TABLE OF CONTENTS Dec 2012 - 0 comments

Fast Forward

Adjusters Adapt to a Changing Claims Environment

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Independent adjusters face an evolving array of challenges - internally, these range from hiring and retention practices (including succession planning), continuing education, new technology trends, fluctuating claims volumes, revenue targets and client satisfaction. Externally, the developments are arguably even more daunting, which include catastrophic claim handling, competition amongst regional/local and national firms, insurance company (and adjuster) consolidations, in-house insurer adjusting trends, procurement models, service/volume contracts, task assignments and uncertain business relationships.

We asked five leading adjusters of top-ranked firms to sketch out what they think are the key trends that claims professionals will be facing in the immediate - and long-term - future. 

Fred Plant, President, Plant Hope Adjusters Ltd. 

The independent adjusting profession is in a crucial period of transition. Three important issues are pushing us towards a point of crisis. They demand positive action over the next three to five years.

The first issue is economic. Several years of "soft" markets have meant very little increase in the flow of money to Insurers. At the same time, claim settlement costs have continued to rise. Faced with flat revenues, increased payouts, and ongoing demand for improved financial results, Insurers seek to make up the difference by reducing operating expenses.

If we independent adjusters fail to adapt to this environment by demonstrating continuing relevance, our services may come to be viewed as dispensable. Already, some Insurers view independent adjusters' fees as pure expense and cutting them as a logical first step in cutting costs.

There is risk in this reasoning. If those insurers were running a restaurant, their solution would be to fire most of the kitchen staff and bring in frozen food to heat in microwaves. That strategy might reduce labour costs, but customer dissatisfaction and declining revenues could more than offset savings.

In the current market, what insurers want from independent adjusters has changed.

An increasing number are seeking to replace detailed, comprehensive investigation and customer contact with a more mechanical process. They want photographs sent to an analyst in a far-off place to determine the amount of settlement. They still need statements from involved parties, but want to pay only a flat fee for getting them. They expect skilled professionals to extract statements that will deal with the whole matter; yet, they don't want them to deal with the matter as a whole.

That disconnect will come home to roost one day when insurers find they no longer have the resources necessary to deliver on their promise to act in utmost good faith; the golden thread that has traditionally held the fabric of the property and casualty insurance business together. Historically, adjusters, independent or staff, have handled claims from start to finish. The process would involve trade-offs and compromises between the parties and the claim would be resolved as a whole. Today, the claim process is divided into silos with each silo operator working in isolation. The challenge to our profession is to transition successfully from the historic total-service model to the task environment of today where only bits and pieces of information are required at a time.

The second issue challenging independent adjusters is technology. In an era where people assume that there's an app for everything, there is a widespread expectation that if you can do it on a smartphone, it must be better. Some believe claims service can be improved by technology alone. If only adjusters could deliver reports right from the middle of the sewage-filled basement or the burnt-out kitchen, they reason, costs would be saved and service improved. That's the theory. But it's not clear that we've reached the point where it works dependably in practice. A common saying back in the 80's, as computers became increasingly involved in business functions, was: "Garbage in equals garbage out." We need to focus on quality assurance as an integral element in our use of technology.

The third issue facing our profession has been around so long it seems like a no-brainer: recruitment. To deal with economic and technological change in our business, we need a steady stream of energetic, intelligent new recruits. Yet, how are we to attract candidates with the potential to become first-rate claims investigators and evaluators when the environment we want them to enter is under fire and in decline? People are leaving the profession faster than they are entering. Eventually, if we don't find a solution, that shortfall will catch up with us.

Taken together, these three issues add up to one big challenge: regaining the trust of Insurers. We can blame outside forces all we like but the fact is, we have done it to ourselves. By our failure to keep abreast of economic and technological realities, we have undermined the confidence of many Insurers in the value of our service.

Trust is the foundation of any functional relationship. As I see it, our profession's greatest challenge is to win back that trust so that insurers will believe in the value of our service. It's a tall order at a time when adjusters are being asked to do less and less in the field. However, if we are serious about winning back our customers we have to deliver our best. We are at a turning point. The outcome may not be entirely in our hands but we need to wake up, adapt to changing demands, and make the most of our knowledge and integrity to keep our profession alive. 

John Sharoun, Chief Executive Officer and President, Crawford Canada

At this time last year I talked about the challenges faced by Independent Adjusters over the previous year. In no particular order of importance I listed CAT response, IT technology, succession planning, frequency, internalization, industry consolidation and regulatory compliance, and governance impacts. This year, we were asked what two or three issues would impact the adjusting profession over the next year and beyond. From my perspective, there are more than two or three significant issues facing the profession and frankly tomorrow's issues look a lot like the issues I set out last year. Their order of importance, and where they sit in priority, may have changed but my suggestion is that the scope and urgency with which these issues must be addressed has increased.

Catastrophes and weather events, either singularly or cumulative, seem to be here to stay. CAT response has been in the headlines in Canada and certainly around the world over the past year. I think we've come to the conclusion finally that these are permanent fixtures of our claim landscape. These events seem to be getting more widespread and more severe - the past two years have seen some of the most expensive catastrophes in the period 1970 - 2011 (five of 16). Canada did not go unscathed by CAT activity.

As we contemplate these issues, thousands of claims professionals have been deployed in the Eastern United States to handle claims related to Superstorm Sandy, a late-season storm that has created significant damage across the Eastern seaboard. No doubt this event will produce lessons for our industry and emphasize the importance of pre-event planning and post-event coordination of resources on an industry-wide basis. Our profession needs to do more to engage our Insurance Carrier customers on these critical pre-planning activities to ensure that we are able to deliver on the customer service promise at the moment of truth. Some rumblings on our West coast this past year have industry pundits suggesting that an event on Canada's Western coast is not measured in "if" but "when." Are we truly ready to support such an event?

Technology is involved in every aspect of the claims adjusting business with each independent for the most part utilizing a combination of their own internal systems, third party solutions, vendor portals, and systems over and above each insurance carrier's system. I know that during our own business process review this past year, we completed an inventory of software tools required to be accessed by our claims professionals on a regular basis. The number was startling. A total of 14 different systems were being utilized in addition to our proprietary Claims Management System as mandated by our clients. On its own, while each system offers a promise of increased efficiency and effectiveness for the claim adjuster and the carriers we serve; collectively these systems have the potential to inhibit the Adjuster's ability to provide optimal levels of customer service. With the continuing technological explosion on the claims side, this is a situation that will more than likely get worse before it gets better. As an industry we need to collaborate on ways to let these systems talk to each other and ensure the technology is working for the claim adjuster instead of having the claim adjuster work for the technology. Witness the banking industry not so long ago making the decision to use a common ATM platform to service customers rather than creating individual technologies.

Frequency and internalization has created significant business challenges for adjusters over the past year. Weather patterns that have been fairly benign have created an environment of feast or famine for outsource claim handlers. While peaks and valleys are not new challenges for independent adjusters, the gaps have been amplified with Insurers achieving their internalization targets in recent years.

The industry must work with our insurance carrier customers to enhance and improve our value proposition and find ways to maintain a sustainable level of resources during the valleys so that we are adequately equipped to respond to the peaks. Solutions can take many forms ranging from the traditional approach of supplying agreed volumes to optimize capacity, to newer approaches involving pricing models that cover the adjusters' cost for maintaining unused capacity. An expectation that our industry can absorb huge increases in CAT volume during 30 - 60 day surges simply isn't aligned with the factual realities of our day-to-day operating expenses.

Last but certainly not least, succession planning has been a looming issue for the industry and for our adjusting profession for many years. The economy has likely given us a mild break in the action in recent years as many of our seasoned professionals have deferred retirement dates. This situation however, is only temporary. The industry's efforts have been excellent in communicating, recruiting and training community college graduates and university graduates in the last number of years.

We still see and expect there will a skills gap as the current generation retires and the next generation gains the skills and expertise they need to lead a very different insurance industry tomorrow. As independent adjusters, we have the opportunity to provide the industry with the needed talent and expertise when it is required, but that's going to require us to find creative ways to do that against the backdrop of our own recruiting and retention challenges. I think we all recognize the current business model of recruiting from your competitors is not sustainable over time.

Working in lockstep with our carrier clients and various industry stakeholders to communicate and solve some of these issues would result in a more seamless transaction from in-house to outsource and should resolve capacity issues in times of great need.

Michael Holden, President and Chief Executive Officer Granite Claims Solutions 

As we have seen, especially in the past couple years, the P&C Claims market is hard to predict. While some influencing factors - such as legislative changes or demographics - are easier to pin down, factors such as weather or particular risk appetites make it difficult to say with certainty where we are headed.

However, there are some noticeable trends in the market today. In particular, the future of independent adjusters in Canada will focus on Third Party Administration for corporate client programs and the ability to mobilize for catastrophe events.

With the insurer market adapting well to new legislation and sustainable in-house adjustment, a reversion to specialty lines adjusting and niche insurance products are coming to the forefront. Independent adjusters should focus their skill development on both traditional and niche areas. In the end, you will really stand out for your abilities as a niche adjuster. As well, developing that personal relationship with the insurer market and becoming known for a specific skill set will be the most effective method of staying viable and valuable to the market.

As for catastrophic events, they need not be solely weather-related anymore. Cyber insurance and the effects of organized hacking rings throughout the world can affect people and corporations so quickly and drastically that the organization must be prepared to deal with the response, investigations, and adjudication quickly and effectively. Clearly, this is a new high-risk area of insurance, and it is still a mystery to many. Those adjusters who educate and prepare themselves for potential cyber crime will be best equipped to deal with these needs.

Granite Claims Solutions has a dedicated complex loss team, catastrophe management team, and cyber risk team in place to be prepared for these events. And since they are so interrelated, we continue to engage our teams in numerous cross-discipline training exercises. Developing knowledge and expertise has been one of the core values of Granite Claims Solutions, and these teams are no exception. Preparing for the market needs of the future has been at the forefront of our planning and training.

David Riddell, President, Canadian Claims Services 

"Where is the industry heading and where do we need to be?" is something that we spend a lot of time on at CCS. The past several years have seen a lot of changes in the industry, but many of the same issues still prevail for the independent adjusting field.

Market consolidation is an interesting problem for the independent industry. M&A activity, coupled with the prospect of demutualization of P&C Insurers, should have every independent adjuster asking, who are my customers going to be in the future? Now more than ever, it is important to understand who your customer really is, and what their needs are.

A diverse client base, while always good business, is imperative to avoid disaster as consolidation continues, and vendor selection potentially changes along with your client's name. Strong relationships and a solid reputation are essential to long term survival, in this ever changing environment.

Independent adjusters need to be able to offer creative claims handling options to these clients, which in many respects require a departure from traditional reporting, and billing structures. Generally, this change requires the ability to introduce and effectively apply the use of technology.

Technology in the insurance industry has not evolved as fast as other industries. There are numerous examples of old "legacy" systems still widely in use in the industry, which is further complicated with consolidation of companies. It is not uncommon for companies to be operating multiple systems. The cost of procuring new systems, coupled with expensive and time-consuming conversion projects, has led to the current state of affairs. Many of the systems used by Independent

Adjusters large and small are more advanced than those of their clients. This is largely as a result of the fact that most independent adjusting firms have only embraced Claims Management Systems within the past 10 years.

Going forward, Independent adjusters have to have systems in place that will allow for, at a minimum, electronic reporting. At CCS, we are increasingly asked for client access to our Claims System, allowing clients access to view their claims information "online and in real-time", with the ability for the clients to pull their own management reports from these systems. Recognizing this CCS has full time IT staff, which is relatively unprecedented for an organization our size.

Finally, the biggest challenge that faces the entire industry, not just the independent field, is people. This is not a new issue, but it is certainly one of the most serious. More and more, experienced people are being offered modified work conditions or being coaxed out of retirement to fill senior technical roles, given the overall lack of experienced people who are able to get involved in large and/or complex claims.

Historically, the independent adjusting industry has relied on the insurance companies to train new adjusters for the industry. With few exceptions, only the large national adjusting firms have been able to consistently hire and train new adjusting staff, by virtue of their call centers. As a result, recruiting new adjusters to the independent field continues to be a tricky prospect, when independent adjusters attempt to recruit some of the best and brightest adjusters away from the very clients who are supporting them, especially when fewer of the best and brightest are entering the field to begin with. Independents need to find ways to recruit, and train new adjusters to the industry, without raiding their shrinking client base.

Overall, I believe that a strong independent adjusting industry is essential to the long-term success of the insurance industry as a whole. Independent adjusters have always been, and will continue to be an integral part of how the industry meets its obligations to policyholders. Many of the challenges we face are not new, but are becoming more prevalent as the consumer demand for faster and better quality and service increases. Independent adjusters must find ways to work more closely with our clients to provide proactive solutions to that increasing consumer demand. At the end of the day, it is in all of our best interest!

Patti Kernaghan, President and Chief Executive Officer, Kernaghan Adjusters

The future trends and challenges facing independent adjusters can be viewed either as a series of issues that will strain the independent adjusting community, or as an opportunity to excel at what we do -- manage claims.

The changes in the way businesses have operated in the last 25 years are significant and extraordinary. The property and casualty insurance industry has adapted by slowly incorporating change into their processes. At times it has appeared that those in the independent adjusting field have led change in our industry.

In the next three to five years one of the most important changes affecting the loss adjusting field will involve technology. First there will be a shift from the "information age" to the "connected age." As the insuring public becomes more connected in their day to day lives, they will demand the same connectivity in the form of customer service for settling their claims. The second technological shift will be the use of "big data and analytics" by insurance companies to ensure customer service compliance.

What do the technological shifts mean for independent adjusters?

The shift to a higher level of connectivity will be one of the most important catalysts for change over the next ten years in the claims industry. Insurers and the insuring public will demand a faster and faster turn around time for claims information. The demand for a higher level of connectivity will affect all independents. It will speed up communication, move information quicker, and files will close faster. Adjusters will need to adapt to the pressure of increased connectivity to stay on top of their work loads.

The other technological shift affecting loss adjusting will be driven by the use of big data advanced and analytics by insurers. The focus on big data and the analysis to create a competitive edge is here now - but the demand for more information will become the norm. It will drive performance and how independent adjusting companies operate and communicate at a high level with insurers.

Independent adjusting companies will need to ensure their claims systems provide the right information to their adjusters in an easy to navigate environment that simplifies communication. They will also have to ensure their adjusters are trained to use these tools and stay on top of their files. Independent adjusters will need to keep up-to-date with the various technologies that will help them be more effective in the handling their claims. If companies fail to provide the right technological tools to their adjusters, and/or the adjusters fail to use the technology to their advantage, the big data and analytics used by insurers will point out the deficiencies.

The second most important issue facing the field of independent adjusting over the next three to five years will be the shrinking talent pool, as baby boomers with their deep experience start to retire in higher numbers. As the boomer adjusters retire, there will be a huge exodus of critical claims knowledge from our industry. Both insurers and independent adjusters need to recognize the pressure on the independent field to continue performing the very important service they do within the Canadian property and casualty industry. Adjusting firms need to ensure sound recruiting and training plans are in place in order to ensure the next generation of claims professionals will inherit the existing adjusters' knowledge -- from telephone adjusting small losses to handling large, convoluted specialty claims.

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Fred Plant, President, Plant Hope Adjusters Ltd.
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Caption: Fred Plant, President, Plant Hope Adjusters Ltd.
John Sharoun, Chief Executive Officer and President, Crawford Canada
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David Riddell, President, Canadian Claims Servicess
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Patti Kernaghan, President and Chief Executive Officer, Kernaghan Adjusters
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Michael Holden, President and Chief Executive Officer Granite Claims Solutions
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