HOW DO INSURANCE COMPANY PUT A VALUE ON MY PERSONAL INJURY CASE?
Ever wonder how insurance companies value your accident claim(s)? Does their process seem arbitrary and/or skewed toward undervaluing your case? Well, there's reasons behind their use of the algorithms, and even more reasons why they don't want you to know about it.
IntroductionYou may not know that insurance companies use a mathematical formula or algorithm to figure out how much compensation should be paid to a victim in a personal injury settlement. The use of such formula doesn’t actually determine how much compensation someone will receive; it is a tool that insurance adjusters (representatives of the insurance companies that deal with injury claims) use as a starting point in the process of figuring out how much a claim is worth. Final determination about how much compensation should be paid to a claimant is not made until several other facts are considered.
Why the Need for a Damages Algorithm?In general, a person liable for an accident (the negligent driver) -- and therefore that person’s liability insurance company (in California liability insurance is mandatory for all vehicles in operation) -- must pay an injured person for: Medical care and related expenses; Missed work time or other lost income; Pain and other physical suffering; Permanent physical disability or disfigurement; Loss of family, social, and educational experiences (otherwise known as loss of consortium); and Emotional damages resulting from any of the above.
While it is usually simple to add up the money spent and money lost, there is no precise way to put a dollar figure on pain and suffering, and on missed experiences and lost opportunities. That’s where the damages formula/algorithm comes in.
How the Damages Formula WorksAt the beginning of negotiations on a bodily injury claim (as opposed to a claim for property damage, i.e., damage to a vehicle), an insurance adjuster will add up the total medical expenses related to the injury. These expenses are referred to as “medical special damages” or simply “medical specials.” As a way to begin figuring out how much to compensate the injured person for pain and suffering, permanent disability, and emotional damages -- together called “general damages” -- the insurance adjuster will multiply the amount of special damages by about one-and-a-half to three times (known as the “multiplier”) when the injuries are relatively minor (i.e., soft tissue injuries only), and up to five times when the injuries are particularly painful, serious, or long-lasting (i.e., permanent bodily injury, injury needing surgery, broken bones, etc.). After that amount is arrived at, the adjuster will then add on any income you have lost as a result of your injuries. As noted above, these calculations are for bodily injury, and are in addition to compensation paid to repair your vehicle, cover expenses of obtaining a rental vehicle while your vehicle is being fixed, and to pay for items in the vehicle damaged in the accident (i.e., baby car seat), amongst other things.
That total -- medical specials multiplied by one-and-a-half to five times (occasionally higher depending on type and seriousness of injury), then added to lost income -- becomes the number from which settlement negotiations should begin. We say “should,” but unfortunately that is not always the case. Seasoned insurance adjusters will always seek to take advantage of unrepresented claimants, who do not know or understand their process.
Several things determine which level of multiplier will apply to the special damages in your claim: The more painful the type of injury you suffered, the higher the multiplier; the more invasive and longer-lasting your medical treatment, the higher the multiplier; the more obvious the medical evidence of your injury, the higher the multiplier; the longer the recovery period from your injuries, the higher the multiplier; and the more serious and visible any permanent effect of your injury, the higher the multiplier.
Insurance Adjusters Don’t Manually Calculate Case ValueSince large insurance companies began to use computer software programs to value cases in the 90’s, reliance on computerized quantification of injury value has become standard protocol. Thus, programs such as Colossus, Claims Outcome Advisor, and Claims IQ now generally “calculate” the settlement value of car accident injury claims for insurance adjusters. Sound convenient? It is convenient, for insurance companies at least, but harmful for victims. The problem comes down to a simple man versus machine dilemma – no computer program can adequately put a value on human pain and suffering to capture how an injury, no matter how minor, impacted a person’s life.
The art of the personal injury claim negotiation is therefore to demonstrate how an insurance adjuster, armed with his/her case valuation programs, has greatly undervalued your injury claim. That is why you need experienced and aggressive attorneys on your side to show the insurance companies that you are an individual with unique experiences, activities, emotions, and lifestyles, and that the impact of the injury on you cannot be quantified by a preplanned algorithm.
Insurance Adjusters Don’t Reveal Their FormulaDuring negotiations on an insurance claim, adjusters usually will not tell you what formula they are using to calculate value (they can’t tell you anyway, since programs like Colossus use over 10,000 distinct rules to generate claim value), how much they actually (as a human being) believe a claim is worth, or even that they are using any formula at all. They are following a basic rule of negotiation – don’t let the other side know how or what you are thinking.
Moreover, the programs are created and managed by people working for the insurance companies, so you can imagine that the programs themselves never tend to over-value a claim to the disadvantage of their insurance company client. So, when you begin your claim negotiation, you typically start from a deep hole, where the "numbers" are stacked against you.
This is why you need to engage an experienced law firm, right at the beginning of your matter, who can bring industry knowledge, training, personnel, and technology to the fight, all in support of your road to recovery.