How the Insurance Adjuster Determines a Settlement Offer

If you're making a personal injury claim with an insurance company, it helps to understand how the adjuster arrives at a settlement offer before you choose to accept or reject it.

If you're negotiating a personal injury claim with an insurance company, the adjuster is the one you'll be dealing with. It may be helpful to understand how he or she operates before you make your written demand, and certainly before you accept (or reject and counter) a settlement offer.

Just like the plaintiff’s attorney in a personal injury case, the insurance adjuster will investigate the case -- the facts of the accident and the plaintiff’s damages.

The adjuster’s goal is to, at the very least, obtain the same facts that the plaintiff’s attorney has. In fact, a very skillful insurance adjuster will sometimes know more about the accident and about the plaintiff’s background than the plaintiff’s lawyer does. If that happens, that is bad news for the plaintiff and the plaintiff’s lawyer.

But how does the adjuster prepare for making an offer?

Get the Insured’s Story

The adjuster wants to find out what the insured has to say about what happened. The adjuster will read any written police report or accident report that the insured may have sent to the insurer, and may talk to the insurer to hear the insurer’s story firsthand.

Investigate the Plaintiff

Insurers have claims databases that allow adjusters to determine whether the plaintiff has ever filed a personal injury claim before. A good adjuster will also Google the plaintiff to dig up any available dirt on the plaintiff.

Request Documentation of the Claim

The adjuster will write the plaintiff or the plaintiff’s lawyer to introduce him/herself and request that the plaintiff provide documentation relating to the plaintiff’s claim.

The adjuster will usually request documents such as medical records, medical bills, proof of earnings, tax returns, and proof of property damage. If the initial medical records indicate that the plaintiff may have had prior injuries or complaints to the body part that was injured in the accident that led to the current claim, a good adjuster will pick up on that and will request that the plaintiff provide all prior medical records for any treatment that the plaintiff has ever had for that condition.

If the plaintiff is self-employed and claims lost earnings, the adjuster will usually request that the plaintiff produce business records to document the lost income.

Good Adjusters Review Documentation Meticulously

A good adjuster will go through the documentation on the case with a fine-toothed comb. The adjuster will read every page on the medical records and bills to see if anything is missing, if anything suggests that the plaintiff has had prior conditions or that the plaintiff is malingering, or if the plaintiff’s lost earnings claim seems to have holes in it. An adjuster will not make a settlement offer and will not respond to a settlement demand until the adjuster has every document that he/she needs in order to value the case.

Determine Settlement Value

Once the adjuster has all of your medical records and bills and all of the other information that he/she needs to value the case, he/she will put a value on the case.

In order to value the case, the adjuster has to think about two things: 1) what are the plaintiff’s chances of winning at trial, and 2) how much might a jury award the plaintiff? If, for example, the plaintiff has a million dollar case if he/she wins, but has little if any chance of winning at trial, then an adjuster is not going to offer very much for settlement purposes.

Once the adjuster has decided what the plaintiff’s chances of winning are, he/she will think about the plaintiff’s damage claim. Damages in personal injury cases are usually divided into two categories: damages capable of exact calculation (medical bills and lost earnings), and damages not capable of exact calculation (pain and suffering). For medical bills and lost earnings, the adjuster simply adds them up.

However, adjusters often discount medical bills if they appear to be "soft," meaning that the vast majority of medical bills come from health care providers other than physicians and hospitals. If, for example, a plaintiff had $7,000 of medical bills, but $6,800 of the bills were chiropractic and physical therapy bills, the adjuster might cut the medical bill claim in half for valuation purposes. For more on this, see our article, "The "Right" Medical Treatment Increases the Settlement Value of an Injury Claim".

Determining the Value of a Pain and Suffering Claim

This is the real struggle, both for plaintiff’s attorneys and for insurance adjusters. But adjusters these days usually use formulas and specialized software to assign a value to pain and suffering claims. For example, an insurer’s software might say that the pain and suffering for a broken leg that did not require surgery and took six months to heal completely was worth $20,000.

The First Settlement Offer

Once the insurer has arrived at a settlement value, then he/she has to decide what to offer. The first offer is going to be a percentage of what the insurer thinks is the final value of the case, and, again, an insurer’s software may dictate precisely what the first offer should be. For example, the insurer may require that the first offer be 40% of the value of the case. There is no industry-wide standard on this. Different insurers have different procedures.

One very important point is that adjusters often have leeway to adjust the first offer depending on who he/she is dealing with. If the adjuster is dealing with an unrepresented plaintiff, the first offer will usually be lower than if the plaintiff has a lawyer. If the adjuster is dealing with a very high quality lawyer, the offer might be higher than average. If, conversely, the adjuster is dealing with a poor lawyer or a lawyer who is known to never to go trial, the offer might be lower than average.

Next Steps

Once you receive a settlement offer -- or if you already have -- the following articles can help you prepare for the negotiation process:

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