Why Insurance Companies Offer Settlements
If you've ever filed a claim with your insurance company or that of a party who has caused you damage or injury, you may have received a settlement offer. Insurance companies may offer to settle for many reasons, all of which are typically for their own benefit. When receiving an offer to settle, it is usually in your best interest to negotiate, or even pursue litigation if you feel you are being treated unfairly.
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Minimizing Payments
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Insurance companies may offer a settlement in the hope of limiting the amount they may have to pay. Claims adjusters are specially trained in the art of negotiation, so they will try to settle quickly by hoping you accept the first offer they make, which may be less than you could get by negotiating with them. The insurer typically wants you to perceive its first settlement offer as a financial windfall that will entice you to accept the payment and settle the claim quickly.
Avoiding Litigation
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An insurer will attempt to settle to avoid possible litigation in the form of a lawsuit. If the insurance company loses the lawsuit, not only could it be forced to pay out a larger amount of money than by settling, the expenses of the litigation process can also add up. The company must pay legal fees and court costs, as well as taking resources such as its employees away from more productive activities.
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Public Relations
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Insurance companies tend to be highly image-conscious, as their media advertising often depicts them as being their policyholders' friends and neighbors. A protracted lawsuit that gains national or even local media attention can have a negative impact on the company's reputation. Thus, the insurer may attempt to settle what could be an acrimonious lawsuit before it goes to court to avoid any harmful attention. Even after a case becomes public, the insurance company may try to portray paying a settlement as its willingness to act responsibly and "do the right thing."
Avoiding Future Problems
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In situations like auto accidents, some injuries may not show immediate symptoms so the insurer will attempt to settle before signs of injury occur. For instance, if you are rear-ended in an accident, the effects of a whiplash injury may not be apparent for several weeks. The other party's insurer may attempt to offer a relatively small amount for "pain and suffering" in additional to your vehicle damages so it can close the claim quickly, which also eliminates your right to pursue additional damages in the future.
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