Managing claims in a changing climate
As more people are being affected by severe storms and flooding, new challenges and opportunities are emerging for claims professionals
Although 2020 marks the beginning of a new decade, the next 10 years will largely be characterized by what has defined the past decade: climate change. Climate change has been ongoing since the 1800s, but the increase in severity and frequency of natural disasters during the last 10 years alone reveal how quickly it has accelerated; data from the World Meteorological Organization paints an even starker picture, as 2019 ended the warmest decade on record.
The effects of climate change are well-documented, especially in regards to water. Sea levels have increased, oceans have become hotter, and floods that have a 1-in-500 chance of occurring are defying the odds and becoming more likely. All of this is to say that the planet’s relationship with water is becoming more complicated — and the same is happening in the insurance industry. As more people are being affected by severe storms and flooding, new challenges and opportunities are emerging for claims professionals
Claims management
As the climate has warmed, so too has the severity of natural disasters. Hurricanes Harvey, Irma and Maria (HIM) are among the most notable weather events of the past decade. Causing about $125 billion in damage, Hurricane Harvey ranks as the second-most costly hurricane to the United States mainland since 1900; Hurricanes Irma and Maria followed within a month of Harvey, affecting Florida, Puerto Rico and much of the Caribbean, respectively causing $50 billion and $90 billion in damages.
In the wake of a hurricane, an adjuster’s first priority will be to assess any major losses. But the number of available licensed field adjusters after a hurricane is often significantly lower than the number needed, so moderate and minor losses — especially water losses — aren’t resolved quickly and efficiently. When claims like these get stretched out, potential complications have a greater chance of multiplying and insureds’ perception of the claims process can deteriorate as a result.
Seth Rachlin, executive vice president and chief innovation officer of insurance at Capgemini, says there is a concern that other claims will suffer when catastrophe claims demand more attention and resources. Whether catastrophe claims will do just that remains to be seen. According to the 2019 LexisNexis Home Trends Report, while catastrophe claims decreased from 2017 to 2018, severity increased. But in 2018, for the third consecutive year, catastrophe claims accounted for more than 30% of all peril claims.
Technology lends a hand
After any event, the conditions on the ground are often very dangerous. Power outages, difficult living conditions, widespread destruction and exposure to hazards are just some examples of what adjusters must be prepared to face. “There’s a real concern with the conditions in which the adjusters are sometimes working,” says Anne Wilson, property expert, property & casualty business management Americas for Swiss Re.
While climate change has mostly altered the claims experience in detrimental ways, technology is improving it for both claims professionals and insureds alike. Incorporating technology into the claims process is helping insurers capture damage faster and help get payments to customers more quickly. This not only supports customer satisfaction but also helps insurers differentiate themselves through their catastrophe response and use of technology.
Drones, for example, are regularly being used by companies in the wake of a disaster to quickly map disaster areas or deliver emergency supplies. And when a structure is too difficult or dangerous to assess with boots on the ground, they can fly in for a full determination and prevent backlogs from building up for carriers. Artificial intelligence (AI) is also being relied on to account for climate change. AI can use satellite imagery to better predict and monitor the path and intensity of hurricanes, and more high-definition flood models are being developed to map the likelihood of a flood, the areas at risk and more.
The impact of climate change for claims departments will likely result in more claims and perhaps a need to increase rapid response teams to blitz impacted areas with faster claims service, says Bill Brower, vice president, product management, claims for LexisNexis Risk Solutions, which is why he sees “technology aiding that effort as insurers can use technology and data to increase claim production from each claims adjuster.”
Changing more than just the climate
The effects of climate change on claims is best captured in the rising number of claims and the toll it has on those in the field. Following Hurricanes HIM, Wilson says Swiss Re had roundtable discussions with its Caribbean clients to learn more about the issues they had adjusting claims. She said that “not only were they challenged to retain adjusters, often relying on firms unfamiliar with their market or even unfamiliar with hurricane losses, they noted the need to give adjusters breaks and bring them out of the impacted areas to prevent burn out.”
One significant change that Brower notes is for adjusters who focus on damage assessment. He says former field adjusters are now moving into full-time office positions and assessing damage virtually with the use of photos or videos from either the homeowner or repair contractor. “The effort to write the damage assessment is not significantly different, but it is a major change to do that remotely versus on-site,” adds Brower.
Rachlin says flooding, in particular, is altering how claims adjusters have to do their jobs. He says figuring out damage caused by water versus wind can weigh heavily in the adjustment process, putting the onus on the adjusters and companies more generally to be fair in the application of the policy terms and conditions, and to educate customers on the nature of the risks they face and what their coverage actually provides for them. He added that flood insurance pricing will change, particularly since the federal government is implementing a change to its pricing formula for its National Flood Insurance Program in 2021, creating an opening for the private market to step into that space.
“To me, climate change is both a challenge but also an opportunity. There are a lot of losses in any climate event that aren’t covered, and there’s a lot of risk from climate change that is yet to be addressed by the industry. I think with the appropriate products and focus, it’s a real opportunity to better provide risk mitigation to consumers,” says Rachlin.
Looking forward
As climate change continues to rage on, more industries, including insurance, are looking to be a part of the climate solution. In 2019, the number of insurers withdrawing cover for coal has more than doubled on a global scale. According to a report published a conglomerate of international environmental organizations dubbed Insure Our Future, 17 of the world’s biggest insurers control 46% of the reinsurance market and 9.5% of the primary insurance market. However, most companies that have stopped insuring new coal projects still continue to cover existing coal operations.
Until curbing the effects of climate change are made a priority by all countries and industries, it will continue to ravage the planet and affect the global order. For insurance professionals working in claims, one of the best things they can do is alter their best practices going forward. Apart from educating insureds about how to be better prepared for severe weather events, Brower says that the industry needs to move towards remote adjusting and claim settlements where they can.
Climate change is undoubtedly going to continue altering insurance, claims and the world we live in. What remains to be seen is exactly how as there’s sure to be no shortage of claims in the future. But “even with these challenges,” says Wilson, “the claims organizations seem to stay on top of the claims.”
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