How Do Insurance Companies Negotiate Settlements?

By September 6, 2023September 19th, 2023Insurance

Insurance companies negotiate settlements with just one purpose: to pay you as little for your injury as possible. Even when you’re their policyholder (and especially when you’re not), insurers try to protect their bottom line at all costs. It takes legal sophistication and know-how to get them to loosen the purse strings and pay you what you deserve for your losses.

When you’re negotiating with an insurance company, knowing how and why insurance companies negotiate and settle claims arms you with the knowledge you need.

Not only are there the insurance companies’ commercial motivations, but they also have complicated procedures and tactics. That’s why an experienced Atlanta personal injury lawyer, who understands these complexities, will ensure they pay fair compensation to injured individuals like you.

How Do Insurance Companies Negotiate Settlements

Quick Overview of the Insurance Business

To fully understand the dynamics of insurance settlements, it helps to review how insurance works and the purposes it serves. Insurance companies are in the business of risk management. In exchange for a fee (premium), they agree to assume their customer’s risk of suffering an unexpected injury or loss.

They spell out the terms of that agreement in a contract (insurance policy). If an injury or loss occurs, the insurance company pays for its costs up to the maximum amount in the policy (the policy limit).

It’s up to the customers (or insureds) to alert the insurance company of any loss they suffer that their policy covers. They do so by submitting a formal request (claim) to the insurance company asking for a payment based on the insurance policy’s terms.

The insurance company reviews the claim, and if it agrees the policy covers it and the requested amount is correct, it makes a payment to the insured or to anyone else that the insured instructs.

Insurance companies operate under strict legal obligations. They must follow the terms of the policies they issue and comply with state laws and regulations governing their practices. Among their obligations is a duty to perform a fair evaluation (or adjustment) of claims and to process them on time and in good faith. Any failure to abide by these obligations can result in severe penalties, including legal action against the company.

Insurance Settlements and Negotiation

Settlements form an integral part of the insurance claim process, yet people tend to misunderstand them. An insurance settlement is an agreement between the insurer and the claimant on the amount the company will pay for a filed claim.

People often misuse the term settlement to refer to any payment by an insurer, but it’s important to understand that a settlement reflects a mutually agreed payment amount, not an insurer’s voluntary payment.

So why do insurers negotiate settlements instead of paying the amount someone claims?

Insurance companies seek to balance their revenues and expenses. They minimize the amount they pay out in claims, whereas claimants want to maximize the amount they receive from an insurer for a covered loss. And reasonable disputes can arise over the validity or amount of a claim.

Negotiation is a process that aims to reach a middle ground that is acceptable to both parties. It seeks to resolve disputes about the claim’s value or, sometimes, about whether the policy even covers the claimed loss.

Insurance settlement negotiations allow a claimant to receive a fair amount for their losses while allowing the insurance company to guard against overpayment or unnecessary payment—if, that is, they engage in settlement negotiations in a fair and aboveboard manner.

The Insurance Settlement Negotiation Process

Now that we’ve established an understanding of insurance policies, claims, and settlements, let’s delve deeper into the step-by-step process of how insurance companies negotiate settlements.

Initial Claim and Investigation

The settlement negotiation process begins when a party with a policy that covers their losses files a claim.

The investigation of insurance companies focuses on two core questions:

  • Does the insurance policy cover the loss?
  • Is the amount the claimant requests correct and within policy limits?

If the investigation concludes that the answer to both questions is definitely yes, the insurer should pay the claim promptly and in full. If the answer to either is definitively no, the insurer can deny the claim.c

But the answer to one or both questions is often uncertain or open to reasonable debate—something like “yes, but,” or “no, but.” And in those cases, the insurer may choose to negotiate the claim.

The Initial Claim Denial or Settlement Offer

An insurer won’t necessarily communicate that it’s open to negotiating a claim. It will typically respond to a claim it’s willing to negotiate by denying it or making a settlement offer for less than the amount the claimant requested. It’s often up to the claimant to recognize an opportunity to open settlement negotiations.

Suppose, for example, someone suffers injuries in a car accident and seeks a payment of $50,000 from an at-fault driver’s liability insurance carrier. The insurer, upon reviewing the claim, concludes its policyholder (the at-fault party) was probably, but not definitely, at fault for the accident and that it’s probably, but not definitely, liable for at least some of the crash victim’s damages.

The insurer may respond to the claim by offering to pay less than the claimed amount—say, $25,000 instead of $50,000—to account for the arguable uncertainty about its obligations. If it wants to be aggressive, it might simply deny the claim and wait to see how the claimant responds.

Negotiation Between the Insurance Company and Claimant

The insurance company’s response sends the ball back into the claimant’s court. The claimant has the option of accepting whatever the insurer has offered. But if they’re dissatisfied with that result, they can respond with a counteroffer or make an overture suggesting that the parties should negotiate a settlement. 

Where the process goes from that point is wide open. The claimant’s response often triggers a back-and-forth with the insurer in which each lays out their evidence and arguments for why and how much the insurer should pay. Through that discussion, they often eventually reach a middle ground and agree on a settlement amount—but not always.

They can sometimes find their perspectives growing further apart, leaving the claimant to decide whether to pursue legal action against the insurer or its insured (in the case of liability insurance coverage) in court.

Final Settlement Agreement

If, eventually, the parties reach a settlement agreement, they put it in writing and sign it. This makes the settlement a legally binding contract that finalizes the amount the insurance company will pay to the claimant.

The claimant, upon agreeing to and signing the settlement contract, receives the settlement money and, in exchange, gives up the right to seek further compensation from the insurer and its policyholder (and dismisses any lawsuits pending against them).

Tactics Insurance Companies Use in Settlement Negotiations

Insurance companies must process claims in good faith. But they sometimes play hardball in settlement negotiations. Here are some of the tactics they will often use to try to drive down the value of a claim and pressure you to take less than what’s rightfully due.  

Minimizing Injuries or Damages

One approach insurers often use is disputing or interrogating the extent of the claimant’s injuries or damage. They might, for example, argue that medical treatment is unnecessary, too expensive, or not directly related to the incident. They might also question the value of property damage or insist on using their chosen contractors for repairs, who may underestimate repair costs.

Delaying the Settlement Process

Insurance companies may use delay tactics to pressure claimants into accepting lower settlements. As the process drags on, claimants can become anxious and financially vulnerable, which can create incentives for them to settle for less just to resolve the claim.

Delays can also put the claimant at risk of missing a statute of limitations for taking legal action against the insurer or its insured, which might limit the claimant’s options and pressure them to settle for less than they deserve.

Disputing Liability or Fault

Disputing liability under the insurance policy is another common tactic insurers employ to undermine the value of claims. An insurer might argue that their insured is not at fault for the claimant’s losses, that the claimant’s actions aggravated their injuries, or that the policy simply does not cover the circumstances in the claim.

In making these contentions, insurance companies often seize on any piece of evidence they can find to support their position, hoping to sow doubt about whether the claimant could prove their claim in court if push comes to shove.

Using Recorded Statements Against Claimants

Insurance adjusters often try to pressure a claimant to give a recorded statement about a claim. They hope to get the claimant on record saying things that might inadvertently undermine the claim’s value or viability.

In recorded interviews, adjusters often ask misleading or confusing questions, hoping to trick the claimant into making damaging statements. It’s an underhanded tactic, but it all too often succeeds when claimants don’t have an experienced personal injury lawyer to represent them.

Making Lowball Initial Settlement Offers

Insurance companies commonly open negotiations by making lowball payment offers, hoping claimants will accept them before realizing how much more money they deserve. Claimants can protect themselves against this tactic by speaking with a personal injury lawyer who can provide a realistic valuation of their claim and negotiate with insurers on their behalf.

Why You Need a Personal Injury Lawyer to Negotiate an Insurance Settlement for You

Insurance companies possess a broad depth of knowledge about insurance laws and the fine print of policy terms—knowledge that the average claimant does not have. This often gives insurers the upper hand during negotiations. 

Hiring a personal injury lawyer can even the playing field. A lawyer with knowledge of personal injury law and insurance negotiation tactics can provide you with strong representation during negotiations, ensuring that the insurance company doesn’t have an unfair advantage.

Beyond mere representation, an experienced personal injury lawyer can perform many tasks that put you in a strong negotiating position. An attorney can gather and analyze evidence, build a compelling case, and evaluate the claim’s value, all of which can create negotiating leverage and pressure insurers to pay what they owe.

A lawyer can also credibly threaten to take an insurer or its policyholder to court if they refuse to negotiate in good faith or fail to make reasonable settlement offers. The prospect of spending time and money litigating a claim in front of a judge and jury can often spur an insurance company to pony up extra money to carry a settlement agreement over the finish line.

A personal injury lawyer’s primary goal is to secure you the maximum compensation possible. Insurance companies may attempt to minimize the claim’s worth, delay the settlement process, or dispute your injuries, but a lawyer can effectively counter those tactics and deliver fair results.

Contact an Experienced Personal Injury Lawyer Today

Insurance plays a starring role in most personal injury cases. But that doesn’t mean it’s easy to get insurance companies to pay what they owe for your losses. Insurers routinely try to avoid their financial obligations to claimants by denying claims or making lowball offers, leaving you no choice but to enter negotiations for more. 

But negotiating with an insurance company on your own isn’t a fair fight. The only way to do it successfully is to hire an experienced personal injury lawyer to handle settlement discussions on your behalf. A lawyer familiar with insurance and personal injury law can advocate for your interests and force insurers to pay what they owe. 

If you’ve suffered an injury and now face the prospect of negotiating with an insurance company to get the money you need, get legal help. Contact an experienced personal injury lawyer today for a free consultation.