Misjudgment at the Top

This Iconoclast has seen just about every movie ever made about World War II, and has read a lot of the books about it. The Allies are always portrayed as the victors, and those other rascals are always the villains. Our admirals and generals are John Wayne-types, brave and super-intelligent and never wrong in their judgments.

Reality, however, is otherwise. On my recent visit to the Outer Banks of North Carolina, Cape Hatteras, Kitty Hawk, and Roanoke Island, areas that is so full of history, I came across the books of Homer H. Hickam, Jr. One is the non-fiction Torpedo Junction, written in 1989, a detailed day-by-day account of German submarine action off the Atlantic Coast. It should be mandatory reading for every military officer and business executive. It makes the U.S. Navy look like a bunch of fools. The only thing that saved America from an even greater disaster was a bigger fool named Adolph Hitler, who held back his subs from totally ravaging America's East Coast because he wrongly predicted an invasion by the British of Norway. (They had already tried that, and lost!)

Submarine Warfare

Our wonderful bunch of admirals who allowed the Pacific Fleet to sit basking in the tropical paradise of Pearl Harbor in December of 1941 learned nothing from that disastrous Sunday morning attack by the Japanese. A day later, Germany declared war on America, and Germany's Admiral Karl Doenitz dispatched five Type IX U-boats to see what devastation they might reap on American shipping around New York. They arrived across the Atlantic by the end of December, and much to their surprise found that the East Coast harbors from Boston to Norfolk to Jacksonville were totally unprotected by warships. Further, despite the pleas of Rear Admiral Adolphus Andrews — placed in charge of Coast Guard operations — to East Coast Commander Admiral Ernest J. King for destroyers, none were assigned. The entire fleet was sitting in Norfolk/Hampton Roads naval base, or convoying across the North Atlantic to Europe. Andrews further pled for King to get Roosevelt to declare a blackout on the coast. That, too, fell on deaf ears.

The German U-boat commanders could not believe it. America was acting as if there was no war at all. There were no convoys, no armed escorts. They could have sailed their subs right into Chesapeake Bay and destroyed our Atlantic Fleet if they had wished. The subs simply sat on the surface each night, waiting for freighters and oil tankers to be silhouetted by the shore lights, and blast them to bits. These experienced submarine captains also recognized that the south-flowing Labrador Current and the north-flowing Gulf Stream converged in a "choke point" just east of Cape Hatteras. It had no protection except one Coast Guard cutter, the Dione. The Outer Banks became Torpedo Junction.

After scores of American and foreign vessels were sunk and hundreds of seamen and passengers killed, Admiral King reluctantly released a couple of old World War I destroyers for "temporary" coastal duty. Within hours, one had been blasted to bits by a German submarine off the coast of New Jersey. Two or three others intermittently steamed up and down the Outer Banks, only arriving on the scene of torpedoed ships long after the subs had departed. A few tankers or freighters were supplied with Navy gunners and a gun or two. The only thing they managed to shoot was one of the U.S. destroyers.

Every time a destroyer dropped its depth charges in the shallow water, hoping to damage a German sub that had already vanished, the blasts did little except loosen the rivets in the old vessels, creating leaks that sent them scurrying back to Norfolk for repairs. When the destroyer Roper finally did catch a sub on the surface one night, the gun crews — untrained for real combat — froze at their positions as the Germans ran to their 88mm gun and prepared to sink the Roper. The stupidity was almost laughable, but the toll on oil-carrying tankers from Texas was so severe that the Northeastern U.S. was in danger of not having enough fuel for the winter. Finally, FDR demanded a blackout.

What was Admiral King thinking? That, too, was evident. He thought the war in Europe would be over in a few weeks, that the Allies would invade Europe, bomb the U-boat bases in France from which the subs were launched, and the real war would be in the Pacific. Therefore, his Norfolk fleet was being prepared not for battle in the Atlantic with a bunch of German submarines, but for war in the Pacific against the Japanese.

Creating a Crystal Ball

From late December 1941 until at least May of 1942, the Types VII and IX German submarines controlled America's East Coast. Finally, the merchant ships were put into escorted convoys, and the carnage diminished, although it never really ceased until the end of the summer in 1942. Nearly 100 German subs sank or damaged 285 ships during that period, while the Americans managed to sink only seven submarines, three by aircraft. Most of the sunken merchant ships were off North Carolina's coast.

How and why had America been a sitting duck in Hawaii, the Philippines, and the East Coast when America entered the war? It should have been obvious for years that America would eventually be involved in it. But America was in the Great Depression, and those who controlled Congress were anti-war isolationists who refused to allow President Roosevelt any leeway in preparing the nation for war. FDR was stymied at every step by a Congress mired in cement and incapable of action.

Somehow this sounds familiar. Congress accomplishing nothing, mired in political stalemates that held the nation back from where it ought to have been. Can our leaders not look into the future and see that their inaction, or their poor actions (more than 9,000 pork-barrel add-on "earmarks" to the 2008 budget), is costing the nation's future? Can no one in Washington or at the Pentagon envision what may lie ahead for the nation?

Can our business leaders not see beyond the next quarterly profit-and-loss statement? Apparently not. If the nation's brilliant and overpaid financial leaders had any foresight, they would have recognized the sub-prime mortgage potentials for loss and not entered those waters. If insurance executives looked beyond next year's rates to what realities may lie just below the surface — like an attack submarine — they would do a better job of underwriting. In many companies, "underwriting" is a joke. "We'll sell anything to anybody cheaper than any other insurer!" It's Dazzlety Casualty Company!

Leadership in Claim Administration

For those of us involved in claim education, the last decade and a half has, to a large extent, seemed like we were a bunch of oil-laden tankers trying to slip by the Outer Banks in February of 1942. We were being torpedoed from every angle. Many companies cut their budgets for education to the bone. Education became "training," learning how to do something, but not understanding why it was necessary. Software took the place of investigation, evaluation, and negotiation. Programs like Colossus tells a claim person what to offer. There was little money in the budget for Insurance Institute or CPCU classes, and less for attendance at claim association meetings where a speaker might impart some wisdom. The only classes allowed in many firms were those required by the state for CEU credit.

Rather than hire and educate new multi-line adjusters, insurers hired them from independents or other companies, some paying a ransom for good senior adjusters. New hires were not given much beyond the rudiments of what adjusting entailed. Most of the training was for new computer systems using software that was intended to do the thinking for the claim representative. Investigation skills were unimportant, coverage issues probably overlooked, liability became a "why bother?" subject, and nobody wasted time on subrogation. Open and close files quickly, that was the new motto of the modern claim department. As a result, claims that should have been denied or compromised were paid in full, and claims that should have been paid were denied, resulting in costly and unnecessary litigation. Few in claim departments understood coverage, tort, contract, or damage issues. They relied either on software or outsiders.

Now those senior adjusters and old-hand independents who knew how to adjust complicated claims that were more serious than a fender-bender are reaching retirement age. There is nobody in the pipeline to take their places. Insurers and self-insuring entities will be scrambling to find replacements — and they will likely turn to young law school graduates to fill in the blanks. Trained in adversarial law, these lawyers will question every word and action, and the amount of litigation will quadruple. Instead of an adjuster being in control of the assigned claims, contract repairers or other outside service providers take charge of claims. As long as it is cheap and fast, insureds don't seem to care. Claimants, on the other hand, are greatly influenced by those advertising plaintiff firms. Hence, our insurance industry now claims that they lose $29 billion a year to fraud. No wonder!

A few companies, both insurers and independents or claim administration firms, are beginning to see the light, reading the crystal ball, and reactivating their education departments. Could it be that someone might again learn how to handle a claim from beginning to end all by themselves? Will the full formal report — a tool that guides adjusters in planning the claim and working toward settlement — make a comeback? Will the full assignment of a complex loss to an independent adjuster again be a possibility?

We've been through our Torpedo Junction and have been shot up pretty badly, but we're not out of the war yet. Once our leaders recognize that claim adjusting is a complicated art and science, and that detailed education is necessary, we adjusters may yet win the war.

Ken Brownlee, CPCU, is a former adjuster and risk manager based in Atlanta, Ga. He now authors and edits claim-adjusting textbooks.