Making heavy weather of it


Loss adjusters have been counting the cost of a series of weather-related disasters this year, from the summer floods to wind storm Kyril, and it is likely that the weather will continue to be an obsession next year and beyond, as Stephanie Denton writes

This summer a month's worth of rain fell in a single day in South Yorkshire and the Severn Valley. Water overwhelmed the drainage system and vast run-off burst the banks of at least three rivers. Some 27,000 homes were damaged, along with 5000 commercial properties, and the rain continued, with the death toll eventually reaching seven.

Just a few weeks later the heavens opened again and this time the west of England was seen under water once again with Gloucestershire bearing the main brunt. Needless to say, these two once in 50 year events dominated the year for loss adjusters, although 2006 finished with a tornado ripping through Kensal Rise in London and 2007 started with wind storm Kyril, which cost insurers around £350m.

Phil McNeilage, chief executive officer at Cunningham Lindsey, says: "2007 has seen a lot of weather-related events, wind storm Kyrill started the year off and kept us very busy. Then there were earthquakes and a tornado in Kent so we were busy before the floods. Then we had two one in 50 year events. We had a fantastic response from our staff and their level of commitment was amazing."

"The abiding memory of 2007 is the industry (us and our clients) response to the floods, which was spectacular," adds Ian Muress, chief executive of Crawford and Company, Europe, the Middle East and Africa. "It was all about service delivery and is sorting the men from the boys. There is a difference between those adjusters that made the difference and between those that just coped and did not excel."

However, loss adjusters are keen to add that the sector will not necessarily have a profitable year next year because of the floods and the huge costs involved. Mr Muress explains: "The cost of response to the floods is huge and it is not the case that adjusters will make lots of money out of this."

Despite the surge of weather-related claims, loss adjusters did manage to find the time for a few acquisitions. AMG began the year with a bang with the acquisition of Carr Greenwood Smith to provide the missing link in the firm's offering. The buyout, which was funded by private equity backers Hermes, took AMG into the top three loss adjusters (Post, UK Loss Adjusting Supplement, 6 September 2007, p5).

Simon Burley, group business development director at AMG, says: "In 2006 we bought Sigma and that was a good experience for all. So when CGS became available with its strong commercial property team, merging seemed to be a good idea. It made sense as they had good people and an excellent reputation but they needed a supply chain. If the right deal came up again we would look at it."

However, this was one of the few major deals of the year with other adjusters keeping their heads down. Mr Muress explains: "A question you have to ask is where is the value in acquisitions at the moment? There is a nervousness in the financial market, after the sub-prime issues and Northern Rock, that acquisitions would not aggregate value and could in fact be an own goal, so why would people do it?"

Trevor Latimer, executive director at McLarens Young International, suggested the market is seeing a stable time: "It is quiet on the acquisition front as the market has reached equilibrium through previous acquisitions and is now taking the time to bed in."

However, some firms say they will be keen to acquire next year. Chris Hall, managing director at Questgates, says: "We would acquire firms next year especially where small firms are being squeezed out of the specialist market. We would expect to do about three similar ones next year. Some firms are not wide enough in terms of service or geography to survive."

Although acquisitions were few and far between in 2007 many firms did bed in previous buys and the structure of these new merged firms suggests that loss adjusters are striving to keep specialisms high on the agenda. For instance, with Crawford and Specialist Liability Services, central functions such as compliance and IT have been integrated, and existing clients have been informed that there will not be any major changes in the way the business is handled with the specialists being kept as an independent firm. This is an acknowledgement of the strength of these smaller companies.

Finding a niche

Mr Latimer explains the trend: "We think there is a need for niche adjusting, but I can see it happening where major loss adjusters are dividing up their business into divisions to demonstrate niche practice within larger businesses."

Elsewhere, in one of the most notable market events of the year, Cunningham Lindsey changed its shareholding in an estimated $160m (£78.9m) deal with the UK and international management acquiring stakes in the company representing 4% of its total shares. Its existing investor Fairfax Financial Holdings reduced its holding to 45% allowing a new entrant Stone Point Capital to become a controlling shareholder with a 51% stake in the business.

Mr McNeilage says of the deal: "The Stone Point deal was accurately reported. It is business as usual and the only change is the shareholder. We have continuity in Fairfax and the team who have bought into it. People who have worked here for a while have had the opportunity to become shareholders."

Davies Group also looked to be considering a change in structure but in the summer it denied any plans for a management buy-out to advance the business, although it did confirm it was looking at a "new finance initiative".

There have also been staff changes throughout the market. John Bell, head of claims at Aon risk services, says: "This has been an interesting year and loss adjusters still seem to be going down the route of specialist individuals and there seems to have been a reshuffling of the pack with people going from one loss adjuster to another."

Among the most notable staff changes of which were Vic Noble's move from GAB Robins in April to take on Crawford's customer services centre and Iain MacLean, former UK chief engineer with Crawford, joining Davies as its head of subsidence in charge of its new subsidence division.

In April Cunningham Lindsey was forced into a management reshuffle following the departure of one of its top executives to rival GAB Robins. Mike Jones, its director of loss adjusting services, was given six months gardening leave while Allan McNeilage, head of property and specialist adjusting, was appointed to take on Mr Jones' responsibilities.

In some cases teams moved from one firm to another. However, this did not cause the same troubles as has been seen in the broking market. Mr Latimer says: "It always happens that people move in teams - loss adjusting is a small profession and because of that, and the small number of firms, teams tend to follow as a matter of course."

And Crawford's growth in south Wales meant it needed to find a new office in Cardiff in October to house its property, liability, subsidence and surveying arms along with liability specialists from SLS. Benedict Burke, chief operating officer for UK and Ireland, said at the time: "Increased demand for our services in Wales meant that we had outgrown our existing office space."

Although busy with claims, loss adjusters were not too busy for some innovation in 2007. MYI began the year with a new offering to the property investors market, May saw Davies set up a dedicated special and complex loss unit, while in June Crawford launched a new claims offering for the high net worth sector in a bid to win more business. October also saw Teceris launch a new claims management operation using expertise from its most recent acquisitions CMGL and Aon Claims management.

And Davies also began piloting a project-managing scheme. Darren Coombes, partner at Davies Loss adjusters, explains: "A trend that insurers have asked for is project managing suppliers and disaster recovery companies. This is to provide the main point of contact. Often claims go to disaster recovery companies first and then come to us, but now we take the first call and talk to the policyholder to arrange a meeting with us, the disaster recovery firm and, if appropriate, the contractor all at once to agree on-site what needs to be done and the stages the process has to go through."

The service was ironically launched on the 25 June and is being piloting with two insurers at the moment so could only be used on a small number of the flood claims.

Panel reviews were also few this year but those that took place had wide ranging impacts. Legal and General began the year with its first full review in five years and GAB Robins lost its place on the subsidence panel. AMG and Crawfords did well in panel wins estimated to be worth £2m each (see box).

The year then ended with Zurich announcing its loss adjusting panel and Davies emerged as the company to gain the most (see box) with the insurer saying: "the company's most notable change is the greater responsibilities given to Davies due to the professionalism and expertise demonstrated when handling Zurich's high-net-worth domestic property claims".

Carrot and the stick

As part of the review - its first since 2004 - the insurer introduced a risk and reward contract for domestic claims that rewards good performance and stated that all claims would be reviewed by an ex-field adjuster with a minimum of five years' experience before allocation.

Mr Burley explains the trend the market is seeing: "Insurers are seeing that procurement isn't the total solution. Before they were focused on high volume and low price and we were saying this is not the full picture. Now they are not just thinking of paying the lowest price and are deciding to role out more contracts."

Mr Latimer supports this: "The trend in the early days was for insurers to be looking for companies to do everything, but now they are more sophisticated and when panels come they are now more segmented."

However, Mr Burley warns that with insurers tending to look first to those already on their panels, others might lose out: "There are a group of panels due towards the end of next year, but if you are not already on a panel you might not get a look in, as this year Zurich only spoke to those already on its panel."

And Mr Latimer adds that panel arrangements have shown the strain this year: "The finite resource that is loss adjusters has been put under focus. This resource has the potential to be further constrained by existing panel arrangements where work is confined to adjusters in the panel."

Despite the fact panel reviews were rare this year some firms lost out in other ways. In October Garwyn announced it would be making its deputy chief executive and two other senior executives redundant after it lost its contract with Equitas. The deal loss followed the decision by National Indemnity subsidiary Resolute Management Services to handle all of Lloyd's run-off vehicles in-house. This decision followed an unrelated Garwyn decision to close its Gloucester office at the beginning of the year and then two offices in Manchester and Dartford in March, leaving 18 offices in the UK and causing 30 employee redundancies.

Another adjuster facing an uncertain future is Zurich-owned household adjuster JDLA, which was told by in October to stop taking any new instructions. A number of senior staff were reported to leave the firm soon after, but any other comment about the direction of the firm has not been forthcoming.

Another way in

There are, however, growing opportunities for adjusters to be offered work without being directly appointed by an insurer. Mark Winlow, director at LECG, says: "We have done some research and found that loss adjusters continue to be squeezed out of small ticket claims. And this threshold is being pushed up. This creates a huge challenge in terms of profitability. The continuing challenges will be that the bread and butter business is taken and the high value claims are a smaller market."

Loss adjusters are, therefore, increasingly dealing with large firms that self-insure. Mr Latimer explains: "There is an increasing trend to deal with companies that self-insure. The way companies carry risk is changing and the long-term relationships between adjusters and clients are paying off if claims arise."

Mr Hall, whose firm won a contract with TNT this year, adds: "These are client contracts where insurers are there at a high level but the clients are making the decisions. Clients have more of a say as there are now bigger deductibles."

August saw new Chartered Institute of Loss Adjusters chairman Malcolm Edwards take his seat and voice long lingering market concerns about skills shortages around the corner. Key to making the institute more inclusive, he said, is migrating its exam structure online: "One of the things that has not been completed is a thorough review of our examinations structure to make it relevant. Our younger members expect e-learning facilities - they don't want a parcel of books to arrive and they want examinations to be carried out online as well."

The loss adjusting skills shortage was widely acknowledged this year and many stepped forward to tackle the problem. One of those was Crawford, which launched a Masters programme with Anglia Ruskin University. The three-year course began in May with 12 people selected from Crawford's emerging leaders, with a second course due to begin towards the end of the year.

And Mr Bell says it is about time the market tackled this: "There is no major evidence of any new talent. The argument that there is not the money for this is a short-term one and if loss adjusters only recruit people with experience there will soon be no one left in technical adjusting."

Mr Hall agrees: "There is a skills shortage and filling vacancies is becoming increasingly difficult. We tend to recruit experienced people from other companies. But even we have to recruit less experienced people. Insurers are becoming more attractive as employers. We tried to go for smaller contracts where if we win we have to get two or three more staff but for those looking to take on 100 extra staff for a big deal it must be very difficult."

But Mr Coombes is confident there are plans in place: "The loss adjuster age profile seems to be going up and we are looking to link with two or more universities to attract good quality graduates we can bring up through the business. We are looking at marketing, legal, construction and general business disciplines. We will be starting this in 2008 as an ongoing commitment."

2007 was also the year that loss assessors agreed to stand up and be counted and demanded some recognition for the work they do on behalf of the client. At the beginning of the year three prominent members of the sector, Paul Lawrence, director at Harris Claims, Nicolas Balcombe, chairman and chief executive of the Balcombe Group and Peter Thompson, managing director of Thompson and Bryan, agreed to be interviewed by Post (Claims Supplement, 22 February 2007, p4) and later in the year six assessors agreed to be featured in the UK Loss Adjusting survey.

The top three firms between them claim to control up to £1bn worth of claims each year and in January the three defended their position as the scourge of the industry saying they are Financial Services Authority regulated companies and independent firms. They called for stronger regulation of the loss adjusting industry, inclusion of claims preparation costs and a quicker response on liability.

A changing climate

Although this did not happen in the commercial area, later in the year it seemed assessors' prayers had been answered when the Ministry of Justice proposals on the claims process for personal injury claims cut the length of time insurers have to make a liability decision on claims up to £25,000. For motor claims, the period will fall to 15 days, while for other claims this will fall from 90 days to 30 days.

Mr Burley points out that this could be a worry: "On the liability side there are proposals for quicker investigations and that might prove challenging. It may increase claims volume by 20%. There will be no need for investigation at the solicitors' end and so they will just put in claims and let insurers respond in 30 days - claimant lawyers say they turn away 20 to 25% of cases at the door so these claims will go through."

However, some see it as an opportunity for adjusters, especially if the insurers decide they can not investigate claims within these timescales. There have been calls to set up a common platform or trade body that would enable smaller players to benefit from centralised functions, such as compliance and training. Such a model is in place in Australia, where it allows the smaller players to enjoy greater economies of scale.

Another trend the market is seeing is individuals and companies wanting a better understanding of risk. Mr Muress says: "A trend I have observed is stress in the financial market that has prompted many people to try and understand risk better. Now the position of chief risk officer is more prominent and governance, regulation and compliance are all key dynamics in the market."

No matter the issues looming in the future the floods from the summer of 2007 have left a lasting memory and will impact the loss adjusting market for some time to come.

Mr Muress reiterates the point: "In 2008 the profession has to recognise the importance of finalising the claims from the floods of 2007. There needs to be signs that this is a significant priority, getting policyholders back in their homes."

Mr Latimer concludes that once the industry has sorted this out it will need to take time to get its house in order: "Weather is the big issue and resources will always be an issue. Loss adjusters need to constantly demonstrate a raison d'etre to prove they add value. Providing we can do that there will always be loss adjusters."

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