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Rules of the Game


Why Insurers Try to Settle Cases as Soon as Possible

The insurance industry has long known three advantages to closing claims before an injured person has had time to experience a full season of pain, treatment, healing, re-injury through normal life activities and pain again.
First, closing claims early saves money because the injured person is not compensated for any medical/therapeutic treatments after the date of settlement. After you settle your claim, all further treatment is your responsibility. Except in specific, unusual situations, you cannot go back and re-open a settlement - when you cash the check, you agree to close your claim in all aspects.
The full extent of most injuries is not known immediately, because the injured person has to undergo some of the wear and tear of everyday life, including the pounding his body will receive from a day's work. Even jobs that appear not to be physically demanding can be hard on an injured body.
For example, have you ever stood all day with few breaks, as a jewelry salesperson does? Or sat all day at a computer, as a secretary or phone service center employee does? Many jobs will interfere with healing, and you have no way to know how your body will respond until you have experienced sufficient physical exposure to load-test the scar tissue as you heal.
Second, insurance companies like to settle early because the general damages - claims for pain and suffering - are always minimal in the first few weeks but continue to grow with continued medical/therapeutic care over the months. Therefore, the insurance adjuster will try to settle before your claim merits a larger pain and suffering element. This makes good sense for the insurance company. A claim that is still active after 12 months, with an injured claimant still undergoing treatment, will settle for a lot more pain and suffering money than a claim that is settled after a month or two of treatment.
Third, the insurance industry historically makes more on its long-term investments than it does in net profit from its insurance products. Insurance companies are required to hold funds in reserve based upon the adjusters' and supervisors' best guestimates of the maximum each claim will cost, plus a little extra just in case. Since the reserves historically exceed the amounts actually paid on the claims, paying claims quickly frees up the difference between the estimate and the actual payout for more long-term investments, which earn more income than the reserve funds earn. Also, as mentioned above, claims paid early are paid less, so even more of the reserve fund can turn into income-producing investments for the insurance company.
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