6 Reasons Why Catastrophe Plans Fail

12/29/2014 (Permalink)

By Gregg T. Golson

Catastrophe (CAT) plans, like strategic plans, tend to be crafted in offices far away from the adjusters who will implement them. These voluminous, dust-covered binders sit comatose, only to be revived when an actual catastrophe looms.

Failed CAT plans have costly and long-term consequences including interest on late claims payments, unnecessary claims cleanup teams, loss of goodwill, lack of retention of insureds, litigation costs, unfavorable court decisions, and potential bad-faith or punitive damages.

Let's review the problems and potential risks of all these concerns.

1. CAT plans that aren't scalable fail.

Long gone are CAT plans that can rely on 2,500 staff waiting idly for the next event. Failed CAT plans can force highly-skilled adjusters into set-for-failure management positions that they’re generally untrained for and loathe.

Smart companies plan for scalability depending on CAT size and type, including recent storms and general storm severity. They use geographic information systems to predict claim volume and severity.

In this age of smartphones, phablets, tablets and social media, insurers still rely on traditional communication methods. Smart companies enlist tools to seek out data from social media sites for claims reporting and ongoing claims communication.

1. CAT plans that don't prepare adjusters for a storm fail.

Failed CAT plans rely on TPAs or independent adjuster partners to “go handle the storm” with little direction and/or control over quality or expense.

Smart companies train year-round for storms and build pre-event relationships with vendors such as engineering firms, tree-cutters and hotels.

William C. Bracken, PE, president of Bracken Engineering, says his most popular training topic for insurers involves state building codes. “Trained adjusters who understand building code basics are better prepared to identify and properly deal with legitimate code upgrades.”

1. CAT plans that aren't adaptable fail.

Failed CAT plans don't consider contingencies like the second storm of the season or lack of infrastructure for connectivity to Internet-based claims systems. Failed plans don't address state-level statutes for timely contact/follow-up or claims payments within certain time limits.

Smart companies remain adaptable after a storm has made landfall.

Paul Neilson, vice president of claims at Heritage Property and Casualty Insurance, says no CAT response is ever the same. “We have to be cognizant of bottlenecks that can develop while handling high volumes of claims and be flexible enough to promptly respond with the proper resources.”

1. CAT plans that aren't coordinated fail.

Failed CAT plans lack coordination between insurers and their TPAs or IA firm partners, leading to duplication of efforts, bottlenecks and adjuster burnout.

The CEO of Crawford's U.S. Property & Casualty business, David Repinski, states that without clear alignment there is a lack of clarity about the role they will play. “Will we be the first wave or secondary to their adjusters? Will we be one of many providers? When insurers communicate to us our role pre-event, we have a successful partnership.”

Smart companies begin coordination months before storm season, have post-event debriefs to memorialize what worked, what didn't and then implement improvements.

1. CAT plans that don't empower adjusters fail.

Failed CAT plans take weeks for adjusters to “earn” adequate authority to pay claims. If an adjuster isn't empowered to make decisions, then the insureds get frustrated and claims remain open.

Smart companies understand they get more from the behavior they reward. When they reward only cycle time they may get shorter cycle times, but more reopened claims.

1. CAT plans that aren't sustainable fail.

Failed CAT plans are sustainable only for the CAT of the season, but not for subsequent storms since the needed adjusters are working the prior storm. Failed CAT plans depend on constant sources of power, connectivity and close-to-storm housing.

Smart companies test systems and call-centers to pre-determine maximum claims levels for all CAT-related departments to reaffirm CAT readiness. Smart companies have fallback plans ready when plan “A” doesn't work.

The best CAT plans are always flexible, prepare the staff, are coordinated efforts, empower adjusters to make decisions and are sustainable.