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restoration suppliers on notice. Once the catastropheoccurs we move to red alert and activate the plan,getting our people on site as quickly as possible.”

This kind of planning is typical of major insurers andloss adjusters; claims management staff – often drawnfrom different parts of the country and even abroad –are the first on site and will seek to meet with claimantsand restoration providers as quickly as possible to agreeon an immediate plan of action. As Peter Southworth,director of claims at property insurer FM Global puts it:“Our main focus is to get the insured's businessoperations back up and running before we worry about

the detail of an insurance payment.”Such words are repeated throughout the industry,

and may be more than empty rhetoric. According toR&SA's Barr, “Most commercial covers carry either anautomatic reinstatement or an option to reinstate –increasingly the former. If paying a total loss we wouldrenew the policy as a matter of course.” The automaticrenewal of a policy assumes that there is still abusiness there to pay the premiums. The logical, andencouraging, conclusion to draw from this is that theinsurance industry is more interested in maintaining itsexisting customer base than cutting its losses andheading for pastures new following catastrophicincidents.

Before anything can be done, however, the adjusterhas to establish contact with insured parties. In somecases this can be difficult – especially in the aftermath ofnatural disasters affecting remote areas of the world.“We deal a lot with islands,” explains Price ofCunningham Lindsey. “People often overlook thedifficulty of getting stuff onto a small island. We can havetrouble just getting our team of adjusters in becausethere will often only be one airport, which could well havebeen damaged and be closed to commercial traffic.”

Once on site, however, the real trouble starts. Accessto premises may well have to be negotiated with localauthorities or police, even in the UK. In less developedparts of the world, meanwhile, just finding the insured'spremises can prove a challenge. “Road signs mighteither never have existed or have been washed away byflood waters,” Price continues.

The first step, once the insured's premises can beinspected, is to agree a strategy for restoration of assetsand resumption of business operations. In most cases

CLAIMS SUPPLEMENT > CATASTROPHE ADJUSTING

Photo supplied by Richard Wainwright

Photo supplied by Adrian Fisk for Concern

“Our main focus is to get the insured’sbusiness operations back up andrunning before we worry about thedetail of an insurance payment”

CLAIMS SUPPLEMENT > CATASTROPHE ADJUSTING

ow a catastrophe is defined depends onwho you speak to. For Ben Price, director atclaims management firm CunninghamLindsey International it is a “single event

causing many hundreds or thousands of claims. It isnormally the result of a natural disaster but we wouldalso extend the definition to cover, for instance, the 1998Jakarta riots.”

Others define it in financial terms – for Royal &SunAlliance (R&SA), a ‘major incident’ involves group-wide exposure of more than £500 million, according toits specialist and large claims director, Geoff Barr. Hedoes concede, though, that they would put their “majorincident plan into action if a single, high-profile, eventoccurred that involved a number of insured premises”.

For practical purposes, however, it is simplest to gowith the definition put forward by Graham Smart, UKservice delivery director at claims managers GABRobins: “Either a single event or series of linked eventsthat affect either a tight or broad geographical areagiving rise to a significant increase in claims.” This,then, covers everything from this winter's flooding inCarlisle to the destruction in the wake of a hurricane.Interestingly, however, the Asian tsunami does notcount because the uptake of insurance was insignificantin most of the affected areas.

Insurers, and the claims management/lossadjustment contractors they employ, plan ahead fordisaster situations and many have in place proceduresfor a quick response in the immediate aftermath.Graham Smart explains the measures in place at GABRobins and the measures which were employed by thefirm following the Carlisle floods:

“We have three states of alert: red, amber and green.Green is business as usual. Amber alert occurs whenwe receive, for instance, a weather warning. We thenform a response team, including a catastrophemanager, who we put on stand-by. If the location isremote we may also make provision for hotelaccommodation. We will also put our remediation and

www.cirmagazine.com32 CIR March 2005

The aftermath of anycatastrophe, natural or man-made, is always traumatic.Stuart Anderson investigateshow the insurance industry has responded to the recent high-profile catastrophes

Time torebuild

H

CIR March 2005 35

Only the most ruthlesscapitalist would questionthe principles thatunderlie health and safety

measures, but they are making lifemore complicated for insurers andorganisations seeking employer’sliability insurance in ways that do notalways seem justified.

In part this may be the result of acompensation culture developing inthe UK, following a trend set in theUS, although not everyone isconvinced. Hugh Price, partner, anddirector of insurance at Hugh JamesSolicitors, points to research fromDatamonitor that shows the overallnumber of third party and liabilityclaims is falling, and suggests thecompensation culture is largely amedia myth.

What is beyond debate is that thecost of claims is increasing (in partbecause of the backgroundinvestigative work now required byinsurers or regulators), that much ofthis extra cost is swallowed by legalfees, and that this is a volatile, as wellas an expensive, market. Datamonitorsuggests that although the numbers ofpersonal accident claims – and of no-win-no-fee firms – fell in 2003,personal injury claims increased,particularly those connected to

disease. Overall, thetotal cost of claimswas rising, in particular of employer’sliability claims, whilepayouts had increased byan average of 10 per cent.

Civil proceedings are alsolikely to be affected indirectly byanticipated changes in criminalliability law. A series of high-profilecases of corporate negligence orincompetence that caused loss of lifehave driven a campaign for acorporate killing law that can beapplied more easily to seniormanagement, and, if the governmentwins the next election, a new offenceof corporate manslaughter is nowlikely to be put before Parliament atsome point next year. This will helpkeep the cost of claims high, for bothinsurers and the insured.

“We now often need to arrangelegal representation for policyholders

right away,” says Mike Noonan,manager of the complex loss team atQBE. “Sometimes that might bemultiple legal representation, becausethere might be several namedindividuals all facing the possibility ofprosecution. With a corporate killinglaw that process is going to acceleratebecause it will be easier to convictcompanies and individuals. There willbe a cost with that, in legal fees, but

also in management time anddisruption to the business.”

“Changes in the law will makeprosecutions easier to bring,” agreesGerard Forlin, a barrister working inthis area. “Insurers know that criminalliability is very expensive to defend –with some of these big cases thedamages could run into millions – andonce there is a conviction it will beharder to defend a civil case.”

At the same time, the Health &

Safety Executive (HSE) is taking amore proactive role in encouragingbusinesses to comply with safetylegislation.

“Employees are more aware of healthand safety issues, through initiatives runby the HSE and the unions,” says JohnHorsfall, managing director at OHS, anintegrated health and safetyconsultancy. “We’re seeing staff callingin the Environmental Health Agency or

CLAIMS MANAGEMENT > HEALTH & SAFETY

Taking control of the organisation’s healthand well-being is worth it in the long run. David Adams investigates the currentclimate of rising claims costs andrestrictive regulation

“Insurers know that criminal liability is very expensiveto defend – with some of these big cases the damagescould run into millions – and once there is a convictionit will be harder to defend a civil case”

A bitter pill?

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the restoration provider should be chosen from theinsurer's panel of preferred providers if they have one. Inthis regard, however, insurance companies differ widely.

R&SA, for instance, engages restoration contractorsitself and pays them directly. FM Global, meanwhile,does not. It does, however, encourage clients to planahead for disasters – and part of that process wouldpresumably involve the identification of local restorationcontractors.

Finding a supplier can, of course, be difficult in acatastrophe situation although insurers now haveaccess to software tools, such as those provided byMapInfo, that enable them to identify contractors withingeographical proximity to an event.

Even where the insurance company does not directlyengage contractors it, and its agents, tend to be heavilyinvolved in overseeing any works. They may well alsoend up paying the supplier directly. As Neal Courtenay,commercial director at remediation giant Belfor,explains: “In the majority of instances, to assist theinsured, the insurer will pay us directly, via its lossadjuster having had a satisfaction note signed by theclaimant and sign-off from the loss adjuster for theworks completed.”

In such instances the claimant may still have to pay aportion of the bill, although they can claim this backfrom the Inland Revenue. Shaun Doherty, managingdirector at another restoration behemoth, ISS DamageControl, says, “Insurers are not VAT registered so theyoften pay the net amount leaving the client only liablefor the VAT. This is a huge help at a time when cash flowis often tight and unbudgeted costs have to be paid toget the business back up and running.”

Once the dust has settled and the restoration work isunderway, the rude subject of the actual claim willinevitably arise – and the adjuster will want as muchinformation as possible from the insured party. Claims

for business interruption are, Barr explains, usuallyfairly simple because the company’s accountants shouldhold details of turnover and profits. Establishing a claimfor the loss of stock and other assets that might havebeen destroyed or washed away is less straightforward.In such instances, the loss adjuster would wish, forexample, to carry out a stock reconciliation. Performingthis accurately is, of course, contingent on records keptby the insured being available – not swimming around inthe sea.

Business continuity professionals have for many yearspointed out that the common practice of siting serversand telecom switchboards in basements is just askingfor trouble when water levels rise or fire hoses areengaged. The same is true of documents. It is, ofcourse, important to protect physical assets – but, ifbusinesses want to achieve a fair settlement from theirinsurers when disaster strikes, the safe – possiblyoffsite – storage of the evidence needed to authenticatea claim can be equally vital.

CLAIMS SUPPLEMENT > CATASTROPHE ADJUSTING

“Establishing a claim for the loss ofstock and other assets that might havebeen destroyed or washed away is notstraightforward”

Photo supplied by Richard Wainwright

Photo supplied by Concern

Photo supplied by Adrian Fisk for Concern