Good Cat Claim Handling - Planning for the Before, During and After
The start of Hurricane Season triggers the need to review catastrophe plans to make sure resources are available and can mobilize quickly to handle a high volume of claims from weather-related events. Having a detailed and well-prepared catastrophe plan enables not only efficient handling of a high volume of claims, but also many other things - a higher customer satisfaction resulting in fewer policyholder complaints, favorable policyholder retention, positive brand awareness attracting new business, fewer litigated claims, reduced potential for bad faith exposure, and better control over indemnity and expense dollars paid on claims impacting loss ratio.
As J.D. Power has recently published,1 an insurer's timeliness of communication after a loss plays an important role in whether or not a claim gets escalated to a supervisor by the policyholder for further attention. Per J.D. Power's assessment, when settlement terms (an explanation of the claim settlement processes) are provided to the claimant within one day of the claim being reported, only 6% of customers escalate the claim. However, the rate of escalation significantly increases to 13% if the claimant is informed at a later time - within one week - and escalates to 18% if interaction occurs more than one week after the loss.2
An insurance company's planned response to a catastrophe depends on many factors including the size, geographic territory, organizational structure, claim department staffing model, the type of business written, severity and type of claims the company expects to receive, among other factors. At Gen Re we have found 31 critical areas for planning and assessment that distinguish top claims handling organizations in a catastrophic event. While business continuation plans, including office phone trees, are often practiced, details such as obtaining access area permits and pre-event forecasting tools to support early agency and adjuster communications are examples of companies performing “best in class” practices for catastrophe events.
The Cat Plan - The Before, During and After
An insurance company's plans to respond to a catastrophe depend on many factors, including: the size of the company, where the company is located geographically, the organizational structure of the company, claim department staffing model, the type of business the company writes, and the severity and type of claims the company expects to receive. Always, however, it is important to have more resources available than actually needed. It is much easier to scale back an operation than to find additional help after the disaster has occurred.
The following is a summary of some of the tasks to consider in preparing for a major catastrophic event.
BEFORE THE EVENT
Business Continuity Plan - When a storm is expected to cause damage to a claim office location and the Business Continuity Plan (BCP) is triggered, claim department activities in gearing up to handle Cat claims will dovetail with the BCP. The BCP will normally take precedence in determining such things as: how employees are notified, where staff is relocated to, how equipment will be procured, where phone calls will temporarily be routed to, what additional resources will be needed at the new location, etc.
It is generally a good idea to update your BCP annually before the storm season and provide a paper copy to employees to keep at their residence.
Forecasting Claim Volume - Early on, Geographic Information Systems (GIS) can be used to identify insured risks in the vicinity of a natural disaster. A Geographic Information System utilizes software that will allow the user to download physical address data that it then stores and converts to a visual map identifying areas of risk exposure and/or loss. This may require some assistance from your IT department, but the result can be very effective in estimating exposure and projecting claim volume.
Most insurers have this capability, and Property Claim Services (PCS) estimates that 90% of the direct written premium by insurers in the U.S. can be mapped using a GIS.3 A GIS is also helpful in identifying large risks that may have been damaged by a more localized storm, such as a hail storm, by referencing National Oceanic and Atmospheric Administration (NOAA) information.
Reserving - If you are not using an automated statistical reserve when a claim is set up, determine what average reserve you want to assign to Cat claims when they are opened. If you are not assigning a reserve on desk-adjusted claims until the policyholder sends in an estimate, you may be under reserving, as there are often delays on the policyholders' part in submitting estimates.
Contact Center - Due to the volume of claims coming in from a Cat, it is not always possible to meet Best Practice standards for making initial contacts. If the initial contact timeline is extended, the script that customer service representatives use when taking new claims in a Contact Center should be changed to advise policyholders of when they should be expecting an initial call. This is important to set policyholders' expectations.
Should the storm result in damage to the Contact Center location, incoming calls would need to be forwarded to a backup facility that can take the new loss reports. Additionally, if there is a temporary suspension of computer network services, it would be a good idea to have paper forms available for customer service representatives to continue to accept new claim reports.
Agency Communication - Sending a bulletin to agents and brokers is a good idea to notify them of any changes in claim handling or plans for handling Cat claims. It is also an opportunity to advise them of the preferred method of reporting claims and to provide a list of the claim department key contacts. The insurance company should continue to send frequent updates to agents, advising them of timelines and other essential information. Doing this will enable agents to answer calls from insureds and will reduce the number of calls going back to the insurance carrier.
Procuring Vendors and Independent Adjusting Company Services - The frequency and severity of natural disasters over the last 20 years has led to an increase in the number of independent adjusting companies with staff committed to handling Cat claims and willing to deploy to affected areas, providing both field staff and inside staff to assist in handling Cat claims. With a large catastrophe, though, or during a busy hurricane season, high demand for independent adjusters may make it difficult to find enough Cat adjusters to adequately handle your claims. It is important to make contact with your vendors early in the year to discuss what resources they can provide your company in the event of a Cat and to discuss fee schedules and rates.
After a large catastrophe, demand for services can cause a Cat vendor's rates to go up, if no prior pricing agreements were in place. Additionally, if demand for Cat adjusters exceeds supply, it could be difficult to find enough independent adjusters to handle your claims. To avoid this potential problem, an insurer may want to consider paying a retainer fee to assure that it will have adequate coverage in the event of a large catastrophe. If you have a direct repair program, making contact with your contractors before the event is also beneficial for discussing capacity, response time and services.
Temporary Staff Training - If you are going to be bringing in temporary staff from a vendor, a training plan should be developed in advance. Prepare a written training plan and determine who will do the training. If possible, have someone outside the claim department do the training, so claim staff can continue to handle incoming claims.
Systems Access - Arrangements should be made with your Information Technology (IT) Department to streamline the process of getting computer system access for temporary claim staff hired to handle Cat claims and authority for employees coming from other departments to assist your claim department. It's best to have a dedicated contact in IT that will expedite requests from the claim department for access and to spearhead the resolution of any claim system issues that arise related to Cat claim handling.
Direct Repair Program and Preferred Contractors - Insurance companies that have a Direct Repair Program or preferred contractors, with whom they have pricing agreements in place, tend to do better in managing their average paid claim and are more insulated from demand price surge, which often occurs after a catastrophe. Having a network of contractors that are referred to policyholders, or are in your Direct Repair Program, will also help to avoid long delays policyholders sometimes experience in getting repairs done.
If you have a large contractor doing repairs for many policyholders, you may want to consider having an adjuster work out of the contractor's office. Demand for tree removal after a storm typically results in price escalation. Developing a referral program and forging a relationship with tree removal contractors will aid in managing costs, which will benefit policyholders since coverage for tree removal is limited and the insured often pays the excess out of pocket.
Utilize Staff Resources - If your company does not have a dedicated catastrophe team, it's a good idea to maintain a roster with names of staff that can be deployed and travel to work in the field or a remote office to assist with handling claims. Staff in other departments with claims experience, or familiarity with claim systems, can provide valuable assistance with tasks such as answering phone calls, setting up and assigning claims, processing payments, etc.
Cross-training staff from other departments and providing the opportunity to periodically work in the claims department will be essential if this arrangement is going to work. It must be part of the plan.
Utilize Other Offices - Assistance in handling claims can be solicited from other offices outside the territory of the office where the Cat occurred. Other offices may have the capacity to handle some Cat claims for your office. Cat claims that do not require an inspection and can be “desk adjusted,” or claims utilizing a control adjuster who assigns the inspection to an outside adjuster but maintains ownership of the file, may be routed to other offices to handle.
Companies need to make sure that the technology is in place to do this and that it can cope with the volume of calls.
Identify Large Loss Adjusters and Experts - Who do you want to have handling your large losses and at what dollar amount should Cat losses go to a large loss adjuster? Most companies prefer complex claims to be handled by staff, or independent adjusters capable of handling large losses, with a proven track record.
Office Equipment Resources - If additional staffing is going to be brought in to handle claims in the office, confirm that work stations and equipment will be available.
Licensing - If adjuster licensing is required where the catastrophe occurred, the state's Department of Insurance (DOI) should be contacted to determine if license waivers are being granted for Cat adjusters. Waivers are often granted and the state insurance department may require a roster with a list of the names of unlicensed adjusters that are working for your company. The National Association of Insurance Commissioners (NAIC) website provides contact information for all 50 state insurance departments. (See http://www.naic.org/ state_web_map.htm)
Access Permits - State DOIs may issue Temporary Access Permits in anticipation of a storm making landfall that would result in widespread damage and create a state of emergency limiting travel in affected areas. The DOI may update its website with information a few days before a severe storm is expected to make landfall. The intent of the access permits is to allow insurance company representatives a means of egress into damaged areas where travel is not otherwise permitted.
Additionally, when a state of emergency is declared after a severe storm, the Emergency Management Agency (EMA) for the state may have jurisdiction and issue the permits allowing entry into restricted areas. You will need to check with the state DOI office or the state EMA office to determine if they will be issuing Temporary Access Permits and how they can be obtained. A roster of adjusters handling claims for a company will usually need to be provided to the DOI or EMA prior to getting permits. However, permits may be limited and require sharing among adjusters when they travel into affected areas. (See http://www.fema.gov/emergency-management-agencies)
Insurance Department Communications - Companies should consider having one person and a backup as points of contact for various states' DOI. Having familiarity with contacts and procedures at various state DOIs will streamline the process of providing information, receiving bulletin communications, and getting prompt responses to inquiries.
Adjuster Accommodations - After a catastrophic event, it can be difficult getting hotel rooms for claim staff and independent adjusters relocating to handle claims. Some hotels may be damaged and not able to open for business. Demand for hotel rooms increases after a catastrophe, due to the number of homeowners that are displaced from their homes, and from emergency workers, contractors and adjusters that come to the area responding to the event.
Hotel rooms should be reserved as soon as possible and before a hurricane makes landfall. Initially, it is best to make hotel reservations away from the expected path of the storm to avoid a situation where the hotel may be damaged or unable to open due to order by civil authority. A good rule of thumb is to make reservations at least 50 miles from the path of the storm to assure that rooms will be available after the storm. After the storm, adjusters can relocate to available hotels in the territory they are covering.
Form Binders - Copies of policy forms and endorsements should be printed and placed in binders to provide to Cat adjusters. The forms may be available electronically, but it is better to give the adjusters a paper copy so they can access them quickly and avoid printing the forms.
Experts List - Compile a list of experts including engineers, equipment experts, cost consultants, forensic accountants, specialty contractors etc. who will be utilized in the territory were the disaster has occurred. Consideration should be given to contacting or meeting with them in advance to discuss parameters for obtaining their services and the scope of the work they will be doing. Insurance companies should consider giving the adjusters authority to appoint these nominated experts, rather than having them go back to the company and to avoid contributing to delays in handling claims. This list can be included in the forms binder. Generally, it is better to use local qualified experts, rather than an expert who comes in from out of town and who may thus be viewed as a "hired gun." With very complex or large claims, though, there may not be a local expert that is qualified or available.
Meet With Cat Adjusters - It is a good idea to gather all adjusters and management staff who will be handling claims and have a meeting to review claim handling guidelines/best practices, state regulations, types of coverage scenarios that may arise, and any additional information of importance. A written copy of the material covered during the meeting should be included in the forms binder, along with the experts list and other pertinent materials.
Manage Regular, Non-Cat Claims - Consideration needs to be given to determine what resources are going to remain in place to handle the regular volume of claims. Maintaining a high level of service on non-Cat claims is important to retain policyholders. If you use independent adjusters, you will want to get a commitment from them that they will continue to handle non-Cat claims with priority, and do so expeditiously.
Manging the Cat
Initial Claim Handler Contact - Timely contact by the adjuster is very important in the policyholder's overall satisfaction of how the claim is handled. As mentioned at the beginning of this article, when settlement terms (an explanation of the claim settlement processes) are explained to the policyholder within one day of the claim being reported, only 6% of insureds will end up escalating the claim to a supervisor.
The escalation rate increases to 13% when the explanation is within the first week and increases to 18% when it occurs after the first week.4
Batch Assignments by Tier and Location - Most companies segment claims as either desk adjustments handled by an inside adjuster, those that require a field inspection, or complex claims that need to go to a large loss adjuster. Creating defined territories for field adjusters by zip code will help to minimize travel and make it easier to assign claims and reassign claims that were being handled as desk adjustments and are transferred to field staff due to increased complexity. If volume is high in a particular territory, boundary lines can be adjusted by zip code.
Handling Disputed Claims - Disputed claims often require management involvement and sometimes a reinspection. If your company has Field Team Managers and/or Re-inspectors, they can be a valuable resource in resolving disputed claims when there are disagreements on scope, pricing and coverage with policyholders and contractors. If your company does not have staff resources to deploy, then using another independent adjustor to complete a re-inspection may be helpful.
Quality Control - Doing file reviews and re-inspections during a Cat will ensure that claims are being handled properly and that adequacy of payment is accurate. It will also aid in identifying the independent adjustors and vendors that are doing the best job for you, and which ones you want to utilize more.
Social Media - Using Facebook, Twitter and your company website is very beneficial in communicating with policyholders to provide information on procedures for reporting claims, information on the claim settlement process, locations where their adjusters will be if you have mobile units, or where they can go if they need to a have a vehicle appraised, etc. Providing updated information for agents on your company's website regarding Cat claim handling activity is also important. Including information on claim volume, percentage of closed claims, unique additional coverages being paid under endorsements also helps and creates a good marketing opportunity.
Fraud/Special Investigative Unit - Fraud activity typically increases during a Cat. Some of the reasons for this may be due to the volume of claims, anticipation among insureds and contractors that claims may not get as much scrutiny as they normally would, and disreputable contractors coming to the disaster area to do work. Additional resources may be required from your SIU to handle an increase in referrals.
Keep a Log of Success Stories - When managing Cat claims, keep a record of success stories for claims that close quickly and where you exceeded the policyholder's expectations, situations where the adjuster went above and beyond what was expected of them, or acted quickly to allow an insured's business to reopen quickly, etc. Ask adjusters to notify you when they get a complimentary communication from a customer. It will provide an opportunity to recognize employees, and can be useful after the Cat, if you are asked to provide information for marketing purposes or to write an informative communication about the recent Cat.
The Next Wave - Once claim volume and severity are known, you will need to forecast how long it will take to close the claims and get the pending claims down to a manageable level so the remaining claims can be turned over to regular claim staff to handle. As deployed staff adjusters and employees on loan from other department return to their offices, you will need to forecast what your staffing needs are going to be and what resources you can utilize to get additional help within the company to handle the run-off Cat claims.
Communicate Cleanup Needs With Your Independent Adjusting Companies - You will also need to communicate claim management and staffing plans with your independent adjusting companies, so they can manage their resources to support your plan to close out the balance of Cat claims.
After the Event
Follow Up - Doing closed-file reviews, reviewing policyholder claim service surveys, and soliciting feedback from agents and employees, will provide good sources of information in assessing how well you performed in managing the Cat. Reviewing expenses is also a valuable exercise to determine where money was spent and to identify areas of potential savings. Results from closed-file reviews should be summarized so scores can be assigned to vendors and independent adjustors. Those vendors and independent adjustors with the highest scores are the companies you will want to target for assistance when the next disaster occurs. Assessing what went right and what went wrong in handling claims for a Cat will also aid in making changes to your Cat plan, improve your claim operation, level of service for the next Cat - and increase policyholder retention.
We Are a Thought Partner With Our Clients
As a risk taker along with our clients, Gen Re invests in resources to address the complex issues associated with catastrophe events. We do this by using MapPML® to proactively assess and support contact of potential policyholders impacted, supporting our clients' capability to pay catastrophic claims quickly through wire transfer of funds within 24 hours of request, and through the expertise of our staff.
Gen Re seeks ways to further complement our clients' claims handling approach. Our experienced staff can provide assistance on resolving complex property claim issues, identifying the proper experts, locating defense counsel, selecting independent adjusters to assist with high claim volume, extra contractual and bad faith issues, and addressing your claim training needs. Our Property team is always available to answer questions and assist you on any matter.