6/5/2012

Catastrophe Claims Management Creates Moments of Truth

Managing claims after a catastrophe is a lot like parachuting into a war zone. To achieve success, insurers need an army of people who are very well trained, supremely organized, meticulously disciplined, and thoroughly committed to the mission.

By Sam Friedman

Managing claims after a catastrophe is a lot like parachuting into a war zone. As demonstrated by tragic events—the April tornadoes in Dallas that tossed around tractor-trailers like toy trucks or the aftermath in Louisiana after the massive wind and water damage caused by Hurricane Katrina in 2005—chaos is usually the rule rather than the exception. Power lines are down, phone service is unreliable, roads are left impassable, and running water is in short supply.

More importantly, policyholders are at their most vulnerable. They may have lost their homes and perhaps their cars, as well. The only clothes they might have left are those they are wearing. They could be injured, and they may not have eaten or slept for a long time. They may be emotionally devastated and desperate for help from their insurer.

To achieve success in a war zone, insurers need an army of people who are very well trained, supremely organized, meticulously disciplined, and thoroughly committed to the mission. That applies not only to a carrier’s frontline troops (their adjusters and agents) but also to their commanding officers (claims managers) and logistical support (investigators and attorneys) back at HQ.

If your catastrophe claims unit lacks any of these prerequisites, discipline will break down pretty quickly, and the mission—to deliver on your duty to take care of policyholders and settle legitimate claims as quickly and painlessly as possible, while remaining vigilant for fraud by opportunists—will almost certainly fail. Angry customers filing bad-faith lawsuits and generating negative publicity for an unprepared carrier are the likely result.

Victory Loves Preparation

How might insurers avoid a claims management debacle following a hurricane, tornado, earthquake, flood, wildfire, or any of the other disasters that could cripple a community? That was one of the major challenges addressed during my recent visit to San Diego for the CLM’s annual conference.

The importance of being proactive and consistent was a key piece of advice offered to attendees. Don’t wait around for a disaster to hit to muster your troops. Have a catastrophe team trained and able to be mobilized at a moment’s notice, whether claims are handled totally by full-time staff, independent adjusters, or a combination of both.

To start, insurers can use predictive modeling to anticipate what they might be facing in any given catastrophe zone. Correlating the number of policies in force against miles-per-hour in a windstorm, for example, can provide estimates on the likely number of claims that will arise when a hurricane or tornado roars through a given area, allowing for more precise preparation in terms of how many adjusters will be required.

Make sure you don’t depend too heavily on local resources in any given community, since adjusters, agents, attorneys, and investigators living in or near a disaster area are likely to be in the same precarious position as their neighbors. Be prepared to call in disaster specialists from around the country to supplement local efforts. Meanwhile, have additional people trained and available to bolster call centers so that a flood of disaster claims does not overwhelm those on standard duty.

Communication is critical in a catastrophe. Carriers should be ready to use any available means, including social media, to keep their customers (and their own people) informed about what to do if a disaster is approaching as well as after the immediate danger has passed.

Consider having mobile assistance vans on site as soon as possible to offer tangible support for claimants (as well as for non-customers, who might reconsider their choice of insurer if they see one carrier on the scene helping people while their own company is nowhere to be found). Such vans can be a godsend after a disaster, offering water, food, charging stations for portable devices, lists of preferred contractors for repairs and restoration, as well as the ability to issue debit cards to cover additional living expenses for policyholders.

The vans also can promote a very positive image for a carrier beyond immediate recognition by policyholders if the press picks up on their efforts. It might even be worthwhile for insurers to invite local and national media reporters along for the ride so they can publish and broadcast human interest stories, supplemented by pictures and video of the catastrophe response teams in action.

In addition, insurers should not miss the opportunity to have senior leadership visible and on the ground in catastrophe zones. Their presence will leave an impression on both policyholders and prospects.

Proper Safeguards

Unfortunately, fraud is usually a concern after a catastrophe because some may seek to take advantage of the possibility that heavy claim volume could overwhelm adjusters and investigators. Fraudsters may try to game the system by contending that damages from routine deterioration or lack of maintenance is due to the disaster at hand. It’s smart to have special investigative units that are trained in catastrophe situations to follow up on any claims that raise red flags.

However, if carriers do reject or even challenge catastrophe claims, they need to be prepared to show that they have covered the bases in terms of inspections and damage assessments so their decisions can be defended as reasonable and not the result of carelessness or bad faith.

Communication with insureds should be documented to show that the insurer has met any timely response requirements in their policies as well as under state regulations. Carriers at the CLM conference reported having fortified their claims centers with technology that can handle this critical task to record not just the date and time of interactions (and even the actual conversations with policyholders), but also any unsuccessful attempts to reach an insured.

In any case, carriers would be wise to make sure they are fully aware of local regulations when managing disaster claims, as even a seemingly small violation can balloon into a major loss when multiplied by thousands of claimants, while also once again exposing the carrier to potential bad-faith suits.

Insurers also should be keenly aware of what their competitors do after a crisis, because their performance is likely to be judged in comparison to their peers not only in terms of sheer manpower deployed, but also in claims turnaround time and how additional living expense allocations are handled.

While helping policyholders is the whole point of the process, carriers should not overlook the physical and mental stress faced by their adjusters. The days following a disaster are long; claimants can be demanding, impatient, hostile, and perhaps even violent; and the working conditions are often brutal.

Maintaining contact with those in the field and regularly inquiring about their practical needs as well as their physical condition and state of mind is very important. So is the ability to rotate in fresh troops when necessary to avoid combat fatigue and keep your frontline people at the top of their game. 

Indeed, disasters are an opportunity to widen the experience of a carrier’s adjusters. Once a claims handler has worked a catastrophe, they won’t likely forget it—and their service to policyholders will be better for it.

The bottom line is that, while catastrophes are the worst of times for policyholders and insurers alike, they do create moments of truth for carriers. Everything insurance companies showcase in their advertisement and via their agents and brokers is put to the ultimate test.

Don’t underestimate the impact and value of having your team on the ground. Seeing a friendly face and getting help in the middle of a disaster from a genuinely concerned claims handler is something a policyholder is likely to remember and could prompt them to remain a customer for life.

Those who are unprepared to meet this challenge, however, could find themselves sidelined the next time disaster strikes.  


Sam Friedman is insurance leader with Deloitte Research, part of Deloitte Services LP in the U.S. He has been a CLM Fellow since 2011 and can be reached at samfriedman@deloitte.com.



Sam Friedman is insurance research leader with Deloitte’s Center for Financial Services in New York. He has been a Fellow with CLM since 2011, and can be reached at samfriedman@deloitte.com.

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