How Insurance Companies Determine Compensation – An Insider’s Perspective

This is the blog I’d like every client to read.

Before starting Derek Wilson Personal Injury Law, I worked as defense for the insurance companies. I saw, first hand, exactly how insurance companies determine compensation and make their decisions. I also saw why some people received generous compensation while others with similar injuries received none.

The first thing to understand is how insurance companies report profit.

It’s About Assessing Risk

The insurance company looks at all the money they’ve brought in through their policies and sets some of it aside in a reserve fund. This reserve is to cover what they expect they’ll pay out in compensation. Everything left over (less expenses and taxes of course) is reported to the shareholders as profit.

The key for insurance companies is to make sure that enough money is put away in the reserve because, once that reserve is set, it is very hard to increase it.


Increasing the reserve amount impacts profit and makes for unhappy shareholders, so insurance companies have to a) Make sure they set aside enough to cover what they’ll need to pay out and b) make sure that they don’t pay out more than has been set aside in the reserve fund.

Building a Case

When you hire me as your personal injury lawyer, my job is to ‘build your case’.

Basically, I work hard to prove to the insurance company that your injuries are serious. If I can convince them (with your help of course) they will – hopefully – set aside a high enough reserve that will allow them to pay out the compensation you need.

So what does this reserve setting look like? If you’ve ever been in an accident, you’ve probably seen it in action…

Let say my car hits yours on the way to work. We each deal with our own insurance company. A few days later, you get a call from my insurance company asking how you’re doing, and details of the accident.

Despite the good manners, they’re not calling to help you.

Usually they’ll ask if you’re working, about your injuries, etc. Understand that they’re trying to figure out if you’re likely to make a claim and, if so, how much money they should set aside in a reserve fund.

If nothing else, remember this: You are under no obligation to speak to that person!

What You Can Do to Help

My advice? If the insurance company calls, hang up the phone.

If you’re been injured, you don’t want to them to set that initial reserve too low.

The only time you should pick up the phone is to call me. My job is build exposure for your case over the long term. Basically to show to them that yes, you’ve been seriously injured, yes, this injury will likely impact your ability to earn in the future, and yes, you are entitled to a certain amount of compensation to cover your care and/or damages.

Think of it like this: If you share that you’re an electrician and you’ve hurt your hands, the insurance company is going to assess the chances of your suing as high and set that reserve amount higher. If you’re an electrician but it’s your neck that’s been injured, they may set that reserve low. Once that reserve is set, it’s very hard to change. Even if we later discover that the migraines induced by the neck injury are debilitating, it’s still very hard to change.

This is why what you do immediately after the accident is so important.

A well-documented case with treating doctors, with a consistently credible and honest client at its heart will force the insurance company to set those reserves higher. If you haven’t properly documented your case or aren’t being super active (i.e. working with your lawyer), they’ll probably set the reserve lower.

If you want the insurance company to set the right reserve and be able to pay you what you need to heal, you’ve got to understand how things work and be patient because it’s going to take time.

If you have any question about how insurance companies think and why it makes sense to hire a lawyer with experience on both sides of the negotiating table, give me a call or leave a comment below.


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