NCOIL debates fee caps for public adjusters in proposed model law

Fee caps remain a key issue as state insurance legislators near completion of a model law to better regulate public adjusters.

A National Council of Insurance Legislators subgroup met Friday to discuss its Public Adjuster Professional Standards Reform Model Act, sponsored by Rep. Mike Meredith, R-Ky., and co-sponsored by Rep. Matt Lehman, R-Ind.,  and Del. Steve Westfall, R-W.V.

The model act is based on a public adjuster bill that passed in Kentucky, Meredith said, adding that the Property & Casualty Insurance Committee hopes to have the model ready to move forward during the NCOIL annual meeting in November in Columbus, Ohio.

"I think the time is now to address this," Lehman said. "It gets down to making sure we don't get rid of an industry that could be needed in certain cases, [but] at the same time making sure we're dealing with those who have abused the situation. And here's evidence of [abuse]."

Several states have already passed new regulations for public adjusters, who have come under fire in recent years. Adjusters inspect property damage or personal injury claims to determine how much the insurance company should pay for the loss.

Earlier this year, the Texas Department of Insurance announced an indictment of Andrew Joseph Mitchell, accused of stealing more than $268,000 in insurance claims from multiple victims.

Mitchell has a pattern of similar alleged activity across several states, Texas investigators said. Mitchell’s adjusting business, Mitchell Adjusting International, was located in Clear Lake Shores, Texas, but solicited clients across the country online.

To cap or not to cap?

The meeting over Zoom drew a robust debate over whether the model should cap the fees adjusters can charge the public.

"Any amount of money that comes out of that claim is money that the insured will not have to be able to do repairs that are needed to their home or auto," Meredith said. "I think it's very, very important that we understand and don't have some large amount of compensation coming out of that, because that's just going to be a shortfall that they're either going to have to dip into a huge amount of their savings, or go borrow money."

But industry lobbyists said fee caps are likely to have the opposite effect.

Cole Kline is president of the American Association of Public Insurance Adjusters, which did a study of 129 claims in 2022. Of the residential roof claims, it took an average of 377 days from the time the public adjuster was contacted to reach a settlement, he told legislators.

But Jon Schnautz, regional vice president, Southwest Region, for the National Association of Mutual Insurance Companies, said rate caps are working in many states.

"Texas does have ... a 10% across-the-board fee cap," Schnautz said. "We have a very robust market for [public adjusters]. And I would just encourage the committee as well to keep the model strong."

Stepped-up regulations

The National Association of Insurance Commissioners passed its Public Adjuster Licensing Model Act in 2005. With natural disasters coming more frequently and repair costs skyrocketing, public adjusters are becoming more important, and influential.

Regulators are taking notice. A lengthy list of states passed tighter restrictions on public adjusters this year alone. Florida's new law prohibits public adjusters from contracting with anyone other than the named insured without the insured’s written consent. If the public adjuster does contract with a third party, the third party must pay the fee and not the insured.

In Indiana, public adjusters to disclose any financial interest they have in parties that are involved in a property claim and prohibits public adjusters from acting as a restoration contractor on the same claim.

Kentucky is requiring adjusters to use specific contract forms approved by the Department of Insurance and increases the required surety bond to $50,000 from $20,000.

InsuranceNewsNet Senior Editor John Hilton covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.

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InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.