3 Lessons Learned From Catastrophe Claim Handling
March 30, 2015| By Mike Griffin
Region: North America
After years of seeing catastrophe claim handling, I can pick out three critical things that insurers really need to remember:
1. Never underestimate the claim volume from a storm - and always have a plan to handle more claims than you expect to receive.
There is a comfort level in using the independent adjusters (IAs) you use on everyday claims to also handle catastrophe claims. They may be able to handle some Cat claims, but there is a risk though that if other client companies also plan to use them for Cat claim handling that volume will exceed their capacity resulting in delays and service interruptions on both Cat claims and non-Cat claims. It is wise to forge a relationship with a national Cat vendor, large regional IA company, and other resources outside of your core territory that can deploy staff in the event of a Cat.
Having a strong relationship and plan developed with both your internal and external Cat claims teams leads to better execution, J.D. Power notes in their 2014 Property Homeowners Claim Satisfaction Survey: “When major storms hit and insurers have to rely on third parties to assist in managing the large number of claims, service levels often deteriorate fast as each insurer has their own processes and approval requirements. This can sometimes lead to significantly extended claim cycle times.”
2. Cat planning isn’t just for hurricanes.
While coastal storms tend to cause the most widespread damage, not having a coastal exposure doesn’t insulate you from experiencing a high volume of Cat claims that will exceed your claim handling capacity. Derecho (de-REY-cho) storms, resulting from straight line winds common in the Central and Eastern U.S., can span up to 240 miles in width and have wind speeds in excess of 100 mph.1 The Southern Great Lakes Derecho of 1998 traveled 975 miles in 15 hours from Minnesota to north central New York with an average wind speed of 65 mph.2
Damage from hail storms tends to be localized and not as widespread as windstorm damage, but a series of hailstorms in a few weeks can generate claim volume that will be problematic. Even without a coastal exposure, it is important to have a good Cat plan in place.
3. Good catastrophe claim handling impacts financial results.
According to the Insurance Research Council, between 2004 and 2011 39% of homeowners’ premium in the U.S. was spent on Cat claims.3
When claim volume exceeds a company’s resources to handle the claims customer service problems occur, litigation increases, and steps in the claim handling process may be skipped to get claims closed, resulting in more money being paid on claims.
Per J.D. Power’s 2014 Property Claim Satisfaction Survey, “When insurance companies effectively communicate with claimants, those claimants are less likely to escalate their claim to a supervisor. If the settlement terms (claim process) are provided to the claimant within one day of first notice of loss, only 6% of customers escalate the claim. The rate of escalation increases to 13% if the claimant is informed within one week and increases to 18% if it takes more than one week.”
Proper management of Cat claims, with set protocols and procedures, can lower your loss ratio and strengthen your premium base by improving policyholder retention and promoting a strong company brand.
1. About Derechos, Part of the NOAA-NWS-NCEP Storm Prediction Center website, prepared by Stephen F. Corfidi, Jeffry S. Evans, and Robert H. Johns, July 24, 2014.
2. NOAA Storm Data, May 1998.
3. Insurance Research Council, Trends In Homeowners Insurance Claims, September 2012.