What the West Coast can learn from the Gulf Coast

One year after Hurricane Katrina, the insurance industry says that nearly 95 percent of homeowners insurance claims have been settled. Insurance companies have paid billions in storm damage claims, and the vast majority of homeowners in both states say they are satisfied with their insurance company.

Yet there is still reason for reflection. Katrina was the third-strongest hurricane to hit the United States in recorded history, responsible for an estimated $81.2 billion in damages. What does an agency need to know to prepare for a future disaster?

Pre-preparation

Clients will call on an insurance agency for help with many issues following a major disaster. But preparation begins before a hurricane even shows up on the National Weather Service’s radar screen.

First, agencies should do what they recommend to their clients: Protect financial information and store copies off-site. Keep a contact list of clients, employees, vendors and insurance company claim numbers off-site. Be prepared for cash flow issues. Have a line of credit arranged with the bank prior to the disaster so if the office is destroyed, the business maintains its ability to purchase new supplies. Credit cards may not work or may max out quickly — hence the need for a line of credit.

Some common claims problems that are encountered during a disaster are with the amount of insurance written. The values may be too low. Forms may have been written improperly. Contingent locations may be uncovered. Advance requests can go unanswered by the insurance companies as they try to cope with the disaster. Adjusters also are churned every few weeks or months, so there is no continuity in the claims adjustment process.

Client information

Nevertheless, clients will want their business to continue operating. Clients will need information on the insurance picture. Keep in mind that they may have lost their offices and all records within, including their insurance policy. As such, agents should be prepared to provide customers with:

•Who the client is insured with;

•Who the client should report the claim to;

•What coverages are in place; and

•What the client’s immediate responsibilities are.

The insurer will not be able to answer those questions. Usually, the adjuster shows up at the loss with very little insurance information.

Clients will call their agents for help on many issues. The most common are for lack of advance payments and to complain about the churning of adjusters. Clients also may ask for help in resolving disputes with the insurer. That may be the time for agents to recommend the client get outside help from an accountant or public adjuster.

The broker should request a certified copy of the policy. Many times, the insured does not have a copy, it may be a sample, or it may be an out of date policy. The only way to tell what documents the insurance company is reacting to is to ask for the certified copy. The policy should be requested immediately; it may take four to six weeks to obtain.

To handle phone calls when the office is destroyed, keep pertinent information off premises. Agencies should immediately re-establish phone and Internet service at their existing location or at a new location so existing and new clients can contact them. Agents should be prepared to provide the information mentioned above. Agents also may field general insurance questions. People will be acutely aware of the disaster and are looking to insure for that risk. Be prepared to take calls on renewals that come up during a down period.

Employee issues

Many agencies and businesses in the Katrina area found that although they had the ability to operate, they no longer had employees. Employees suffered their own claims or had transportation issues that prevented them from getting to work. Employees might ask for financial help. Agencies should determine what they will do to hire and train replacements.

Businesses, including insurance agencies, should be prepared to relocate in the event of a complete shut-down. Companies will need to fund the costs to rent a new facility, purchase furniture, equipment, computers, etc. Agencies also should budget for advertising to let clients know where they have moved. Agencies should have an arrangement with their bank to pay for the above as a backup.

Assessing the damage

Normally it takes between five and seven months to adjust a claim. In a disaster, that could extend to one to two years. Agencies should be careful to not fall into the trap of settling quickly — only the insurance company wins in that situation.

Following a disaster, experts may be needed to assess the damage. Generally, architects, contractors and engineers prepare building damage estimates. An equipment appraiser and/or machinery evaluator assesses machinery and equipment. Accountants and the insured should evaluate the stock and raw materials in conjunction with an inventory specialist.

Inventory damaged and undamaged goods. Those values will be needed to calculate for co-insurance and the final insurance settlement.

These services are provided by a good and reputable public adjuster, who will direct and coordinate the services or have them in-house.

It is possible for the broker to be an advocate for the insured. But advocating for a client could mean fighting against the insurance companies and disagreeing with positions they may take. Agents should determine whether they are prepared to get into those arguments when doing so could alienate the insurance companies they rely upon to provide coverage.

Repairs

As much as companies want to resume operations, repairs should not be undertaken immediately. Businesses should give the insurance company time to review and document losses. Immediately starting the cleanup removes evidence caused by the disaster. That could put the insured at a disadvantage. Doing so would not allow the insurance company time to adequately assess the claim, which may be reflected in its offer at a later time.

Instead, make sure the insured photographs the loss and preserves the damage as best as possible until the insurer inspects the claim. However, there is a responsibility to prevent further damage by boarding up and covering roofs, or drying out a building in a water claim.

Future sales opportunities

When the general public sees disasters, its awareness of insurance for that peril increases. Many times, there is a bump in sales right after a hurricane, earthquake or windstorm loss by people across the country. If an agency is not there to take calls, it will miss that opportunity. Agencies should re-contact their clientele mid-term and sell more insurance. Agencies should ask themselves, “Is the coverage I provided six-months ago still adequate today?” Many agencies will go out of business due to a disaster. Those few that are up and running and able to communicate can pick up the business.

Robb Greenspan is principal of California-based The Greenspan Co./Adjusters International. Phone: 818-648-7622. E-mail: robb@greenspan.com.

Topics Carriers Agencies Hurricane