While the last few years have been relatively quiet for majorhurricanes and other storms, large events like Hurricane Sandy andthe recent storms that buried the Northeast in snow demonstrate theneed for claims departments to be prepared at all times. Onestrategic way to prepare is to stage mock catastrophes. These trialruns help claims teams become comfortable with the types ofdecisions they will need to make when a large-scale eventoccurs.

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Moreover, mock catastrophes are valuable learning opportunities,as they reinforce the need for best practices and the use of thenewest technology for catastrophe-claims management. For example,geocoding technology — which uses geographic coordinates frompolicy data (e.g., street addresses, zip codes, etc.) — is rapidlyenabling insurance companies to improve their catastrophe-claimresponse models.

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How to Stage a Mock Catastrophe

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The potential benefits of running mock catastrophes for claimsdepartments are clear. The following steps can help insurers designa scenario that works for them:

  1. Set the stage: In each mock catastrophescenario, the claims management team should hold an introductorymeeting to outline a specific catastrophe scenario. For example,the scenario could be a Category 3 hurricane predicted to hitFlorida, Georgia, and Alabama. The team participating in theexercise should receive several days' notice before the mockcatastrophe starts, which mirrors the advance notice provided byforecasters predicting a weather event of this magnitude.

  2. Get specific: The scenario should givespecifics about this storm and address questions including: Whatare the expected wind speeds? What is the storm's average damageseverity? How far inland is the storm expected to penetrate? Howmany claims will the team receive and in what timespan? What typesof policies are in force in the affected areas? What are the policylimits and coverages in the affected area? Overall, what is thecompany's potential exposure from this storm?

  3. Solve staffing and resources: Once the claimsmanagement team has answered these questions, it's time to ask theclaims adjuster team some key questions such as: How would youhandle a 15,000-claim event given these parameters? What are thestaffing and vendor resources needed to service the claimsaccording to the theoretical storm scenario? Where shouldon-the-ground claims catastrophe offices be located close to theaffected area but not in the line of fire? The team should be ableto identify the number of claims adjusters needed for the storm,the required skill level for types of expected claims and where theclaims adjusters will come from around the country.

  4. Line-up vendors in advance: The team shoulddetermine the types of vendor relationships in the geographic area.If there are no existing relationships for the types of claims thatcould come in, the team will need to figure out how to secure themprior to the storm.

  5. Tap expertise outside of the claims department:A mock catastrophe should also bring in experts from outside of theclaims department including underwriting, product development,legal and compliance. During this discussion, the claims team canidentify major compliance issues, catastrophe adjuster licensingrules and highlight regionally specific regulations regardingpolicy limit deductibles.

The claims team will need to be prepared to interpretregulations for each state and also be aware of any differences inpolicy form coverage and language. The information should beverified in advance and disseminated to adjusters in the field.

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Using Technology to Assist in DecisionMaking

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As claims teams managers work through the mock catastrophescenario, geocoding becomes a crucial piece of the puzzle.Geocoding provides real-time interactive mapping of claimslocations. This allows claims teams to use resources efficiently,have clear oversight of claims management logistics, provide moreproactive claims processing and make informed decisions in acompressed timeframe.

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Having geocoding on all policies across product lines allows theclaims team to complete an assessment of risk and potential damagesprior to a major weather event. Insurers can see how many exposuresthere are in a specific area and what personnel should be availableto access the damage.

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Mock Catastrophes: Challenges andOpportunities

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Customer communication: According to a recentstudy by HeyWire Business, 52% of consumers would prefer texting tospeaking by phone with a customer service representative.Communication via text or email allows claims departments to becomemore proactive before, during and after the storm, enabling quickerresponses to questions and concerns.

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Insurers should also consider communicating through socialmedia. Twitter and Facebook can be used to help informpolicyholders of an incoming storm and make them aware of theclaims teams in place in their geographic area. During and after astorm, insurers should have a plan in place to actively monitorsocial media for customer questions, complaints and claims. Asconsumers' use of social media accelerates, it is imperative thatorganizations be prepared in advance of the next majorcatastrophe.

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Testing teams: Insurers will benefit fromdesigning storm scenarios that test the abilities of claimsdepartments and focus on both strengths and opportunities toimprove. Mock catastrophes also ensure that new employees or thosetaking on new responsibilities understand how large claims eventsare handled.

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Different storm, different ball game: Anotherfactor to consider is the type of storm being modeled and itsspecific challenges. Trial runs can be used to model hurricanes,blizzards, floods, wildfires, tornados or an ice event. Floods, forexample, can last 7-10 days, including the time it takes for waterto recede from affected areas, so claims teams need to determinethe best time to go out to evaluate damage. Wildfires may generatefewer claims but may result in more total losses. Ice events cancause widespread power outages due to downed trees or limbs causingother types of claims. Even in a catastrophe scenario, each claimmust be handled on a case by case basis.

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Best Practices Make for Best Results

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Mock catastrophes allow claims teams to develop “muscle memory,”among the other benefits discussed. Ultimately, they help claimsteams become more proactive and proficient, which helps customersrecover faster when a real disaster strikes.

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Heather Bolyard is assistant vice president of claimsservices and information at American Modern.

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