Wild Ride

Nothing to talk about? There is always the weather.

It appears this conversation default continues to be a frequent topic on the lips of insurance partners when it come to property and casualty claims. Will severe weather – regarded now as being more frequent and perhaps more severe than many can recollect – cause concrete damage to homes, vehicles and/or businesses? Or will it plunge blocks of neighbourhoods and business districts into darkness, necessitating that various public services and different levels of government pitch in to get the lights back on?

One need look back no further than late December, when the ice storm that pummelled Ontario before moving eastward to cause more damage cast a pall over the festive season, trapping parts of Canada’s largest city in an icy cocoon.

There are no firm figures on what this beauty turned beast will mean in terms of claims and associated costs. One reported estimate from BMO Nesbitt Burns notes the toll for ice storm damage in Ontario, Quebec and Atlantic Canada could produce $400 million to $600 million in gross losses for the p&c industry.

Also in early January, Toronto City Council asked the provincial and federal governments to provide financial assistance to the city and Toronto Hydro for the more than $171 million in storm-related costs incurred. The ice storm, specifically, caused substantial damage to municipal forestry infrastructure and the city had (to date) received reported losses amounting to about $106 million of private damage.

Certainty is a luxury, but some trends appear to have cemented themselves. With an eye to claims, severe weather – whatever form that may take – lies smack dab in the middle of discussions and considerations moving forward.

Weather has company, of course, with talk in 2014 also expected to focus on how best to prepare for the claims picture created by the mandated 15% rate reduction in Ontario auto and the need to sustain the claims-adjusting profession.

TRICKY FORECAST

Most sources do not expect any big swings (up or down) in the claims outlook for 2014 – absent any hiccups.

Overall, notes Irene Bianchi, senior vice president of claims and corporate services at RSA Insurance in Toronto, “the claims outlook for 2014 is relatively steady, but for the ongoing concern of severe weather.”

Toronto-based Bob Fitzgerald, president of ClaimsPro Inc., a member of SCM Insurance Services Group of Companies, would likely agree – again barring significant weather events such as the Calgary and Toronto flooding, and the Toronto ice storm.

Rich Zamperin, vice president of claims for Allstate Insurance Company of Canada, based in Markham, Ontario, expects “more uncertainty in the coming year, putting upward pressures on loss costs, frequencies, expenses (including litigation), pendings, staffing and customer service. With this increasing uncertainty, it will be important for the property and casualty market to be able to adapt, innovate and evolve to meet our customers’ insurance needs.”

Pat Van Bakel, president and chief executive officer of Toronto-based Crawford & Company (Canada) Inc., says he would not be surprised to see claim frequency decline in 2014. “Many policyholders will be faced with higher premiums and higher deductibles as their policies renew and they may take a more conservative approach to reporting claims,” Van Bakel notes.

“It is reasonably safe to suggest that 2013 was a bit of an anomaly with two of the most significant catastrophe events in Canadian history occurring within weeks of each other,” he adds.

Clearly, weather-related claims took their toll nationally last year, says Michael Morris, vice president of national operations for Cunningham Lindsey in Mississauga, Ontario. “Insurance claims from wind and water surpassed the claims for fire damage and the trends have increased with severe weather events,” Morris reports.

Zamperin, too, regards severe weather as an issue to watch. “We expect additional pressure on property claims resulting from more severe weather patterns. This will drive significant spikes in claim volume, as well as catastrophe activity similar to what we’ve seen in 2013 in Alberta and Ontario,” he says.

“According to various weather forecasts, we will be in a deep freeze during the 2013/2014 winter, and that will no doubt have an immediate effect on the claims in Canada,” says Patti Kernaghan, president and chief executive officer of Kernaghan Adjusters in Vancouver. “The weather predictions for the rest of the year are unclear. However, given the last few years of very severe weather patterns, it is likely to be repeated in 2014,” Kernaghan adds.

Swiss Re recently issued preliminary estimates of insured losses for property and business interruption from natural catastrophes and man-made disasters in 2013. The southern Alberta flooding was listed as the third most costly disaster last year, with estimated insured losses of US$1.9 billion and economic losses of US$4.8 billion.

“The p&c demands on claims-handling resources will continue to be high around all weather-related events and we foresee catastrophe planning and mitigation strategies as key discussions with our insurance partners,” says Morris.

Water-related claims as a result of increased storm activity have put tremendous strain on municipal infrastructures, a trend that has emerged over the past 10 years, he says. “As this trend continues, we will see more and more water-related claims, such as sewer back-up, business interruptions and so one.”

Bianchi sees aging infrastructure in the country’s cities as an urgent priority. “It has become clear that Canada’s infrastructure can’t cope with severe weather and resulting water-related damages.”

Governments investing in municipal infrastructure, including better planning, “will play an important mitigating role by preventing unsound decisions, such as construction on flood plains. It’s unrealistic and unsustainable for the insurance industry to bear the substantial costs associated with aging infrastructure and poor planning,” Bianchi emphasizes.

“The industry needs to play a bigger role in loss prevention, which will go a long way in terms of cost control,” she suggests. “From a broker and insurer perspective, consumer education aimed at loss control measures is essential.”

There are several areas where education (and convincing) may be needed. Consider formerly lowly basements, which have been transformed from basic storage areas to comfortable living spaces.

“A growing number of Canadians are investing in finished basements, which are giving rise to mounting replacement costs for sewer back-up-related claims,” Bianchi says. “Growing Canadian affluence means more people are investing in home renovations, which very commonly includes a finished basement with expensive furnishings and other big-ticket items, such as high-end entertainment systems. With the rising trend of water-related damage, this is leading to a higher concentration of claims in addition to higher replacement costs.”

And there are few indications the trend of making basements more liveable will change. As such, precautions have become all the more important.

EMERGING CLAIMS AREAS

Trying to predict what will happen with p&c claims can be a slippery proposition, suggests Fred Plant, president of Plant Hope Adjusters Ltd. in Moncton, New Brunswick. “All anyone can do is guess, as there are no measurable predictors one can use to size up what may or may not happen with events that influence the number of claims that will come about in a year,” Plant says.

“As insurers develop new product lines, so will there develop new claims associated with those products,” he says. “If the p&c insurance industry responds with the coverages that are emerging as necessary for business today, then interesting claims and complex litigation will soon follow,” Plant predicts.

Bianchi points out new condo developme
nts and other construction projects are on the rise. “Overall this is a reflection of increased economic activity, which is very good for the insurance industry, but in general, it will also lead to more losses.”

Zamperin adds that “there is also upward pressure on costs for building restoration and damage mitigation, as well as environmental issues such as mould and asbestos containment during the restoration process.”

Mould remediation could become an issue not only related to the number of claims, but also to their costs. “There will continue to be an increased need for specialists to quantify or identify loss issues, such as specialty engineering firms, etc.,” Kernaghan expects.

Also with regard to specialist demand, she suggests “there will be an increase in business interruption claims that often require accounting expertise to work with the adjusters.”

And increased safety requirements for independent adjusters “will also ultimately increase costs in terms of training and equipment needs,” she adds.

But having independent adjusters on site can help to guard against certain issues that will lead to higher costs, Fitzgerald notes. He points to concerns related to the trend to handle many personal lines property losses by telephone through contractors on site.

“Without an adjuster on location confirming the scope and reviewing the contents list in person, the claim costs can creep up. Adjusting fees may be reduced, but the indemnity dollars may, therefore, increase without confirmation on cause of loss or management of the ultimate claim payout,” he explains.

DRIVING AUTO

Another issue of concern, a perennial, is what is happening with Ontario auto. “We have also seen an uptick in bodily injury (BI) claims, which are expected to continue,” Bianchi says. “The legal environment has become more conducive to bodily injury claims. We’ve seen a resurgence of legal advertising aimed at auto accident victims, and heightened consumer awareness of the potential for sizable claims settlements.”

Zamperin also regards Ontario auto – most recently in the public eye with the directive by the provincial government to reduce rates by an average of 15% over two years – as a driver for the p&c claim outlook. He cites both accident benefits (AB) and BI, which he characterizes as “a definite watch item.”

Says Zamperin, “There is increasing political and regulatory uncertainty that is largely Ontario-driven, and is mostly in the injury area of the business.”

BI claims are among those becoming more expensive, more quickly than other types. Zamperin says there are a few reasons for this, including spillover from Ontario AB claims and the need for alternative dispute resolution reform.

Bianchi suggests the mandated rate reduction “has potential to significantly impact the bottom line for insurers in 2014. Changing regulations around the definition of catastrophic impairment is also anticipated to have a significant impact on costs this year,” she says.

Zamperin would likely agree. Although everyone would like to see auto insurance offered in a stable, affordable and accessible way, “mandated rate cuts are simply a short-term, Band-Aid solution that fails to address systemic issues that require attention,” he comments.

“Insurers need to continue to preserve the intended outcomes of the 2010 reforms and reduce overutilization in the system,” Zamperin emphasizes.

But there are some positive signs, he suggests, citing the Ontario government’s move to establish a panel to review the dispute resolution system, headed by Chief Justice Douglas Cunningham.

Justice Cunningham’s interim report last year headed in the right direction, Zamperin says. Once the final recommendations are released, “all insurers will need to act on those recommendations in a timely basis,” he recommends.

SUSTAINING EXPERTISE

Timely action is also needed with regard to ensuring that the independent adjusting profession remains healthy. Absent that, sources caution the expertise to help address matters in a timely and less expensive way could be lost.

A definite area of concern, says Plant, is adjuster recruitment and training. “Many adjusting firms are relying on hiring people who are near the end of their careers in claims. This is a Band-Aid approach that has a certain end,” he says. “Few adjusting companies actually bring in fresh recruits off the street and train them from the ground up.”

Fitzgerald notes that many senior adjusters are retiring. “Specialty-type losses requiring expertise in claims handling will likely increase in outsourcing needs for future as we see many senior adjusters retiring and fewer adjusters coming through the ranks with expertise to handle these specific losses,” he says. “This is especially demonstrated by way of more common desktop adjusting models,” he reports.

“As the number of independent adjusters continues to shrink, the demand for the experienced adjuster who really knows how to handle a claim will go up. With that, so will the cost of that service,” Plant predicts.

Adds Morris, “We need to do more to attract college students to enter into the insurance programs, develop new mentoring programs, and do a better job of showcasing the opportunities the loss adjusting career has to offer.”

That said, he adds, independent adjusters “will continue to be utilized for our large and complex loss-handling capabilities. As we continue to grow out this sought-after skill set, we expect to see a steady to upwards trends in service need.”

ALL AT ONCE

That need may be no clearer than during a catastrophe, when many claims must be handled at once. Is the claims process comfortably equipped to deal with an associated large number of claims?

Van Bakel says “this varies from company to company, from event to event, and with the geography of the event.” During the Alberta and Toronto floods, “we managed to mobilize hundreds of staff in a few days to deal with the large number of claims we had to deal with. However, there were some that failed to either execute their catastrophe plan, or perhaps that did not have one. But all in all, the industry met the challenge.”

Plant’s suggestion? “Insurers may want to consider making independent adjusting an integral part of their overall claims-handling strategy rather than an ad-hoc process where they push a panic button once and then expect the adjusters to jump and serve them.”

Van Bakel notes that “2013 provided a lot of lessons and warning signs for our industry; specifically, how prepared we are as an industry to respond to major spikes in claim volumes in a short period of time.”

As such, “now is the time to debrief on these events, model future events, and build adequate plans to respond to ever-changing customer expectations – this ranges from claims staff to contractors and all other aspects of the supply chain,” Van Bakel emphasizes.

“Climate change has had an undeniable impact on both the frequency and severity of catastrophic events year over year,” says Bianchi, adding the unprecedented flooding last year posed a tremendous challenge for the industry.

But it may be possible for some challenges to be overcome. “If insurers were able to send pre-determined percentages of claim files out to IAs on a regular basis, we would be better-equipped during times of catastrophe or significant weather events to assist and understand their claim file-handling philosophies,” Fitzgerald comments.

“Standing agreements in advance of catastrophic events, which clearly outline protocols, are critical to a smooth claims process during a large weather event,” he says. As well, “having system connectivity would allow a seamless assignment of claims between systems and vendors which, again, makes the process run more effectively,” he says.

During Cat events, “indemnity amounts increase significantly due to greater costs in material and labour,” both of which are at a premium, Morris says. As w
ell, expenses associated with handling these types of losses have risen, “primarily because of the increased use of experts such as lawyers, engineers, etc., which reflects the insurers demand for better quantifying the loss and exploring subrogation opportunities.”

CUSTOMER SERVICE KEY

All would agree that serving customers is critically important. With storm-related claims, though, Kernaghan suggests this may be one area where the industry as a whole is falling down. “We need to get better on servicing the policyholders. We offer a product that has a promise and we are not doing a great job delivering on that promise in a timely manner. We need to be more efficient in our service delivery,” she emphasizes.

Efficiency, however, is not necessarily the same as as quickly as possible. Closing claims quickly is a shared and laudable objective, but doing so too quickly – absent a full review – can be to the detriment of all, in fact increasing resources allocated and costs incurred.

“Sometimes short-sighted decisions made in a rush can lead to files being reopened or even litigated down the road,” Kernaghan cautions. “Experience and expertise gives the expert independent adjuster the tools to make better decisions in a timely manner, without false deadlines pushing them,” she adds.

Technology offers promise as a means to achieve the twin goals of meeting customer needs and helping contain costs, she says. “How we use technology to control costs and communicate more effectively and efficiently will have an enormous effect in the future.”

Fitzgerald concurs that implementation of new technologies can enhance the workflow process and expedite the claims-handling process. That said, “in order to use these technologies effectively, we must be able to have connectivity between systems in order to realize the net gains that can be implemented by use of these new systems.”

That seamless and open approach “to claims handling with connectivity between partners and all claims handling systems will allow more efficient and innovative workflows, which will ultimately reduce the overall costs of managing outsourced files and the indemnity paid on claims that are currently managed by telephone and through a number of different systems that are not connected to one another,” Fitzgerald adds.

“Improved workflows and use of technology can definitely improve a claims lifecycle and overall costs,” Morris agrees. “We believe there is opportunity for us as the industry continues to look at new ways to improve cost efficiencies without compromising customer satisfaction,” he continues.

“Insurance is an evolving business and it’s, therefore, imperative to use innovative resources and processes to enhance the service we deliver and to make us more efficient,” Bianchi says.

“From a claims perspective, this ranges from using the latest fraud detection technologies to streamlining our workflows, with a view to managing costs while enhancing the claims experience for customers who need us during very difficult times,” she says.

Zamperin notes things such as technology, efficiencies through improved workflow and enhanced collaboration (both internally among staff and externally between insurers) “will continue to drive improvements in efficiency and effectiveness, enhanced customer service and a more a engaged workforce.”

That said, “these efforts take investments by companies, so it is important that cost containment efforts are enabled quickly and with clear measures to ensure they are delivered,” he says.

“The regulatory framework within which companies operate will require support through innovation and the enablement of a market-driven, competitive pricing structure that works to the best interest of consumers.”

Van Bakel expects that “the pressure from Cat activity is likely going to drive further cost containment measurements at the carrier level and we expect that that will, in turn, impact firms like ours.”

But Plant notes there is a limit to how far cost-cutting can go. “Where does the cost-cutting scale go out of balance with bottom line?” he asks. “It is time for rates to rise to sustain the industry.”

Looking forward, Zamperin remains cautiously optimistic. “It’s important we’re able to understand our customers and provide them with the knowledge to make choices that best suit their individual insurance needs. We need to be a reliable and credible source of information for our customers, and demonstrate we’ll be there to support them through tough moments,” he says.