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Claims Strategy

Fast Action Helps Complex Claims

Brokerage claims experts urge fast action to mitigate loss and substantiate claims.
By: | February 20, 2018 • 6 min read

Despite the popular television commercials featuring bizarre instances of property damage, risk management professionals say that the real troublesome complex claims arise out of multiple, overlapping events, not from odd single occurrences.

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In one situation, for example, an already complex acquisition was thrown into a state of confusion when a major hurricane damaged some of the assets, and the underwriters who had quoted on the buyer’s placement backed out.

In other instances, there were succeeding claims from multiple hurricanes that swept the U.S. Gulf Coast and Caribbean. And then there were the homes left damaged but standing after the wildfires in southern California only to be swept away by mudslides.

“Just in the past few months we have had four major hurricanes, a volcano, an earthquake, wildfires, and just recently mudslides,” said Charles Martin, chief claims officer for Marsh. “At the height of that, I was spending two hours a day, every day, writing updates for senior management on claims volume and severity.”

Martin and his colleagues at other brokerages said there are best practices for handling complex claims — beyond the obvious points of keeping accurate records and open communication. But that “standard” procedure for complex claims is essentially an oxymoron.

“Every one takes different turns. It’s not like you can say that something similar will happen tomorrow.”

Benefits of Overlap Analysis and Communication

Brokers’ best efforts to ensure that their clients are thoroughly covered may even be counter-productive. “The most complex claims tend to be those with overlapping coverage,” said Jill Dalton, managing director of property claims, preparation, advocacy and valuation at Aon.

“When there are multiple policies that can respond — boiler, property, marine, cyber, political, local versus international, multiple carriers, even multiple silos within the brokerage and the owner — untangling all that is the most complex.”

Charles Martin, chief claims officer, Marsh

Gap analysis is a common practice for brokers, especially when bringing in a new client or revising a program. But Dalton’s caution suggests that the reciprocal, overlap analysis may also be wise. If overlaps are deemed to be desirable, then the differentiation among them should be clear.

It is important for brokers to manage communications with insureds before a loss, and Dalton added that it is best if multiple levels within the client can be involved.

“Too often we see where coverage is not clear to everyone at a client. The risk manager, the plant manager, the executives all may have different understandings. In particular we see complications around waiting periods, percentage deductibles, retentions and multiple locations.”

Ideally there would be a time for the broker to speak to multiple levels at the insured. “Some clients invite us to meet with all their division heads or plant manager,” said Dalton.

“That is a great opportunity to brief them on how the whole program works. But not every company culture is open to that. Or there are geographic or language barriers.” In those cases it falls to the risk managers to try to communicate the essentials of the program across their organization.

“Multiple losses create complex claims and stretch the internal resources of even the best organized owner. Gathering information and monitoring claims can be extremely draining.” — Jill Dalton, managing director of property claims, preparation, advocacy and valuation, Aon

Still, life is what happens when risk managers are making plans. “We have seen cases where owners have had losses from multiple hurricanes,” added Dalton.

“There was an earthquake in Mexico, and the wildfires across California. Multiple losses create complex claims and stretch the internal resources of even the best organized owner. Gathering information and monitoring claims can be extremely draining.”

Hurdling the Unexpected

There are cases where an insured with complex claims may choose to lift the day-to-day responsibilities of a risk manger, or even a small team, and let them focus solely on the claim.

Susan Garrard, a managing director with Beecher Carlson in Boston, believes that complex placements and claims are normal for the energy sector. Still, she has seen some remarkable situations.

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In one case, a bankrupt company was eager to get assets off its books. A sale was in the final stages when last year’s hurricanes came through and caused damage. The claims were already filed with the seller’s carriers, but agreement had to be added that the buyer could adjust the claims after the sale was complete if necessary.

Then the carriers that had quoted on the assets informed Garrard that they had a moratorium on writing new risks in the zones affected by the hurricanes. All the underwriters from the lead to the trails backed out.

“We called them all and got the same response,” she said. “That was very surprising. Usually there is a carrier willing to write at some price, but to have carriers come back and just say ‘no, not at any price,’ was very surprising.”

Taking a moment to step back, redirect and focus, Garrard went to the carriers on the seller’s program and asked them if they wanted to stay on. “After all, the claims were already on their books,” she reasoned. “Staying on gave them a chance to make some of that back. Or they could just pay and walk away.”

Susan Garrard, managing director, Beecher Carlson

There was one carrier that did want to stay on. That was unexpected because the underwriter tended to handle only large placements, which the seller’s program had been. But the buyer’s program was only a portion of the seller’s assets.

In another situation, a builder completed a project and turned over the facility to the owner. Or thought it had, because the owner had not yet accepted delivery. That night there was a flood that damaged the facility.

The builder asserted that its responsibility ended when it signed off the project. The owner asserted that its responsibility did not begin until it accepted delivery. Policy language was not clear.

Preparing for Complexities

Most brokers are reluctant to speak in detail about complex claims, for obvious reasons of confidentiality, but examples are legion. Broadly, Martin said that in cases of multiple losses, the most important thing for the insured is try to identify actual damages and tie them if possible to a direct cause.

Second, said Martin, “gather as much documentation as possible to validate and substantiate non-physical loses. You can see damage, but you cannot see lost business in cases of business interruption. It also helps to pre-arrange with contractors and even forensic accountants so you do not have to dial around at the same time that everyone else in the area is also.

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“Carriers are going to question everything anyway, and will get estimates from their own contractors. But it helps you, and helps the claim, if you are doing everything you can to get back on your feet. Build speed into the process.”

Martin also stressed that insureds have an obligation to mitigate loss. “That is required by the policy. The best way to prevent a claim from becoming complex is to do everything you can to mitigate loss and maximize recovery. That is our goal as brokers as well. To mitigate loss and maximize recovery.”

He also urged insureds to over-report. “Tell everyone who might be involved, excess carriers, everyone at every level of the tower. If they are not called upon, then fine. But you don’t want to have to loop people in later.” &

Gregory DL Morris is an independent business journalist based in New York with 25 years’ experience in industry, energy, finance and transportation. He can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Insurtech

Kiss Your Annual Renewal Goodbye; On-Demand Insurance Challenges the Traditional Policy

Gig workers' unique insurance needs drive delivery of on-demand coverage.
By: | September 14, 2018 • 6 min read

The gig economy is growing. Nearly six million Americans, or 3.8 percent of the U.S. workforce, now have “contingent” work arrangements, with a further 10.6 million in categories such as independent contractors, on-call workers or temporary help agency staff and for-contract firms, often with well-known names such as Uber, Lyft and Airbnb.

Scott Walchek, founding chairman and CEO, Trōv

The number of Americans owning a drone is also increasing — one recent survey suggested as much as one in 12 of the population — sparking vigorous debate on how regulation should apply to where and when the devices operate.

Add to this other 21st century societal changes, such as consumers’ appetite for other electronic gadgets and the advent of autonomous vehicles. It’s clear that the cover offered by the annually renewable traditional insurance policy is often not fit for purpose. Helped by the sophistication of insurance technology, the response has been an expanding range of ‘on-demand’ covers.

The term ‘on-demand’ is open to various interpretations. For Scott Walchek, founding chairman and CEO of pioneering on-demand insurance platform Trōv, it’s about “giving people agency over the items they own and enabling them to turn on insurance cover whenever they want for whatever they want — often for just a single item.”

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“On-demand represents a whole new behavior and attitude towards insurance, which for years has very much been a case of ‘get it and forget it,’ ” said Walchek.

Trōv’s mobile app enables users to insure just a single item, such as a laptop, whenever they wish and to also select the period of cover required. When ready to buy insurance, they then snap a picture of the sales receipt or product code of the item they want covered.

Welcoming Trōv: A New On-Demand Arrival

While Walchek, who set up Trōv in 2012, stressed it’s a technology company and not an insurance company, it has attracted industry giants such as AXA and Munich Re as partners. Trōv began the U.S. roll-out of its on-demand personal property products this summer by launching in Arizona, having already established itself in Australia and the United Kingdom.

“Australia and the UK were great testing grounds, thanks to their single regulatory authorities,” said Walchek. “Trōv is already approved in 45 states, and we expect to complete the process in all by November.

“On-demand products have a particular appeal to millennials who love the idea of having control via their smart devices and have embraced the concept of an unbundling of experiences: 75 percent of our users are in the 18 to 35 age group.” – Scott Walchek, founding chairman and CEO, Trōv

“On-demand products have a particular appeal to millennials who love the idea of having control via their smart devices and have embraced the concept of an unbundling of experiences: 75 percent of our users are in the 18 to 35 age group,” he added.

“But a mass of tectonic societal shifts is also impacting older generations — on-demand cover fits the new ways in which they work, particularly the ‘untethered’ who aren’t always in the same workplace or using the same device. So we see on-demand going into societal lifestyle changes.”

Wooing Baby Boomers

In addition to its backing for Trōv, across the Atlantic, AXA has partnered with Insurtech start-up By Miles, launching a pay-as-you-go car insurance policy in the UK. The product is promoted as low-cost car insurance for drivers who travel no more than 140 miles per week, or 7,000 miles annually.

“Due to the growing need for these products, companies such as Marmalade — cover for learner drivers — and Cuvva — cover for part-time drivers — have also increased in popularity, and we expect to see more enter the market in the near future,” said AXA UK’s head of telematics, Katy Simpson.

Simpson confirmed that the new products’ initial appeal is to younger motorists, who are more regular users of new technology, while older drivers are warier about sharing too much personal information. However, she expects this to change as on-demand products become more prevalent.

“Looking at mileage-based insurance, such as By Miles specifically, it’s actually older generations who are most likely to save money, as the use of their vehicles tends to decline. Our job is therefore to not only create more customer-centric products but also highlight their benefits to everyone.”

Another Insurtech ready to partner with long-established names is New York-based Slice Labs, which in the UK is working with Legal & General to enter the homeshare insurance market, recently announcing that XL Catlin will use its insurance cloud services platform to create the world’s first on-demand cyber insurance solution.

“For our cyber product, we were looking for a partner on the fintech side, which dovetailed perfectly with what Slice was trying to do,” said John Coletti, head of XL Catlin’s cyber insurance team.

“The premise of selling cyber insurance to small businesses needs a platform such as that provided by Slice — we can get to customers in a discrete, seamless manner, and the partnership offers potential to open up other products.”

Slice Labs’ CEO Tim Attia added: “You can roll up on-demand cover in many different areas, ranging from contract workers to vacation rentals.

“The next leap forward will be provided by the new economy, which will create a range of new risks for on-demand insurance to respond to. McKinsey forecasts that by 2025, ecosystems will account for 30 percent of global premium revenue.

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“When you’re a start-up, you can innovate and question long-held assumptions, but you don’t have the scale that an insurer can provide,” said Attia. “Our platform works well in getting new products out to the market and is scalable.”

Slice Labs is now reviewing the emerging markets, which aren’t hampered by “old, outdated infrastructures,” and plans to test the water via a hackathon in southeast Asia.

Collaboration Vs Competition

Insurtech-insurer collaborations suggest that the industry noted the banking sector’s experience, which names the tech disruptors before deciding partnerships, made greater sense commercially.

“It’s an interesting correlation,” said Slice’s managing director for marketing, Emily Kosick.

“I believe the trend worth calling out is that the window for insurers to innovate is much shorter, thanks to the banking sector’s efforts to offer omni-channel banking, incorporating mobile devices and, more recently, intelligent assistants like Alexa for personal banking.

“Banks have bought into the value of these technology partnerships but had the benefit of consumer expectations changing slowly with them. This compares to insurers who are in an ever-increasing on-demand world where the risk is high for laggards to be left behind.”

As with fintechs in banking, Insurtechs initially focused on the retail segment, with 75 percent of business in personal lines and the remainder in the commercial segment.

“Banks have bought into the value of these technology partnerships but had the benefit of consumer expectations changing slowly with them. This compares to insurers who are in an ever-increasing on-demand world where the risk is high for laggards to be left behind.” — Emily Kosick, managing director, marketing, Slice

Those proportions may be set to change, with innovations such as digital commercial insurance brokerage Embroker’s recent launch of the first digital D&O liability insurance policy, designed for venture capital-backed tech start-ups and reinsured by Munich Re.

Embroker said coverage that formerly took weeks to obtain is now available instantly.

“We focus on three main issues in developing new digital business — what is the customer’s pain point, what is the expense ratio and does it lend itself to algorithmic underwriting?” said CEO Matt Miller. “Workers’ compensation is another obvious class of insurance that can benefit from this approach.”

Jason Griswold, co-founder and chief operating officer of Insurtech REIN, highlighted further opportunities: “I’d add a third category to personal and business lines and that’s business-to-business-to-consumer. It’s there we see the biggest opportunities for partnering with major ecosystems generating large numbers of insureds and also big volumes of data.”

For now, insurers are accommodating Insurtech disruption. Will that change?

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“Insurtechs have focused on products that regulators can understand easily and for which there is clear existing legislation, with consumer protection and insurer solvency the two issues of paramount importance,” noted Shawn Hanson, litigation partner at law firm Akin Gump.

“In time, we could see the disruptors partner with reinsurers rather than primary carriers. Another possibility is the likes of Amazon, Alphabet, Facebook and Apple, with their massive balance sheets, deciding to link up with a reinsurer,” he said.

“You can imagine one of them finding a good Insurtech and buying it, much as Amazon’s purchase of Whole Foods gave it entry into the retail sector.” &

Graham Buck is a UK-based writer and has contributed to Risk & Insurance® since 1998. He can be reached at riskletters.com.