Catastrophe Claims

Saturated: Claims Flood in After Harvey Exits

For more than a week, Tropical Storm Harvey left devastation in its wake. What will businesses face in the aftermath?
By: | September 5, 2017 • 8 min read

Tropical Storm Harvey hit the southeastern shore of Texas late Friday night as a Category 4 hurricane, then was soon downgraded to a tropical storm.

Yet its classification held no weight on the cities below — rivers lined what once were streets; citizens evacuated in boatloads; 50 inches of rain poured down from the skies as Harvey slowly dredged its way onto land and continued into Louisiana and Mississippi.

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The storm has passed, but the total destruction Harvey caused remains to be seen in full. While Texas grapples with the biggest hurricane-turned-tropical-storm to breach its shores, insurance agencies are inundated with the influx of residential and commercial claims.

“I can’t put a number to it,” Bentley Laytin, senior vice president of operational strategy and innovation at Engle Martin & Associates, said of the scale of claims. “We’re seeing auto claims for flooding, wind damage, spoilage claims. Houston is the biggest hit, and there’s limited access to the city.”

Crawford Catastrophe Services deployed its induction team to Austin and has a team of 5,000 adjustors on hand to help with claims from Harvey. To date, the claims adjustor received almost 10,000 calls. Crawford expects that number to rise significantly as the storm passes and people return to their homes and businesses.

Ken Tolson, CEO of U.S. Property & Casualty at Crawford & Company, said, “Our number one priority is to respond quickly and in a highly co-ordinated fashion once we can get access to the worst affected locations. Initial indications are that the majority of claims will be caused by the rising flood waters with wind damage having a lesser impact.”

Sheri Wilson, national property claims director, Lockton

Areas in Texas, including Corpus Christi, Galveston, Beaumont, Austin and the surrounding cities, saw the wind, storm surge and flood damage up close. Harvey shut down over 16.5 percent of U.S. refining capacity, according to Goldman Sachs, and at least 20 refineries have closed down or reduced operations to date, according to the Department of Energy.

“I live in Dallas,” said Sheri Wilson, national property claims director for Lockton. “We’re about 300 miles away, and we can’t buy gas. Harvey is going to affect the supply chain.”

The storm also created a temporary slowdown in retail sales, construction spending and industrial production. According to the Lloyd’s of London insurance markets, the construction and shipping industries will also likely bear the brunt of the commercial damage.

Damage Done

More than 50 percent of properties, both residential and commercial, not in designated flood zones are at high to moderate risk of flooding, according to CoreLogic.

Karen Clark & Company estimates the total industry-insured loss will be about $15 billion. RMS, in a preliminary analysis, estimated economic losses as high as $70 to 90 billion in wind, storm surge and inland flood damage dished out by Harvey.

Crawford’s global chief operating officer, Rohit Verma, expects to see the highest winds claims volume from Nueces County, while the highest flood claims volume is expected to come from Harris and Galveston counties.

“I live in Dallas. We’re about 300 miles away, and we can’t buy gas. Harvey is going to affect the supply chain.” — Sheri Wilson, national property claims director, Lockton

“Wind damage is expected to be minimal, with most of the rebuilding work due to flooding,” he said. “Large parts of Houston are still inaccessible, but we are looking for ways to access these areas as quickly as possible.”

Insurer Novae added that it was too soon to comment on the scale of the losses.

“We have to assess any insurance coverages that might apply,” said Lockton’s Wilson. She predicts numerous business disruption claims in addition to property damage. Power outages, interruptions from mandatory shut downs, flooding and the state mandated curfew have all cut in to business’ daily functions.

Business interruption, agreed Laytin, is going to come into play.

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“We don’t know how bad it will be or how long it will take,” he said, “but we do anticipate it.”

Once the storm moves out, Crawford said it will be ready to receive requests for forensic accounting services to support business interruption analyses.

“Sadly, this emphasises the vulnerability of our key industries and the hundreds of thousands of U.S. citizens who work in them to the effects of catastrophic weather,” added Tolson.

Assessing Without Access

“Houston is flat; Louisiana is a bowl. Because of the area affected, it doesn’t drain. That’s keeping the proper resources from getting in,” said Wilson.

Over the course of six days, Harvey dumped an estimated 27 trillion gallons of water onto Texas and Louisiana. The flooding is so vast and the affected population so scattered that it’s difficult to say what damages commercial properties might face once the water drains.

“This is particularly true in relation to Houston, where rainfall has left thousands of homes and businesses unoccupied. It is important to remember that we are witnessing catastrophic flooding at the very heart of the country’s energy industry,” said Tolson.

Laytin echoed, “The adjusters living near or even living in the areas affected by this event, who have lost their homes, are dealing with regular life.

“The ability to get around and get a job done is a challenge right now.”

Social media played a huge role in the search and rescue efforts during the storm. Now that the sun is starting to shine, technology will continue to play a role in servicing this area and its people.

“We’re in more of a technological environment,” said Laytin. “Drones are important. They’ll be a great safety feature. Instead of sending an adjuster onto a roof, they can do the assessment from the ground.”

Video feed and mobile estimating will keep business owners informed and updated on what their adjusters are finding. These tools will also help in documenting property damage in the aftermath of Harvey.

Crawford has 2,000 drone operators standing by to carry out roof and property inspections once the Federal Aviation Administration lifts flight restrictions.

While planning to have some drones involved, Lockton’s method is to be side-by-side with their customers while assessing the damage.

“We are the technology,” said Wilson.

Reporting Claims and Following Procedure

Regardless, Texas business owners need to be ever-vigilant as they begin to process their claims.

Stephen L. Moll, partner, Insurance Recovery Group co-leader, Reed Smith LLP

“The volume of claims coming in will be unprecedented,” said Stephen L. Moll, co-head of Reed Smith’s Insurance Recovery Group in the Houston Office. “Policyholders need to document their claims each and every step of the way.”

Moll also noted that, in addition to property claims, business interruption claims will be a large component of the losses suffered.

“It will be months before businesses are up and running again.”

Among the businesses reaching out to Reed Smith, Moll and his insurance recovery partner, Jim Cooper, said that the industries run the gamut, from energy to entertainment. Construction firms, hotels, restaurants, oil refineries, banks — the water is preventing people from their means of making a living.

One thing driving commercial claims in the wake of Harvey is Texas House Bill 1774. In May, Gov. Greg Abbott of Texas signed into law new legal parameters surrounding weather-related insurance claims.

“This new act was intended to address perceived abuses in residential hail storm claims,” said Cooper. “Unfortunately, the impact of the legislation goes beyond residential hail claims. It impacts commercial policyholders on all types of weather-related events.”

Cooper explained that the law mainly affects the prompt payment statute in Texas. Before, an 18 percent penalty rate greeted insurers slow to pay weather-related claims. Now, it’s a 10 percent rate.

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One thing to note, however — the insurance claims process is not expected to be impacted under this law; any lawsuit stemming from a claim might bear the weight of the law’s restrictions.

Cooper and Moll advised that businesses should determine if they have an insurance policy which provides coverage for business losses and property damages caused by Harvey.

“Knowing your policy is very important before making your claim,” said Cooper.

“When reviewing your policy, look for flood and wind sublimits, deductibles and deadlines for filing proof of loss,” added Moll.

Additionally, businesses and their adjusters should keep photographic record and video of the damages.

A Risky Hurricane Season

The Climate Prediction Center predicted that 2017 would be the busiest hurricane season in 7 years, with a likelihood of 11 to 17 named storms. An estimated five to nine of these storms are projected to reach hurricane status, with winds of 74 mph or higher.

Jim Cooper, partner, Insurance Recovery Group co-leader, Reed Smith LLP

So far, five tropical storms and three hurricanes, including Harvey, bubbled up in the Atlantic. Currently, forecasters are tracking Hurricane Irma, a hurricane rolling up from the Cabo Verde Islands toward the Caribbean that was classified as a CAT 5 on Sept. 5.

“Our thoughts and prayers go out to those who have sadly lost their lives, and Crawford will be doing everything it can to support people in returning to their homes as quickly as possible,” said Tolson.

Reed Smith’s Cooper and Moll, who are right in the thick of Harvey’s aftermath, have seen firsthand not only the destruction, but also the comradery and kindness the storm has brought.

“The Houston community at large has responded with so much support,” said Moll.

“Events like Harvey are devastating to the people in the area,” said Laytin. “I don’t think anyone could have prepared more than what they did. Everyone did the best they could under the circumstances.” &

Autumn Heisler is a staff writer at Risk & Insurance. She can be reached at [email protected] Additional reporting by contributing writer Alex Wright.

More from Risk & Insurance

More from Risk & Insurance

Property

Insurers Take to the Skies

This year’s hurricane season sees the use of drones and other aerial intelligence gathering systems as insurers seek to estimate claims costs.
By: | November 1, 2017 • 6 min read

For Southern communities, current recovery efforts in the wake of Hurricane Harvey will recall the painful devastation of 2005, when Katrina and Wilma struck. But those who look skyward will notice one conspicuous difference this time around: drones.

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Much has changed since Katrina and Wilma, both economically and technologically. The insurance industry evolved as well. Drones and other visual intelligence systems (VIS) are set to play an increasing role in loss assessment, claims handling and underwriting.

Farmers Insurance, which announced in August it launched a fleet of drones to enhance weather-related property damage claim assessment, confirmed it deployed its fleet in the aftermath of Harvey.

“The pent-up demand for drones, particularly from a claims-processing standpoint, has been accumulating for almost two years now,” said George Mathew, CEO of Kespry, Farmers’ drone and aerial intelligence platform provider partner.

“The current wind and hail damage season that we are entering is when many of the insurance carriers are switching from proof of concept work to full production rollout.”

 According to Mathew, Farmers’ fleet focused on wind damage in and around Corpus Christi, Texas, at the time of this writing. “Additional work is already underway in the greater Houston area and will expand in the coming weeks and months,” he added.

No doubt other carriers have fleets in the air. AIG, for example, occupied the forefront of VIS since winning its drone operation license in 2015. It deployed drones to inspections sites in the U.S. and abroad, including stadiums, hotels, office buildings, private homes, construction sites and energy plants.

Claims Response

At present, insurers are primarily using VIS for CAT loss assessment. After a catastrophe, access is often prohibited or impossible. Drones allow access for assessing damage over potentially vast areas in a more cost-effective and time-sensitive manner than sending human inspectors with clipboards and cameras.

“Drones improve risk analysis by providing a more efficient alternative to capturing aerial photos from a sky-view. They allow insurers to rapidly assess the scope of damages and provide access that may not otherwise be available,” explained Chris Luck, national practice leader of Advocacy at JLT Specialty USA.

“The pent-up demand for drones, particularly from a claims-processing standpoint, has been accumulating for almost two years now.” — George Mathew, CEO, Kespry

“In our experience, competitive advantage is gained mostly by claims departments and third-party administrators. Having the capability to provide exact measurements and details from photos taken by drones allows insurers to expedite the claim processing time,” he added.

Indeed, as tech becomes more disruptive, insurers will increasingly seek to take advantage of VIS technologies to help them provide faster, more accurate and more efficient insurance solutions.

Duncan Ellis, U.S. property practice leader, Marsh

One way Farmers is differentiating its drone program is by employing its own FAA-licensed drone operators, who are also Farmers-trained claim representatives.

Keith Daly, E.V.P. and chief claims officer for Farmers Insurance, said when launching the program that this sets Farmers apart from most carriers, who typically engage third-party drone pilots to conduct evaluations.

“In the end, it’s all about the experience for the policyholder who has their claim adjudicated in the most expeditious manner possible,” said Mathew.

“The technology should simply work and just melt away into the background. That’s why we don’t just focus on building an industrial-grade drone, but a complete aerial intelligence platform for — in this case — claims management.”

Insurance Applications

Duncan Ellis, U.S. property practice leader at Marsh, believes that, while currently employed primarily to assess catastrophic damage, VIS will increasingly be employed to inspect standard property damage claims.

However, he admitted that at this stage they are better at identifying binary factors such as the area affected by a peril rather than complex assessments, since VIS cannot look inside structures nor assess their structural integrity.

“If a chemical plant suffers an explosion, it might be difficult to say whether the plant is fully or partially out of operation, for example, which would affect a business interruption claim dramatically.

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“But for simpler assessments, such as identifying how many houses or industrial units have been destroyed by a tornado, or how many rental cars in a lot have suffered hail damage from a storm, a VIS drone could do this easily, and the insurer can calculate its estimated losses from there,” he said.

In addition,VIS possess powerful applications for pre-loss risk assessment and underwriting. The high-end drones used by insurers can capture not just visual images, but mapping heat, moisture or 3D topography, among other variables.

This has clear applications in the assessment and completion of claims, but also in potentially mitigating risk before an event happens, and pricing insurance accordingly.

“VIS and drones will play an increasing underwriting support role as they can help underwriters get a better idea of the risk — a picture tells a thousand words and is so much better than a report,” said Ellis.

VIS images allow underwriters to see risks in real time, and to visually spot risk factors that could get overlooked using traditional checks or even mature visual technologies like satellites. For example, VIS could map thermal hotspots that could signal danger or poor maintenance at a chemical plant.

Chris Luck, national practice leader of Advocacy, JLT Specialty USA

“Risk and underwriting are very natural adjacencies, especially when high risk/high value policies are being underwritten,” said Mathew.

“We are in a transformational moment in insurance where claims processing, risk management and underwriting can be reimagined with entirely new sources of data. The drone just happens to be one of most compelling of those sources.”

Ellis added that drones also could be employed to monitor supplies in the marine, agriculture or oil sectors, for example, to ensure shipments, inventories and supply chains are running uninterrupted.

“However, we’re still mainly seeing insurers using VIS drones for loss assessment and estimates, and it’s not even clear how extensively they are using drones for that purpose at this point,” he noted.

“Insurers are experimenting with this technology, but given that some of the laws around drone use are still developing and restrictions are often placed on using drones [after] a CAT event, the extent to which VIS is being used is not made overly public.”

Drone inspections could raise liability risks of their own, particularly if undertaken in busy spaces in which they could cause human injury.

Privacy issues also are a potential stumbling block, so insurers are dipping their toes into the water carefully.

Risk Improvement

There is no doubt, however, that VIS use will increase among insurers.

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“Although our clients do not have tremendous experience utilizing drones, this technology is beneficial in many ways, from providing security monitoring of their perimeter to loss control inspections of areas that would otherwise require more costly inspections using heavy equipment or climbers,” said Luck.

In other words, drones could help insurance buyers spot weaknesses, mitigate risk and ultimately win more favorable coverage from their insurers.

“Some risks will see pricing and coverage improvements because the information and data provided by drones will put underwriters at ease and reduce uncertainty,” said Ellis.

The flip-side, he noted, is that there will be fewer places to hide for companies with poor risk management that may have been benefiting from underwriters not being able to access the full picture.

Either way, drones will increasingly help insurers differentiate good risks from bad. In time, they may also help insurance buyers differentiate between carriers, too. &

Antony Ireland is a London-based financial journalist. He can be reached at [email protected]