How to run a mock catastrophe

While the last few years have been relatively quiet for major hurricanes and other storms, large events like Hurricane Sandy and the recent storms that buried the Northeast in snow demonstrate the need for claims departments to be prepared at all times. One strategic way to prepare is to stage mock catastrophes. These trial runs help claims teams become comfortable with the types of decisions they will need to make when a large-scale event occurs.

Moreover, mock catastrophes are valuable learning opportunities, as they reinforce the need for best practices and the use of the newest technology for catastrophe-claims management. For example, geocoding technology — which uses geographic coordinates from policy data (e.g., street addresses, zip codes, etc.) — is rapidly enabling insurance companies to improve their catastrophe-claim response models.

How to Stage a Mock Catastrophe

The potential benefits of running mock catastrophes for claims departments are clear. The following steps can help insurers design a scenario that works for them:

Set the stage: In each mock catastrophe scenario, the claims management team should hold an introductory meeting to outline a specific catastrophe scenario. For example, the scenario could be a Category 3 hurricane predicted to hit Florida, Georgia, and Alabama. The team participating in the exercise should receive several days' notice before the mock catastrophe starts, which mirrors the advance notice provided by forecasters predicting a weather event of this magnitude.
Get specific: The scenario should give specifics about this storm and address questions including: What are the expected wind speeds? What is the storm's average damage severity? How far inland is the storm expected to penetrate? How many claims will the team receive and in what timespan? What types of policies are in force in the affected areas? What are the policy limits and coverages in the affected area? Overall, what is the company's potential exposure from this storm?
Solve staffing and resources: Once the claims management team has answered these questions, it's time to ask the claims adjuster team some key questions such as: How would you handle a 15,000-claim event given these parameters? What are the staffing and vendor resources needed to service the claims according to the theoretical storm scenario? Where should on-the-ground claims catastrophe offices be located close to the affected area but not in the line of fire? The team should be able to identify the number of claims adjusters needed for the storm, the required skill level for types of expected claims and where the claims adjusters will come from around the country.
Line-up vendors in advance: The team should determine the types of vendor relationships in the geographic area. If there are no existing relationships for the types of claims that could come in, the team will need to figure out how to secure them prior to the storm.
Tap expertise outside of the claims department: A mock catastrophe should also bring in experts from outside of the claims department including underwriting, product development, legal and compliance. During this discussion, the claims team can identify major compliance issues, catastrophe adjuster licensing rules and highlight regionally specific regulations regarding policy limit deductibles.

The claims team will need to be prepared to interpret regulations for each state and also be aware of any differences in policy form coverage and language. The information should be verified in advance and disseminated to adjusters in the field.

Using Technology to Assist in Decision Making

As claims teams managers work through the mock catastrophe scenario, geocoding becomes a crucial piece of the puzzle. Geocoding provides real-time interactive mapping of claims locations. This allows claims teams to use resources efficiently, have clear oversight of claims management logistics, provide more proactive claims processing and make informed decisions in a compressed timeframe.

Having geocoding on all policies across product lines allows the claims team to complete an assessment of risk and potential damages prior to a major weather event. Insurers can see how many exposures there are in a specific area and what personnel should be available to access the damage.

Mock Catastrophes: Challenges and Opportunities

Customer communication: According to a recent study by HeyWire Business, 52% of consumers would prefer texting to speaking by phone with a customer service representative. Communication via text or email allows claims departments to become more proactive before, during and after the storm, enabling quicker responses to questions and concerns.

Insurers should also consider communicating through social media. Twitter and Facebook can be used to help inform policyholders of an incoming storm and make them aware of the claims teams in place in their geographic area. During and after a storm, insurers should have a plan in place to actively monitor social media for customer questions, complaints and claims. As consumers' use of social media accelerates, it is imperative that organizations be prepared in advance of the next major catastrophe.

Testing teams: Insurers will benefit from designing storm scenarios that test the abilities of claims departments and focus on both strengths and opportunities to improve. Mock catastrophes also ensure that new employees or those taking on new responsibilities understand how large claims events are handled.

Different storm, different ball game: Another factor to consider is the type of storm being modeled and its specific challenges. Trial runs can be used to model hurricanes, blizzards, floods, wildfires, tornados or an ice event. Floods, for example, can last 7-10 days, including the time it takes for water to recede from affected areas, so claims teams need to determine the best time to go out to evaluate damage. Wildfires may generate fewer claims but may result in more total losses. Ice events can cause widespread power outages due to downed trees or limbs causing other types of claims. Even in a catastrophe scenario, each claim must be handled on a case by case basis.

Best Practices Make for Best Results

Mock catastrophes allow claims teams to develop “muscle memory,” among the other benefits discussed. Ultimately, they help claims teams become more proactive and proficient, which helps customers recover faster when a real disaster strikes.

Heather Bolyard is assistant vice president of claims services and information at American Modern.

Want to continue reading?
Become a Free PropertyCasualty360 Digital Reader

Your access to unlimited PropertyCasualty360 content isn’t changing.
Once you are an ALM digital member, you’ll receive:

Breaking insurance news and analysis, on-site and via our newsletters and custom alerts
Weekly Insurance Speak podcast featuring exclusive interviews with industry leaders
Educational webcasts, white papers, and ebooks from industry thought leaders
Critical converage of the employee benefits and financial advisory markets on our other ALM sites, BenefitsPRO and ThinkAdvisor