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THE COOPERATION OF INSURERS, LOSS ADJUSTERS AND REINSURERS BEFORE A LARGE LOSS OCCURRENCE 12 th September - Istanbul Georg Feierabend, Property Claims.

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Presentation on theme: "THE COOPERATION OF INSURERS, LOSS ADJUSTERS AND REINSURERS BEFORE A LARGE LOSS OCCURRENCE 12 th September - Istanbul Georg Feierabend, Property Claims."— Presentation transcript:

1 THE COOPERATION OF INSURERS, LOSS ADJUSTERS AND REINSURERS BEFORE A LARGE LOSS OCCURRENCE 12 th September - Istanbul Georg Feierabend, Property Claims Manager, Europe/Latin America

2 First steps before the Occurrence 1. Review Corporate Catastrophe Plan Establish employee internal teams and duties Identify and prepare alternate place to conduct business Data base back ups Review employee personal contingency plans 2. Secure Portfolio Information List of probable loss by CRESTA Zone Aggregates by risk 3. Local and International Adjuster Teams Selection Establish 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 2

3 Critical Issues Shortage of experienced licensed Adjusters Shortage of resources to handle BI claims Insufficiency of Insureds information Inadequate Insured's business recovery plans Lack of employees recovery plans The insurer The cooperation of insurers, loss adjusters and reinsurers before a large loss occurrence 3

4 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 application Check 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

5 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 5

6 After the occurrence The cooperation of insurers, loss adjusters and reinsurers before a large loss occurrence The reinsurer The 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. 6

7 Preparation phase – coordination of activities between parties involved No.Insurer ReinsurerAdjuster Volum. anal. expert Accounting expert Restoration company Insured 1 Identify Cat scenarios and areas of risks that may be affected X XX X 2 Elaborate own business continuity plan X X 3 Review general policy terms X 4 Issue policies and properly inform insureds on scope of cover and limits X 5 Inspect the risks and draw up loss prevention recommendations X X 6 Agree collaboration with adjusters, experts and restoration companies XXXXXX 7 Obtain individual contingency plans for adjusters, experts and restoration companies X XXXX 8 Obtain individual contingency plans from adjusters, experts and restoration companies X X X 9 Inform loss adjusters and accounting experts on scope of covers and limits XXX 10 Agree on method of reporting X XX X 11 Prepare check lists XX 12 Establish funds for dealing with losses immediately XX 13 Annual 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 7

8 Actions following the NatCat occurrence coordination of activities between parties involved No.Insurer ReinsurerAdjuster Volum. anal. expert Accounting 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 XXXX 2 Quantification of staff needs XXXXX 3 Assign specific works and tasks XXXXX 4 Instruct/engage adjusters, experts and restoration companies X XXXX 5 Inform again loss adjusters and accounting experts on scope of covers and limits XXX 6 Coordinate travel to the disaster area XXX 7 Coordinate lodging and service offices XXXX 8 Purchase / hire of generating equipment and fuel, including operating and servicing personnel XXX 9 Coordinate mobilisation of restoration equipment and materials X 10 Mobilisation to the disaster area XXXX 11 Obtain accommodation / food / drink in the disaster area XXX 12 Mobilisation of equipment and material XX 13 Set up provisional / temporary offices, workshops for restoration work XXX 14 Hire sheds to carry out the restoration work and keep the salvaged goods XXX 15 Inspect the risks affected / agree on measures to minimise damage X XXXX 16 Start restoration work asap XXX 17 Estimate of total damage XXXX X = involved party; = Optional The cooperation of insurers, loss adjusters and reinsurers before a large loss occurrence 8

9 Loss Adjusting – coordination of activities between parties involved No.Insurer ReinsurerAdjuster Volum. anal. expert Accounting expert Restoration company Insured 1 Carry out survey, evaluation and documentation of individual losses together with the Insureds representatives X XXXX 2 Clearly separate direct damage from improvements or normal maintenance works XXXX 3 Draw up correct basis for unit prices and labour XXX 4 Estimate real cost of indemnifiable repairs and fix property damage reserves XXX 5 Coordinate repair and replacement work XX 6 Obtain financial data on the operation affected XXX 7 Estimate repair times and establish LOP reserves XXX 8 Recommend advanced payments where appropriate X 9 Advanced payments where appropriate XX 10 Verify appropriate execution of repair / replacement work affected XXXX 11 Obtain and verify invoices for repair / replacement XX 12 Quantification and sale of salvage XX 13 Final report on property damage X 14 Obtain accounting data on all of the property affected XXX 15 Verify that operations are resumed after completion of repairs 16 Final indemnity payment X 17 Final indemnity payment XX 18 Draw up recommendations to avoid similar / identical losses in the future or at least minimize them as far as possible XXX X = involved party; = Optional The cooperation of insurers, loss adjusters and reinsurers before a large loss occurrence 9

10 NatCat Claims Management Individual major 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 10 The cooperation of insurers, loss adjusters and reinsurers before a large loss occurrence

11 Experienced Example 27F Chile 27 Feb Earthquake of magnitude 8.8 Richter + tsunami Casualties: ~ 500 Insured loss: US$ 8bn Munich Re reserve: US$ 1.1bn 27F Chile 27 Feb Earthquake of magnitude 8.8 Richter + tsunami Casualties: ~ 500 Insured loss: US$ 8bn Munich Re reserve: US$ 1.1bn The cooperation of insurers, loss adjusters and reinsurers before a large loss occurrence 11

12 Munich Re … installed a task force in Santiago 5 days after the event contacted the cedents immediately and offered quick support in form of advanced payments agreed with cedents efficient processes, for e.g. adjusting massive numbers of small claims showed continuous local presence for the whole year 2010 with claims managers actively participating in loss surveys consulted the cedents in selecting loss adjusters or forensic accountants for large, complex claims conducted claims reviews at the claims dept. of ceding companies collaborated with the local association of insurers for drafting lessons learnt 12 The cooperation of insurers, loss adjusters and reinsurers before a large loss occurrence

13 The Chilean Insurance Market in the immediate aftermath of the event Weakness of the infrastructure in the affected area aggravated the situation Utilities (electricity, water, telephones/communication network incl. cell phones) interrupted for several days Damaged roads, fallen bridges, i.e. difficult access Hotel capacities largely reduce d Curfew limited the mobility during the initial weeks Employees 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. 13 The cooperation of insurers, loss adjusters and reinsurers before a large loss occurrence

14 Problems related to the loss adjusting process Chilean law allows adjustment only to locally authorised loss adjusting companies Chilean 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 bank One building/several owners/different insurance policies Difficulties to decide on demolition vs. repair Large 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 14 The cooperation of insurers, loss adjusters and reinsurers before a large loss occurrence

15 Role of the Loss Adjusters Number of loss notifications superseded by far the initially available capacity of local loss adjusters For 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 efficiently Due 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 15 The cooperation of insurers, loss adjusters and reinsurers before a large loss occurrence

16 Total31 Aug Feb Paid indemnification:USD bnUSD bn Commercial / Industrial31 Aug Feb Number of claims notifications:31,86631,811 Liquidated claims:16,97028,294 Closed claims (paid or to be paid) :8,79315,666 Not indemnifiable (e.g. below deductibles): 7,29812,152 Paid indemnification:USD bn Homeowners31 Aug Feb Number of claims notifications:190,199189,491 Liquidated claims:156,242188,478 Closed claims (paid or to be paid) :105,694125,904 Not indemnifiable (e.g. below deductibles): 46,33662,574 Paid indemnification:USD bn Statistics 16 The cooperation of insurers, loss adjusters and reinsurers before a large loss occurrence

17 Mass Claims - Impact of Deductibles Regulations in Chile Deductibles 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) Consequences Homeowners 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. 17 The co-operation of insurers, loss adjusters and reinsurers before a large loss occurrence

18 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 18

19 Indemnity 100% [USD] vs Deductible [UF] 19 UF 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

20 Georg Feierabend THANK YOU FOR YOUR ATTENTION LETS WORK TOGETHER!


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