Latest / The Art of Adjusting® Podcast / Episode #74 - Adjusters, Reserves, and the Fine Line Between Insolvency and Bankruptcy

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Episode #74 - Adjusters, Reserves, and the Fine Line Between Insolvency and Bankruptcy · The Art of Adjusting® Podcast

• 0:00
  Speaker 1: I'm Bill Auten of Auten Claims Management.
• 0:02
  Speaker 2: I'm Chantel Roberts of CMR Consulting and welcome to the Art of Adjusting podcast.
• 0:07
  Speaker 1: Today we're gonna talk about life as an insurance adjuster from the perspective of property, auto liability or workers' compensation adjusters.
• 0:15
  Speaker 1: Our goal is to bring interesting topics in the world of claims adjusting to people who are working as an adjuster now and to people who are considering a career as a claims adjuster.
• 0:25
  Speaker 2: Hey Sandy, how are you?
• 0:26
  Speaker 2: I'm good.
• 0:28
  Speaker 3: Chantel, how are you doing?
• 0:30
  Speaker 2: I need a nap.
• 0:31
  Speaker 2: I don't know about you, it is nap time for me and we're going to talk about a very exciting topic which is going to be reserves, bankruptcy and insolvency for insurance companies, which, ironically, I just got finished teaching my risk management students.
• 0:50
  Speaker 2: We just got finished doing, like all of the.
• 0:53
  Speaker 2: You know what is a loss ratio and how do we determine it, and blah, blah, blah.
• 0:58
  Speaker 2: Yeah, so I'm kind of a little mathed out.
• 1:01
  Speaker 3: Yeah, insurance math.
• 1:03
  Speaker 2: Yeah, Insurance math.
• 1:05
  Speaker 2: So we were just talking and I had said, you know why do adjusters need to know what an insurance company's bankruptcy or insolvency is?
• 1:16
  Speaker 2: And you had said, well, you know what it might be?
• 1:21
  Speaker 3: because we need to set reserves it might be because we need to set reserves.
• 1:29
  Speaker 3: Yeah, when I was, when I first started out as an adjuster, I remember, you know, being told you had to have reserves and at the time not having a we talked about this a little bit.
• 1:36
  Speaker 3: Not having a holistic view of the insurer of my organization, I only knew my role and so I knew I had to have reserves because I needed to make payments and I need to have enough reserves to cover those payments.
• 1:47
  Speaker 3: And even though you're reserving for the most probable outcome of the claim, I hadn't realized it until much later how important that was.
• 1:55
  Speaker 3: That wasn't just make sure you have enough reserves to cut checks, because that becomes a whole stair-stepping issue.
• 2:01
  Speaker 3: We could talk about that too, the stair-stepping problem, but it's important because there are other people who are relying on your data to make decisions that affect the entire organization.
• 2:14
  Speaker 2: Yeah, and I think that, right, there is the entire takeaway within what the first three minutes of the podcast?
• 2:22
  Speaker 2: So great podcast.
• 2:23
  Speaker 2: Let's all go take a nap, we're done.
• 2:28
  Speaker 2: No, I think that is exactly what we need to focus on and explain to the adjusters, because I was the same way when I became an adjuster.
• 2:38
  Speaker 2: I was just told make reserves, make it for the most probable outcome, and we will get into stair stepping or we'll talk about it because it's important to the insurance company to maintain solvency.
• 2:52
  Speaker 2: And I'm like, I've been here three months, I don't know what that means.
• 2:56
  Speaker 2: Yeah, and, and one of the one of the reasons why I picked this topic was actually based off of a TikTok video that you had posted on LinkedIn.
• 3:07
  Speaker 2: Again, y'all if y'all aren't following Sandy on TikTok or Insta or any, you know those things that you cool hip kids do nowadays or LinkedIn do so, absolutely do so.
• 3:21
  Speaker 2: But it was this great little video where you were explaining the difference between bankruptcy and insolvency using SpongeBob, and even me, with 25 years plus, I was like, oh, I get it, so I'm going to turn it over to you.
• 3:41
  Speaker 2: Now I'll let you talk.
• 3:43
  Speaker 3: Sure.
• 3:43
  Speaker 3: So the meme was oh, this is going to be.
• 3:46
  Speaker 3: I was going to sound so old trying to describe a meme, but go watch the video.
• 3:50
  Speaker 3: The video's better Explain this meme.
• 3:56
  Speaker 3: So you know and I just did this with SpongeBob images but essentially insolvency is just a financial condition.
• 4:03
  Speaker 3: You don't have enough assets to pay your liabilities and in the insurance world your liabilities are your claims.
• 4:09
  Speaker 3: You have to have enough money to pay your claims.
• 4:11
  Speaker 3: But insurance is one of those products where we sell it without knowing how much it's going to cost in the future, because you sell a policy today and you don't know how those claims are going to develop.
• 4:22
  Speaker 3: So insolvency means you don't have enough assets to pay your claims.
• 4:28
  Speaker 3: And that's where the insurance professionals come in, your adjusters, because everything is an estimate and I think it's important for adjusters to know everything is.
• 4:36
  Speaker 3: The actuaries do some very you know insurance math magic above my head that I don't know how to do, insurance math magic above my head that I don't know how to do.
• 4:46
  Speaker 3: But they apply some insurance math magic to kind of forecast into the future how much they think those claims are going to cost, but what they're using a big component of that formula in that insurance math magic is the reserve set by the adjusters.
• 4:56
  Speaker 3: So the actuary is making an estimate and that estimate is based on another estimate that's made by the adjuster.
• 5:02
  Speaker 3: And so that's why it's so important for the adjusters to make sure that they're reserving appropriately, because the actuary is taking that to figure out how much money we need to charge for premiums, how much money has to be set aside for these claims in the future.
• 5:16
  Speaker 3: And so it really is important because the step after insolvency is bankruptcy if that financial state doesn't change.
• 5:23
  Speaker 3: So insolvency is like being sick.
• 5:24
  Speaker 3: It's a condition you can get out of it.
• 5:27
  Speaker 3: It's tough but you can.
• 5:29
  Speaker 3: And then bankruptcy is like going to the hospital to get treatment.
• 5:32
  Speaker 3: You're going to the hospital to get treatment to hope that you don't go down that road or get worse.
• 5:38
  Speaker 3: So that's kind of the difference.
• 5:39
  Speaker 3: But in the insurance world we talk a lot about insolvency and not bankruptcy, and it's good for adjusters to know that kind of is.
• 5:46
  Speaker 3: That step when they're going in that direction is if your organization is insolvent.
• 5:51
  Speaker 3: That's not a place where any insurer wants to be.
• 5:54
  Speaker 2: Right, and I think that and this is what, of course, I always thought that insolvency meant bankruptcy meant bankruptcy and and that's why your video was kind of like a light bulb I aha moment for me when I was like, oh okay, so insolvency is like being sick, and then bankruptcy is actual, like the location, like at the hospital or whatever.
• 6:20
  Speaker 2: We don't want to be there.
• 6:22
  Speaker 2: Of course, we don't want to be insolvent either.
• 6:24
  Speaker 2: And I think it's interesting that you said that we are all basing everything off of an estimate and it's our best guess.
• 6:37
  Speaker 2: Now, I will say, because a lot of times carriers are now doing these set reserves that are based off of the historical data that they've, you know, for example, and adjusters are no longer having that control over setting the claim reserve and so, like me, I've always said the claim reserve, reserve and you just get to know what it is.
• 7:07
  Speaker 2: You know, windstorm, hail, roof, whatever, 15,000.
• 7:14
  Speaker 2: You know, you just start getting to get a feel for it, you know, or something like that.
• 7:21
  Speaker 2: But now a lot of the actuaries or the insurers, I think, are setting, you know, these set reserves like oh okay, there's a hailstorm in Texas, 7,500.
• 7:34
  Speaker 2: Based off of the historical data, they've taken all of their hail in this particular zip code or county or whatever, divided by however many claims they've had and boom, that's your statutory or not statutory, but that's your, I don't know.
• 7:50
  Speaker 2: Your ballpark, yeah, but it's set by quote, unquote the system, and maybe it's a better guess, I don't know.
• 8:08
  Speaker 3: I don't know, but I have.
• 8:09
  Speaker 3: I have some mixed feelings about that.
• 8:09
  Speaker 3: I mean, I I understand the intent and if they're looking at total paid, this is what it's most likely to be.
• 8:14
  Speaker 3: But I think reserving really is both art and science.
• 8:18
  Speaker 3: So, the science portion is the.
• 8:20
  Speaker 3: What have we historically paid on these claims?
• 8:23
  Speaker 3: And you know there's all kinds of great tools now.
• 8:25
  Speaker 3: When I started my career 20 years ago, you had to ask your neighbor and you had your own little list of how much things cost that you would keep and as costs changed over time you had to update it.
• 8:34
  Speaker 3: But now there's more tools and I think that's the intent of kind of that AI driven.
• 8:39
  Speaker 3: Here's what this loss, based on this state and these factors, will cost.
• 8:44
  Speaker 3: But there's some nuance missed there and I know I've heard a lot of the TPAs and insurance say well, the adjuster can go in and override it if they.
• 8:52
  Speaker 3: But when you create that barrier, when you create that additional, and they're already so busy, they're going to say like well, hey, you said it's going to do the job.
• 9:00
  Speaker 3: Ai set the reserves and so we missed the.
• 9:03
  Speaker 3: We have the science portion nailed down and we're missing the art portion of reserves, and that's really important, especially if you think of bodily injury claims and workers' comp claims, where you're dealing with medical things and there's so many variabilities that I get a little bit nervous about AI being used to set those reserves, because is it taking in all the factors in someone's, the outcome of someone's condition, and then how good is that data?
• 9:29
  Speaker 3: That's the other piece.
• 9:30
  Speaker 3: Right, so they're pulling in information that's entered, but what if it's wrong?
• 9:34
  Speaker 3: So what are you training your AI model on?
• 9:36
  Speaker 3: So on the fence about that.
• 9:39
  Speaker 2: I am too, quite frankly, and of course I'm always of the opinion that, while I feel that we should help the adjusters and the way that we help the adjusters is not necessarily by giving them more tools or more metrics or whatever it's getting more butts in the seats so that they have less claims to work, so that they have time to do these sorts of things, but that's a whole nother podcast.
• 10:06
  Speaker 2: Whole nother podcast.
• 10:07
  Speaker 2: But the I feel the same way because I have seen it happen way too many times where, of course, you and I were talking.
• 10:20
  Speaker 2: I would just mentioned stair stepping and what the adjuster will do is not, like you said, pay attention to the reserve.
• 10:29
  Speaker 2: The initial reserve will come in and they or you know the initial reserve is set as soon as first notice of loss comes in.
• 10:37
  Speaker 2: You know, whatever, they won't look at it, they won't do anything about it and they won't change it until they either get an estimate in or, goodness forbid, they get ready to change you know, to do the check and then they'll change it.
• 10:54
  Speaker 2: Well, you know, that could be a bad thing and it could also be the fact that, okay, we change it and then we're not ready, for I don't know the ordinance and law clauses or the debris removal clause.
• 11:13
  Speaker 2: You know things that we will need to reserve for, and then we up the reserves again and that's what stair-stepping is.
• 11:22
  Speaker 2: If you don't know what stair-stepping is just to define it real quick, because you know me, I love definitions is where you start off with one reserve and then a few weeks, a few months later, you'll go up to carrier is like dude, I need to know so I don't get sick, ie insolvent, because you as the, as the one loan adjuster out there, think that you're not that important.
• 12:01
  Speaker 2: But what the insurance company is actually doing by law, by state law, is taking that $15,000 that you originally said that roof is going to cost and it's putting it in a whole different account, an account they can't touch until you write that check.
• 12:21
  Speaker 2: That's what a quote reserve is and it's not just some kind of number that you type into your I don't know your system.
• 12:32
  Speaker 2: I mean it literally triggers the you know the bean counters to go oh, we need to pull $15,000 and put it off to the side, yeah, for this one claim.
• 12:45
  Speaker 2: And remember they got to do it over the thousands of claims that they have.
• 12:51
  Speaker 3: And I think one of the things that the couple of things contribute to stair-stepping One it's what you mentioned earlier it's the butts in seats.
• 12:58
  Speaker 3: It's people are busy and they're like I just need to get this checkout and so I'm just going to put in enough money to get this check out and then move on to the next thing.
• 13:06
  Speaker 3: So I think this is again.
• 13:09
  Speaker 3: I think we have a lot of conversations.
• 13:10
  Speaker 3: We're like this is a whole other podcast, but the topic would be there are these AI solutions for things that nobody said was a problem.
• 13:18
  Speaker 3: I have not heard a justice mentioned.
• 13:20
  Speaker 3: Reserving was the issue of why they can't things done.
• 13:23
  Speaker 3: We need more people, but that side note.
• 13:25
  Speaker 3: The second thing, and this is the important one for self-insured programs.
• 13:33
  Speaker 3: A lot of times the stair-stepping occurs because you have a self-insured organization who wants to approve the reserves before they're posted, and that always drives me crazy, because now you create another barrier and I'll hear from adjusters who work with a self-insured group and they'll say, well, you can't anything over.
• 13:47
  Speaker 3: You know X amount of dollars.
• 13:48
  Speaker 3: You have to get our approval.
• 13:50
  Speaker 3: When you create that barrier and they're trying to get things done, they're going to stare set because they don't want to have to go through the process of I email you, I wait for the response.
• 13:59
  Speaker 3: I got to email you again because you didn't respond and now it's a week later.
• 14:03
  Speaker 3: It's two weeks later and I'm trying to get this done.
• 14:05
  Speaker 3: I'm just going to enter a little bit to get these checks out and that's it.
• 14:08
  Speaker 3: So I always tell people if you have an approval process for reserves, why Are you really looking at those reserves and saying no, I don't approve?
• 14:18
  Speaker 3: This isn't appropriate to put on the case, because it's usually just a formality where you want to look at it and you can get an alert as a self-insured group and let that you know.
• 14:27
  Speaker 3: The reserves have been posted.
• 14:28
  Speaker 3: But why be the barrier?
• 14:30
  Speaker 3: Let them post the reserves, get alert when they have been changed over a certain dollar amount and then if you are really concerned about that dollar amount, you can call them and have a conversation.
• 14:38
  Speaker 3: But don't create barriers for the adjusters, for the insurance groups listening, self-insurance groups listening.
• 14:44
  Speaker 3: Don't't put authority levels on reserves.
• 14:47
  Speaker 3: Get the notification but, yeah, don't create a barrier for your adjusters.
• 14:51
  Speaker 2: Yeah, I think that that is a very big deal.
• 14:55
  Speaker 2: We would have not limits on the reserves that we set sometimes.
• 15:02
  Speaker 2: But If we set a reserve that went over our authority as a third party administrator, it would automatically trip the trigger.
• 15:11
  Speaker 2: That we'd have to report and we were a third party administrator for certain syndicates at Lloyd's London and so a lot of the newer adjusters would deliberately hit it right under there, right under, until they got ready to, like I don't know, pay the IA bill or something like that.
• 15:30
  Speaker 2: And then that's when it tripped the trigger and I'm like, dude, it's been three months, oh, london's going to be pissed and it is just a formality, like it's the expense that pushed it over for whatever.
• 15:45
  Speaker 2: But that's neither really here nor there.
• 15:49
  Speaker 2: But what we're talking about is again why the adjusters need to know how to set these reserves, why these reserves are important.
• 16:01
  Speaker 2: And I also do mention to the risk management students that interns, like I've said before, we are so bad with words like we just tend to find one word that we like and we use it for everything.
• 16:17
  Speaker 2: You know, reserve is one of them.
• 16:20
  Speaker 2: I mean, you know, like the accountants have their reserves, the insurance company itself, like I said, have reserves like the statutory amount that they have to keep off to the side, and then there's the per case or the per claim reserve, but that's the one that the insurance adjuster is putting, you know, and yeah, and of course we have lots of different reserves for lots of different things.
• 16:45
  Speaker 2: We've got the indemnity reserve, the expense reserve, the defense reserve.
• 16:49
  Speaker 2: Sometimes I don't, I don't know how now, I don't necessarily know how the big carriers do it, but I remember how we did it with the third party administrator.
• 17:01
  Speaker 2: You know like we broke it down into like four or five categories.
• 17:05
  Speaker 2: I don't know like how State Farm or GEICO or how they do it.
• 17:10
  Speaker 2: I know it comes out of different LAE parts, even though one reserve may be hit.
• 17:16
  Speaker 3: But I still see it allocated that way.
• 17:19
  Speaker 3: They have everything in different buckets and again, every organization has different rules, right, In terms of you have enough reserves here and then they pull from a different area.
• 17:30
  Speaker 3: As long as there's enough reserves in total, versus maybe you have to have it in that category.
• 17:34
  Speaker 3: But that's again why it's so important to look at making sure that you are really reserving for the most probable outcome and not just what gets you through your tasks for the next couple of weeks.
• 17:46
  Speaker 3: Another thing we had talked about too is understanding as an adjuster, when the actuary is pulling that data to model for the next year.
• 17:55
  Speaker 3: So the actuary will.
• 17:57
  Speaker 3: So if you're an adjuster and your leadership hasn't, you know, sat you down to kind of give you this education which I never got, that benefit it was.
• 18:05
  Speaker 3: You know you have to kind of seek your own professional development out, sometimes as an adjuster, but what they do is the actuary will take a date out of the year and they basically take a snapshot.
• 18:15
  Speaker 3: This point in time I'm pulling all the reserve information as of today and whatever that day is.
• 18:19
  Speaker 3: So for some organizations it's June 30th, end of fiscal year.
• 18:22
  Speaker 3: For some it's December 31st.
• 18:24
  Speaker 3: Whatever they're using, they're picking a day and that's good for you as the adjuster to know, because if you have some claims where you're like, oh, some stuff has changed, I do need to look at that and update the reserves.
• 18:34
  Speaker 3: You know that it's really important to make sure it's updated before snapshot day.
• 18:38
  Speaker 3: Snapshot day, they're taking that data and that's what they're gonna use for the next year.
• 18:43
  Speaker 2: It's like your picture day you wanna make sure that your hair is all nice and you got your makeup done and your favorite sweater, you know, and all that for for your school photos, because it's going to be in the yearbook for the rest of your life Again.
• 19:00
  Speaker 2: It's really funny.
• 19:01
  Speaker 2: I just got finished doing this with my students and Professor Roberts was a little mean with the students because I had them do the loss ratio based off of the balance sheet and then all of the other ones.
• 19:13
  Speaker 2: I had them do it off of their numbers, their figures and everything off of the income statement.
• 19:19
  Speaker 2: And so when I was explaining it to them, I'm like balance sheet snapshot in time, you know, income statement all year long.
• 19:30
  Speaker 2: It's going to be all 12 months and even though they end on the same date, december 31.
• 19:38
  Speaker 2: And one of the one of the things that I did for the loss reserve is I asked for unearned premiums or earned premiums.
• 19:48
  Speaker 2: It was part of that.
• 19:49
  Speaker 2: I premiums or earned premiums.
• 19:50
  Speaker 2: It was part of that.
• 19:51
  Speaker 2: I was asking for earned premiums, but earned premiums doesn't show up on the balance sheet.
• 19:57
  Speaker 2: It's premiums written or premiums obtained or whatever.
• 20:04
  Speaker 2: However, I said it or something, just to change it, just to be mean, just to be mean, and all of them not all of them, a few of them.
• 20:14
  Speaker 2: A few of them did listen to the hint that I dropped, but almost all of them went to the income statement to pull off where it actually said premiums earned or whatever.
• 20:23
  Speaker 2: And I'm like you can't do that.
• 20:25
  Speaker 2: You can't go and change all your sheets and all that.
• 20:28
  Speaker 2: And the point of the story is, as an adjuster again, yeah, you do need to be aware, because if you do happen to have, like a catastrophe where a semi-traffic trailer rig rolled over a family of four in a sedan or whatever and you've got paraplegics and maybe a death or goodness knows what, you need to get those reserves up.
• 20:56
  Speaker 2: And probably the answer is how many zeros do you want behind that number?
• 21:05
  Speaker 2: But, in all seriousness, even if you're doing a very small bodily injury claim or property damage claim, again, remember all of the coverages that are available to these people.
• 21:17
  Speaker 2: I was the world's worst about debris removal and, like I said, ordinance and law, that 10% or you know whatever that extra coverage that they could get.
• 21:28
  Speaker 2: I would always forget it.
• 21:30
  Speaker 2: So I would stair step.
• 21:31
  Speaker 3: That's very bad of me, but I would so I think, I think we've all done it at some point, right, and but that's the and I remember being when you were just when you were audited.
• 21:40
  Speaker 3: We had our internal audits and you would get your hand smacked if they found stair stepping, because they knew if you're just bumping it up like a thousand dollars here and there over time.
• 21:49
  Speaker 3: That was clearly you're not looking at the total outcome of the case.
• 21:53
  Speaker 3: But you mentioned something earlier about Snapshot and it's picture day and it's in the yearbook forever and I love that because that's true.
• 22:01
  Speaker 3: When the actuary is looking at the next year, they're using that information to determine how much premium they're charging and so if they don't charge enough premium, they're using like that's, that's all that's.
• 22:12
  Speaker 3: It's again, it's in the yearbook forever.
• 22:14
  Speaker 3: Uh, they have to live with what they've collected and hopefully that covers the future of their claims.
• 22:19
  Speaker 3: So I had saw, I had seen.
• 22:22
  Speaker 3: I mean the the spongebob meme video came out of a story that I saw, uh on linkedin or youtube, I can't remember where I saw it, but it was about American Transit Insurance Company and how they had been insolvent for something like 30 plus years, that they've been insolvent for decades.
• 22:41
  Speaker 1: How do you do that?
• 22:43
  Speaker 3: And I think that was like how are you insolvent for that long?
• 22:47
  Speaker 3: And that was a very interesting.
• 22:49
  Speaker 3: It was a very interesting scenario because they have over 60% of the market for auto in New York City Very localized, which again red flags for an insurer.
• 23:00
  Speaker 3: Oh yeah, yeah, yeah.
• 23:00
  Speaker 3: All your risk in one place and one thing.
• 23:03
  Speaker 1: So New.
• 23:03
  Speaker 3: York City auto 60% and New York City has pit, so that's another thing.
• 23:09
  Speaker 3: Right thing.
• 23:09
  Speaker 3: I think their pit limits are fairly high yeah and uh and they had been insolvent for for so long.
• 23:16
  Speaker 3: But because they have so much of the market, essentially like the state kind of comes in and they're semi subsidizing because otherwise, if they, if they go down the bankruptcy path, if they no longer exist, where are 60% of those drivers going to get their auto insurance?
• 23:34
  Speaker 3: Because you'll have other carriers who might be there but they may not be able to take on that capacity or want to because, again, it's all in one place.
• 23:41
  Speaker 3: So it's just a really interesting insolvency for carriers and what happens when you go down that path is a very interesting thing to watch for different carriers.
• 23:51
  Speaker 3: And we're seeing it a lot in challenging states where, like for instance in California, they love that.
• 23:59
  Speaker 2: I'm sorry just to interrupt.
• 24:00
  Speaker 2: Challenging states.
• 24:03
  Speaker 3: I was trying to be nice Florida and California Come on, yeah, nice um florida.
• 24:08
  Speaker 3: And california um uh, come on, yeah, colorado and you know cal I'm, so I'm, I say this from california right now.
• 24:21
  Speaker 3: Uh well, they put a block on carriers from leaving, so they certain carriers cannot issue a non-renewal, and and so it's.
• 24:29
  Speaker 3: It's a very interesting if you're a adjuster, it's.
• 24:33
  Speaker 3: I always say it's good to understand like holistically how all of insurance works.
• 24:37
  Speaker 3: It also helps for your career development, if you wanted to go into different areas to understand all of this but how this impacts the organization, cause you don't just have you know the challenges of what happens if adjusters aren't reserving appropriately, but you have regulatory challenges that also impact carriers in terms of whether or not they can remain solvent.
• 24:57
  Speaker 2: Yes, and for our quote challenging states, end quote.
• 25:04
  Speaker 2: I love that.
• 25:05
  Speaker 2: That is like so polite.
• 25:07
  Speaker 2: I'm just going to name names here.
• 25:11
  Speaker 3: I heard.
• 25:12
  Speaker 3: I also heard the term and I was like it was like an academic term, judicial hellhole, oh no, no, no, no.
• 25:19
  Speaker 2: Those states are not judicial hellholes.
• 25:21
  Speaker 2: No, judicial hellholes are a whole different set of states.
• 25:26
  Speaker 2: Holes are a whole different set of states.
• 25:27
  Speaker 2: That's let's see, west Virginia, louisiana, the southern part of Texas, florida would count yes, I wouldn't necessarily count.
• 25:39
  Speaker 2: California, washington State Washington State is a judicial hellhole.
• 25:48
  Speaker 2: Those are the ones that, when you get sued, you want to get out of that as soon as possible, because that's the one where you're going to get the McDonald's coffee burn.
• 25:55
  Speaker 2: $3 billion, trillion, bajillion dollar verdict.
• 26:00
  Speaker 3: See, I would have sworn, california is on that list.
• 26:03
  Speaker 2: It may be now, honestly, but I wouldn't really consider it to be so bad.
• 26:10
  Speaker 3: Not the worst.
• 26:11
  Speaker 2: Oh, that's just me, that's just me, you know, squirrel off base.
• 26:18
  Speaker 2: Yeah, no, it's interesting because you know we're talking about having these challenging states where and we've seen it and and Florida has kind of calmed down.
• 26:33
  Speaker 2: But what was it two years ago where Florida had 11 insurance companies go insolvent, and then I think Louisiana had eight and and California has had some, had some.
• 26:50
  Speaker 2: And I again just talking about the financials of this with my students and I go look guys, here's the deal.
• 27:00
  Speaker 2: If you did not know this, and there's no reason for adjusters to know this either, but I'm gonna spill the beans or spill the tea, as they say.
• 27:11
  Speaker 2: And the Department of Insurance is the one that approves the carrier's rates.
• 27:21
  Speaker 2: And if you want to get into a conspiracy theory, let's talk, Because for the most part, most states have the insurance commissioner who is appointed by the governor.
• 27:34
  Speaker 2: There are a few states I think California is one of them where the insurance commissioner is elected, and so you go as the carrier and say, hey, boss, I need to raise by rates like 5% or something, Because you know my adjusters are idiots and they're not setting the reserves correctly and we've had more losses than what we need.
• 28:00
  Speaker 2: And the guy who gets elected or gets appointed by a person who gets elected is like yeah, no, because why?
• 28:09
  Speaker 2: Naturally, nobody wants to be the one that says, yeah, I'm going to raise your insurance rates.
• 28:14
  Speaker 2: I approved that, I approve this message, and so that is, I guess, another reason why the adjusters need to pay attention to their reserves.
• 28:29
  Speaker 2: Because I thought it was absolutely hysterical and this happened in California and I don't remember if it was Farmers or State Farm, but it was in the insurance journal, I think, last year where Farmers, State Farm, whoever it was some insurance carrier said, hey, we need to raise our rates, like 22% or something like that.
• 28:50
  Speaker 2: And the commissioner was like, um, you need to go back and do your math again, Cause you like obviously forgot to move a decimal point or something.
• 28:59
  Speaker 2: And and the insurance company said, okay, you know, no problem.
• 29:04
  Speaker 2: Like they did four years of looking at what their losses were and what their expenses were and all this sort of thing.
• 29:10
  Speaker 2: And they added a fifth year and they came back and they said did we say 22 percent?
• 29:15
  Speaker 2: We meant 48.
• 29:17
  Speaker 2: And I'm like, oh, wow, Dang, y'all should have gone with a 22.
• 29:25
  Speaker 2: But that's kind of again why it's important for adjusters to pay attention to our reserves for the snapshot in time.
• 29:36
  Speaker 2: Again, because we're going off of, or they're everybody's basing it off of us.
• 29:43
  Speaker 2: Because, again, we're the most important.
• 29:45
  Speaker 2: I think we're the most important cog in the wheel, we're the one, and no one realizes it except me.
• 29:51
  Speaker 2: That's why, again, everybody just needs to hire me.
• 29:59
  Speaker 3: I mean, yeah, it's also you know, it's good to understand what's happening in the insurance world in terms of insolvency and how that affects carriers too as an adjuster, because it helps you know what's going on with your line and with the job market for your line.
• 30:14
  Speaker 3: So if you are working for a carrier that is localized in a state where some of this may be happening and now your carrier may be going down the path of insolvency, maybe the reserves were great.
• 30:24
  Speaker 3: But again, if there's regulation where they can't raise the rates to collect enough premium for the losses, then you have to look at are you going to stay within your career field in that line with that carrier, or do you need to make some adjustments, because there are some.
• 30:39
  Speaker 3: You know we'll see a larger carrier you have like a national carrier and then they'll have like a subsidiary located in a specific state so that when the rules get tight in that specific state, that subsidiary goes insolvent and they can kind of separate themselves from that smaller subsidiary.
• 30:58
  Speaker 3: So it is an interesting workaround that they do, for when we get too much regulation and it becomes an issue in terms of staying solvent when we get too much regulation and it becomes an issue in terms of staying solvent.
• 31:15
  Speaker 2: You have mentioned something that is absolutely on point and I hate to keep mentioning this over and over again, but again I gave this to my students.
• 31:20
  Speaker 2: There was a plaintiff attorney blog not Chip Marlin, but a plaintiff attorney blog where the plaintiff attorney was saying why is the insurance company having $165 billion that's what the B is in boy in profit, yet they are crying poverty and, you know, raising premiums left and right, and blah, blah, blah.
• 31:47
  Speaker 2: And there is again this whole conspiracy theory that all this money gets shipped off to Bermuda.
• 31:53
  Speaker 2: Blah, blah, blah.
• 31:54
  Speaker 2: I'm going to tell you that it does, because that's where they do a lot of the investment.
• 31:59
  Speaker 2: Because how does an insurance company make money?
• 32:01
  Speaker 2: Well, they make money a lot of different ways, but it definitely isn't from premiums.
• 32:04
  Speaker 2: Because, think about it, you know, my premium is what?
• 32:08
  Speaker 2: $1,800 per year on my car or whatever.
• 32:12
  Speaker 2: And if I get my car totaled, or even a fender bender now, those things cost like $7,000.
• 32:19
  Speaker 2: So so there's not enough insureds to support that.
• 32:25
  Speaker 2: So what they're going to do is take a lot of my premium and go invest it in the stock market.
• 32:29
  Speaker 2: So, yeah, they're going to Bermuda or China or Europe or wherever to do that.
• 32:35
  Speaker 2: Anyway, beside the point, you're absolutely right that they make these subsidiaries much like Coca-Cola owns Sprite.
• 32:47
  Speaker 2: Think of it like that, much like Coca-Cola owns Sprite.
• 32:48
  Speaker 2: Think of it like that, much like Coca-Cola owns Sprite.
• 32:51
  Speaker 2: So if Sprite doesn't do well, coca-cola spins it off.
• 32:56
  Speaker 2: It's the same thing.
• 32:57
  Speaker 2: And if you look at their names, for example it's State Farm of California or it's Texas State Farm or Texas Farm Bureau or Texas GEICO or GEICO of Texas, I don't know whatever.
• 33:12
  Speaker 2: And that is how quote unquote GEICO or farmers or progressive or whomever, has these astronomical losses in a particular state.
• 33:28
  Speaker 2: Yet right next to that article, we see in the insurance journal, progressive has best quarter in two years, or whatever, with a $5 million profit.
• 33:44
  Speaker 2: Well you know again, sprite has to pay its toll or its money to.
• 33:52
  Speaker 2: You know Coca-Cola, the head company, and that's how Coca-Cola makes some money, you know, from all of its little subsidiaries.
• 34:01
  Speaker 2: Same thing with State Farm and all of those.
• 34:04
  Speaker 2: So it is again really important.
• 34:06
  Speaker 2: There's a lot of dynamics going on in an insurance company that you don't figure out until later and no one really tells you about it.
• 34:16
  Speaker 3: Yeah, no, I think that's the tough part is the education out there on the inner workings and how.
• 34:23
  Speaker 3: It's not that it's hidden, but nobody makes the effort to make it accessible or presents it in a way that's interesting, which again plug for me and my my social content.
• 34:33
  Speaker 3: Please follow her.
• 34:35
  Speaker 3: Follow me.
• 34:36
  Speaker 3: I'm risk influencer on TikTok.
• 34:40
  Speaker 3: It needs to be accessible for people so they can understand.
• 34:44
  Speaker 3: But you know and the start is a podcast about reserves, but it's also going to turn into career advice.
• 34:47
  Speaker 3: It's one of the reasons why it's so important, as an adjuster, to understand the environment, understand jurors and how they operate, because that's going to help you as you navigate your career.
• 34:56
  Speaker 3: It's going to help you understand when to make the exit before the organization starts to lay off people, before they start to.
• 35:05
  Speaker 3: You'll see those things coming ahead of time and it's going to help you be ahead of the curve.
• 35:10
  Speaker 3: So you're not putting your resume out there when everybody else in your industry is putting their resume out there and trying to get another job.
• 35:15
  Speaker 3: So that all of that information, that education, is going to help you.
• 35:18
  Speaker 3: So ask questions.
• 35:21
  Speaker 3: I'm a big advocate of and I wasn't always like this, by the way, but I'll DM people on LinkedIn if I see their comment and I'm like, huh, that's interesting, I didn't know that.
• 35:29
  Speaker 3: I was like do you want to like, do you want to meet via Zoom for just 15 minutes?
• 35:32
  Speaker 3: And I just want, I just want to chat with you.
• 35:34
  Speaker 3: And sometimes you'll get no because they're like who's this random?
• 35:41
  Speaker 3: But sometimes they'll like yeah, because you'll learn a lot that way.
• 35:45
  Speaker 3: So don't be afraid of that.
• 35:46
  Speaker 3: Don't be afraid to reach out to people in the industry and ask questions.
• 35:49
  Speaker 3: Most of us are willing to help you and tell, yes, here's where I learned it from, here's where I got information, and we'll share what we know because that's again going to help you in your career.
• 35:59
  Speaker 2: Absolutely yeah, and you say we started off with reserves, reserves, and it's going to end up with, you know, advice or whatever.
• 36:07
  Speaker 2: I would like to think that all of the art of adjusting is like that, because I would like to think that anything we do here, regardless of the topic, is how to be a better adjuster, you know, and how and how to understand the, the whole insurance industry.
• 36:26
  Speaker 2: So plug to sandy, go follow sandy.
• 36:29
  Speaker 2: Risk influence, risk.
• 36:32
  Speaker 2: If it's not risk, risk fluencer, yeah, risk fluencer, because I I always want to put the n in there and I'm like there's no I in there and it's like uh, um, yeah, so go follow her Absolutely Everywhere that you kids nowadays are going.
• 36:50
  Speaker 2: Yeah, so I don't necessarily know if there's anything we need to do.
• 36:56
  Speaker 2: It could be just a real short, sweet little podcast.
• 37:01
  Speaker 2: In this particular instance it I just wanted to talk about how important it is to do the reserves and how we kind of are the linchpin and the differences, like I said, between insolvent and bankruptcy and how I didn't even know this.
• 37:17
  Speaker 2: You know what it was, what the differences were.
• 37:21
  Speaker 3: Yeah, so this, yeah, this was a good conversation.
• 37:23
  Speaker 3: To make sure you know other adjusters know, and, and now that you kind of know the keywords and know what to look for, pay attention in those articles.
• 37:31
  Speaker 3: Find out what's going on in your area, in your line of business, how the market is turning.
• 37:36
  Speaker 3: When you hear about carriers going insolvent, read those stories and find out what happened.
• 37:40
  Speaker 3: It's always interesting to see.
• 37:42
  Speaker 3: Not you know, not that you're relishing a downfall or anything, but it takes a lot to bring an insurer down.
• 37:49
  Speaker 3: It doesn't, it doesn't.
• 37:50
  Speaker 3: It takes a lot to kind of dismantle something.
• 37:52
  Speaker 3: So when you do see someone that goes insolvent, there are probably several factors, but it's always a good case study to figure out what happened.
• 38:01
  Speaker 2: OK.
• 38:01
  Speaker 2: So, again, just studied this, which is the whole read.
• 38:05
  Speaker 2: I mean it's just kismet or whatever that we just serendipity that we just studied this, because I did, I did a little triangle on the PowerPoint and it does talk about, like, several of the factors that cause an insurer to go insolvent, you know.
• 38:24
  Speaker 2: And there's mismanagement.
• 38:26
  Speaker 2: There are, by the way, I mean, bad reserves, you know.
• 38:31
  Speaker 2: I mean, if the adjusters are not setting the right reserves on their cases, on their claims, I mean you could, you individually, could end up tanking it and you're like, how can that be?
• 38:44
  Speaker 2: I'm just one person, yeah, you and your 500 compatriots that are, you know, not sitting together anymore because you're all at home.
• 38:51
  Speaker 2: Oh, another podcast.
• 38:58
  Speaker 2: You know, there's the actuarial people who are not using the numbers correctly.
• 39:02
  Speaker 2: There's overstating assets.
• 39:04
  Speaker 2: An insurance company is supposed to be using SAP, which is the standard accounting principles, rather than GAAP, which is the generally accepted principles, and the reason is because, again, we are supposed to be understating our assets and overstating our liabilities, basically understating what we have like cash on hand and overstating our debt.
• 39:28
  Speaker 2: And, like you said earlier, our debt is our claims.
• 39:34
  Speaker 2: And the issue is that the reason we can't price insurance well is because, like you said, we don't know what the final cost is going to be.
• 39:48
  Speaker 2: If we get sued, even for property, you know, like a bad faith claim or whatever, that claim is still open and it's still accruing losses.
• 40:00
  Speaker 2: If we have a bad bodily injury claim, that is going to be there for two years and then sometimes more, because we go into court and we're going to have more and we did not take a premium for that right.
• 40:14
  Speaker 2: Again, one thousand eight hundred dollars is not enough to pay an attorney because an attorney's like yeah, that's like two hours of my time.
• 40:22
  Speaker 2: Sue, yeah, y'all need to settle.
• 40:25
  Speaker 2: I'll send you my bill.
• 40:28
  Speaker 3: Yeah, hours of their time, and then they use that time to write up the budget for what that's going to cost Exactly, yeah, yeah.
• 40:34
  Speaker 2: Yeah, and they and they settle right after depositions.
• 40:37
  Speaker 2: Yeah, you know, morgan Dooley, if y'all follow her, yes, she has the spork that she's always telling all of the stuff.
• 40:49
  Speaker 2: Anyway, follow me for more people.
• 40:51
  Speaker 2: Yeah, so I think.
• 40:55
  Speaker 2: Yeah, that's it.
• 40:56
  Speaker 2: So do all of those things.
• 40:59
  Speaker 3: Do all the things.
• 41:00
  Speaker 2: Do all the things.
• 41:01
  Speaker 3: Don't stair step.
• 41:02
  Speaker 2: Yeah, don't stair step.
• 41:03
  Speaker 2: That's very bad.
• 41:04
  Speaker 2: So yeah, I guess that's it, anything else?
• 41:11
  Speaker 3: Just follow.
• 41:12
  Speaker 3: Art of adjusting.
• 41:13
  Speaker 3: Follow the podcast.
• 41:14
  Speaker 3: Yes, of course, yeah.
• 41:15
  Speaker 2: Follow, share, link, like, whatever comment, you know algorithm, blah, blah, blah.
• 41:23
  Speaker 2: Next week super or not next week, but in two weeks super excited we're going to have a guest, uh, scott Margraves and what he is kind of the, the guru of certificates of insurance.
• 41:37
  Speaker 2: And again, adjusters are probably going.
• 41:40
  Speaker 2: Why do I need to know what a certificate of insurance is?
• 41:42
  Speaker 2: Why do I need to know what it?
• 41:44
  Speaker 2: Because people will give it to you, especially in construction, at defects or whatever, and they'll go look, I'm an additional insured.
• 41:51
  Speaker 2: You know you need to pay me and blah, blah, blah.
• 41:53
  Speaker 2: Sometimes you're not and that's really important and I I will tell Scott this story, but I don't tell y'all anyway.
• 42:03
  Speaker 2: Um, I was flipping through a remodel magazine, basically sponsored by the Kansas City Remodelers Association or whatever, and the president of the organization, in his little blurb in the beginning of the magazine it was an infozine, more than anything said.
• 42:23
  Speaker 2: You know, every single one of the remodelers in our organization will list the homeowners as additional insureds on the certificate of insurance, and I'm like they won't, unless they're paying some extra premium.
• 42:39
  Speaker 2: I think I don't think that's the way it works.
• 42:42
  Speaker 2: I think you become a certificate holder, but not a, not a additional insured.
• 42:50
  Speaker 2: I think someone needs to have a conversation with them, anyway.
• 42:54
  Speaker 2: So that will be on Thursday, august the 14th.
• 42:59
  Speaker 2: This one's going to be released on Thursday, august the 31st, and that is it.
• 43:04
  Speaker 2: So have a terrific week, and we will see you in two weeks.
• 43:11
  Speaker 2: See you soon, bye, bye.
• 43:13
  Speaker 1: Thanks for joining us on the Art of Adjusting podcast, where we talk about life as an insurance adjuster.
• 43:19
  Speaker 2: If you enjoyed this podcast or this episode, please give us five stars and a review.
• 43:24
  Speaker 2: It does help the algorithm pick us up.
• 43:27
  Speaker 1: Hit that subscribe button real quick and tell all of your adjuster friends to check this out as well.
• 43:31
  Speaker 1: For independent adjusting services, go to wwwautinclaims, and for anyone interested in working as an independent liability adjuster, go to the contact us tab to join our roster.
• 43:45
  Speaker 2: In the meantime, you can contact me at theartofadjustingcom for consulting and training purposes.