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How Do Insurance Companies Negotiate Settlements?

How Do Insurance Companies Negotiate Settlements

Following a serious accident caused by another party’s negligence, an insurance claim can provide compensation for your medical bills, income lost because of the accident, and pain and suffering.

However, dealing with the insurance company can prove more complicated than many people initially expect when they start considering the terms of a personal injury settlement.

How do insurance companies negotiate settlements, and what can you expect from the process?

The Initial Offer

Your settlement negotiation with the insurance company will often start with an early settlement offer. Frequently, that offer will appear almost immediately after your accident, once the insurance company has had a chance to investigate the accident and determine that its insured bears liability for the accident. The insurance company may even try to get out in front of that offer, issuing one before you have a chance to determine the full extent of your damages caused by the accident.

Insurance companies can arrive at that initial settlement offer in several key ways.

A.I. Input

Many insurance companies, particularly auto insurance companies, now use artificial intelligence to calculate initial settlement offers. The adjuster that speaks to you may have relatively little input into your claim, including no ability to do more than minimally raise that initial settlement offer in the course of a normal discourse with you.

The A.I. calculation will often take your losses and injuries and generate an offer based on a percentage of that amount. These calculations rarely include compensation for pain and suffering. In some cases, they may also fail to include compensation for lost wages, but may instead include only a percentage of the medical bills you faced after the accident.

Agent Calculation

Some insurance companies will have insurance agents or adjusters calculate initial settlement offers, often based on an approximation of your medical costs. Like the offers created by AIs, however, those settlement offers rarely reflect the compensation you deserve for your injuries, and may instead include only a small percentage of the damages you have faced.

How the Insurance Company Calculates an Initial Settlement Offer

Before arriving at an initial settlement offer, the insurance company will take a look at the circumstances surrounding the accident. Depending on the particular circumstances surrounding the accident, the insurance company may require a comprehensive investigation before making any settlement offers.

A Look at the Accident’s Cause

Ideally, many insurance adjusters would like to shift liability for an accident to another party. Suppose, for example, that you suffer a trip and fall accident that results in broken bones because of a vendor’s cords, which the vendor failed to secure properly.

The property owner’s insurance company would like to shift liability to the vendor alone, which might mean proving that the facility owner or the company that usually operates in that facility took the necessary steps to request that the vendor secure those cords, but that the vendor failed to listen.

Likewise, in some cases, the insurance company may try to shift liability to you: proving that you entered a dangerous area, that your actions included a dangerous disregard for potential hazards, or that you did not use necessary, provided safety equipment. The insurance company may try to shift some of the liability to you even though you did nothing that could have caused or contributed to the accident, so having an attorney on your side, who can present evidence in your favor, can make it easier to establish liability for your accident.

Insight Into Your Injuries

Your injuries serve as the foundation of many personal injury claims. To file a personal injury claim against another party, you will need to establish that the other party’s negligent actions injured you. While you can, in some cases, file claims related to emotional distress, including PTSD, you will need to establish that you suffered some type of damage related to the other party’s negligence to pursue compensation through a personal injury claim.

The insurance company may want to look into a lot of the details of your injuries. As part of the initial investigation, the insurance company may want to look at your medical records or statement from a medical care provider to establish what injuries you suffered, what medical treatment for those injuries likely looks like, and what suffering you may have faced.

Responding to an Initial Settlement Offer

When you receive an initial settlement offer from the insurance company that covers the liable party, you do not have to take it. Never accept an offer before taking the time to think it over and discuss it with your lawyer. Often, you will discover that the initial offer does not include the compensation you need to cover the damages you sustained, including potentially high medical costs.

Your Demand Package

While the insurance company may have its own formula for putting together a settlement offer, your lawyer can work with you to put together a demand package that will establish the compensation you feel you deserve for your injuries. Your lawyer’s package will include two key components: evidence relating to the accident, which will help establish that the other party caused your accident and your injuries and that, therefore, you deserve compensation; and a report of your financial losses and the compensation you feel you deserve for those injuries.


The evidence related to your accident may take many forms, depending on what type of injuries you suffered and how they occurred. If you suffered injuries in a car accident, for example, you might need to present the police report from the accident to help establish the facts of the accident and prove the other driver’s negligence.

If you suffered injuries in a slip and fall, you might access video footage of the fall, or use pictures from the scene to help prove that the other party caused your accident. Your demand package will lay out how the accident occurred.

A lawyer’s investigation will focus on establishing how the other party or parties caused or contributed to your accident. A lawyer may interview witnesses, take a look at past claims against the same individual or entity, and/or put together photos from the accident scene.

A lawyer may also bring in expert witnesses to help provide more information about how your accident likely took place based on the evidence available. An expert witness can prove critical if liability for an accident is contested.

As part of the demand, a lawyer will lay out how that evidence all ties together and why you deserve compensation for your injuries.


Next, your demand package will include the compensation your attorney feels you deserve for your injuries. Often, your demand package will include much higher compensation than the insurance company’s initial offer. Your lawyer will work with you to break down the full financial losses you have experienced and the challenges you have faced after your accident.

Your Medical Costs

In most personal injury claims, medical bills offer the most vital look at what the injured party may have suffered. Your medical bills may show your greatest financial loss related to the accident, which can make it easier to use them to establish your right to compensation.

Talk to your lawyer about all the medical expenses you may have incurred because of your injuries. You have the right to include all medical costs as part of your personal injury claim: the cost of emergency treatment, surgery if needed, hospitalization, and long-term care. Furthermore, you can include the cost of durable medical equipment and, in many cases, even modifications to your home or vehicle that you need to maintain mobility and independence despite your injuries.

You may also want to talk to your lawyer about future anticipated medical expenses related to your accident. In the case of some injuries, you may not receive all the treatment you will need immediately. You may have a long road to recovery ahead of you, including procedures that you will need months or even years in the future.

As part of your claim, your lawyer may help you put together future anticipated medical expenses so that you can receive compensation for those costs before they become a serious concern. If you do not include future medical costs as part of your personal injury claim, you cannot go back and claim compensation for those expenses later.

Your Lost Income

Often, serious injuries keep people out of work, either temporarily or permanently. You may need considerable time to focus on your recovery, or your employer might want to wait until you can safely return to work before allowing you to come back. All that lost time at work, however, can mean a serious dip in income.

Even if you can use short-term disability, you may find that it does not cover the full cost of the wages you would normally receive. Talk to your lawyer about your income losses due to your injuries, including whether you may have used vacation time to cover time out of work while recovering.

If your injuries permanently prevent you from working in your former field or industry, you may also choose to pursue compensation for your lost earning potential. Talk to your lawyer about how to include that lost earning potential as part of a serious injury claim.

Your Pain and Suffering

Medical expenses and lost wages fall under the heading of special damages: damages with a clear, concrete financial aspect. Many of the losses you face because of your accident, however, may not fall into such neat headings.

You may, for example, note that your injuries lead to significantly increased physical pain or emotional anguish. You might miss out on activities you wanted to attend or struggle to enjoy time with friends and family members while recovering from your injuries. Those general damages frequently fall into the category of pain and suffering. Many insurance companies will not include damages for pain and suffering as part of their offers until a lawyer lays out a clear claim.

Once you have put together the actual damages you suffered due to your injuries, your lawyer will submit a demand package to the insurance company. Often, that initial demand package will have numbers significantly higher than the amount your lawyer expects you to recover so that the insurance company will have room to negotiate.


Once you have submitted a demand package, the insurance company has a chance to respond to it. In most cases, the insurance company will send out a counteroffer. That counteroffer will usually reduce the amount of the demand package you sent, but include more compensation than you might have seen in the initial settlement offer.

You can then choose whether to accept that offer from the insurance company or to submit a counteroffer of your own. If you are unsure about accepting a settlement offer, your lawyer can provide insight as to the pros and cons of accepting or rejecting the offer.

Often, during the negotiation period, the insurance company will ask for additional evidence, especially if you ask for considerably more compensation than the insurance company wants to pay out, based on the terms of the policy and the internal calculations performed. You may need to submit more medical evidence, answer questions about your limitations and weaknesses, or even submit to an independent medical evaluation, which may provide the insurance company with more information about your physical state.

If you and the insurance company can arrive at a reasonable settlement agreement, you can sign the agreement, and the insurance company will issue payment. If you cannot reach an agreement, you may have to go through mediation or your lawyer may recommend filing a lawsuit against the at-fault party.

A Lawyer Can Help You Negotiate with the Insurance Company After Your Injuries

Dealing with the insurance company can feel very complicated. A lawyer can help you evaluate your actual damages, put together your claim, and fight for the compensation you deserve. Contact a car accident attorney as soon after your accident as possible to protect your rights.

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