Best Practices for Tornado Response from Midwest Family's Ron Boyd

North Carolina and several other states are still reeling following tornadoes over the weekend. I reached out to Ron Boyd, the CEO of Midwest Family Mutual and a former I&T Elite 8 honoree, and asked what his strategy is in these types of situations.

Insurance & Technology: What should insurers prioritize in their claims response strategy to these types of events?

Ron Boyd: Getting money quickly when displaced from one's home or business is the urgent need. Additional living expense and business income replacement are huge. For rebuilding and salvage costs we can only provide money but the key is to do it promptly. We can also assist in finding qualified reliable contractors but in the end the Insured has to execute the rebuild or repair. While this rebuild/repair is occurring additional living expense and business income payments are crucial to limiting the customers already elevated stress level.

Insurance & Technology: Are carriers equipped to do this?

Ron Boyd: A lot of companies have draft authority in the hands of their adjusters. In this electronic age, the best thing to do is combine that with electronic funds transfer. Those kinds of advances on final settlement are easy to rationalize when you have these kinds of catastrophes. You're gong to be paying them hundreds of thousands on a total loss house, for example; $10,000 isn't a big deal. There is a philosophical difference whether the adjuster wants bills and receipts, or offers advances. We prefer the advances: it keeps the customer on our side through the claims process. They can get a hotel room, take the kids to dinner. It might be in another town, but it helps.

Insurance & Technology: Following the back-to-back major earthquakes in New Zealand and Japan, the harsh winter in the Northeast, and now these unprecedented storms, do you think it’s time for catastrophe models to be revamped in any way?

Ron Boyd: These standard models do a pretty good job of predicting total storm loss. The totals are important to primary companies as we buy catastrophe reinsurance based on the "ground up" limits. However, each of these models, in my opinion, do a questionable job modeling storm loss NET to an insurance company after effect of the individual company's reinsurance program. It is this NET number that companies budget their annual loss ratio points of their business plan devoted to storm losses. The effect of frequency is not measured as accurately as it should be, from my experience. The effect of modeling multiple small storms aggregate catastrophe effect a primary company badly. We refer to this as "death by 1,000 cuts."

Nathan Golia is senior editor of Insurance & Technology. He joined the publication in 2010 as associate editor and covers all aspects of the nexus between insurance and information technology, including mobility, distribution, core systems, customer interaction, and risk ... View Full Bio