IFAA 5th Educational Conference Presentation by Jonathan Clark

Seamless service Natural catastrophe claims handling

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Claims Management

1 Claims Management

2 Lessons Learned

3 Summary / Communication & Strategy

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Stakeholders for claims – a complex relationship

Investors

Clients

Resources

Trust

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The importance of Seamless Claims Management

Claims costs remain the dominant cost of an insurance operation – both costs of Claims, and the cost of handling those claims. The way in which claims are

managed is therefore pivotal to (continuing) success

!  What do claims people bring to the table :

"  Crisis management

"  Claims resolution

"  Real answers to real problems

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Some key themes

(Customer) Requirements of a Claims Team : !  A fair settlement !  A prompt settlement !  To be kept informed – Active communication !  Professional dealings !  Consistency !  A ‘case manager’ approach !  Invisible internal processes (escalations, approvals etc.) !  To deal with an empowered / responsible representative

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When an incident occurs - understand the fundamental issues?

!  What are the critical business impacts?

!  Get the right people the right information and the right access to places?

!  Understand what has been damaged, lost, injured, and what are the consequences?

!  What is the role of your claims team? #  Claims Handler, Project Manager or Loss Mitigator?

!  Customer retention is a fundamental of responding to any (major) claims

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In practice and lessons learned

1 Claims Management

2 In practice and lessons learned

3 Summary / Communication & Strategy

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Delivering a claims response – a seamless service

Minor losses Fast track

Personal lines Individual response

Commercial losses Technical response

Complex claims 1 Identify and manage

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Delivering a claims response - surge footprint

Hurricane Sandy: Flood Footprint Hurricane Sandy: Flood Footprint for New York Area

Modelled storm surge verified and modified with optical satellite (GeoEye). Produced by Sertit, sponsored and distributed by PERILS

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Delivering a claims response - using exposure data to help planning

Garre%&County,&Maryland&1&snow&storm&1&power&outages&(80%&&of&popula<on&affected)&&

Damage ratio (Loss/Exposure) # claims/ # policies

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Delivering a claims response - people and logistics

! There can be a race to get resource on site #  Specialist briefing programmes #  What resource is actually needed on site #  Working with contractors

! The “wedge effect” away from the affected area #  Housing for claims teams on site #  Transport – fuel availability #  Access to locations #  Communications – phone networks

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Incident Response

Resolution and Subrogation

Loss cost/crisis management

Investigation/Evaluation

Evaluate and agree quantum Set payment schedule/milestone reviews

Pursue recovery Arrange payments & produce report(s)

Develop/publish loss cost management plan Build reserve model

Produce preliminary report Review case team/appoint suppliers

Identify key business impacts Evaluate mitigation options

Assess loss management alternatives Agree next steps

Notification process Initial research and logistics

Day one site activities Understanding cause

Delivering a claims response – a key process chart

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What factors impact flood damage

! Height of water

! Speed of water

! Content of water - pollutants, sewage, silt

! Time to dry a property - construction a major factor

! Large proportion of value of many houses and businesses found on lower levels

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But……

Look for and understand: #  What is unique? #  What are the issues?

1.  Is it that the business cannot supply its products or services?

2.  Is there a reduced demand for the products and services?

3.  Has the incident reduced the capability of the business to supply – employees, logistics?

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Assessing the claims

!  People / Human Resources :

#  Evacuation #  Housing affected

#  Transport disruption

#  Supplies impacted

!  Physical assets :

#  Buildings

#  Machinery / Transport

#  Stock

!  Operational assets : #  Production

#  Supply and distribution

!  Strategic assets :

#  Infrastructure

#  (Future) income streams

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Products Will the demand for products rise or fall due to the incident ?

Employees Has their home been affected? Will they need time-off work? Can they get to work?

Suppliers Any damage to stock / WIP? Still able to produce? Can they deliver?

Customers Any damage to their premises or stock? Are they able to continue to produce? Can they receive deliveries?

Some general principles:

What are the BI issues when a major incident occurs?

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A common issue – what is the BI loss after a catastrophe?

Actual Sales

Date of Loss

Covered Loss?

Economic impact

Actual Sales

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A reserving model Policy Section Category Loss Potential

PROPERTY DAMAGE

Buildings £ -

Rent £ -

Machinery £ -

Stock £ -

Other - A (insert category title) £ -

Other - B (insert category title) £ -

Other - C (insert category title) £ -

Total PD £ -

BUSINESS INTERRUPTION

Loss of Gross Profit Due to (a) Reduction in Sales £ -

Loss of Gross Profit Due to (b) Increase in Cost of Working £ -

Savings £ -

Sub-Total £ -

Contingency (If Appropriate) £ -

Total BI £ -

Total PD + BI £ -

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Policy Issues

!  Policy wordings should clearly state the extent and limitations of what underwriters are prepared to cover :

#  No confusion around deductibles and aggregation #  Are ‘warranties’ actually warranties? #  Causation – Be clear around policy ‘trigger’ #  Placement structures should be transparent #  Enforceability of cut through clauses in financed project scenarios

!  Co or Re-Insurance wordings must be identical as far as possible :

#  Danger in seeking cover from more than one policy or insurer on the same risk #  Facultative placements need to be ‘back to back’ if possible – Understand ‘follow

the settlements’ or ‘follow the fortunes’ obligations #  Understand claims control or co-operation clauses

!  The impossible can happen – Major incidents :

#  Estimated Maximum Losses (EML) must be reviewed #  Post loss amplification

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Summary – in practice and a few notes on risk management

1 Claims Management

2 Lessons Learned

3 Summary – in practice and a few notes on risk management

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Nat Cats – around the world in 650 days

!  New Zealand Earthquakes Sept 2010 – Jun 2011 !  Japan Earthquake 11 March 2011 !  Thailand Floods Sep – Dec 2011

Chile – March 2010

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Japan Earthquake

!  11 March 2011 !  Magnitude 9 earthquake !  Shaking ! tsunami ! power outages !

nuclear incident

!  Economic loss in excess of US$200bn – insured loss estimated to be US$35bn. Worlds most costly economic loss arising out of a Nat Cat

!  Population: 127.6 million (2012)

!  Number of buildings destroyed: 126,613 !  Number of buildings partially collapsed:

1,0155,575 !  Number of automobiles and trucks

destroyed 230,000

!  15,840 fatalities, 2,651 missing 6,150 injured

Image Source U.S. Navy Image. Yamada, Iwate, Japan. An aerial view of Japanese Ground Self-Defense Force personnel and disaster relief crews searching for victims. Date 18 March 2011. By Mass communication Specialist 3rd Class Dylan McCord

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Thai Floods

!  Gradually encroaching floods Sep – Dec 2011

!  Worst in 50 years

!  Economic loss in excess of US$40bn – Insured loss estimated to be US$16bn – worlds 5th costliest economic loss arising out of a Nat Cat

!  Population 66.7 million (2012)

!  About 1,000 factories were forced to shut-down production

!  Approx. 1500 industrial estates where flooded – heavy Japanese presence

!  Japanese interests represent 60 to 70% in the industrial zones affected in Ayutthaya Province

!  Affected people: 9.5m !  813 fatalities

Image Source: Flood waters inundated Rojana Industrial Park in Ayutthaya Province, Thailand. By: U.S. marine Corps photo by Cpl. Robert J. Maurer. Date: 16 October 2011

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New Zealand Earthquakes

!  Economic loss of approx. US$22bn – insured loss estimated to be US$17bn

!  Population 4.4m (2012)

!  Canterbury Earthquake sequence, started on the 4th September 2010 with a earthquake near Darfield. Followed by several thousand aftershocks. On 22nd February 2011 there was the Lyttleton EQ, and on 13th June an Earthquake near Sumner.

!  DARFIELD !  Magnitude 7.1 !  No loss of life

!  LYTTELTON !  Magnitude 6.3 !  181 Fatality

!  SUMNER !  Magnitude 6.3 !  1 Fatality

Image source: NZ Defence Force. Damage to Christ Church Cathedral in Christchurch CBD. 22 February 2011

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Impact on the (Re)insurance industry

Japan Thailand New Zealand Known and modelled

earthquake risk Known flood exposure Known Earthquake fault

3 main P&C groups (MSI / Sompo / TMNF) –

80%

In excess of 50 P&C non-life insurance

In excess of 20 P&C non-life insurance

Annual Gross EPI $105bn

Annual Gross EPI $4bn

Annual Gross EPI $3.5bn

Market estimated loss $35bn

Market estimated loss $16bn

Market estimated loss $17bn

Loss Ratio 33% Loss Ratio 400% Loss Ratio 486%

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Thailand floods: claims handling challenges & lessons learned

! Non-modeled peril

! No event limits

! Loss estimation – Share price sensitive

! Co-Insurance communication

!  Inundation of significant medium and large claims in one single event

! Significant underinsurance applicable to both personal lines and commercial lines claims

! Generic and unparticularised loss adjuster reports due to resourcing and info

! Shortage of valuers, repairers, accountants and adjusting personnel. Temporary adjusters effective?

! Betterment with respect to re-conditioned / obsolete machinery

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! Obsolete machines – lack of spare parts, tools and plant to effect repairs

!  (Unrealistic) pressure from OIC to settle 75% of claims by July 2012

! Salvage values far too low – supply outstripping demand

! Re-location of factories – impact on actual B.I. indemnity

! Wide Area damage (concurrent uninsured economic loss)

! Large lump sum payments (50%-70% of reserve ) on 1-2 page reports

! Capital Additions clause extending to cover stock

Thailand floods: claims handling challenges & lessons learned

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A simple framework for crisis response

Emergency management

Crisis management

Business management

Facts / Uncertainties Risks

Decisions

Players

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Summary / Communication & Strategy

!  Work closely with your Advisors / Brokers – Leverage quality advice and ensure the right information is communicated to the risk carrier(s)

!  Don’t lose experience / knowledge when employees move on or change roles – Ensure there is transparency around experiences. Shared knowledge is vital

!  Don’t wait for an incident to occur before building a relationship with your risk carrier – Make sure the Risk Manager meets the relevant Claims Manager(s) at the outset of a business relationship, and regularly thereafter

!  Don’t tactically feed information – If you think the data or information is relevant then share it at the earliest opportunity

!  Consider the use of ‘protocols’ to underpin the (Re)Insurance contract – Defined roles and obligations (including timelines for responses, information exchange, or ‘decisions’) can assist in a claims situation where emotions can be high and time tight

!  Avoid any semblance of ‘blame’ culture, plus ensure that representatives are fully empowered and supported when dealing with clients or (investigating) service providers, eg. Loss Adjusters or Lawyers

!  Try to avoid hierarchical or ‘management by committee’ decision making in an active loss situation – This can slow the process unnecessarily and complicate messages

Partnerships are key – (Re)Insurers are there to pay covered claims as quickly and efficiently as possible

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Thank you for your time. Any questions?

Image source: U.S. Navy An SH-60F Sea Hawk helicopter, flies around the Bangkok area with members of the humanitarian assessment survey team and the Royal Thai Armed Forces to assess the damage caused by flooding. By: Petty Officer 1st Class Jennifer Villalovos. Date 22 October 2011