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This article originally appeared in the October 2007 edition of ISO Review.
Feature Story:
Coping with Claim Surge
by Gary R. Kerney, Assistant Vice President, ISO Property Claim Services
Since 2004, the disastrous results of hurricanes like Katrina and Ike, as well as other catastrophes, punctuate the need for insurers to rethink their approach to claims processing. As baby boomers retire to warmer climates and snowbirds invest in winter homes in catastrophe-prone areas, the volume of claims is skyrocketing.
In short, there are more people with property in places where major storms occur, making the possibility of a larger-scale disaster very real. Insurance companies, local agents, and policyholders, therefore, must all recalibrate their expectations and put into place new processes that will help insurers scale their systems should such an event occur.
An obvious starting point is the relationship between the insurer and the policyholder. The most recent statistics from the U.S. Department of Labor indicate that there are as many as 400,000 insurance sales agents in the United States, with most of those operating from small offices or brokerages, not from carrier companies. That means the average policyholder is likely to hold a direct, local relationship with someone other than the carrier. As in the case of recent hurricanes, if local agencies are devastated, carriers can easily lose their information lifeline to policyholders and vice versa.
A major challenge is to reach and educate all policyholders. After Hurricane Wilma, for example, the number of claims surged by 70,000 several months after the event, according to PCS estimates. The spike was largely attributable to people whose secondary residences were damaged. Those people may not have even known they were affected until returning to these homes to find wind or water damage.
Impact of Severe Weather on the United States:
The Catastrophe Toll from January to December 2008
Click on the map to view a full-size version.
Some insurance companies have put toll-free numbers in place; others are designing websites that can be activated as information hubs, should thousands of insureds be displaced geographically or local agents become disconnected. Such measures are critical, but not enough. Before the next catastrophe strikes, insurance carriers need to work with local agents to educate policyholders on the importance of carrying insurance information wherever they go or informing their insurance company how they can be contacted in the event of displacement.
In some cases, finding policyholders may be easier than actually finding properties. As Katrina proved, insurers can’t presume that storms will leave street signs or even roads. Insurers must rethink how they mark and find their policyholders’ properties so they can get the claims process moving more quickly.
Advancements in GPS and satellite mapping technologies are being tested to help adjusters find and identify areas more rapidly and accurately. These solutions, however, are easier to imagine than execute. GPS and other satellite technologies remain expensive and can require revisiting an entire customer database to tag the information to a customer’s file.
It is also paramount that the insurance industry reassess its relationship with government at all levels. Everyone gains from effective coordination, but priorities tend to differ. Governments are generally concerned with delivering basic services such as security, power, and shelter. In the immediate aftermath of a huge storm, these priorities are correct, but there should already be agreements in place with governments whereby insurers can resume work as soon as possible too.
The aftermath of Hurricane Katrina shows completely destroyed homes in the same area as homes with only moderate damage. Homes with superior construction experienced far less damage. [FEMA News Photo]
One area of preparedness that is already under way is the reassessment of building codes in hurricane-prone areas. Stricter codes also mean training and information need to be disseminated to all stakeholders in the process. This takes time and money. Inspectors need to understand new requirements and how to identify compliance. Government also needs to communicate how building owners can become compliant and benefit from better construction practices.
New technology, new processes, and all the education that comes with them will come at a price. Local and state governments will need to demonstrate renewed political will to establish effective labor-licensing processes and mechanisms to disseminate information about contractor supply. Carriers and their agent networks will have to invest in new technologies and new process engineering to ensure services can be delivered after a catastrophic event.
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