Claims

Preparing for Hail

Hailstorms present a growing threat, but insurers can minimize losses by studying storm data.
By: | November 2, 2016 • 7 min read

Hailstorms are expanding their geographic footprint in every direction.
In Texas, storms are striking as far south as San Antonio. While the city normally experiences one to five hailstorms per year — a moderate risk zone for hail — this year it had more than 30, according to data tracked by Liberty Mutual’s risk engineering arm.

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“Hail activity has also been expanding more into the North and Northeast,” said Arindam Samanta, director, product management and innovation at Verisk Insurance Solutions.

“We’ve noticed it becoming more of a problem in parts of Ohio, Illinois and Minnesota, outside of traditional hail-prone areas.”

As these areas become more developed, more properties are built in hail’s path, increasing claim frequency and severity.

Areas on the west and south sides of Oklahoma City, for example, have largely transformed from wheat fields to sprawling suburban communities in the last 10 years.

Arindam Samanta, director, product management and innovation, Verisk Insurance Solutions

Arindam Samanta, director, product management and innovation, Verisk Insurance Solutions

“We know that the weather patterns responsible for the formation of hail are fairly consistent over certain geographic areas — the Great Plains states, the Rocky Mountain West, parts of the Midwest — but over time the expansion and aerial coverage of cities and suburbs throughout these regions have increased, so the number of properties in the path of these damaging hailstorms will increase,” said Curtis McDonald, product manager, weather verification services, CoreLogic.

The type of storm has changed too. Smaller stones with diameters of less than 2 inches combined with higher velocity winds wreak different types of damage than larger, denser stones.

Hail typically smashes up roofs, siding, skylights and roof-mounted equipment like refrigeration units. In 2016, though, wrecked air conditioner coils have constituted roughly 30 percent of hail damages.

The smaller hailstones have an easier time getting into the coils — which are fragile and susceptible to damage — but are not heavy enough to significantly damage roofing materials and sturdier equipment.

The costs associated with hail damage have also risen due to the expensive repair and replacement of air conditioning units that are either too old or too new. For out-of-date equipment, there may no longer be parts available, while newer units must adhere to eco-friendly guidelines that elevate their price.

Many newer A/C units are also custom-built, especially for large commercial properties, so the replacement process is not only costly, but time-consuming.

Commercial property insurers can build a defense strategy by arming themselves with data, and there are plenty of ways to gather it.

“For 200-ton to 500-ton air conditioning units, it could take three to four months to get a new unit built and installed. And sometimes roof modifications are necessary during that process,” said Ralph Tiede, vice president, commercial insurance, and manager, property risk engineering, at Liberty Mutual.

“The business interruption impact can be significant, and that’s one piece of the puzzle that risk managers may not think about,” Tiede said.

If a storm strikes in the middle of a hot Texas summer, then the property may need to shut down completely while it waits for the new unit.

Data-Driven Defense

Commercial property insurers can build a defense strategy by arming themselves with data, and there are plenty of ways to gather it.

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The Insurance Institute for Business and Home Safety (IIBHS), a research organization funded by insurance companies, conducts storm simulations inside its massive laboratory in Chester County, S.C., firing lab-created hailstones from cannons into full-size buildings to study effects on roofing, siding and outdoor equipment.

The organization also conducts field testing using impact probes to analyze hailstone size and density, and radar to track weather patterns.

“The IIBHS supplies member companies [including Liberty Mutual] with the most up-to-date information. That’s critical, because otherwise we’d be left making risk mitigation recommendations to clients based on building codes that are years old and don’t reflect what’s happening today,” Tiede said.

Other analytics organizations provide similar real-time insights.

Verisk Analytics uses weather modeling and ground observations to complement its real-time weather monitoring data feed.

Ralph Tiede, vice president, commercial insurance, and manager, property risk engineering, at Liberty Mutual

Ralph Tiede, vice president, commercial insurance, and manager, property risk engineering, Liberty Mutual

“We use an extensive ground-based network, including dual-pol radars, which collect huge amounts of data on fast-moving storms every two to five minutes,” Samanta said. This helps to complete the picture of a property’s exposure and keep an accurate record of hail events.

Storm history, collated with industry-wide hail claims data, informs Verisk’s Hail Damage Score, which ranks a location on a scale from one to 10. Higher numbers indicate higher likelihood of exposure to past damaging hail events and the presence of pre-existing hail damage.

Such data can help insurers discern what to look for when conducting property inspections for potential new clients, and may lead them to decide that a location is too risky to underwrite.

112016_05_claims_hail_chartAnalytics firm CoreLogic also produces retrospective data using a proprietary forensic database that houses three years’ worth of storm data.

“At CoreLogic, we score properties based on the actual number of hail events that previously impacted it,” McDonald said. “It’s a tool underwriters can use when evaluating a new property or geographic area.”

But with hailstorms fanning into new regions and the resulting damage changing in nature, data based on past events may not suffice. Forward-looking probability metrics complete the risk picture.

“We’ll also run a 10,000-year simulation and look at the probability of hail 1 inch in diameter or greater impacting a specific property in the future,” McDonald said.

Other data points to consider are more property-specific: the types of building materials for roofing and siding, the number of roof-mounted equipment units and skylights, the age of the equipment, the current value of the building, and any mortgage or potential liens.

“High quality data is key in forming a basis for a view of risk in areas where it is still emerging,” Samanta of Verisk said.

Risk Mitigation

Hailstorm and property-specific data can aid insurers in multiple capacities, from initial assessments of a potential new client to risk mitigation recommendations to expeditious claims processing.

“We have specific guidelines for our engineers when they go out to do an assessment of a new building in an area prone to hailstorms and wind,” Tiede of Liberty Mutual said. “We will want them to look at specific things like the roof condition, roof-mounted equipment, and any maintenance programs in place.”

The engineers then report back to account managers, who use the information to customize pricing and deductible structures, and to develop specific risk mitigation recommendations.

“We built a proprietary hail tool where we’ll enter in all the property-specific data collected for us by our engineers, and it will show us the loss potential for that specific location.

“We pass that along to the account managers, who help clients develop and prioritize specific steps they can take to reduce their exposure,” Tiede said.

Recommendations can include installing factory-approved hail guards over air conditioning and heating units, replacing an old roof with stronger material, conducting regular roof maintenance and installing protection for skylights.

112016_05_claims_fact_chart

At about $250 each, “manufacturer-installed hail guards are a surprisingly inexpensive fix” that won’t compromise the unit’s efficiency, Tiede said.
Liberty Mutual’s tool also has the benefit of identifying customers who are doing their homework and have already taken steps to protect themselves.

“If we have a customer who is proactively taking these steps that could reduce loss expectancy, this might make them more attractive, which would likely be reflected in that risk’s pricing,” said Brent Chambers, underwriting consultant, national insurance property, Liberty Mutual.

“It’s a tool we can use to sharpen our quote.”

“Customers who are loss-conscious deserve some type of credit. If we can, we like to give them something back to demonstrate that we’re partners in this together,” Tiede said.

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Insurers can also use weather monitoring systems to send out alerts to clients sitting in a storm’s path, advising them of immediate steps they can take to limit damage and providing them with a claims contact if a loss occurs.

“If they suffer serious damage, they may not be able to get inside the building or get access to their files where they keep their insurance information,” said Chambers.

“We send them the claims intake phone number to call so they have it right in front of them if they need it.”

When insureds are warned and prepared, claims can be filed and resolved more quickly.

“Hailstorms aren’t going to stop, and in fact we’re going to see more and more of them,” Tiede said. “2016 saw a lot of hail damage — about 5,400 storms this year, and it’s a risk the whole industry is waking up to.” &

Katie Dwyer is an associate editor at Risk & Insurance®. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Lead Story

Improving the Claims Experience

Insureds and carriers agree that more communication can address common claims complaints.
By: | January 10, 2018 • 7 min read

Carriers today often argue that buying their insurance product is about much more than financial indemnity and peace of mind.

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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.

Susan Hiteshew, senior manager of global insurance and risk management, Under Armor Inc.

“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 Breakdown

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.”

Talent and Resource Shortage

Another contributing factor to fractured communication could be claims adjuster workload and turnover. Claims adjusting is stressful work to begin with.

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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.”

Is Tech the Solution?

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.”

Dan Holden, manager, Corporate Risk & Insurance, Daimler Trucks North America

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.”

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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.” &

Katie Dwyer is an associate editor at Risk & Insurance®. She can be reached at [email protected]