Information is the new currency of catastrophe management – how to get it, verify it and respond to it. Whether the matter at hand is real-time weather data related to a progressing windstorm, location intelligence to verify concentration of risk through geocoding or automated online tools to coordinate dispatching of claims adjusters to affected areas, technology and data are playing increasing roles in how the property and casualty insurance industry responds to natural or man-made disasters. There are many examples of changing approaches to catastrophe management.
In early January, the Canadian Independent Adjusters’ Association announced a strategic alliance with Verisk Analytics that will provide comprehensive resources and services to independent adjusters. CIAA members will receive access to PCS Canada catastrophe loss information, which will help firms plan for catastrophe events, allocate resources more effectively and reduce cycle time, ultimately contributing to lower loss adjustment expense.
In addition, CIAA will use its relationships to provide post-event insights to PCS for use in Canadian catastrophe bulletins, as well as photos, videos, and commentary from adjusters at the event site. PCS team members will also participate in “ride-alongs” to help enhance on-the-ground damage assessments and other important business insights for the Canadian insurance industry.
Several other instances of new or enhanced technology are emerging in catastrophe management. One of the main buzzwords today is “location intelligence.” This is defined by one provider “as the capacity to organize and understand complex data through the use of geographic relationships.” Location intelligence is often combined with risk analysis and predictive models in what software firms call “geospatial analytics.”
The process of “geocoding” an address assigns a unique latitude and longitude to a physical location. It can pinpoint the location down to the building rooftop level. It can also show the proximity of a property’s distance to any identifiable hazards.
Several companies, including DMTI Spatial, Esri, Pitney Bowes/MapInfo and Geospatial Networks, have ramped up their location intelligence offerings to insurance companies and claims professionals to provide a more detailed view of risk. These can also greatly aid in the catastrophe planning process, both in pre-risk identification and in claims adjusting.
“Predictive analytics models are developed for risk management to help determine tolerance capacity within specific geographic areas, as well as catastrophe planning and Probable Maximum Loss analyses based on different types of events-and based on real-time peril information, like the track of an onrushing hurricane, tropical storm, tornado or severe thunderstorm, according to Pitney Bowes Software white paper – You Can See Clearly Now: How a Single View of Risk Drives Competitive Advantage.
In the case of flood and water damage, for example, an insurance company can map the addresses of insured structures and overlay floodplain boundaries to identify all structures within the area at risk. With this information, the insurer can calculate the total financial impact on reserves from a potentially catastrophic flood. “A national file of flood-hazard maps for Canada will allow you to understand the risk associated with one address or your entire portfolio,” notes Steve Sigal, vice president, product management for DMTI Spatial.
Geospatial analytics and location intelligence can also aid in the claims handling process. “Claims personnel can expedite adjustment and claims processes and optimally plan for catastrophic events by precisely determining areas (and insured properties) likely to suffer losses,” notes the Pitney Bowes white paper. “They can better manage the aftermath of those events, helping them get ‘boots on the ground’ to allocate claims-unit resources, prioritize claims, get adjusters to the site of damaged properties as fast as possible, set up triage units, or route customers to the closest possible branch office or auto repair facility.”
“Catastrophe management is one of the prime areas in which insurers at the business level can put location intelligence to practical use,” according to Pitney Bowes. “The insurance industry has taken sharp notice of the rising trend in costly natural disaster events in Canada and its accumulation of risk in key geographical areas. This is especially true for water damage, severe rainfall events and potential earthquake exposures. Without question, implementing best-in-class catastrophe management for natural disasters has become one of the most critical strategic business drivers for the property and casualty industry.”
Another key technology development in CAT management is the use of satellite imagery. According to an April 2014 publication of Lloyd’s Market News, “using satellite information to better understand and monitor natural catastrophes has gained pace in the insurance industry in recent years. “It cited SCOR chief executive Denis Kessler, who predicted that by 2020 the reinsurance industry would be widely utilizing satellite loss assessments.
Indeed, several companies already use satellite imagery in catastrophe loss management. Swiss Re employs a software system called CatNet that combines natural hazard information with Google Maps and satellite imagery, allowing clients to assess the extent of a disaster soon after it occurs.
“The CatNet functions and data facilitate a professional overview and assessment of natural hazard exposure for any location worldwide,” Swiss Re states in its product description. “This makes CatNet a valuable tool in preparing local, regional and cross-regional risk profiles.”
In another example, Guy Carpenter recently launched a new satellite-based service, GC CAT-VIEW, which aims to provide initial loss estimates of catastrophe events using satellite imagery and other data sources. Some of the reinsurance broker’s clients with exposure to the 2014 UK floods used the service for initial insured loss estimates for that CAT event.
This aerial view can give insurers and their claims partners an edge in estimating damage in specific areas, allowing them to focus on regions hit hardest by catastrophes, according to experts.
“Insurance organizations that are able to view property damage from the air, and know the precise location of insured property, will be able to commence adjustment processes and plan for on-the-ground response when this is possible,” notes Karen Pauli, a research director with CEB TowerGroup Insurance. “Most importantly, these insurers will be able to more accurately execute vital customer service and communicate with policyholders from a position of knowledge. Due to the overwhelming burden of uncertainty, these actions will propel an insurer up the ladder of consumer ‘best choices for insurance.'”
Drones in Insurance?
“From the air” could extend to the use of commercial unmanned aerial units, or “drones.” Several analysts and research firms have studied the potential usage of drones in insurance CAT scenarios, particularly in situations where adjusters face challenges entering an area due to physical dangers.
A study by research firm Cognizant estimated that about 40,000 drones are expected to be in use in 2015, 70,000 by 2016 and 105,000 by 2017. The insurance implications for claims handling is intriguing, according to the paper, Drones: The Insurance Industry’s Next Game-Changer?
“Given the increasing number of catastrophes, the limited availability of claims adjusters and the high number of claims, insurers fac
e some tough challenges when it comes to managing the customer experience and settling claims in a timely manner,” Cognizant stated in the paper. “Drones can help overcome this problem by accelerating claims adjudication. … These devices can quickly locate insured locations using built-in GPS locators, evaluate the ground situation through sensors, take high-resolution photographs and send information back to adjusters for preparing estimates – all within a compressed timeframe.”
Swiss Re also published a paper on the topic entitled Insurance and the Rise of Drones. After noting that the annual spending on commercial and military drones is expected to reach $11.6 billion by 2023, the reinsurer observed that catastrophe response represents a big potential market for unmanned aerial vehicles.
“After a natural catastrophe, a drone could reach a remote scene much faster than a claims adjuster,” Swiss Re stated. “In addition, drones could be deployed to areas unreachable by claims adjusters, for example, in a flood zone. Besides the speed of deploying resources to insureds, the cost savings to insurers could be significant.”
The Role of Claims Professionals
Technology is not the only element of change when it comes to catastrophic risk. Catastrophe management and the role of claims professionals was the theme of this year’s CICMA/CIAA joint conference held February 3 in Toronto. Speakers examined a range of issues – from the broadened view of what is considered a “catastrophe” to the issues still prevailing from the floods in southern Alberta to the evolving role of the independent adjuster in handling disaster claims.
Master of Ceremonies Brian Maltman provided context about the changing nature of “CAT” claim events.
“Remember when catastrophes used to refer to earthquakes? No longer,” said Maltman. “Water is the new fire. Flood events in the rivers, in the cities and in the Prairies have taken over and are increasing in frequency. We have seen hailstorms, wildfires threatening entire towns and now the risk of cyber losses on a catastrophic scale.”
When it comes to cyber risk, speaker Carol Kreiling, a vice president with Swiss Re, called 2014 the “year of the cyber attack. There was a 48 per cent increase in data breaches last year,” she noted. Kreiling said that the level of sophistication of cyber attacks have increased dramatically with the involvement of state-sponsored or state-affiliated hacking and organized crime. “This is a global issue with global exposure; no one is safe.”
This exposure extends to the infrastructure in industrialized economies, including energy, food and water supply, transportation, banking, retail, telecommunications, according to Kreiling. “A data breach could affect all these interconnected networks,” she said. “One of the focuses that we have to think about is the entire cyber safety infrastructure within corporations and governments.”
Cyber Safety Infrastructure
In particular, Kreiling focused on the oil and gas sector as a vulnerable target of cyber attacks. “If you look at the oil industry and the energy sector, a cyber attack against them could be absolutely catastrophic.” Statistics show “40 per cent of the cyber attacks against the United States infrastructure is targeted at the energy sector and projections are that by 2018, the costs of those kinds of data breaches is going to reach US$1.87 billion,” Kreiling noted.
She cited the August 2012 Shamoon virus attack against Saudi Aramco – Saudi Arabia’s national petroleum and natural gas company – she told attendees that although the incident did not receive a lot of press coverage, hackers destroyed 85% of the hardware on 30,000 computers at the company.
“Could you imagine what would have happened had that attack been more widespread and had it totally devastated the company?” Kreiling asked. “It wouldn’t have just impacted and destroyed a company. It could have had severe devastating effects on the country of Saudi Arabia.”
“Devastating” is also a word used to describe the flooding in southern Alberta in June 2013 – to date, Canada’s costliest natural disaster. With roughly $5 billion in estimated costs for recovery and rebuilding, Alberta’s assistant deputy minister of financial sector regulation and policy Mark Prefontaine, who spoke at the conference via Skype, said the province is still dealing with claims today, particularly in the hard hit area of High River.
Flooding and Customer Communication
The flooding in Calgary and other parts of southern Alberta was exacerbated by two issues – confusion amongst consumers about water damage coverage in homeowner insurance policies and the inconsistency of claims decisions by various insurance companies, according to Prefontaine.
“There was, and still is, a lack of knowledge from consumers about what policies did and did not cover,” he said. “The complexity of the insurance policy does not lend itself to being user friendly.”
Prefontaine also noted that terminology such as “direct or indirect causation” and differing insurer interpretations meant that “in the same neigbourhood, the same block, some homeowners would have coverage (for flood damage), others would not… This raised a lot of questions and led to challenges for several insurers on social media.”
Many of the issues associated with customer communication could worsen with the more recent trend of insurance company revisions to personal property insurance wordings, deductibles and sub-limits, according to Prefontaine.
“What we’re seeing is greater transparency and additional segmentation by cover,” he said. “So no longer are we seeing policies that have a particular policy limit with all perils covered under that policy limit and one deductible.”
Prefontaine noted that consumer confusion “will be magnified . . . so that if we do get an additional – and I’m relying on the word ‘if’ – but if we do get additional losses of any degree of magnitude that affects a larger area, we’re going to have further checker-boarding in terms of coverage.”
He explained that he understands the “competitive reasons” why these changes in policy terms and conditions are being made, but also stated that these “will present challenges for government, challenges for insurers and challenges for those that are managing and adjusting claims.”
“I do think some additional collaboration between governments, policymakers, regulators and industry should lead us down the path of an increased level of understanding of what, in fact, coverage people do have, for what losses, in what scenarios, so that when there are claims, people can more easily understand the process and decisions that are being made,” Prefontaine remarked at the conference.
The issues surrounding the Alberta flooding underline a recurrent challenge for adjusters and claims professionals – how to communicate efficiently and appropriately with customers in a time of stress.
“Every time we encounter a CAT loss, our skills in adjusting, handling and managing claims are tested because they are needed so urgently and so many times over,” Maltman noted in his introduction of Carl Van. “We need transferable skills, we need to understand the new types of losses and we need to be able to learn from our experiences.”
Carl Van, president and CEO of the International Insurance Institute and an insurance training professional, discussed the impact of CAT losses on customer service. “I can tell you from a training standpoint, it is usually a disaster,” Van said. “We have to be thinking process and training people how to respond during CAT losses.”
Van noted that there is frequently a breakdown in several aspects of customer service during the stress of a multi-claim event, including areas such as:
• patience and understanding
• interpersonal skills
• vendor management
• meeting expectation
The claims professional on the front lines of dealing with CAT losses is often the independent adjuster. They have the skills, expertise and experience to handle the outcome from a natural or man-made disaster, according to Maltman.
“We know that CAT losses draw on the skills that we already have, but they also strain resources severely,” he noted in his introduction of Glenn Gibson. “What are the skills that are transferable to new situations that we will face?”
Glenn Gibson, a veteran adjuster with Crawford and Company (Canada) Inc. and current president and COO of the Hamilton Tiger-Cats football club, helped to explain the attributes that adjusters will have to rely on to handle CATS in the years ahead. “What skills get developed by adjusters either through daily claims or handling catastrophic losses?” Gibson asked attendees.
He listed several traits common to adjusters, including calmness, empathy and respect, ability to handle stress, logical thinking, leadership, communication, process-driven approach, experience and openness. He noted that these attributes helped him cope with the stressful and ambitious construction of the Hamilton Tiger- Cats’ new stadium, which opened September 1, 2014.
Gibson also referenced many recent “catastrophic” natural and man-made events, including the earthquake and tsunami in Japan, Hurricane Sandy, the Deepwater Horizon oil spill and the Boston Marathon bombing. Closer to home, Gibson pointed to the Slave Lake wildfire, the flooding in 2013 and the Elliott Lake shopping mall collapse, as well as terrorist attacks, data breaches and class action lawsuits.
Insurance Underpins CATs
“Insurance is underpinning virtually every one of these events,” Gibson says. “When it comes to the massive amount of damage, bodily injury losses, commercial buildings and other property, it’s clear that insurance sits at the foundation of these events. It helps rebuild businesses, houses and lives.”
For claims adjusters on the front lines of this rebuilding process, Gibson cited many of the priorities and skills they have developed that are rarely recognized outside the insurance profession. Capabilities such as scenario planning, triage/prioritization, quick development of action plans, matching the right people with the right task, establishing command and control centre and taking care of staff are unique to adjusters who have handled catastrophic losses.
Gibson also noted that Reader’s Digest’s annual top five survey of careers in Canada typically features emergency workers, physicians, fire services and related professions.
“Guess what?” he asked. “Insurance adjusting is not in the top five. All of those professions are there at the front end of a catastrophic event. They are not there for the next 12 months and are not helping to rebuild someone’s life. We are there for the whole shot; we don’ take care of someone for 12 or 24 hours. We are there on the ride from beginning to end. We do a really good job and it is not recognized by a lot of people.” W