6 Risks for Golf Courses and Country Clubs
The third quarter of 2017 showed no mercy. Hurricane by hurricane, wildfire by wildfire, natural disasters destroyed countless properties and disrupted business operations from the Caribbean to California.
In the past, outlier CAT seasons such as this produced significant changes in both risk transfer markets as well as approaches to risk mitigation and claims management.
“Quarter after quarter of consecutive reductions have left us at the lowest pricing point in the market in the last 18 years. This low point coupled with significant catastrophe losses likely signals an inflection point,” said George Stratts, President and CEO of Lexington Insurance Company, AIG’s excess & surplus lines insurer. “We’re at a point where the market is most vulnerable to dramatic shifts.”
Though no two CAT seasons are the same, there are some historical examples that provide insights into how the current market may respond.
“Market conditions now are very similar to what we experienced in 1999. At that time, we were experiencing a prolonged soft market. Then a series of catastrophes occurred in the following years, including the 9/11 attacks and the devastating hurricane seasons of 2004 and 2005,” Stratts said.
Fast forward to today, and the situation looks very similar. Guy Carpenter’s Global Property Casualty Rate-On-Line Index reflects the current low pricing point; in 2017, the index value was at its lowest point since 1999. Then the tumultuous third quarter of 2017 heaped significant losses on the industry.
While no one can predict how the 2017 CAT season will impact the market landscape or price of risk transfer, it seems clear that changes are coming. This is, after all, the first time that alternative capital is being tested in a major way. How that capital responds and whether it returns remain to be seen.
But it’s not just about risk transfer. Increasingly, companies are just as concerned about their carrier’s ability to mitigate their risk. Regardless of how the risk transfer market responds, best-in-class carriers who have developed the analytical tools and engineering expertise to educate clients about their risks are the ones who survive and thrive through market disruption.
One proven maxim is that a more granular view of risk is a better view of risk. In the past, the carriers who invested time and resources to develop their own view of risk were better prepared to respond to catastrophic losses.
After Hurricane Andrew, for example, carriers were challenged to reevaluate their coastal property exposure, adopt more stringent underwriting, and focus on building resilience. Leveraging data, analytics and machine learning to build on old approaches will be the way forward.
“The first generation of widely-used catastrophe models established a technical baseline in the marketplace, which provided a guide to price the volatility of some of the risks we assume and better account for them in a long-term, sustainable way,” Stratts said.
“But as we move forward, broad-based market changes become much more nuanced and tailored to individual risk characteristics. Have carriers developed their own proprietary views of risk based on their experience, the experience of their portfolio, and insights garnered via data analytics and engineering? That’s what we’ll learn in the year ahead.”
Lexington invested in building out catastrophic risk capabilities, leading to CAT models that were adapted to the carrier’s own book of business and exposure and much more detailed than industry standard models.
In addition to fine-tuning existing tools, best-in-class carriers develop their own analytical tools to better evaluate risk. Lexington did this for one of the most difficult areas of risk to insure – flood.
Lexington dug deeper than standard flood maps and again built a more granular view of its flood exposure. In many cases, it was able to inform clients of exposure that they hadn’t been aware of because they were located outside of a flood zone as demarcated on standard maps. Or, the carrier determined that some locations were actually at a decreased level of risk.
Lexington demonstrated the success of its proprietary flood models in the response to Hurricane Harvey.
“As the events of Harvey were unfolding, the early message from many markets and modeling firms was that they couldn’t accurately estimate the loss because flood is so tough to model. But we were able to tell pretty quickly the impact on our portfolio, which meant we could respond to claims much faster,” Stratts said.
In the end, businesses need an insurance partner who help them rebuild. Risk engineering and analytical tools can help build resilience, but the strength of the claims team is what gets companies back on their feet.
“The commitment I see from our claims people to be able to take on Harvey, then Irma, then Maria, then the wildfires in California, all while traditional loss activity hasn’t stopped, is incredible. They haven’t skipped a beat,” Stratts said.
Paying claims quickly is even more urgent following natural catastrophes because businesses can’t begin repairs without access to working capital. Recognizing that need, AIG developed its ‘Property Claims Promise,’ which assures policyholders that they will receive a payment of up to 50 percent of the agreed total loss estimate within seven working days after coverage is confirmed. The funds can assist with cleanup costs, property repairs, and extra expenses incurred during the rebuilding process.
One of AIG’s larger clients in Houston, for example, sustained damage to over 600 of their 2400 locations when Hurricane Harvey hit, with two locations being a total loss. After an adjuster met with the client in the days following the storm, AIG saw no reason to wait for a formal report of damages and issued a $15 million advance within two weeks of Harvey making landfall.
Experience is vital as well. AIG has been through Hurricane Andrew in 1991, the tragedy of 9/11, and the catastrophic hurricane seasons of 2004 and 2005, among others. Through the influx of alternative capital and the challenges of prolonged soft market, AIG and Lexington have been constants.
“It’s one thing to offer capacity and to knowingly write catastrophe risk, it’s another thing to be able to respond when catastrophe happens,” Stratts said.
Being prepared to respond and come back stronger takes continual self-improvement and a dedication to getting the details right.
Post-event, Lexington conducts a comprehensive review of its loss response to determine what went well and what didn’t.
“We call it ‘loss lessons learned.’ It’s a multi-disciplinary approach where we examine a loss through six lenses: underwriting, risk engineering, analytics, claims, operational response and communications,” Stratts said. This exhaustive process pulls in people across the organization to gain a holistic view of the loss to reflect the way clients experience it.
“Those functions might be separate within any given company, but a client sees it all at once — the property damage that may reveal engineering flaws, the claims process, the impact on the insurance contract, etc.,” Stratts said. “Getting a holistic view of our response helps us to create and fine tune comprehensive solutions. We plan to conduct such a review for our losses following the catastrophes in late 2017.”
Through its experience, risk expertise and claims commitment, Lexington is positioned to not just transfer clients’ risk, but to truly partner with companies to build resiliency no matter what lies ahead.
To learn more, visit http://www.lexingtoninsurance.com/home.
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Lexington Insurance. The editorial staff of Risk & Insurance had no role in its preparation.
Carriers today often argue that buying their insurance product is about much more than financial indemnity and peace of mind.
Many insurers include a variety of risk management services and resources in their packages to position themselves as true risk partners who help clients build resiliency and prevent losses in the first place.
That’s all well and good. No company wants to experience a loss, after all. But even with the added value of all those services, the core purpose of insurance is to reimburse loss, and policyholders pay premiums because they expect delivery on that promise.
At the end of the day, nothing else matters if your insurer can’t or won’t pay your claim, and the quality of the claims experience is ultimately the barometer by which insureds will judge their insurer.
Why, then, is the process not smoother? Insureds want more transparency and faster claims payment, but claims examiners are often overburdened and disconnected from the original policy. Where does the disconnect come from, and how can it be bridged?
Both sides of the insurer-insured equation may be responsible.
“One of the difficult things in our industry is that oftentimes insureds don’t call their insurer until they have a claim,” said Susan Hiteshew, senior manager of global insurance and risk management for Under Armour Inc.
“It’s important to leverage all of the other value that insurers offer through mid-term touchpoints and open communication. This can help build the insurer-insured partnership so that when a claim materializes, the relationships are already established and the claim can be resolved quickly and fairly.”
“My experience has been that claims executives are often in the background until there is an issue that needs addressing with the policyholder,” said Dan Holden, manager of corporate risk and insurance for Daimler Trucks North America.
“This is unfortunate because the claims department essentially writes the checks and they should certainly be involved in the day to day operations of the policyholders in designing polices that mitigate claims.
“By being in the shadows they often miss the opportunity to strengthen the relationship with policyholders.”
Communication barriers may stem from internal separation between claims and underwriting teams. Prior to signing a contract and throughout a policy cycle, underwriters are often in contact with insureds to keep tabs on any changes in their risk profile and to help connect clients with risk engineering resources. Claims professionals are often left out of the loop, as if they have no proactive role to play in the insured-insurer relationship.
“Claims operates on their side of the house, ready to jump in, assist and manage when the loss occurs, and underwriting operates in their silo assessing the risk story,” Hiteshew said.
“Claims and underwriting need to be in lock-step to collectively provide maximum value to insureds, whether or not losses occur.”
Both insureds and claims professionals agree that most disputes could be solved faster or avoided completely if claims decision-makers interacted with policyholders early and often — not just when a loss occurs.
“Claims and underwriting need to be in lock-step to collectively provide maximum value to insureds, whether or not losses occur.” – Susan Hiteshew, senior manager of global insurance and risk management for Under Armour Inc.
“Communication is critically important and in my opinion, should take place prior to binding business and well before a claim comes in the door,” said David Crowe, senior vice president, claims, Berkshire Hathaway Specialty Insurance.
“In my experience, the vast majority of disputes boil down to lack of communication and most disputes ultimately are resolved when the claim decision-maker gets involved directly.”
Another contributing factor to fractured communication could be claims adjuster workload and turnover. Claims adjusting is stressful work to begin with.
Adjusters normally deal with a high volume of cases, and each case can be emotionally draining. The customer on the other side is, after all, dealing with a loss and struggling to return to business as usual. At some TPAs, adjuster turnover can exceed 25 percent.
“This is a difficult time for claims organizations to find talent who want to be in this business long-term, and claims organizations need to invest in their employees if they’re going to have any success in retaining them,” said Patrick Walsh, executive vice president of York Risk Services Group.
The claims field — like the insurance industry as a whole — is also strained by a talent crunch. There may not be enough qualified candidates to take the place of examiners looking to retire in the next ten years.
“One of the biggest challenges facing the claims industry is a growing shortage of talent,” said Scott Rogers, president, National Accounts, Sedgwick. “This shortage is due to a combination of the number of claims professionals expected to retire in the coming years and an underdeveloped pipeline of talent in our marketplace.
“The lack of investment in ensuring a positive work environment, training, and technology for claims professionals is finally catching up to the industry.”
The pool of adjusters gets stretched even thinner in the aftermath of catastrophes — especially when a string of catastrophes occurs, as they did in the U.S in the third quarter of 2017.
“From an industry perspective, Harvey, Irma and Maria reminded us of the limitations on resources available when multiple catastrophes occur in close succession,” said Crowe.
“From independent and/or CAT adjusters to building consultants, restoration companies and contractors, resources became thin once Irma made landfall.”
This is where Insurtech may help things. Automation of some processes could free up time for claims professionals, resulting in faster deployment of adjusters where they’re needed most and, ultimately, speedier claims payment.
“There is some really exciting work being done with artificial intelligence and blockchain technologies that could yield a meaningful ROI to both insureds and insurers,” Hiteshew said.
“The claim set-up process and coverage validation on some claims could be automated, which could allow adjusters to focus their work on more complex losses, expedite claim resolution and payment as well.”
Predictive modeling and analytics can also help claims examiners prioritize tasks and maximize productivity by flagging high-risk claims.
“We use our data to identify claims with the possibility of exceeding a specified high dollar amount in total incurred costs,” Rogers said. “If the model predicts that a claim will become a large loss, the claim is redirected to our complex claims unit. This allows us to focus appropriate resources that impact key areas like return to work.”
“York has implemented a number of models that are focused on helping the claims professional take action when it’s really required and that will have a positive impact on the claim experience,” Walsh said.
“We’ve implemented centers of excellence where our experts provide additional support and direction so claim professionals aren’t getting deluged with a bunch of predictive model alerts that they don’t understand.”
“Technology can certainly expedite the claims process, but that could also lead to even more cases being heaped on examiners.” — Dan Holden, manager, Corporate Risk & Insurance, Daimler Trucks North America
Many technology platforms focused on claims management include client portals meant to improve the customer experience by facilitating claim submission and communication with examiners.
“With convenient, easy-to-use applications, claimants can send important documents and photos to their claims professionals, thereby accelerating the claims process. They can designate their communication preferences, whether it’s email, text message, etc.,” Sedgwick’s Rogers said. “Additionally, rules can be established that direct workflow and send real time notifications when triggered by specific claim events.”
However, many in the industry don’t expect technology to revolutionize claims management any time soon, and are quick to point out its downsides. Those include even less personal interaction and deteriorating customer service.
While they acknowledge that Insurtech has the potential to simplify and speed up the claims workflow, they emphasize that insurance is a “people business” and the key to improving the claims process lies in better, more proactive communication and strengthening of the insurer-insured relationship.
Additionally, automation is often a double-edged sword in terms of making work easier for the claims examiner.
“Technology can certainly expedite the claims process, but that could also lead to even more cases being heaped on examiners,” Holden said.
“So while the intent is to make things more streamlined for claims staff, the byproduct is that management assumes that examiners can now handle more files. If management carries that assumption too far, you risk diminishing returns and examiner burnout.”
By further taking real people out of the equation and reducing personal interaction, Holden says technology also contributes to deteriorating customer service.
“When I started more than 30 years ago as a claims examiner, I asked a few of the seasoned examiners what they felt had changed since they began their own careers 30 year earlier. Their answer was unanimous: a decline in customer service,” Holden said.
“It fell to the wayside to be replaced by faster, more impersonal methodologies.”
Insurtech may improve customer satisfaction for simpler claims, allowing policyholders to upload images with the click of a button, automating claim valuation and fast-tracking payment. But for complex claims, where the value of an insurance policy really comes into play, tech may do more harm than good.
“Technology is an important tool and allows for more timely payment and processing of claims, but it is not THE answer,” BHSI’s Crowe said. “Behind all of the technology is people.” &