Catastrophe management is not a specialty area where insurers can choose to offer boutique service; it is nothing less than the true test of the insurer's capacity to marshal resources to fulfill the promise that a policy implies. The anniversaries of the September 11, 2001 attacks and Hurricane Katrina remind us that these capabilities will eventually be put to the test. Changing weather patterns and events such as the BP Deepwater Horizon spill indicate the changing shape of catastrophe risk. While catastrophe claims may not appear to be the bread-and-butter of claims losses, they are in fact the second greatest source of insurance claim costs, behind medical claims, according to the Insurance Information Institute (I.I.I.).
Bad CAT Management, Good Insurers
Many insurers, including national, household names, are poor catastrophe managers, in part because they do not consider these events "routine." All too often, policyholders who are suddenly desperate for assistance can't reach a customer service representative at their insurer. They are often forced to hold interminably on phone lines and may wait days before initial contact. Follow-up steps are frequently laborious, and policyholders may feel that the insurer considers fulfilling its end of the insurance bargain as more of a favor than a service due. Poor, disjointed claim handling is a blemish on an insurer's reputation, and one that is multiplied during catastrophes.
The reasons for poor service are diverse. The discontinuities of complex, legacy-system environments generally play a leading role in suboptimal catastrophe management. Also, insurers sometimes unwisely prioritize cost savings over service when making process and technology decisions. In many cases, it is difficult to avoid the conclusion that some insurers don't appreciate the human dimension of claims and its centrality to the mission of any insurance enterprise. Whatever the intentions of the insurer, dissatisfied customers are likely to come to the conclusion that the insurer doesn't really care about the individual's experience and is thus more focused on receiving premiums than properly executing on claims.
The Claim Modernization Imperative
People who feel they have been betrayed at the worst possible time are not likely to keep quiet about it. To the industry's credit, improving claims performance is a high priority for insurers. A recent study by industry analyst Novarica found that more than 30 percent of insurers consider claims modernization among their top three technology investment priorities. Forward-thinking insurers are implementing modern, Web-based, configurable claims systems to support reengineered claims processes that offer both greater efficiency and more thorough, timely, and consistent claim service. Even so, insurers that want to upgrade their catastrophe claims capabilities must understand that a modern claims system is only the beginning.
Optimal catastrophe claims service requires the coordination of the claims system with policy administration and billing systems. It requires the ability to connect with policyholders, as well as adjusters and other claims personnel, through all communication channels, and through mobile telecommunications in particular. Web-based claims systems are, by their nature, a hub for communication to all online communications, whether through a standard browser or via hand-held devices, and they also provide best-in-class capabilities for call center customer service. Beyond implementing modern core processing systems, proactive claims service requires appreciating all of the possibilities that such technology puts in an insurer's hands, along with a little imagination. When we consider technology and processes with the customer in mind and with a goal of making them whole in their time of greatest need, then we can begin to see the real potential of modern technologies.
Responders: Put Your Best Foot Forward
Every claims department is different in some respects, as is every book of business. Thus, every insurer must take a unique path to ensuring high-quality service. Traditionally, the best claims responders have taken their own route to enable rapid response directed toward the policyholders and their immediate needs. However, the state of technology today makes possible an even more ambitious goal: proactive catastrophe management to not just respond to a disastrous event but to also better prepare for it. By synchronizing claims, policy administration and billing, today's insurers can better prepare policyholders in advance; alert and have field adjusters standing by to be on site as early as possible; and empower all claims personnel with the right tools. After all, if the objective is to get policyholders what they need as soon as possible in the event of a catastrophe, preparing in advance and having all of the resources at the ready offers the best-case scenario.
Building proactive catastrophe response capabilities will make insurers more agile even in the case of events that strike without warning, such as earthquakes or terrorist acts. However, more than 70 percent of catastrophes are predictable weather-related events. Proactive catastrophe management begins with tracking these events, monitoring their development, and assessing the probability of where and how hard they will hit.
Ideally insurers' claims systems would be equipped to incorporate weather information services and leverage geographic information systems (GIS) capabilities that allow them to plot geographical exposure to events according to level of severity—high, intermediate and low, typically represented by red, yellow and green "heat" zones.
Once a storm passes a threshold of high probability for striking a particular area, insurers could map all policies that fall within that area and begin contacting policyholders via e-mail and even through social networking tools such as Twitter and Facebook to advise them about steps they can take to remain safe and mitigate damage to their property. For example, insureds can be advised to turn off gas and electricity and remove pets from the house.
Insurers could then simultaneously assess the number of field assets they will need and how they are likely to be distributed, matched to the location and severity of the event. Dispatchers could place adjusters on alert to receive further instructions as the event develops. As the storm strikes, a certain number of dispatchers and other resources, such as mobile field offices, should already be en route to the affected areas. Here's where having an easy-to-use, quick-to-deploy claims system will demonstrate its worth.
Assets Necessary For Action
At this stage of events, insurers also need to take defensive actions to prevent opportunistic or incidental attempts on the part of agents or policyholders to buy new policies or bump up coverage limits in areas likely to be affected. Very few insurers currently have the ability to stop new business and coverage changes under these circumstances, and as a result they inevitably suffer avoidable losses. By coordinating the claims system with underwriting capabilities, insurers are able to place a hold on new business within locations likely to be impacted by an impending catastrophe.
Similarly, by tying claims to billing systems, insurers can suspend normal billing processes during catastrophes.
In the aftermath of Hurricane Katrina in 2005, regulators ordered insurers to freeze invoicing and the issuing of delinquency notices. Lacking the flexibility to alter their billing systems, many insurers could not stop delinquency notices from going out to policyholders in affected areas. To comply, they later sent letters advising policyholders to disregard the previous delinquency notice. Proactive catastrophe management, by coordinating claims and billing systems, enables insurers to freeze billing within the "red zone" of exposure. By automatically extending a grace period of a few days to a week or two, insurers avoid adding insult to injury at a time when customers are particularly vulnerable and sensitive.
As the storm hits, instead of waiting for policyholders to give notice of loss, insurers could proactively create active claim files for every policy within the identified red zone. As part of their claims modernization effort, insurers should consider creating a catastrophe claim file template, which they can then activate at this stage of an event, triggering the necessary reserves and coverage for homeowners', auto, and other property policies. These files should be assigned to field adjusters who are standing by, ready to respond, at first notice of loss (FNOL).
All of the information generated as the result of the insurer's catastrophe response can be collected and distributed more easily, owing to the coordination of claims, policy administration and billing systems. That will in turn ease more targeted analysis of information gathered during catastrophes, enabling a feedback loop from claims to the new business process. By tracking expenses, policy behavior and loss trends, insurers collect invaluable intelligence for underwriting and product management, enabling them to calibrate policy definitions to be able to sell more relevant and profitable coverage in catastrophe-prone geographic areas.
Ultimately, however, an insurer's profitability depends on strong brand equity that will ensure that its products are sold in the first place. Customers' choices are guided by their belief that an insurer will truly stand by them when it really matters. Catastrophes produce those moments on a large scale, multiplying the opportunity for either pleasing or offending customers. By building the capabilities that enable proactive catastrophe management, insurers do not merely fulfill the obligations of the insurance contract but reassure customers that they appreciate the gravity of the problem that confronts them and are committed to helping them get through their time of crisis.
By proactively reaching out to all policyholders in the affected area, every one of those customers gets the message that their insurer is dedicated to meeting their needs. Being able to respond quickly to actual claims will enable insurers to not merely satisfy customers but earn their loyalty, and their recommendations.
Laura Drabik, a former CAT adjuster with a large national insurer, is a sales consultant with Guidewire Software, a leading provider of flexible core systems to P&C insurers. She may be reached at firstname.lastname@example.org.