Five Lessons Since 2005

 — April 3, 2008 — 

The impact of the record-breaking 2005 storm season continues to reverberate throughout the property insurance industry. Jim Loveland, Xactware’s President and CEO, takes a look at some of the key lessons the industry learned from that unprecedented year.

Few in the property insurance industry need to be reminded that between August 2004 and October 2005 the United States was hit by seven of the ten most devastating hurricanes in recorded history. The total insured losses from the seven storms was $79.1 billion, according to the Insurance Information Institute (I.I.I.).

Many experts who have analyzed insured coastal exposure in the United States believe a single future hurricane could cost $100 billion. After two years of lighter-than-expected storm activity, it’s worth taking a look at the long-term impact the seven 2004-2005 storms continue to have on the property insurance industry, and lessons that can be applied should similar damage happen again.

Lesson 1: Get Claims Professionals to Work as Quickly as Possible

The team of claims representatives and insurance professionals that flowed into hurricane-damaged areas was a large-scale mobilization that has been matched in the American experience only by military movements. Despite the challenging logistics involved, most professionals were able to immediately move into effective claims handling.

That's because many professionals arrived on site with claim assignments already in their claims systems. Those assignments may have included directions, up-to-date contact information and current pricing research. Many carriers were able to seamlessly add independent adjusters and other claims professionals to their teams, and claims managers were able to track and monitor performance for those professionals just as they would for direct staff. Using the same tools, prequalified reputable repair professionals were also mobilized to secure sites, provide moisture protection and extraction, and other critical services that helped to mitigate continuing damage.

One lesson learned from all catastrophes, including the 2004-2005 storms, is that multiple adjusters will work on the same loss more commonly than they would in non-catastrophic situations. It’s not unusual for claims professionals to work on catastrophe claims where they are the fourth or fifth person involved. In the past, merging the efforts of everyone involved on a claim was sometimes difficult and required redundant work.

Since 2005, many carriers have added new capabilities that make it easier for more than one person to work on the same claim. Estimates can be merged, sub-assignments for work can be sent and tracked, and electronic inspections of estimates help find potential errors.

To help mitigate continuing damage, new features are now available that allow claims professionals to remotely monitor some types of water mitigation equipment. From anywhere in the world, claims professionals with Internet access and appropriate security clearance can see in real time exactly how moisture mitigation work is progressing in a specific structure.

Lesson 2: Quickly Find the Loss and the Homeowner

After a major storm devastates a large area, just finding the loss can be an adventure. People who have spent their lives in a neighborhood can hardly recognize it, and directions based on landmarks are no longer helpful. Street signs are often gone, damaged or misleading. The time lost by claims professionals just looking for sites is often staggering.

It can be equally hard to find the homeowner who is sometimes living somewhere else and may move several times in the days and first weeks after a disaster. Claims professionals understand that the seemingly simple task of finding each loss and policyholder can be one of the key factors that determine the productivity of a claims handling team.

For many who worked the 2004-2005 storms, claims assignment networks were a key tool. Assignments from the network might include a map or directions to the site. The network could also contain real-time updates from all those working on the claim so that new contact addresses, phone numbers and other critical information was instantly communicated. Since 2005, new GPS options have emerged and claims handling networks can include real-time information about closed roads, safety hazards and other important issues.

Lesson 3: Maintain Quality Standards

It’s one thing to provide superior customer service in a normal claims environment, but providing a consistent level of service when thousands or tens of thousands of customers need help tests the abilities and commitment of an insurance provider to the limit. To make sure no customer was overlooked, many insurers relied on reporting tools that alerted staff and managers when customer-service standards were not being met. For example, if a customer did not receive a visit during an allotted period of time, managers were notified and in some cases claims were automatically reassigned.

The next time many insurance companies face a major catastrophe, a variety of enhanced or new tools will be available. Advanced reporting features flag potential areas of concern, and new reinspection systems flag potential issues to help reinspection teams quickly address possible quality concerns without slowing down the normal claims process. Real-time reporting features help make sure no customer is falling through the cracks and that all quality standards are being met.

Lesson 4: Help Customers Avoid Price Gouging and Unethical Contractors

Up-to-date and continuous pricing research helped keep claims professionals abreast of conditions on the ground. The 2004-2005 hurricanes damaged refineries and oil-shipping facilities that led to rising fuel prices and fears of shortages. Petroleum-based products such as composition shingles began to rise in price. Media focus on the most extreme examples and on the actions of a few price gougers often fed the perception that prices were spiraling out of control.

Homeowners’ fear of rising prices and fear that they would not be able to find anyone else willing to do the work in a timely manner led to problems such as unfortunate repair deals for prices that were too high and contractors who offered little experience or were flatly unethical.

Many companies were able to help protect their customers from falling victim to these types of problems by using up-to-date pricing information based on reporting from experienced local repair professionals, and by analyzing actual repair estimates. In addition, direct-repair programs helped homeowners work with ethical service providers who had proven credentials, experience and training. These efforts, plus those of many material providers, helped to prevent price gouging and helped to minimize the actions of unethical individuals.

Lesson 5: Work to Increase Policyholder Involvement

Many insurers are moving to increase the involvement of policyholders in the process long before a loss, and to provide homeowners with additional tools. This begins when the home is insured with underwriting valuations that are based on the latest real-world claims pricing research instead of on tables of factors. Policyholders can be invited to review the valuations and offer feedback. When policies are renewed, structures can automatically be revaluated with current pricing. In turn, homeowners can point out any remodeling or other work that may have changed the value of the home.

Other tools allow homeowners to enter an inventory of items found in their homes or even to draw floor plans. These tools give homeowners more peace of mind and consistent coverage, and can often help claims professionals more accurately assess damages should a loss occur. It’s also clear that many homeowners were woefully uninformed on the differences between flood insurance and private property insurance. Others had not updated their coverage to take into account new additions or major remodels.

At the time Hurricane Katrina struck New Orleans, Louisiana’s insurance commissioner told the Chicago Tribune, “I’m the insurance commissioner and I’m underinsured.” He added that his own home did not have flood insurance even though it would be in the area flooded should the Mississippi levee break. “People got lulled into a false sense of security,” he said. “It’s just human nature.”

Battling complacency has long been a challenge for the insurance industry. Although no one can change human nature, the new tools for homeowners are making it easier for policyholders to be involved without taking much of their time. Homeowners can get quick access to information via the Internet, through email, or even through their mobile phones or PDAs. In addition, these tools provide valuable resources that can help homeowners manage what is usually their most important asset.

Overall, the performance of the property insurance industry and insurance-repair service providers in the aftermath of seven severe hurricanes should be a source of considerable pride. Unfortunately, good news for the property insurance industry is often measured by silence. Immediately after the storms, the media was filled with stories about local and federal agencies and their problems; there were far fewer stories about insurance companies and repair issues.

Some media attention was focused on lawsuits filed after the storms, but the number of claims litigated was small compared to the number of claims filed. The I.I.I. estimates that less than two percent of all claims filed in Louisiana and Mississippi were disputed through litigation or mediation.

Considering the scope of damage and the wide variety of complexities involved—from coverage issues to simply finding a place to live—it would not be surprising to see a high level of customer dissatisfaction emerge about a year after the storms. But a poll conducted in 2006 by IPSOS Public Affairs, a leading research company, found different results. When asked if they were satisfied with their insurance company, 89 percent of the surveyed homeowners in Louisiana answered yes, as did 93 percent of the homeowners surveyed in Mississippi.

According to the I.I.I, of the more than 1.1 million claims filed in Louisiana and Mississippi, more than 95 percent were settled within a year of the storms. In its 2005 Property Report, Xactware reported that by November 2005 the level of storm-related claims reported to them had already peaked just three months after Katrina and one month after Wilma. Their 2006 Property Report showed that increased claims volume from the storms had largely dissipated by April 2006.

Claims from the seven storms during 2004 and 2005 were handled with an efficiency and accuracy that would have been unimaginable roughly 15 years earlier when Hurricane Hugo made landfall in South Carolina. Although this extraordinary success passed largely unnoticed, the property insurance industry clearly exceeded expectations when nearly everyone else was overwhelmed by the magnitude of the work.

The many new tools and procedures that have been implemented since 2005 are a good indicator that most claims professional are determined to do even better the next time a major catastrophe occurs.

About Xactware

Xactware Solutions, Inc. is a wholly owned subsidiary of ISO specializing in the property insurance, remodeling and restoration industries. Xactware's technology tools include software estimating programs for PCs and tablet PCs, as well as powerful online systems for replacement-cost calculations, estimate tracking and data trending in real time.

For more information about Xactware's products and services, contact Xactware at 1-800-424-9228 or visit www.xactware.com.

About ISO

A leading source of information about risk, ISO provides data, analytics, and decision-support services to professionals in many fields, including insurance, finance, real estate, health services, government, human resources, and risk management. Using advanced technologies to collect, analyze, develop, and deliver information, ISO helps customers evaluate and manage risk. The company draws on vast expertise in actuarial science, insurance coverages, fire protection, fraud prevention, catastrophe and weather risk, predictive modeling, data management, economic forecasting, social and technological trends, and many other fields. To meet the needs of diverse clients, ISO employs an experienced staff of business and technical specialists, analysts, and certified professionals. In the United States and around the world, ISO helps customers protect people, property, and financial assets. For more information, visit www.iso.com.