XYZ Insurance Company, a relatively small general insurer, has outsourced its claims adjusting function. Now, when a claim is reported, the insurer notifies the outsource adjusting company, which then causes one of its adjusting personnel to visit the site of the loss and prepare an estimate as to the amount that will have to be paid to settle the claim. The outsource company then notifies the insurer of the amount and this is set up as a case provision in the insurer's claim files.

XYZ has indicated that the adjusting company is more specialized and has greater expertise in this area than the insurer can support in house

For claims that can be settled in a straight-forward manner, the adjusting company will pay the claim and then invoice XYZ for the amount.

i. Discuss the 3 potential pitfalls in the use of an adjusting company.

ii. Discuss 3 advantages on the usage of an adjusting company.

iii. Are these sufficient to offset any advantages disadvantages. Explain your answer.

iv. You are an independent board member of XYZ, what advise will you offer management of XYZ about this arrangement?