A Plan for All Seasons

A Plan for All Seasons

How to design a mock catastrophe and test your readiness.

By Bob Crowley

The 120-mph winds bend the palm trees while the rain pours down sideways. It’s Aug. 17, 2012, and Hurricane Klaus is making landfall near West Palm Beach, Fla. As the night progresses, the Category 3 storm sweeps northwest, causing a high volume of severe claims throughout Florida, Alabama, Georgia, and Tennessee. Properties are flattened, businesses crippled, and residents left homeless.

Your claims team must work quickly and effectively to help customers get back to normal. Yet they are facing a complex product mix in South Florida, as well as a large concentration of businesses throughout the other affected states. How do they delegate resources? What business partners do they reach out to? How do they handle a large volume of phone calls and a wide variety of claims?

Fortunately, this is just an exercise—a mock hurricane scenario designed for claims training at my company, an exercise conducted once a year to address a scenario that poses a challenge to our organization.

These exercises have the potential to strengthen any claims team’s responses to real-life catastrophes. To effectively run a mock catastrophe scenario, an organization needs only its staff and the right planning, communication, and organization.

Why Conduct a Mock Catastrophe

Depending on the product mix, risk exposure, and location, companies should consider running a mock catastrophe exercise at least once a year. This exercise helps integrate the claims catastrophe response into an organization’s culture. To be most effective, these exercises should be included as part of an organization’s annual planning process. The mock exercises help claims managers identify opportunities for both process and workflow improvements, and it clarifies roles and responsibilities for the key decision-makers.

Running mock scenarios also will reduce the amount of time needed for prestorm activities. The preparation and planning prior to a major catastrophic event is critical for a successful claims response. With regular mock scenarios, the claims team gets a chance to become familiar with their assigned tasks. This could mean having an effective understanding of catastrophe models or being fully aware of risk exposures and locations.

Additionally, the claims team can work through communications processes during an exercise. For internal communications, it ensures that all parties are aligned with one another and able to mount an integrated response. Plus, running an exercise can improve the communication with key vendors to make sure they have the capacity to respond to anticipated needs.

Another major advantage of conducting these exercises is the identification of resources needed for claims response. This provides insight into the level of expertise needed based on the organization’s anticipated product risk and the severity of damage. It allows you to inventory adjuster skills sets and properly plan and build the needed resources. Ultimately, this will help develop a successful resource deployment plan.

If an organization’s catastrophe plan includes early damage assessment teams, these exercises will help make sure the teams are comprised of the right number of responders and give you the opportunity to make sure everyone is committed and properly trained for dispatch with very little notice.

Another advantage of conducting mock catastrophes is improving a team’s ability to anticipate and respond to legal and other related issues. For example, some areas of the country may have unique building codes that require highly skilled adjusters to respond. Anticipating these situations will help ensure processes are in place for consistent claims handling the moment a disaster hits.

Finally, practice can help a team better anticipate how coverages and deductibles will be applied in certain situations. Superstorm Sandy is a recent example of a storm that tested policy wording on endorsements and deductibles. The string of storms involved in the 2004 Florida “Big Four” hurricanes is another example of how deductible language can be tested because so many events occurred in such a short time frame.

Understanding the legal ramifications and proactively addressing the needs of the policyholder will lead to consistent claims handling. Real-time practice will expedite and help direct a team to identify and track claims consistently in these unique situations.

How to Run a Mock Catastrophe

Every organization will run these drills differently depending on their needs and unique mix of risks, but there is a basic framework to follow to get the most out of a mock catastrophe exercise.

Management initiates the process by designing a challenging catastrophe scenario focused on points of friction such as:

  • Exposure Concerns. Using catastrophe modeling, drill down and identify an area of the country with a concentration of business or an area with large, complicated risks.
  • Challenging Product Mix. Look at the various types of properties that could be involved. Superstorm Sandy challenged specialty insurers because of the unusual mix of watercraft and collector vehicles damaged by wind and tidal surge.
  • Compliance Requirements. Certain states have significant reporting requirements. You can target one of these states, discuss the data issues that might be involved, and develop guidelines to ensure timely reporting.
  • Media and Marketing Response. Do you have protocols in place to address claims involving the media? Will you be proactive with publicizing your catastrophe response?
  • Logistical Concerns. Are airports going to be shut down? What if there are no rental cars available for your adjusters? What if there is a gas shortage? How will you respond to a flood risk if you have to wait two weeks to gain access to properties because of a tidal surge?
  • Multiple Storm Scenarios. You can run a scenario that addresses back-to-back major catastrophes, much like Hurricanes Katrina and Rita in 2005. Challenge the team to answer these questions: How many resources will be deployed to the first event when a second is imminent? How will this modify the expected service level of the claims response?

Once you have identified the scenario that you would like to run, hold a kick-off session to introduce the claims team to the disaster. Make sure to assemble any other employees who play a critical role in the catastrophe response. This might include product managers, underwriters, and the sales team, which can provide insight into partner needs. Marketing, communications, and the system support teams will play critical, behind-the-scenes roles in the disaster response. If the planning is thorough, questions for these stakeholders will surface naturally, so be sure to involve them at the appropriate time.

Identify anticipated data needs (like policy counts and product mix) and make sure they are available prior to the kick-off meeting. Next, put together a timeline for plans to be reviewed by your management group. Remind everyone to conduct themselves as if it is a live event. To simulate a real catastrophe response better, you want to run this as quickly as possible.

Regroup within a week and expect everyone to have their claims response plan prepared for presentation to and review by management. Management identifies one response plan as the strongest. Document the recommended response plan, capture any issues identified, and build a plan to resolve the outstanding issues. Be sure to schedule a follow-up session to ensure that any outstanding issues are resolved.

Takeaways for the Claims Team

Running a mock catastrophe scenario will raise significant questions and produce a long to-do list for the claims team and other stakeholders. It should help determine the claims team’s overall resource and logistical needs and should result in the following:

  • A clear communications plan for policyholders and business partners.
  • A claims team with enhanced catastrophe response skills.
  • A process that improves customers’ experiences.
  • Awareness of the needs of business partners and employees within the strike zone.
  • A clear set of roles and responsibilities for all employees involved in the catastrophe response plan.
  • Improved understanding of risk exposures.
  • A preferred list of specialized adjusters for response to unique needs, such as a particular product or level of severity.
  • Improved collaboration among departments within the organization.
  • Identification of training and associate developmental needs.

Customer satisfaction should drive the design of a company’s catastrophe response model. The mock scenario will make clearly visible customer needs that are often difficult to anticipate. Running a scenario not only builds the claims team’s skills, but also helps them efficiently work together.

Major catastrophes will always test an organization, but running a mock catastrophe scenario helps you to anticipate and eliminate preventable problems. 

Bob Crowley is vice president of claims for Specialty Insurance Services Corporation, a claims management and training subsidiary of American Modern Insurance Group. He has been a CLM Fellow since 2014 and can be reached at BCrowley@amig.com, (800) 375-2075 ext. 5482, amig.com.

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