Canadian Underwriter

Coping With Catastrophes: Preparing a response

January 31, 2011   by

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A catastrophe is an opportunity for adjusters and insurers to outdo themselves and provide outstanding claims service. In this issue, we look at when and how catastrophe response services are set up.

Defining catastrophe

A catastrophe is a sudden disaster of immense proportions that causes havoc to people, property and the natural environment. Many catastrophe situations arise from extreme weather conditions such as hurricanes, tornados, heavy rain, sleet and hail. Serious accidents may also cause catastrophes, for example, if hazardous materials are spilled in a residential area.

However, not all large-scale events resulting in significant damage qualify as catastrophes for the insurance industry. An insurance claims catastrophe is a sudden and unexpected event causing many insured claims, often on a large scale. The event often creates an urgent situation of need for policyholders that is a challenge to service due to the scarcity of resources in the aftermath.

For the industry to classify an event as an insurance catastrophe, the event must first be the result of an insured peril and therefore recoverable under insurance policies. Some natural disasters are not insured, so that although many homeowners and businesses may sustain damage, insurers would not be contractually required to respond. For example, most losses caused by flooding are not covered under standard policies.

Secondly, once an event qualifies for insurance coverage, it must still be severe enough to have significant financial consequences for the insurance industry. This usually involves large numbers of policies being affected, although some catastrophes involve relatively few policies but each with very large losses.

Impact of scarcity

When a disaster strikes, it often creates a scarcity of resources. Large numbers of people may be without a home, without transportation, and without power. Materials and labour for repairs can be difficult to come by. Rental vehicles may not be available, and temporary accommodation for victims of the event and for relief workers may be difficult to arrange. Even cashing cheques to cover expenses can be difficult if banking systems are down.

Such scarcity causes prices to increase. In addition, when repairs and cleanup are delayed because resources are not available, property continues to deteriorate, allowing further damage to ensue. Both of these factors add to the severity of the effects of a catastrophe for the insurance industry.

Assigning loss adjusters

An insurer’s catastrophe coordinator will be involved in finding qualified local staff to join the catastrophe team and enlisting the services of independent adjusters where needed. Insurers may hire independent loss adjusters if the initial claims volume exceeds what the insurer’s own staff can handle, or if specialist claims expertise is needed, for example, to deal with claims arising from an oil spill.

Enlisted loss adjusters are asked to commit to a schedule based on the demands of the emergency. For example, the insurance company may ask for a two-week commitment. This schedule should be outlined when loss adjusters are being canvassed to participate and should also be reinforced at an orientation meeting. Independent adjusters may need extra instruction on the insurer’s procedures and practices at the outset, unless they have worked closely with the insurer before.

Travel and accommodation

Frequently, loss adjusters must travel to another town, city, province or even country to deal with a catastrophe claim. Adjusters may need travel documents, such as passports, and perhaps special identification to show policyholders and local officials their status. When adjusters work across political borders, a range of requirements may need to be met. For example, adjusters sent to handle hurricane claims in Bermuda have been required to provide proof of certain vaccinations; and all loss adjusters working in Quebec – even staff adjusters – must be licensed. The qualifications that adjusters must meet vary depending on the laws of the jurisdiction.

Transportation must be organized for loss adjusters and shipping for equipment and documentation. If the situation warrants, loss adjusters may be asked to use their own vehicles to get to the site so that they can avoid shortages of rental vehicles in the site zone. Once on site, shortages of fuel may limit the use of vehicles, in which case adjusters may resort to bicycles or other alternatives. Special delivery arrangements can be made by insurers to transport documentation to head office or other materials to the disaster site.

Adjusters and support staff working in areas far from home ideally need accommodation close to the scene of the catastrophe, but this is not always available. Sometimes adjusters need to travel great distances to reach loss areas. Renting campers or recreational vehicles may be a viable short-term housing option. Whatever the solution, care should be taken to separate loss adjusters from policyholders when arranging accommodation.

Equipment needs

In addition to accommodation for adjusters, equipment required on a catastrophe site could range from clothing to generators to mobile offices:

  • Some insurers issue identifying clothing – uniforms, jackets or caps – to adjusters working on location. Some locations require protective clothing such as boots, helmets or masks.
  • Current maps should be available to loss adjusters. Even though a disaster often obliterates street signs or landmarks, maps can still provide a basic reference point.
  • If the local infrastructure supports it, adjusters may need cell phones, and special phone numbers may be assigned or a special call centre established to deal with calls related to the disaster.
  • Alternate sources of power, such as gas-operated generators, can provide power for mobile living stations, cell phones, laptop computers, and other electronic equipment when conventional sources of power are out of commission.
  • Mobile offices are often set up at the disaster site to serve as a command centre for the on-location team. The centre is staffed with support people and is typically equipped with phones, possibly fax machines or scanners, computers, e-mail capability, and workspace furniture. The command centre also needs systems support for its computers.
  • For emergency on-location communications or in specific circumstances, two-way radios are sometimes used if a source of power to recharge batteries is available.

In the next issue of Claims Canada, Education Forum looks at catastrophe claims issues of security, claims-handling practices and response evaluation.

This article is based on excerpts from the study material in the Claims Professional Series of applied courses – a core of the CIP Program that helps adjusters learn the functional knowledge and skills required of their profession.