The real reason behind deal-direct letter

Cedric Stephens, Contributor

Question: My vehicle was hit by a truck near Montego Bay in March of this year. The driver disobeyed a stop sign and ran into the left side of my vehicle. I submitted a claim to my insurers which they paid. They also gave me a deal-direct letter to recover my loss-of-use expenses and excess from the insurers of the truck. Is this standard practice? I expected my insurers to take on those hassles on my behalf and send me a cheque when the matter was settled. What are some of the reasons for this situation?

- B.R., Montego Bay PO, St James.

HelpLine: I sought the advice of the claims managers of two leading insurers in order to reply to your questions. The third party's and your insurers were excluded. Even though I have heard about deal-direct letter(s), I have never actually seen one. The insurers were asked to answer the following queries: 1) Does your company issue deal-direct letter(s) to clients to facilitate recovery from the insurers of negligent third parties? 2) What do these letters actually say? 3) What is the rationale for issuing them? 4) Who gains and who loses when they are issued? Only one company replied.

WHAT THE LETTER SAYS

My informant says that deal- direct letters are used by all companies that write motor insurance. The typical letter reads:

"Our Insured is covered under a policy with comprehensive cover and an excess of $x. The information in our possession indicates that your Insured is at fault in this accident. "we ask that you deal directly with the insured (or intermediary or attorney) regarding settlement of his loss or uninsured losses (whichever is relevant). Kindly make the cheque payable to the Insured. Any negotiation on a contributory negligence basis must be communicated to us prior to agreement with our insured."

WHY INSURERS USE THE LETTER

The source explains the reasons for using the letter as follows: "It helps the recovery process and frees up resources in the insurance companies to deal with the 'front end' part of the claim, for example, getting the vehicle repaired in the shortest possible time."

Also, "an Insured may request a deal-direct letter when he/she feels that if the third-party Insurer sees the face of the claimant, the matter will be resolved more quickly. We will issue a deal-direct letter, without it being requested, if an insured is delaying the recovery process for whatever reason."

Insurers can use deal-direct letter(s) to duck part of their contractual duty when it suits them.

Policies give insurers the right, if they so desire, "to take over, and conduct ... the defence or settlement of any claim or prosecute ... for our own benefit any claim for indemnity or damages and give (them) full discretion in the conduct of any proceedings and in the settlement of any claim".

Why would an insurer surrender those rights to a layperson when a third party, who is insured with another company, is at fault? Is the layperson likely to be more successful than his insurer in making recovery from another insurer? Some insurers enter into agreements to reduce the costs of handling claims involving their customers. Are deal-direct letter(s) used in those cases?

In the absence of more information, I can only guess why insurers use these letters. The real reason is to save them money.

Look at it this way. Assume (a) that the cost of obtaining recovery of your loss of use and deductible (excess) amounts to J$7,500, and (b) the cost of preparing a deal- direct letter was J$750. The company would avoid the cost of J$6,750 by giving you the authority to deal directly with the other insurer. In other words, you would bear all of the costs.

Call me cynical, but I believe that real reason behind deal-direct letter(s) is to save insurers money.

Cedric E. Stephens provides independent information and free advice about the management of risks and insurance.aegis@cwjamaica.comSMS/text message to 812-7233.