How Insurance Companies Calculate Damages

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Following an accident, the injured party reports the incident to their insurers to initiate the insurance claims process. Next, the insurance company evaluates the claim by reviewing its policy terms and coverage. 

Your insurance company may request additional information or evidence to make an informed decision. Many claimants work with reputable law firms in Alaska to avoid the intricate insurance claims process.

The Insurance Claims Process

The insurance claims process involves three main steps, including:

  • Reporting an incident or loss to an insurance company
  • Providing necessary documentation and information, such as proof of damages or injuries, and
  • Cooperating in the investigation. 

The insurer evaluates the claim, determines coverage, and ultimately provides compensation or resolves the claim accordingly.

Factors that Can Affect the Value of Your Claim

When you file an insurance claim, various factors can influence the outcome and affect how smoothly the process unfolds. Understanding these factors can help you navigate the claim process more effectively. Here are the key factors that can impact your insurance claim:

Policy Coverage

Your eligibility for compensation hinges on the coverage extent provided in your insurance policy. In other words, your policy outlines the covered damages.

Policy Exclusions

Some policies come with exclusion clauses. That said, a claim that falls under these exclusions may be denied or partially covered.

Timely Reporting

Promptly notifying your insurance provider about the incident is essential. Delaying the notification can cause complications and result in a denied claim in serious cases.


Thorough and accurate documentation of the incident is crucial in the insurance claims process. Documentation can include gathering:

  • Photos
  • Videos
  • Receipts
  • Police reports
  • Witnesses’ statements, and 
  • The other driver’s details, among others.

Policy Limits

Insurance policies typically have limits on maximum payable amounts. If a claim exceeds these limits, the policyholder may be required to cover the difference.


Deductibles are monies paid out of pocket before the insurance coverage kicks in. Higher deductibles can lower your premium but increase your financial responsibility in a claim.

Pre-existing Conditions

Pre-existing conditions can impact the coverage of certain treatments or services. Understanding how these conditions affect your claim can help you navigate the claims process with minimal challenges.

Loss Assessment

Insurance companies assess your claim to determine the value of the damages. Their assessment may not always align with your estimation, leading to disputes.

Insurance Adjusters

Insurance companies assign adjusters to evaluate your claim. Their expertise and assessment can greatly impact the outcome. So, it’s important to provide accurate information and cooperate with them.

Legal Matters

Complex claims or disputes may require legal intervention. However, reputable law firms in your local area can provide valuable guidance and representation throughout the claims process.

How Do Insurance Companies Calculate Personal Injury Claims?

Insurance companies employ various approaches to calculate the value of injury claims. Here’s how your insurance company calculates damages.

The Damage Formula 

This is a straightforward approach used by insurance companies to determine the value of personal injury claims. All expenses incurred by the policyholder are added to estimate the value of their claim. 

Insurance companies typically focus on total medical expenses, lost wages or income, and property damage, when using this method. The sum calculated figure gives an estimate of the overall damages suffered by claimants. 

However, this method doesn’t take into account non-economic damages such as pain and suffering. As a result, the damage formula is considered subjective and difficult to quantify.

The Multiplier Method

Under this approach, the total economic damages (medical expenses, lost wages) are multiplied by a predefined factor – multiplier. The multiplier is based on several factors, including:

  1. The severity of injuries
  2.  The impact on the policyholder’s life, and 
  3. The anticipated long-term consequences. 

A minor injury might be assigned a lower multiplier. On the other hand, a severe injury resulting in long-term disabilities could have a higher multiplier. 

The resulting figure provides an estimate of the total compensation. This method is however criticized for its reliance on subjective factors and lack of consistency across different cases.

The Per Diem Method

Under this method, a daily monetary value is assigned to the injured person’s pain and suffering. The claimant’s recovery duration is the primary consideration when using the per diem approach. 

For instance, a company might assign a fixed amount for each day of pain and suffering experienced by the policyholder. Insurance companies multiply this daily value by the number of days of recovery to arrive at a compensation amount. 

However, this method isn’t popular as it’s considered arbitrary. Why? Because the assigned daily value may vary between insurance companies and the duration of recovery may be subjective.

Each insurance claim is unique, and the factors discussed above can interact in different ways. To improve the chance of a successful claim settlement, follow the correct procedures and communicate effectively with your insurer.