Effective Claims Management Starts When the Storm is Still a Blip on the Radar Screen
By RICK KUZMANOFF, head of property claims, United States and Canada, for XL Insurance
When a potentially disastrous hurricane first appears on the weather radar screen, insurance company claims executives can't just sit around, holding their collective breaths, hoping clients' damage won't run in the multimillions. Sharpened catastrophe modeling technology, a proactive approach, experience and a resource network can allow them to protect their business partners' interests.
According to the Insurance Services Office's Property Claim Services unit, last year's total insured property claims soared to $25.2 billion from 37 catastrophes, the fourth highest costs and the highest frequency in a decade. Commercial claims accounted for 340,000 of those, or 27 percent of the total.
It was no surprise that hurricanes were responsible for most of the losses, estimated at nearly half, $13.3 billion, of the total insured property damage.
Fortunately, due to XL Insurance's proactive CAT modeling approach to risk saturation, our losses were only a small percentage of those major claims.
The Katrina/Rita experience taught us much about CAT modeling and how to spring into action well before those mean-looking churning waves and brutal, gusty winds approach the shore in any hurricane-prone areas.
In an industry that's been slammed in recent years by floods, winter storms and hurricanes, it's more than necessary to proactively anticipate claims so that we can focus our attention where it's needed the most.
Today, our highly sophisticated CAT modeling operation, based in Charlotte, N.C., maintains a database--including financial data, property values and related information--of all our clients, which are geo-coded according to ZIP code, longitude and latitude. Each risk is assigned a value, based upon the known information provided to the underwriters when we contracted with the client.
Over the years, we've honed our property underwriting standards, taking into account the condition and structure of a property, its proximity to coastal areas and related elements. Using risk engineering techniques, when we look at the risk, we make recommendations as to whether the risk measures up to our standards. We also participate in structured and layered programs, so in some cases we'll only take a percentage of a particular risk.
When a major hurricane is approaching, we typically proceed in the following manner:
-- When a storm is estimated to be about two to three days away, the CAT modeling team, using their most current data, contacts the various CAT committee members, consisting of global, underwriters and claims personnel whose clients have properties in the presumed international geographic areas where the storm is likely to hit.
The team identifies which accounts in a particular geographic area have risks, depending upon the location and concentration of the projected impact. Armed with this information, we begin to evaluate the exposures and identify certain accounts that might require claims advice or resources.
-- A day or two before the storm actually hits, the modelers send out an updated list of clients that are likely to be affected based upon various published scenarios for current path and wind speeds. The closer a storm moves toward landfall, the more accurate these predictions can be. Our business units pass along this information to the CAT committee members and claims executives, including myself.
Based upon my 34 years of claims experience, coupled with a large dose of intuition, I begin calling the property account underwriters, brokers and risk managers to identify myself as the person to contact if they experience damage or require assistance. At this point, we've already contacted the necessary resources--adjusters, contractors, accountants, engineers, safety experts and others--who are mobilized and ready to respond quickly.
-- Once the storm makes landfall, we contact our clients' risk managers via e-mail, phone or however we can get in touch with them, asking for condition reports so we can dispatch the resources they may need for damaged properties. Should an account suffer major damage, we'll form an adjustment team that consists of the required experts, who are waiting to move. We want to make sure the damaged property is at least temporarily protected. We've now begun to manage the claim process.
It's critical for the insured, as well as XL Insurance, that we respond to the claim as quickly as we can, usually in only a few hours. Recognizing that quick decision making is critical, we quickly evaluate the coverage and deductibles, as well as the cash flow requirements, of the insured. We typically process an advance payment within a few days, usually by wire.
We can often use these techniques to put together loss projections for their principals and stakeholders. We follow up personally by attending meetings whenever possible to see that the process continues to conclusion.
We believe this proactive approach, and relying upon our continuously updated CAT modeling tools, have allowed XL Insurance to keep current with all our clients located in potential disaster zones, to provide the damage-control experts when a catastrophe hits and to manage the claims process in an efficient manner that our clients appreciate.
March 3, 2009
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