Professors' Points

During a Catastrophe, it’s the Carrier’s Time to Shine

Frank Heaps
Insurance Experts' Forum, May 11, 2011

The Midwest and South have been hit hard with storms the past few weeks. Several inches of rain have fallen on the Mississippi Valley day after day into an area that cannot handle torrential rain for prolonged periods of time. Add to that the windstorms, tornadoes and the flooding that is coming, and you have a region in peril. Now is the time for carriers to step up and take the lead. This is where our industry can change public perception and show value to their customer; but will they?

All of the events above have put a strain on what any carrier can handle. The damage caused over the past several weeks is the equivalent to a hurricane hitting the region. Compounding the concern is some of the same states affected have experienced hurricane damage over the past five years. It has been a rough few years in the lower Mississippi Valley. The good news is that carriers have had the time to work on their processes and catastrophe management plans to quickly provide estimates and repair homes and cars because of the similar losses. Who will come out on top? 

Some carriers are beginning to advertise their rapid claims response to the recent losses as a means to show they do truly care about helping people get back on their feet. Losing a home, your car(s) and all of your possessions is a deeply traumatic event for most people. The tornadoes and flooding are leaving an indelible mark on thousands of families. Other carriers are simply treating the situation with little more attention than if this was a single event. 

I know someone one who is experiencing a lackadaisical claim settlement. My friend had a tree fall on her home early in the storm cycle—before the tornado in Alabama and the flooding in Tennessee. The tree was large and caused significant damage to the structure, including cracking support beams and making two holes in the roof. She contacted her local agent and got the approval to have the tree removed and tarps put in place by the tree company. She was then told that an adjuster would not be scheduled to visit the house for at least nine days. Her insurance company is a very large carrier that has the resources to mobilize catastrophe teams and their agents in order to at least start the process of minor repairs before complete construction can be done. Not being able to react causes increased losses and lowered customer satisfaction.

During those nine days, my friend had seven days of rain of four inches or more, and additional windstorms. The wind and rain caused more damage to her home because the tarps and patches could not keep the water out. The cost of the claim increased more and more each day as the seepage continued until the adjuster showed up and got the claim moving.

Could her carrier have gotten to her house sooner and could they have reduced the cost or the claim? Probably so, but carriers need to be mindful of how they are perceived during the large-scale claims catastrophes that cross several states and perils. 

This is only one story of many that will come out about how some insurance companies stepped up to the challenge, and others were mired with the inability to properly react. This is only the beginning of a long and expensive catastrophe response process that will take months to clean up. Let’s see which carriers shine in the end.

Frank Heaps is the managing director for Innovation in Insurance (i3), and is an adjunct professor of insurance at the Moore School of Business, University of South Carolina.

Readers are encouraged to respond to Frank using the “Add Your Comments” box below. 

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Comments (1)

This is the attitude many carriers had in times past. I would call it, BBC. That is Before Bean Counters. Insurance is a business of risk but the people who have taken over are not risk oriented people but accounting people who worry about stock prices, quarterly earnings, saleabilty and advertising. The product of insurance is delivered in the claims department not the production department. All companies need to concentrate on that by training and staffing. Foolish philosophies like "More with Less" are damaging after the first round of cutting. Discharging and forcing out older, experience personel because of their saleries and slower responce to the "magic technology" embraced by many companies are leaving the field in the hands of low paid, under trained, penny wise and "thrift" oriented hangers on. The threadbare nature of this type of thinking isbeginning to show and will only get worse if not checked soon. Clever advertising campaigns might attract people but lack of service or poor service will soon drive them away. When they run out of the clever advertisers, they will seek the companies who have maintained their risk management and claims handling integrity.

Some companies used to increase their customer base after disasters because of the way their claims handling showed as superior to the competing carriers. Now, nit picking, short changing and low balling have replaced godd, swift and customer oriented claims handling. Bad publicity and law suits follow and that wipes out all your clever advertising for years. I have come to be ashamed and dispare of the industry to which I gave over half my life. E. L. Evans

Posted by: elevans66 | May 13, 2011 1:25 PM

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