Recent surge events have shown insurers are getting better at coping with large numbers of claims but there is still room for improvement. Sam Barrett finds out what could make a crucial difference the next time an extreme event occurs.
Surge events are the ultimate test of the insurance industry's ability to respond to policyholders' needs, with every element of the supply chain coming under pressure. Analysing what went wrong after these events can help insurers, loss adjusters and contractors to fine tune their service offering for future events.
Analysis of the most recent surge event — the big freeze that hit the UK last November and December and saw nearly 200 000 escape of water claims across personal and business lines — shows that, although the industry has moved forward significantly from the floods of 2007, there is still room for improvement.
"The insurance industry coped very well given the extreme weather conditions and the huge volume of claims experienced," says Jonathan Davison, strategic development director of the British Damage Management Association, which conducted research across its members. "But there were recurrent problems and, although these were things the industry was already aware of, we need to work together to make improvements in readiness for future surge events."
Among the issues highlighted by the BDMA research were: delays in appointment and access; authorisation delays; delegated authority limits; working practice and pricing schedule anomalies; and problems with communications across the supply chain. For example, one of the most common was delays in appointment and access, with members reporting that first instruction could be as long as four weeks after the escape of water event.
As well as the BDMA research, anecdotal evidence from across the industry suggests there were some shortcomings in the surge response. Joanne Musselle, head of claims and group claims strategy at Hiscox, says her firm was able to stay within its five-day service window, although the average response time did slip from one day to up to five days.
But more serious issues arose, she says, when loss adjusters came across situations where they were representing the contents insurer and another insurer looked after the buildings cover.
"We had one case where our loss adjuster visited the policyholder the next day to assess the claim and the policyholder was without electricity, heating or water. The buildings insurer had arranged an initial visit for a week later," she says. "We were able to help the policyholder, which also mitigated the other insurer's loss."
Delays of one week pale into insignificance against other instances, however. Another industry representative, who asked not to be named, reveals that they picked up a couple of cases where policyholders had been left for 10 weeks. The appointed contractor had visited a couple of days after the damage had occurred and then never returned.
Unfortunately, with escape of water claims, delays of this nature can be costly. As well as the costs associated with keeping a claim live, secondary damage is more likely to occur. This can significantly push up the cost of the claim, not just in terms of the extent of the damage, but also for costs such as alternative accommodation. Policyholder satisfaction is also likely to be reduced, increasing complaints and affecting retention.
Delays also heighten the risk of fraud. With policyholders forced to wait for work to be assessed, more of them are likely to appoint their own contractors, which could lead to increased instances of fraud.
The insurance industry admits there were shortcomings in its response. Jon Cawley, UK property claims director at Zurich Insurance, says: "Overall the industry coped well, but I am aware that there were some problems. This type of event and the volume of claims it generates does create challenges and, as a result, we saw the average cost of an escape of water claim rise significantly. It's a good thing to highlight the problems the industry experienced."
Phil McNeilage, chief executive of Cunningham Lindsey UK, also concedes standards slipped during the surge but adds that, because of the nature of the event, this wasn't unexpected. "The UK suffered a series of weather events that really tested the industry. This started with severe storms, which saw a lot of storm claims come through, and then the country was hit with the worst snow it had experienced for 50 years. It was also a national event, which introduces different challenges to when you deal with a localised one," he says. "Unsurprisingly, resources across the industry were stretched."
Certainly, dealing with surge events is not easy. With no insurer, loss adjuster or damage management company able to indefinitely hold resources in reserve for these unpredictable weather events, there are inevitably problems with capacity. One solution to this is greater flexibility around supply chain. Mr Davison explains: "There is an argument for having an extended panel made up of the insurer's normal supply chain but with additional suppliers that can be called upon in the event of surge. Understandably, it's an argument often put forward by those companies that aren't on the panels but it is something that needs to be debated by the industry."
Some insurers already operate in this way, either on a formal or an informal basis. For example, Mike Cooper, business development director at Richfords Fire & Flood, says his firm sits on several insurers' second-tier panels. "We cover the South West so we're overlooked by insurers that want their main panel to comprise national suppliers. However, we do get included in second-tier panels and can supply additional resource to anywhere in the country," he explains. "If all insurers did this it would give more capacity."
Better capacity management
For some, this solution may be arrived at via another route, with loss adjusters getting more autonomy over appointment. Mr Davison welcomes this move, saying it can go a long way to reducing delay.
Mr Cawley agrees this can work well but admits it needs to be carefully managed. "You have to set the delegated authority limits at the right level and apply a sensible level of audit to it," he explains. "It also requires trust and, unfortunately, there are examples of where this goes wrong — for instance, contractors putting drying equipment in properties that are already dry. We need to look at this as an industry."
Whether or not an insurer feels comfortable broadening the range of suppliers they work with during a surge event, better management of capacity could bring benefits. This could help to prevent the backlogs, spreading the claims across suppliers so each part of the supply chain is able to deal with them as efficiently as possible.
Improvements in communication are essential for this and some insurers have stepped this up for surge events. For instance, Mr Cawley reports that, during times of surge, Zurich has a daily conference call with its suppliers to establish what capacity is available. "This keeps us alive to the issues and means we can make commercial decisions as more claims come in," he adds.
Some insurers have embraced technology to make the process even slicker. Mr Cooper says that Richfords has developed an e-mail traffic light system in partnership with the loss adjusters and insurers it works with. This keeps tabs on capacity and was put into action during the last surge event. "With this we send a daily e-mail stating whether we are red, amber or green in line with pre-agreed criteria regarding capacity. It's a quick, simple system, allowing insurers and loss adjusters to see instantly what's realistic," he adds.
Other subtle changes can also occur during surge events. For instance, at Richfords, response becomes much more like a production line, with one team focusing on damage limitation and the extraction of water, while a second will survey properties and arrange remedial work. "Working like this means teams can move quickly to enable more claims to be dealt with," Mr Cooper says.
Tony O'Reilly, managing director of Continuity, says using project management to a greater degree can work well too. His firm has recently started working with the Rameses Group to provide the project management support. "We work with the loss adjuster and Rameses to identify the work that is required and pin down an action plan," he explains. "This helps focus the work more and I expect this approach will become more common, especially on larger losses."
The volume of claims last winter also put huge demand on equipment, which meant there were plenty of examples of inappropriate drying techniques being used. For example, at low temperatures, refrigerant driers become ineffective and desiccant driers should be used. Mr McNeilage says that getting the drying right is essential. "There has been a tendency to indiscriminately dry properties. By using drying appropriately we've seen a 43% reduction in the use of drying equipment," he says.
Unfortunately, the way supply chains are managed can exacerbate this problem. With service level agreements in place that state drying equipment must be in a property within set timescales, contractors are under pressure to deliver some drying kit, even if it is not the most appropriate.
Mr Cooper feels this might start to change. "Over the past 24 months, the BDMA has been running a lot of training for contractors but also for insurers and loss adjusters. This will empower people, helping to weed out these instances of poor practice," he says. "It will be interesting to see how insurers and loss adjusters apply the knowledge they've gained to the next surge event."
As well as improvements that will come about through better understanding within the industry, policyholder education is also regarded as an important part of the equation. Managing expectation is one part of this but Ms Musselle says that giving policyholders information to help them prevent burst pipes can be hugely beneficial too. "Most of the burst pipes occurred in unoccupied properties, often where someone was on holiday or it was a second home. There are steps people can take to reduce the risk of a burst pipe and we're looking at providing policyholders with this information so they can take preventative action," she explains. "The challenge is timing the communication to make it relevant."
As well as simple steps such as leaving the heating on and lifting the loft hatch to allow the warmer air to circulate in the roof space, more advanced technology can be used to prevent burst pipes. This includes electronic pipe heating, which can kick in when the temperature drops below a set level, and water shut-off valves that come into play if there is a sudden high demand on the water system such as a burst pipe. "These interventions are expensive at the moment but we may look to offer policyholders a premium or excess reduction if they install them," Ms Musselle adds.
The BDMA research also highlighted some areas where major improvements have been made. As well as highlighting a welcome shift towards delegating authority to loss adjusters, members also reported that, although claims numbers had increased significantly, there was no indication of a substantial increase in the use of cash settlements. "This had become a trend in the last few years with more insurers looking to settle low value claims with cash. But it's not always good for the customer as, especially with escape of water claims, it's not easy to understand the cost of rectifying the property," says Mr Davison.
Additionally, the BDMA is concerned this method of settling claims takes revenue out of the contractor network, potentially stalling investment in new technology, so the apparent plateau in the use of cash settlements is very welcome.
All parties hope to learn from the experiences gained in last winter's big freeze and, through forums such as the Association of British Insurers' property committee working group on surge, identify potential improvements that can be made in readiness for future surge events. "We do need to look at this as an industry," adds Mr Cawley. "These are big events and by working across the industry we can make sure we mobilise resources as needed. There's a lot of competitive posturing out there but we need to put this to one side. Surge events bring individual challenges but they're far from unusual."
- Top 100 Insurtech: Quarter four update
- Charles Taylor bolsters liability team by hiring senior sextet from Vericlaim
- Roundtable: Is a single customer view taking off in insurance?
- I work in insurance: Stephanie Horton, River Canal Rescue
- Insurtech diary: Getting stuck into insurance
- Analysis: The mystery of the missing Insurance Fraud Taskforce report
- Gallagher Bassett acquires claims management firm