Planning for catastrophes

An insurer may elect to use IAs in areas ranging from low to high policyholder concentration. This is especially helpful if an insurer does not have any capacity in its employee base to staff these occurrences. This is only effective, however, if the insurer has reached a pre-event agreement with the IA so the IA's claims staff will not be promised and provided to another insurer. It is also vital that the insurer and the IA work cooperatively to develop efficient processes and procedures when any event occurs.

Some of the decisions and factors related to geographic dispersion and the use of internal staff or IAs will also depend upon the insurer's willingness to dedicate the time, resources, and funds to train its claims staff. There are two primary types of property adjusters, and each has its advantages and disadvantages for the insurer and the policyholders. The following information, which is by no means exhaustive, lists some of the differences.

Property Adjusters as Appraisers

Possesses detailed building construction knowledge

• Prepares detailed repair/replacement estimates based on expertise and training.

• Uses estimation software to prepare estimates of time and material required to repair or replace.

• Can review contractors' work with knowledge of the trades required to perform the work.

• Can review supplemental estimates or invoices with authority, and can return to the site if additional inspection needed.

Advantages for the insurer

• Reputation as having highly qualified claims staff.

• Estimate should be more exact and less potential for claims leakage.

• May be able to resolve claims faster, especially if adjuster has ability to issue checks at time of initial estimate.

Disadvantages for the insurer

• Must hire more qualified personnel, which means higher salaries.

• Must invest in training and continuing education. The costs include the training courses, out-of-pocket expenses while training, and lost productivity while at training.

• Must provide IT services that can support field-based claims staff who can prepare estimates and communicate efficiently with other vendors or resources.

Advantages for the policyholder

• Qualified adjuster who can quickly identify the repairs required and promptly repair an estimate.

• Adjuster may issue a check at time of initial inspection, which allows repairs to start earlier.

• Faster start should result in earlier completion, requiring less time in temporary housing.

Disadvantages for the policyholder

• None unless the reduced expertise is reflected in lower premiums.

Property Adjusters as Liaisons

Possesses general building construction knowledge

• Requests two or more estimates from the policyholder.

• May use an IA to prepare damage estimate.

• May review estimates for reasonableness, but will probably not have expertise to identify incorrect or excessive estimates.

• May refer to trained property appraiser to review contractors' estimates.

• May not have required expertise to evaluate appropriateness of supplemental estimates or invoices.

Advantages for the insurer

• Can hire less qualified personnel with lower salaries.

• Requires less training and its related costs.

• Requires little or no IT support for field-based adjusters/services.

Disadvantages for the insurer

• IA expenses will increase the claims costs.

• May take longer to resolve claims, resulting in higher costs (e.g., Additional Living Expenses).

• Reduced expertise may lead to claims leakage when using contractors' estimates.

• Reputation may suffer when service compared to insurers who can perform appraisal and issue check and letters at initial inspection.

Advantages for the policyholder

• None unless the reduced expertise is reflected in lower premiums.

Disadvantages for the policyholder

• Slower resolution of claims.

• Potentially longer time in temporary housing.

The difference in the use of adjusters will also depend upon the insurer's ability to find qualified personnel. Many in the claims industry have recognized that a large number of qualified estimators/appraisers are retiring, and the number of replacement adjusters coming up in the industry is not meeting the need. This may lead to different outlooks in the industry, and may require the use of specialized vendors in many areas to achieve a desired and efficient outcome.

Coaching policyholders on preparing for catastrophes

Insurers can also provide information and guidance to their policyholders to help them through the catastrophes. This not only helps the policyholder emerge from the disaster in potentially better condition, but also helps the insurer in its claims service to achieve a better outcome for all parties.

Insurers should regularly communicate with their policyholders on disaster preparation and response, especially if policyholders are in potentially dangerous areas. Those include, but are not limited to, coastal areas which have a greater propensity for hurricanes, the Midwest and parts of the Southeast where tornadoes are more likely, and dry forest areas that may experience wildfires. The information and guidance, which can be easily disseminated via e-mail, could include items such as:

• Home and business evacuation plans.

• Emergency kits.

• Mitigating the loss after the event.

• Maintaining inventories of personal property (lists, photographs, and receipts).

• Maintaining your property to avoid additional losses (e.g., removing dead or declining trees near the residence).

• Protecting your property after an event.

These and many other topics can help policyholders before and after a catastrophe or even when a relatively minor loss occurs, which will potentially save lives and property while making the claims handling and resolution process much easier.

The pre-event planning and preparation for catastrophes may be even more important than the claims services that occur after the event, since inadequate planning may make it virtually impossible to handle the resulting claims appropriately. Insurers, IAs, and policyholders all have a responsibility following these losses, and insurers, through their planning and information-sharing procedures, can direct all parties to a more favorable and beneficial response.

Gary Jennings, CPCU, ARM, ALCM, AIC, ARe, SCLA, is the principal consultant at Strategic Claims Direction LLC. He may be reached at Gary.Jennings@StrategicClaimsDirection.com.