Gary Nicholls: Taking the traditional knock for knock insurance claims a stage further
Sometimes a new idea involves recycling an old idea and applying it to something different. This is one of those times.
Reduction in paper exchange (RIPE) agreements, in principle, are a great idea. Where a Memorandum of Understanding between subscribing insurers involves entering into an agreement to agree quantum (the amount of damages awarded to a successful party in a claim) in certain circumstances it can minimise external legal spend.
Where liability is accepted, one must take a view on whether the correct valuation is arrived at by the receiving party.
Is it worth trying to go behind a figure where it has already been scrutinised by insurers/loss adjusters with the intention of minimising the cost of repairs?
What is RIPE?
RIPE was a sensible agreement for motor claims in terms of the “knock for knock” agreement to avoid disputes between insurers about the quantification of claims.
Can it be taken a step further? The answer is – in this writer’s opinion – “yes”, in the correct circumstances (here: subrogated property damage claims). There really is no downside so long as the correct companies collaborate together.
On the fence about this proposal?
Looking at a worked example:
Person A owns a property. They are insured by a well-established insurance company. Person B negligently drives their vehicle in Person A’s property. Person A reports this as an insurance claim to their insurance company. They appoint an external independent loss adjusting to validate the claim and manage repairs to ensure cost control. The insurance company for Person A sends a letter of claim to the motor insurer for Party B. It says, in simple terms, “we want our money back ASAP”. Party B’s insurer confirms with their policyholder they negligently caused damage and liability should be admitted. Party B’s insurer also looks at their supply-chain panel and realises they also appoint the same loss adjusting company that Part A’s insurer appointed.
This leaves the paying insurer in a simple position. They can either: accept the payments authorised and recommended by the loss adjuster reflect the correct measure of losses; or challenge quantum.
The second option gives rise to a bizarre outcome. If an insurer is satisfied that a loss adjusting company should be accepted onto their supply-chain then – logically – they should expect them to conduct their services in an independent and objective manner for another insurance company.
Arguing about quantum in subrogated property damage claims makes little sense, particularly domestically. While there is a reasonable argument it could extend to commercial policies, the figures for Business Interruption claims are unlikely to be agreed due to the inexact science involved in cash settlements.
Conducting a trial
If a new concept is being considered it helps to conduct a limited trial and due to the cautious nature of insurers it would be prudent to limit this to domestic buildings and contents claims that are easier to quantify. Let’s walk before we try to run. So how can this gain traction? Through co-operation.
A trial involves: Subscribing insurers; Visibility of approved loss adjusters on the supply-chain of subscribing insurers; and Sensible lawyers.
It is unrealistic to expect insurers to roll out this idea to the entire subrogated property damage industry. Scotland is a sensible trial jurisdiction on the basis it contains more consolidated insurers in terms of those who write business north of the border and there is a smaller number of loss adjuster companies in the industry. Centralisation is key.
The future of lawyers
This proposal only applies where liability is admitted, and in such circumstances there really is little need for lawyers in pricing up valuation of property claims. This is a sphere for loss adjusters and quantity surveyors. These cases should not land on a lawyer’s desk.
There are two opportunities available:
Insurers – you can reduce external legal spend and help to control a centralised agreement.
Lawyers – there is a potential role to play in a disputes panel or evaluation panel to assist insurers/adjusters with determining the likely outcome of disputes. For those involved both sides of the border it may be akin to the ABI Domestic Subsidence Agreement – an adjudication type role.