As insurers in September mobilized their claims efforts following three powerful hurricanes, many insurers came to the realization that risk assessment for hurricanes is under closer scrutiny. Some insurers that conduct business in Florida might be best served reassessing their strategies to reduce their exposure to risk.An actuarial executive for one Florida-based insurance company asserted that the industry needs to have a better grasp of the cyclical nature of hurricanes. The industry must also better understand hurricane frequency over a short period of time, such as the three hurricanes--Charley, Frances and Ivan--that walloped the U.S. mainland in just over one month's time.

Newark, Calif.-based Risk Management Solutions (RMS), a provider of products and services for the management of catastrophe risk, estimates that insured losses from Hurricane Frances ranged between $3 billion and $6 billion. At that level, insured losses from Frances would be less than the losses associated with Hurricane Charley, which are currently estimated at $6 billion to $8 billion.

In 1992, insured losses from Hurricane Andrew amounted to $15.5 billion.

The significance of these losses should serve as a wakeup call to insurers to re-evaluate their risk modeling strategies-if those strategies fail to take two vital factors into account.

"Hurricanes are a cyclical phenomenon," says Rade Muselin, vice president of operations for Gainesville, Fla.-based Florida Farm Bureau Insurance Co. "In the 1930s and 1940s, there were hurricanes that matched the severity and frequency of these storms. Then for almost 20 years starting in the 1970s, we experienced a very moderate hurricane period.

"The second factor is the frequency of hurricanes compared to severity. There is too much focus on what should be done when one big hurricane hits the state. There is not enough catastrophe modeling that takes into account multiple storms hitting the state over a very short period of time."

Being prepared

Indeed, insurers have a lot of incentive to put the necessary controls in place to lessen their exposure to catastrophes.

In their effort to settle claims in the aftermath of Hurricane Charley in mid-August, insurance companies were faced with a second round of insured losses when Frances struck in early September.

Many insurers that do business in Florida were not willing to discuss the specifics of their claims settlement efforts until they had a better handle on the situation.

Bloomington, Ill.-based State Farm Mutual Automobile Co., the nation's largest insurer of homes and automobiles, is mobilizing hundreds of its Catastrophe Team members to join 2,900 Florida employees, not including agents and agent's staff, who are ready to assist policyholders.

The company declined to provide other specifics. "We are ramping up for another hit (at press time, Hurricane Ivan) so we don't believe it's the appropriate time to discuss our catastrophe plan until things settle down," says Phil Suppel, a spokesman for State Farm.

Southfield, Mich.-based GMAC Insurance dispatched its Mobile Storm Unit, a network of claims adjusters with specialized RV and storm experience, and a cadre of repair trucks armed with everything necessary to make on-the-spot decisions or repairs to get people's lives moving again. In addition, prior to each storm, GMAC Insurance initiated proactive outbound calls to customers in anticipated disaster areas advising them of precautions they should take, letting them know that help was on the way, and providing important claims reporting information.

By mid-September, Florida Farm Bureau had dispatched about 150 adjusters to help settle claims from the first two storms. Muselin, who is also an actuary, estimates that FFB has about 15,000 claims with which to deal.

Because a good portion of adjusters were dispatched from other parts of the U.S., Florida Farm Bureau relied on technology to streamline the claims processing effort and more quickly assist hurricane victims who lost their possessions. For several years, FFB has used software developed by Troy, N.Y.-based MapInfo Inc.

"With such a staggering number of affected homes, standard insurance reporting practices would not be able to handle the overload of claims," Muselin says. "By using MapInfo to strategically deploy adjusters and hire additional adjusters, we can ensure that we have the adequate personnel to handle each policyholder claim in a specific area."

By using MapInfo technology to present a visual representation of current claims, FFB can quickly locate areas with the highest concentration of claims and deploy the necessary resources, such as adjusters and temporary claims offices.

"When a catastrophic event like a hurricane comes along, the application of GIS (geographic information systems) to solving the questions of who, where and how many is critical," Muselin says. "We analyze the storm track and damaging wind fields versus our insured locations that are geocoded to predict the number of claims, and then plot out the actual locations of losses when they are reported. This helps claims managers assign manpower, as well as help individual adjusters plan their daily agenda to cover losses in proximity to each other."

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