Grading Insurers' Sandy Claims Response

The P&C industry is still feverishly processing what Hurricane Sandy will mean for the future, and that will be determined in part by public perception of how the insurance industry fulfilled its role through fair and timely claims processing. As we quoted New York Governor Andrew Cuomo in I&T's report on the realities of Sandy claims, "There simply is no substitute for speed when it comes to insurance payouts after a storm." However, the insurance industry's response was anything but uniformly efficient.

The New York Department of Insurance reported that by Jan. 2 — over 60 days after Sandy struck — little more than half of all claims had been closed with payment, notes Stephen Applebaum, a senior analyst at Aite Group. "Ironically, the industry has recently focused expensive advertising campaigns around the quality of its claims services, and so, as media coverage of desperate policyholders and service failures outweigh successes, the negative impression of the industry has been further exaggerated."

Stephen Applebaum, Aite Group

Applebaum hastens to acknowledge that insurers faced unprecedented practical challenges relating to the unique character of the Sandy-related catastrophe, but he characterizes the claims response as, "not a great performance."

The failure of some insurers may unfairly implicate companies who have done an outstanding job, some of which we've written about in our March 2013 Digital Issue. But within those pages our colleague Kathy Burger also corroborates Applebaum's point:

...a recent Allstate commercial created to highlight the work the company is doing in responding to policyholders affected by Sandy featured the damaged home of a Staten Island couple — who happen to think the $10,000 payout from their carrier is inadequate. Allstate responded to the customers’ complaint in bland legalese. The company may be “right,” but these actions are being viewed by the public as wrong and insensitive.

Applebaum asserts that the insurance industry has done itself a great disservice by hiding behind red tape and technicalities to avoid paying claims — such as distinctions between "hurricanes" and "storms" and whether wind or water caused certain property damage. "These objections may be technically legitimate, based on the fine print in the policy language, but they only serve to frustrate and anger policy holders who may have faithfully piad premiums for years, assuming that they were covered for events such as Sandy," he says. "Greater effort must be made to highlight and explain major coverage exclusions — in plain English — along with alternative or additional available coverage, at the time of issuance or renewal."

Applebaum says that direct writers performed better than agency writers, noting that, "In fact, the Professional Insurance Agents (PIA) of New York, New Jersey and Connecticut wrote an open letter on Jan. 1, 2013 to all their carriers expressing frustration on behalf of their members and policyholders, and demanding that carriers immediately begin issuing advance claims as both FEMA and other carrier competitors had done," Applebaum says. "They are also asking carriers to reconsider recent commission plan reductions in light of the costs and losses their agents have incurred acting on behalf of carriers during Sandy."

Terrible stories, many of them disadvantageous to insurers, always emerge during catastrophes, insists Karen Pauli, research director at CEB TowerGroup. All parties to the insurance contract need to do a better job of ensuring transparency of coverage in order to prevent surprises to policyholders. She insists that an evaluation of the Sandy claim response must carefully take into account the unique difficulties that the storm caused, particularly with regard to impediments to claims adjusters reaching policyholders. She adds that the storm unquestionably showed how many insurers have successfully applied technology to the problem of claims.

"When I look at the response of most carriers, for example in their pre-landfall preparations so they could kick of the claims process efficiently and in a timely fashion, or proving services such as first notice of loss on mobile devices, I think that kind of advancement characterizes the greater part of the industry's response," Pauli comments.

Anthony O'Donnell has covered technology in the insurance industry since 2000, when he joined the editorial staff of Insurance & Technology. As an editor and reporter for I&T and the InformationWeek Financial Services of TechWeb he has written on all areas of information ... View Full Bio