A common area of confusion to new and aspiring adjusters is the method or mechanism by which independent adjusters are paid. Rather than a traditional employee position with a monthly salary, independent adjusters handling both catastrophic and regular daily claims are compensated as independent contractors on an entirely different basis. Occasionally, IAs will work on a daily rate or stipend but in the vast majority of cases they are remunerated per closed claim file based upon a fee schedule. What is a fee schedule and how does it work?
A fee schedule in independent insurance adjusting is a system of accounting whereby insurance companies pay out the adjuster’s “fee” based upon a graduated “schedule” of the final claim settlement amount. The adjuster fee that is paid is then split between the adjusting firm and the individual independent adjuster who handled the claim.
Thus, one might hear in the course of industry parlance reference to 60% or 70% fee percentages. This refers to the percentage amount that the individual IA makes from the fee schedule amount. The remaining 30 to 40%, as stated above, then goes to the adjusting firm that oversees the adjuster.
It is industry standard for adjusting firms to pay between 55 and 70% of the adjuster fee to the adjuster in the field. Anything less would be considered unusually low and anything higher may be too good to be true!
Fee schedules are best understood by actually examining one. Take a look at this fee schedule taken from the NFIP (National Flood Insurance Program).
The Claim Range column lays out 14 different possible categories under which a claim settlement could fall – from a simple Erroneous Assignment where you are given nominal compensation for the trouble of determining the error, to a claim settlement of over $250,000.01. The Fee listed in the second column cites how much the insurance company will pay out for the adjusting services rendered. Again, this amount, say $750 for claims falling between $10,000.01 and $15,000 will then be split between adjuster and adjusting firm with 60-70% to the adjuster and 30-40% to the adjusting firm. So, on a $10,000 claim, an adjuster should actually take home somewhere between $450 and $500.
Remember, IAs are paid as 1099 independent contractors without taxes taken out by the employer so sufficient monies should be set aside for payment of taxes either quarterly or at the end of the year. A good, reliable accountant is indispensable for the well-adjusted claims adjuster.