The Overpaid Adjuster

By Ronald J Zaremba, CPCU,AIC,ARM

Would you say it would be easier to find snow falling in Miami Florida, or bananas growing in Boston, Massachusetts, or cactus lining the streets in Seattle, Washington than it is to find an overpaid adjuster in any of these places? It is probably true. Anomalies exist in every market, but very few well paid adjusters exist in our markets and even fewer overpaid adjusters exist. We are not talking about those in any industry that are overpaid from the standpoint that they do not do what they are supposed to do.

You say the independent adjusters are the "fat cats" of the claims business ? Do you realize the investment they have made and the risks they take ? For a business of their size and nature, a realistic range of rates of return is from to 20% to 30% annually on their investment. What percent of their income is actually a return on their investment ? I have heard the same argument made for other business and even farmers. Have you ever considered that for sizable number of farmers, their total income is less than a fair rate of return on just their investment ? We are not necessarily in love with the life style that keeps the farmer on the farm, and our net incomes are not generally as low as theirs. As independent adjusters, we share a common market structure with the farmers, many small producers with little or no control of the market or pricing. However, as the farmers have organized into marketing cooperatives and a number of professional organizations their overall incomes have risen. Our business remains fragmented and very competitive.

So you have heard of "CAT" adjusters making $100,000 for six months work ? Do you consider them overpaid ? You would not if you did the work they did and worked the long hours under adverse conditions. "CAT" adjusters are generally well paid because not everyone is willing to endure their work environment. Well paid, usually; but, overpaid, no. Frankly, there are not that many CAT adjusters consistently earning six figure net annual incomes. The key word here is "net".

Bear in mind that the adjusters pay is determined by market forces. For the CAT adjuster, when a catastrophe arises, he is in short supply when the demand is rising quickly. Rigidity in the

market creates a temporary imbalance between supply and demand. But the market forces of supply and demand equalize very quickly in today's world. The CAT adjuster and the independent adjuster will get what the market forces will allow, not what they necessarily want or believe they should get. There are some temporary market rigidities, that can be exploited either way. But in the end the markets will hold true for you too.

So how do we earn more ? To reach a higher price for our services, we must either decrease the supply or increase the demand. Decreasing the supply requires that the services you provide are provided by fewer people/firms and the demand stays the same or increases. What is an easy and effective way to do this ? Continuing education. As your education level increases, you have fewer and fewer competing units at your level of expertise. Of course, your increased levels of expertise must be marketable with the same or increased demand. Differentiate your services from other adjusters by increased ability and increased quality of your work. Consider concentrating your efforts in continuing education into market areas that are expanding. As these markets expand and your knowledge in that market increases, you will have fewer and fewer to compete against and you will be paid more.

We can raise our collective base incomes if entry into our field is restricted. Restrictions based on capital would not be realistic. Restricted entry would work best as to qualifications such education and experience. However collective restrictions are almost always too rigid to continue to respond quickly to shifts in the markets. Thus, in the long run, restricted market entry nearly always works against the "protected" parties. The restrictions fail to respond to market changes quickly enough and the client/employers seek and use more attractive alternatives. A more flexible approach, collectively, is to establishing our own professional body and professional standards.

To increase demand to raise what we are paid requires that we increase the value of what we add to the transaction or the perceived value of what we add to the transaction. The "transaction" is the claims process. If our contribution is greater or perceived to be greater, then our income will increase. Here too the easy way to increase demand is continuing education and professional standards. Individually you can increase the demand for your services through training and education. The assumption is that the education and training improves your ability to produce quality work and that your attitude is positive.

Collectively, we need to be considered as a profession and to exist as a profession. As long as our industry competes on

price and not on price and quality of service, quality of service will not be paid any additional premium. I believe the insuring public would pay for quality if there existed standards for quality service. The public's patience for a higher level of claims service is being exhausted. If we do not overcome our inertia, the government will eventually set the standards for us. Currently, we are not considered as professionals by anyone but ourselves. Our narcissism is counter to our aspirations. In the long run, it may be counter to our very existence. Because of our lack of professional standing , we may very well be perceived as part of the problem and not part of the solution. Because of our lack of professional standing, we are not likely to be well paid and could very well go from being underpaid to not being paid at all.