How Do Insurance Companies Calculate Settlements?

Jun 27, 2023 | Personal Injury

Insurance companies use a variety of factors to calculate settlement offers. The specific method and factors used can vary depending on the type of insurance and the circumstances of the claim. However, some common factors that insurance companies typically consider when calculating settlement offers include:

Policy Coverage

The insurance policy itself is the starting point for determining the settlement offer. Insurance companies review the policy to determine the types and limits of coverage that apply to the claim. This includes evaluating whether the claim is covered under the policy and the extent of the coverage.


Insurance companies assess the damages incurred by the claimant. This includes evaluating the extent and severity of injuries or property damage, as well as any ongoing or future medical treatment costs, lost wages, and property repair or replacement costs. The insurance company may also consider the emotional distress or pain and suffering associated with the claim.


Insurance companies assess the liability of their insured, or the policyholder, in relation to the claim. This involves evaluating who was at fault and to what extent. If the insured is found to be fully or partially at fault, it can affect the settlement offer. For example, if the insured is found to be only 50% at fault, the settlement offer may be reduced by 50%.

Comparative Negligence

In some cases, insurance companies may apply the concept of comparative negligence, which means that the settlement offer may be reduced proportionately based on the claimant’s own negligence or fault in causing the claim. For example, if the claimant is found to be 20% at fault, the settlement offer may be reduced by 20%.

Precedent and Case Law

Insurance companies may consider similar cases that have been settled in the past as a reference for determining settlement offers. This may involve looking at case law, legal precedent, and industry standards to determine what a reasonable settlement offer would be based on similar situations.

Negotiation and Mitigation

Settlement offers are often subject to negotiation between the insurance company and the claimant or their representative. Insurance companies may take into account the potential costs and risks associated with litigation and may adjust the settlement offer accordingly to reach a mutually agreeable resolution. They may also consider ways to mitigate their losses, such as offering payment plans or structured settlements.

Other Factors

Insurance companies may consider other factors such as the claimant’s age, occupation, and overall health, as well as any applicable laws or regulations that may affect the settlement offer.

If you believe that you have not received a fair settlement offer, please call the attorneys at Gallagher Krich APC at (858) 926-5797 or info [at] today for a free case evaluation!

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