Disaster Season

Been There, Done That

Like many Americans who are not only over 60-years old but have also lived in more than one or two states, the Iconoclast has seen his share of these troublesome disasters. In addition to being caught in blizzards, I've suffered tornado damage; survived hurricanes; been shaken by earthquakes; walked on an active volcano; mopped up flood water; and whiffed the smoke from large Western wildfires. In a few cases, I've handled some of the claims.

But summer and fall are especially the seasons when insurance companies offer prayers and petitions to those hardworking men and women who are the commandos, the "special forces" of the industry — the catastrophe adjusters.

Praise for CAT-ing Around

Like Marine Recons, Green Berets, or Navy Seals, these dedicated adjusters voluntarily give up their home lives to enter disaster zones, trying to help insureds recover from a catastrophe. There are hundreds of them, often not enough in a mega-calamity like Katrina, and they may be on the scene for months. Some come with their own mobile residences, such as an RV or a camper; some hole up in a surviving motel; and a few just live in their cars.

The insurance and adjusting firms bring in mobile claim offices equipped with satellite communication links to the home office and staff them with claim managers, examiners, and supervisors. The officials — whether from state agencies such as an insurance department, or federal, such as FEMA or the EPA — poke around as well, offering (what they hope) are helpful suggestions. Contractors, both the honest and the crooked, pour in to rip out the damage and build anew. This reminds me of buzzards descending on the carcass of a deer some motorist struck in the middle of the night on the highway.

Sometimes the disasters don't arrive on time, as was the case in 2006 and 2007, and catastrophe adjusters must find other occupations. At other times, disasters occur on top of each other, and there are simply not enough of these adjusters to go around. Efficiency in claim handling can suffer as a result of these circumstances, for when an adjuster finds another, perhaps better paying, job, he may be reluctant to give it up to "go CAT-ing." Fewer adjusters may also result in poorly managed claims, leading to criticism of the insurance industry.

A Problem in Search of a Solution

When Santa Ana winds stir up wildfires in Southern California, burning off the vegetation that holds the soil in place, mudslides inevitably follow. Somehow, east of the Sierra Nevadas, the rest of the nation looks at those multi-million dollar palaces sliding into the Pacific in locales like Malibu and find it hard to be sympathetic. Likewise, when some idiots build their fancy new mansions right on the beach of a barrier island, only to have a hurricane wash them away, those less fortunate probably don't shed many tears. Nonetheless, the fact that these wealthy homeowners probably don't shell out the big bucks for adequate homeowners' insurance is what keeps adjusters employed.

Building on a hillside in Southern California or on an oceanic barrier island is like building inside the levee on the Mississippi. Once a year, on average, there's going to be a disaster. One reasonable solution is called underwriting. It's something insurance companies used to do. Now the rest of us pay for the foolishness, either through property insurance premiums or, in the case of flood insurance, through our federal taxes.

Trying to thwart foolish or unwise home-building on barrier islands in the Atlantic and the Gulf of Mexico; on earthquake faults; in remote forested mountains; or on barren hillsides subject to mudslides is a long-term option. It is unlikely to occur, as developers tend to see such places as ripe for investment. After all, it is the bank's money. Besides, we all know that banks aren't going to do stupid things. Isn't that right, Bear Stearns? (Where is Eliot Spitzer when you need him? Oh, he's otherwise indisposed at the Mayflower Hotel.)

Are these disasters really worse than they used to be? Maybe. If they are, then this occurrence could be an indication of what is to come with increased global warming. The latter is yet another problem for which there is no short-term solution. Is there any easy answer?

"The science of climate change might remain controversial among skeptics, but within the insurance industry there is a growing consensus that the risks are real, and that carriers must deal with the growing exposures as well as seize the opportunities the problem presents," wrote Mark E. Ruquet in the March 10, 2008 issue of National Underwriter, P&C. Ruquet reports that insurance companies expect growing property losses to result, as well as other types of liability claims.

He cites an Ernst and Young report asserting that climate change is "a long-term issue with broad-reaching implications that will significantly impact the [risk and insurance] industries," and "will bring about a fundamental shift in the underlying probability of insured loss (by windstorm and flood) and requires insurers to scrutinize their insurability criteria for certain risks."

Tightening the Belt

Ruquet also pointed out that climate change will affect carrier pricing and reserving policies, as well as raise solvency and corporate viability issues. The report predicted that "windstorms, flooding, and heat waves produced by global warming can lead to 'broader and more gradual consequences' …increasing mortality and health problems, spreading environmental litigation, raising political risk linked to conflicts for control of resources, and also affecting the capital markets."

Wouldn't you just love to be President as this mess develops? We need to think long and hard before voting in November. During the primaries — another disaster season — none of the candidates talked much about any of this. In fact, what is arguably the most important issue of the new century garnered little more than half a question in the various political debates. Perhaps after this summer's convention, the two candidates still standing (or three, if we count Ralph Nader) may actually get around to discussing some of these important issues. (We can count on old Ralph to broach the subject, if he stays in the battle.)

The Adjuster Dilemma

All of this brings us full circle to the current disaster seasons. Are there enough adjusters to handle the hundreds of thousands of claims? Many of the catastrophe specialists I've known over the years are now as old, or older, than I am, and we don't see many of the younger crowd lining up for the dirty work that catastrophe adjusting requires. There's nobody in the adjuster pipelines to fill the void, and insurers aren't eager to pay adjusters the big bucks to keep them available in off-seasons. Many of these dedicated souls do what amounts to temporary labor jobs at low pay when not handling a disaster. They won't be around for long at that rate.

The industry needs to recognize the value of those men and women who are still willing to risk their lives and bear the hardships associated with working in a disaster zone. It will take better training, meaningful recruiting, and better pay to attract more dedicated adjusters. It's time to wake up. The season is upon us!

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