January 1, 2019 by Brooke Smith
During the catastrophic Alberta wildfires in 2016, Fort McMurray fire chief Darby Allen and his team of first responders somehow guided 88,000 residents of Fort McMurray to safety, the largest evacuation in Canadian history. This was truly an amazing feat, given the trail of devastation the fires left behind. The blaze set a record for the most destructive catastrophe event in the country’s history – approximately 60,000 insurance claims totaling a loss of $3.7 billion.
Now retired, Allen has been touring insurance conferences across the country in 2018, telling brokers, risk managers and insurers alike about what it was like on the scene. In his speech to insurance brokers in Ontario, Allen briefly noted one poignant moment he witnessed when residents were cleared to return to their destroyed homes. He watched a claims professional ask a resident for receipts to prove the value of the items lost in the fire. On its face, Allen found the question absurd. “Their home was gone,” he said.
Among the many lessons for insurers coming out of Fort McMurray, one may be in how to handle claims caused by wildfires – a peril that insurers have predicted for some time will only get worse. “Changes to Canada’s climate will…have implications for climate effects other than changing precipitation patterns,” the Institute for Catastrophic Loss Reduction (ICLR) published in its June 2012 report, Telling the Weather Story, commissioned by Insurance Bureau of Canada. “The occurrence of forest fire activity is projected to increase by 25% by 2030, with major regional variations as certain parts of the country become hotter and drier than others.”
The outcome in Fort McMurray was miraculous, given that the only exit point for the evacuation was engulfed in flames. However, not all catastrophic events will end this way, as the wildfires in California tragically demonstrated. As reported by Reuters on Dec. 4, the so-called Camp Fire, which started Nov. 8, has all but obliterated the mountain community of Paradise, home to more than 27,000 people about 175 miles north of San Francisco. The fire was fully contained Nov. 25, and the death toll has been revised to 85, based on ongoing DNA analysis of bones and bone fragments.
Insured catastrophe losses in Canada cost insurers roughly $1.2 billion in 2017. They included all types of weather-related perils: fire, ice, wind and water. “Mother Nature has not been kind to the industry over the last few years,” says Anita Paulic, director of Western Canada operations for ClaimsPro. “We have definitely seen an increase in extreme weather patterns. There have been numerous water events, but fire is so devastating and severe, it receives a lot of attention.” So what, if anything, have adjusters learned from these catastrophic fires to help handle such claims events in the future, particularly when it comes to handling first notice of loss?
In Good Faith
With fire, homes and contents are totally destroyed, and so proving the value of an item becomes an issue for claims adjusters. How can insureds provide receipts for the contents in their homes? Jim Eso, senior vice-president at Crawford and Company (Canada) Inc., says this issue is true of any fire claim, not simply for those deemed catastrophic (e.g. when the industry’s total claims losses exceed a $25-million threshold). “In general, it has always been an item for insurance companies and their adjusters to deal with,” he says. “If your home burned down tomorrow, there would be a good chance that you wouldn’t have receipts for a whole bunch of stuff.”
But insurance is founded on the principle of “utmost good faith,” Eso adds. “Where it gets put to the test is in a scenario like Fort McMurray. If you have people who’ve lost everything, there comes a point where you have to take them at their word – and you should. You want to assume they’re acting in good faith, just like you know the insurance company is.”
Eso points to a specific instance during the Fort McMurray wildfire. “There was a lot of food, frozen or unfrozen, in freezers that sat for a month inside these houses while we [claims adjusters] waited to get access to the town. They were sealed and taped and disposed of without being opened; in most cases, because the risk of contamination of the property was so high,” he says. According to Eso, insurance companies were very good at generating a reasonable average number of groceries that a person would have had in their fridge or freezer. Insurers were prepared to pay their policyholders without any proof of receipts, he says, no questions asked.
“If somebody said, ‘But I had all this extra stuff,’ then that might just prompt some questions [from the adjuster],” Eso says, adding that there are ways to get receipts. “If it’s something really high-value, then the store that sold it to you probably still has a copy of the receipt.”
The high-wire balancing act for an insurance company during these situations is always to treat people fairly while at the same time not opening the door to fraudulent claims.
Eso says Crawford really focused on finding a way to get Fort McMurray residents what they needed so they were satisfied that they were treated fairly. “I was reviewing and discussing with adjusters every day, and there were not many instances where people blatantly exaggerated or expanded the list of items they had to try to defraud their insurance company,” he observes. “Insurance fraud is a pretty serious crime in Canada.”
Indeed. Each year it costs Canada an estimated $2 billion. And the crime comes with very serious consequences, including jail, fines, and non-payment of the false claims.
Assuming most insureds act in good faith when reporting their losses, the next hurdle is to get them their payments. This was no easy feat in Fort McMurray, when 88,000 people were evacuated from their home addresses. “The town was completely closed,” says Eso. “Policyholders had been relocated to various communities, so in the earlier stages, manual cheques were still the primary source.” But despite these early challenges, Eso credits the insurance industry for coming up with good solutions. He says Fort McMurray was probably had the most robust use of electronic funds transfers, and there were a lot of advance payments to insureds. “In many cases, before we even had access to the town, we were doing either cheques or electronic funds transfers to get the money [to insureds] ahead of time, so they could fund their own expenses rather than having to continually come back to the insurance company with hotel and meal receipts.”
For adjusters, paperwork is a concern, too, simply because so much of it arises from a catastrophe. During the Windsor, Ont. floods, says Barry McNeil, national CAT [catastrophe] manager with Sedgwick Canada, many departments within the adjusting firm – including support staff and the analytics team – provided necessary backup. “Adjusters deal with large volumes of claims over a short period of time,” he says. “They handwrite reports, get them to support staff, who then type them up and then send them back to the adjusters for proofreading to get out to the insurance companies,” he says.
Since the floods, Cunningham Lindsey has pre-populated its standard preliminary reports so that adjusters can fill out the forms themselves and either eliminate or add words particular to each claim. This allows insurance companies to get the information in a much shorter period.
Adjusters must handle logistical issues as well. “Prior to the first CAT I was involved with, my boss had told me about one the previous year, in which half the adjusters were sleeping in cars,” says McNeil, who became the national CAT manager in July 2017. “They went straight there and were sleeping in cars because the CAT happened over the Labour Day weekend; they couldn’t get a hotel room for the first night.” That was an eye-opener for McNeil. In subsequent CATs, he has spent hours ensuring that every adjuster gets a hotel room. He’ll contact the corporate travel agency to block off a number of rooms. That’s a simple, and yet incredibly important thing, he observes. Adjusters need to complete their scene investigations; they can’t do their work if they don’t have desks to work on within the vicinity of the catastrophe.
Good Customer Service
Paperwork and logistics are important issues to address, but providing good customer service is essential, says Paulic. Insurance is still very much a customer service business. “A conscientious approach is imperative from all sides,” she says. “We ensure assignments go to the right people for these particular types of claims.”
For a total loss house fire, she says, she matches the losses to the adjuster’s skill set. “From our end, it is a true investigation, but with a very personal attachment to it.” The adjuster must be sensitive to the fact that this is a very emotional time for the customer.
ClaimsPro implemented soft skills training following a major CAT event several years ago. “We try to stay ahead of the curve on the shift between all of the technology and what our clients expect in terms of the level of customer service,” Paulic says. “We recognize there needs to be a balance of both.”
Have soft skills diminished through the generations, as younger generations become increasingly wired? Paulic won’t say, but she does acknowledge the broader sociological impact of a technology-focused world. “Everything is on a screen, in an email, or on a form,” she says. “There tends to be less face-to-face interaction, and you lose a bit of that sincerity when everything is moving online. The magic is building that relationship with the insured at the outset, be it over the phone or in person.”
Before High River, a 2013 flood in Southern Alberta that cost the industry $1.9 billion, the industry leaned towards a slightly more process-oriented approach to claims handling, Paulic observes. “With each subsequent catastrophe [after High River], the focus has returned to prioritizing a superior level of customer service. During a high-volume event, you can have all the efficiencies and technology in the world, but the experience for that one person, in that one moment, for that one claim in a thousand, has to matter.”
For Eso, preparedness improves the claims experience not only for the insured, but also for the P&C industry. “It’s easy to have conversations [during a CAT event] and give go-aheads for people to start doing things, and then six months later second-guess those conversations, as opposed to having the conversations before the catastrophe even occurs,” he says.
Crawford spent a lot of time planning the Fort Mac response, particularly because there was a cushion of time when the town remained closed for a month. But even with all the advanced planning, when adjusters first arrived at the town, the circumstances required them to spend a lot of time reviewing and building procedures and processes for all stakeholders involved. “That becomes a big challenge during a CAT, and it always will be a challenge,” Eso says. “But the more preplanning we can do, the better off we will all be when the event occurs.”