The Cooperation of insurers, loss adjusters and reinsurers before a large loss occurrence - PowerPoint Presentation

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The Cooperation of insurers, loss adjusters and reinsurers before a large loss occurrence

12th September - IstanbulGeorg Feierabend, Property Claims Manager, Europe/Latin America

First steps before the Occurrence

1. Review Corporate Catastrophe Plan Establish employee internal teams and duties Identify and prepare alternate place to conduct businessData base back upsReview employee personal contingency plans2. Secure Portfolio Information List of probable loss by CRESTA Zone

Aggregates by risk 3. Local and International Adjuster Teams SelectionEstablish Rates Secure Agreements and Service Providers Contracts

Prepare uniformed forms and instructions as to the construction costs and unitary prices

Secure list of Approved Experts

Inspect high exposure risks

The insurer

The cooperation of insurers, loss adjusters and reinsurers before a large loss occurrence

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Critical Issues

Shortage of experienced licensed Adjusters Shortage of resources to handle BI claims Insufficiency of Insured’s informationInadequate Insured's business recovery plansLack of employees recovery plans

The

insurer

The cooperation of insurers, loss adjusters and reinsurers before a large loss occurrence

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Preparation before an occurrence (1/2)

The reinsurer shall:Work out together with the cedent NatCat contingency plans that can be adapted for the individual local applicationCheck the capabilities of loss adjuster companies, recommend loss adjusters and restoration companies with proven expertise and good reputation (regional as well as international background and network).Carry out inspections together with the cedent to learn about quality standards of the local risks and work out improvement strategies, if necessary

The cooperation of insurers, loss adjusters and reinsurers before a large loss occurrence

The

reinsurer

4

Preparation before an occurrence (2/2)

Cooperation with the loss adjuster and the insurer to optimize the reporting.Munich Re is interested in detailed reports about large single losses.For smaller losses, it is necessary to provide bordereaux showing all affected risks and every single loss amount. For complex losses and losses on facultative risks, the involvement of the reinsurer is generally necessary and shall be initiated by the client.

The cooperation of insurers, loss adjusters and reinsurers before a large loss occurrence

The

reinsurer

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After the occurrence

The cooperation of insurers, loss adjusters and reinsurers before a large loss occurrenceThe reinsurerThe reinsurer establishes

reserves and submits advance payments according to loss estimates of the insurers, confirmed by statistical models of natural perils experts of the reinsurer.

Models of insurers and reinsurers/brokers should be aligned in close cooperation before loss occurrences to avoid large discrepancies in case of an event.

MunichRe

offers local support with claims manager(s) and/or accounting personnel to improve and accelerate the cooperation between insurer, reinsurer, loss adjuster and insured.

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Preparation phase– coordination of activities between parties involved

No.

Insurer

Insurer

Reinsurer

Adjuster

Volum

. anal.expertAccounting expert

Restoration company

Insured

1

Identify

Cat scenarios and areas of risks that may be affected

X

X

X

X

2

Elaborate own business continuity plan

X

X

3

Review general

policy terms

X

●     4Issue policies and properly inform insureds on scope of cover and limitsX      5Inspect the risks and draw up loss prevention recommendationsX●    X6Agree collaboration with adjusters, experts and restoration companiesXXXXXX 7Obtain individual contingency plans for adjusters, experts and restoration companiesX XXXX 8Obtain individual contingency plans from adjusters, experts and restoration companiesX X X  9Inform loss adjusters and accounting experts on scope of covers and limitsXXX    10Agree on method of reportingX XX X 11Prepare check listsXX     12Establish funds for dealing with losses immediatelyXX     13Annual meeting: to update contingency plans with all parties involved (for hurricane scenarios, before the start of the hurricane season)X X  X 

X = involved party; ● = Optional

The cooperation of insurers, loss adjusters and reinsurers before a large loss occurrence

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Actions following the NatCat occurrence coordination of activities between parties involved

No.

Insurer

Insurer

Reinsurer

Adjuster

Volum

. anal.expertAccounting expert

Restoration company

Insured

1

Organize an

emergency meeting to coordinate concrete activities when a hurricane is imminent or in the immediate aftermath of a cat event

X

●

X

X

X

X

2

Quantification of staff needs

X

X

X

X

X

3

Assign specific

works and tasks

X

X

X

X

X4Instruct/engage adjusters, experts and restoration companiesX●XXXX5Inform again loss adjusters and accounting experts on scope of covers and limitsXXX6Coordinate travel to the disaster areaXXX7Coordinate lodging and service officesXXXX8Purchase / hire of generating equipment and fuel, including operating and servicing personnelXXX9Coordinate mobilisation of restoration equipment and materialsX10Mobilisation to the disaster areaXXXX11Obtain accommodation / food / drink in the disaster areaXXX12Mobilisation of equipment and materialXX13Set up provisional / temporary offices, workshops for restoration workXXX14

Hire sheds to carry out the restoration work and keep the salvaged goodsX

X

X

15

Inspect

the risks affected / agree on measures to minimise damageX●XXXX16Start restoration work asapXXX17Estimate of total damageXXXX

X = involved party; ● = Optional

The cooperation of insurers, loss adjusters and reinsurers before a large loss occurrence

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Loss Adjusting– coordination of activities between parties involved

No.

Insurer

Insurer

Reinsurer

Adjuster

Volum

. anal.expertAccounting expert

Restoration company

Insured

1

Carry out survey, evaluation and documentatio

n of individual losses together with the Insured’s representatives

X

●

X

X

X

X

2

Clearly separate direct damage from improvements or normal maintenance works

X

X

X

X

3

Draw up correct basis for unit prices and labour

X

X

X

4

Estimate real cost of

indemnifiabl

e repairs and fix property damage reservesXXX5Coordinate repair and replacement workXX6Obtain financial data on the operation affectedXXX7Estimate repair times and establish LOP reservesXXX8Recommend advanced payments where appropriateX9Advanced payments where appropriateXX10Verify appropriate execution of repair / replacement work affectedXXXX11Obtain and verify invoices for repair / replacementXX12Quantification and sale of salvageXX13Final report on property damageX14Obtain accounting data on all of the property affectedXX

X

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Verify that operations

are resumed after completion of repairs

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Final indemnity paymentX17Final indemnity paymentXX18Draw up recommendations to avoid similar / identical losses in the future or at least minimize them as far as possibleXXX

X = involved party; ● = OptionalThe cooperation of insurers, loss adjusters and reinsurers before a large loss occurrence

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NatCat Claims Management

Individualmajor claims

Mass Claims: Very large number

of small / medium size

claims

Two different groups of claims that have to be tackled using

different strategies

Residential risks

Commercial / industrial risks

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The cooperation of insurers, loss adjusters and reinsurers before a large loss occurrence

Experienced Example

27FChile27 Feb. 2010Earthquake of magnitude 8.8 Richter

+

tsunami

Casualties: ~ 500

Insured loss: US$ 8bnMunich Re reserve:

US$ 1.1bn

The cooperation of insurers, loss adjusters and reinsurers before a large loss occurrence

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Munich Re …

installed a task force in Santiago 5 days after the eventcontacted the cedents immediately and offered quick support in form of advanced paymentsagreed with cedents efficient processes, for e.g. adjusting massive numbers of small claimsshowed continuous local presence for the whole year 2010 with claims managers actively participating in loss surveysconsulted the cedents in selecting loss adjusters or forensic accountants for large, complex claimsconducted claims reviews at the claims dept. of ceding companiescollaborated with the local association of insurers for drafting lessons learnt

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The cooperation of insurers, loss adjusters and reinsurers before a large loss occurrence

The Chilean Insurance Market in the immediate aftermath of the event

Weakness of the infrastructure in the affected area aggravated the situationUtilities (electricity, water, telephones/communication network incl. cell phones) interrupted for several daysDamaged roads, fallen bridges, i.e. difficult accessHotel capacities largely reducedCurfew limited the mobility during the initial weeksEmployees of industrial companies did not go to work for several days in order to stay with their families.

Lack of manpower and of construction material retarded the beginning of loss minimisation measures and of repair works.

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The cooperation of insurers, loss adjusters and reinsurers before a large loss occurrence

Problems related to the loss adjusting process

Chilean law allows adjustment only to locally authorised loss adjusting companiesChilean law requires full settlement of claims affecting private lines within a timeframe of 3 months from the date of the loss notification. Enforcement by the Superintendencia de Valores y Seguros, Chile (SVS) Mass losses at private buildings/apartments (mortgage insurance)Multiple loss notifications from the insured, the broker or the bankOne building/several owners/different insurance policies

Difficulties to decide on demolition vs. repairLarge industrial risks: Lack of clarity of certain insurance policies, i.e. on sums insured for business interruption

Uncertainties regarding preliminary loss estimates, in particular with business interruption claims

“Public Adjusters” who work for the insured and raise expectation of higher indemnifications

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The cooperation of insurers, loss adjusters and reinsurers before a large loss occurrence

Role of the Loss Adjusters

Number of loss notifications superseded by far the initially available capacity of local loss adjustersFor the adjustment of large, complex losses some of the local loss adjusters had to require the help of their own or affiliated international organisations as well as forensic accountants expert in business interruption losses After 4 – 6 weeks the loss adjusters managed to drastically increase their capacity in terms of manpower, office space, office equipment and could start to work efficientlyDue to the very large number of claims the loss adjusters could not comply entirely with the SVS requirements. They had to demand for and obtained a general postponement of the compulsory time limit of 3 months for claims settlement. By the end of 2010 the vast majority of the householders claims could be settled

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The cooperation of insurers, loss adjusters and reinsurers before a large loss occurrence

Total

31 Aug. 201028 Feb. 2011

Paid indemnification:USD 2.190

bn

USD 4.656

bn

Commercial / Industrial31 Aug. 2010

28 Feb. 2011Number of claims notifications:31,86631,811

Liquidated claims:

16,970

28,294

Closed claims

(paid or to be paid)

:

8,793

15,666

Not indemnifiable

(e.g. below deductibles):

7,298

12,152

Paid indemnification:

USD 3.365

bn

Homeowners

31

Aug. 2010

28 Feb. 2011

Number of claims notifications:

190,199

189,491

Liquidated claims:

156,242

188,478

Closed claims (paid or to be paid):105,694125,904Not indemnifiable (e.g. below deductibles):46,33662,574Paid indemnification:USD 1.291 bnStatistics16The cooperation of insurers, loss adjusters and reinsurers before a large loss occurrence

Mass Claims - Impact of Deductibles

Regulations in ChileDeductibles are regulated for residential and commercial risks as follows:Residential risks: 1% of sum insured, min. UF 25 (approx. USD 1.000) Commercial risks: 2% of sum insured, min. UF 50 (approx. USD 2.000) ConsequencesHomeowners started complaining against the height of the deductibles and this turned out to be a political issue. The Superintendency

(SVS) asked the insurance industry to withdraw the deductibles.The insurance industry did not accept and explained why deductibles are absolutely needed in case of NatCat.

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The co-operation of insurers, loss adjusters and reinsurers before a large loss occurrence

Number of Claims vs. Deductible [UF]

Mass Claims – Residential Risks Portfolio (example)Number of Claims

Deductible [UF]

Number of claims

UF 1 = approx. USD 40

The cooperation of insurers, loss adjusters and reinsurers before a large loss occurrence

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Indemnity 100% [USD] vs Deductible [UF]

19UF 1 = approx. USD 40

Claims below

deductible (ca. USD 28 m)

Mass Claims – Residential Risks Portfolio (example)

Amount of Indemnity

The cooperation of insurers, loss adjusters and reinsurers before a large loss occurrence

Georg Feierabend

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