like boarding up windows, extracting water, or packing out contents can be expensive. These costs often come out of your home or contents coverage limits, reducing the funds available for actual repairs or replacements.

For example, “preferred vendors” may charge:

1. Labor for inventorying and boxing items
2. Special cleaning for electronics or jewelry
3. Temporary power or plumbing repairs

Invoices for these services can easily exceed $50,000, all deducted from your policy limits.

The Preferred Vendor Dilemma

Preferred vendors are contractors recommended by your insurance company. While they may seem convenient, these vendors often prioritize their relationship with the insurer over your best interests. Here’s what to watch out for:

1. Contracts That Don’t Comply With State Laws: Many “authorizations” don’t meet legal requirements and include unfavorable clauses.
2. Inflated Costs: Vendors may avoid giving you an upfront price, knowing you’d take your business elsewhere if you saw the true cost.
3. Power of Attorney Clauses: Some contracts allow vendors to cash insurance checks without your approval.
4. Repair and Mitigation Bundling: They may combine repair and mitigation services in one contract, limiting your options.

Key Questions to Ask Preferred Vendors

1. What is the total cost of the services?
2. Are they following state remodeling or contract laws?
3. Will they provide a detailed breakdown of costs before starting?
4. Can you approve or decline specific services?

The Importance of Taking Control

Act Quickly and Strategically

After a loss, you have limited time to file a proof of loss and prove what the insurance company owes you. Here’s what to do:

1. Request Policy Limits: Contact your adjuster and ask about the reserves set for:
2. Building claims
3. Contents claims
4. Debris removal
5. Code upgrades
6. Document Everything: Keep records of all communications, estimates, and contracts.
7. Consult Experts: Consider hiring a public adjuster or an attorney specializing in insurance claims to ensure your interests are protected.

Beware of Hidden Costs

Preferred vendors often push contracts with:

1. No detailed timeline for completion
2. Unclear terms for code upgrades or unforeseen repairs
3. Clauses requiring you to pay their attorney fees if disputes arise

These terms can leave you with unpaid bills or subpar work.

Red Flags to Watch For

1. Vendors withholding your items until you pay their bill.
2. Adjusters referring their “buddy” contractor.
3. Unauthorized endorsements of checks.
4. Claims adjusters delaying payouts to pressure you into accepting less.

Final Thoughts: Knowledge Is Power

The first 72 hours after a disaster are critical. Take the time to educate yourself and consult professionals before signing any contracts or agreeing to services. Your home or business is likely one of your largest investments—don’t let stress or misinformation cost you thousands of dollars.

By understanding the real truth behind insurance claims, you can make informed decisions and protect your financial interests. When in doubt, seek expert advice to ensure you’re getting everything you’re entitled to under your policy.