Natural disasters worldwide last year, and the likelihood of a continued increase in catastrophe frequency, are likely to lead to insurance and reinsurance rate increases, industry rater A.M. Best Co. says. According to initial estimates, 52,000 people died worldwide as a result of catastrophes last year, the total monetary cost is estimated at over US$65 billion, costing the insurance industry more than US$22 billion.
In Europe alone, which has a five year track record of below average event frequencies, two recent major cat losses – the storms Lothar and Martin – caused estimated damages approaching US$10 billion, and insured losses exceeding US$5 billion.
The US$22 billion esimate makes 1999 the most expensive cat loss year since 1994 and the fourth most exepnsive in the history of insurance, according to Swiss Re. Damage from earthquakes, storm and man-made disasters – such as major fires or aviation accidents – reached record figures in 1999. The only reason the loss figures of 1989, 1992 and 1994 were not equaled was because the level of insurance in Turkey and Taiwan (sites of two major earthquakes) was relatively modest.
According to Munich Re, the number of cat events registered in 1999 was well over 700 and far surpassed the record set in 1998 (702), with the ten year average being just over 600. The company released this information in conjunction with its illustrated review of natural catastrophes over the past 1000 years, a study that takes a very close look at developments over the past 50 years.
Munich Re’s study indicates the reason for the cat loss increase is population and urban growth, development of areas exposed to catastrophes, the vulnerability of industrial society to catastrophes and climatic and environmental changes.
A.M. Best, Swiss Re and Munich Re all indicate the higher frequency of catastrophe events will continue in the coming years.
The average consumer sees insurance simply as a promise of protection and peace of mind. In fact, insurance could be viewed as a kind of bet, the consumer betting with their premium that they will experience a loss which, when they do, becomes a “win” situation. However, when the consumer does not realize a “win”, as no loss is suffered, then the renewal of coverage becomes a “grudge purchase”.
This is one of the reasons why interaction between consumers and insurers is often adversarial. Basically, there is no immediate gratification for the consumer upon paying for insurance. The only time the consumer realizes tangible value from insurance is at the time of a claim. As such, in the eye of consumers, the essence of insurance is really claims.
As a result, the typical consumer does not get excited when purchasing insurance. Buying an insurance policy is a grudge purchase, as are many of the industries that service the insurance company once the policyholder has had a claim. For example, collision bodyshops, restoration companies, rehabilitation services, law firms, etc. But, where the obvious reaction would be to adopt a resigned attitude to consumerism traits, there are real opportunities for insurers to build brand recognition through the notion of “grudge purchasing”. Consider the following:
A grudge purchase is not planned. Excluding fraudulent claims, consumers do not plan to have an accident. The average consumer is extremely busy. They work on a schedule, and if having a claim didn’t make the weekly list of things to do, then ensure swift and hassle free execution of the claims process. The insurer/broker can win points by helping the consumer get his/her life back in order.
Consumers do not know how to deal with a claim. A grudge purchase is characterized by low frequency claims, therefore chances are that consumers will not know what to do. Remember the consumer’s view of insurance is a promise to take care of them, protection when they need it and peace of mind. Here is an opportunity — coach and educate them through the claim every step of the way. This will demonstrate your knowledge and fulfill needs at a critical time.
Stress and emotion. When faced with a loss, people are sensitive, therefore make the claims process friendly. The front-line staff dealing with policyholders can really make a difference. When the claimant feels comfortable on a personal level, they will become raving fans. In this time of need they require a knowledgeable person that they can trust. The insurance representative must show genuine empathy toward the customer and lay out all the alternatives and the consequences so that informed decisions can be made. Remember that chances are this is a new experience for the consumer, and the way they are treated will determine whether or not they renew.
Purchasing insurance is an involvement buying decision. High involvement purchase decisions, like buying a home, cause the consumer to go through a major decision making model before they are ready to act. Consumers want to make the right decisions, and they often rely on referrals to make them feel more secure about their decision, especially in a grudge purchase. To demonstrate this point, consumers having recently had a collision repair experience were asked at random who recommended the facility they chose for repairs. The greatest portion of referrals came from the insurance industry. This verifies the fact that consumers rely on their insurance representative for guidance at the time of a claim. Pursuit of excellence in executing claims service will significantly accelerate the development of brand recognition and brand loyalty.
The claims service model
The claims service model is a hybrid of the “multiple-party exchange transaction” (M-PET), created by marketing researcher Ken Deal. Applying this business model will assist insurers in providing excellent claims service through effective supply chain management.
Marketing involves the exchanges of goods, services and currency between parties. Companies strive with their business partners to understand how these exchanges occur, and how can they more frequently benefit all parties involved. Strategic alliances with a common customer focused vision will benefit all parties involved. It is essential to understand the specific needs of each of the stakeholders. Leaving out a stakeholder ensures that the transaction will be less than fully advantageous for at least one of the parties involved — and usually for all the parties.
The insurance company
The arrows going out from the insurance company represent the value being created by the insurer to the stakeholders. The arrows coming into the insurer represent the value being created for the insurance company by the stakeholders. According to the claims service model, it is the frontline claims adjuster and the entire claims department who are responsible for building the insurer’s brand.
A loyal brand will be built when a policyholder experiences excellent claims service. Exceeding customer’s expectations as they relate to claims service will pay dividends through a significant increase in policyholder retention. The insurer will incur lower customer acquisition costs due to less turnover, and higher profits on their existing book of business due to longer average policy duration.
The selection of your business partners within the claims service model will add to or detract from development of the brand. Pick business partners that are very clear about what they stand for. Ensure that you share a common business philosophy that integrates well with your specific business strategy. As the model evolves, opportunities will emerge in brand positioning with business partners and potentially cooperative marketing efforts that will in turn intensify brand recognition and brand loyalty.
The business partner
The business partner within the claims service model represents the insurance broker, insurance agents, and vendor networks like collision repair centres, independent adjusters, independent appraisers, car rental companies, restoration companies, lawyers, rehab institutions, etc. The business partner plays an extremely important role in the execution of excellent claims service. The potential economic and customer service benefits of the claims service model are maximized when the business partners objectives are integrated with those of the insurance company. Insurers and business partners will work closer together in the future to align objectives so that all stakeholders receive benefits.
The Customer
The customer needs help at the time of the claim and they look to business partners and the insurer to provide help. The average consumer does not understand the dynamics of insurance, not to mention what to do in the event of a claim. For example, most consumers believe that their insurance broker is their insurance company, and when they find out it is not, their confusion adds to the stress already created by the claim.
Customer satisfaction during the claims process is not enough to earn their loyalty, they must be enthused with your claims service. Consumers only remember “super fantastic service” and really “poor service”, so anything in between is indifference. This means that the policyholder experiencing “just good claims service”, will ultimately probably leave that particular distribution channel. The reason is because they are being aggressively solicited for their business now, and if you give them no good reason to stay, they will not — but remember, your existing customer is your best customer.
Those companies that focus their efforts on the flawless execution of the claims service model will lead the industry in the new millennium. They will enhance growth through development of “branding” by saying what they do, doing what they say, and improving it continually.
A dramatic rise in revenue — attributed to the inclusion of extensive international acquisitions in 1998 — and a corresponding decline in net earnings characterisze the second quarter results released by Lindsey Morden Group Inc., parent company of adjusters Cunningham Lindsey. Revenues at the six quarter mark of 1999 have hit $217.8 million compared to $87.5 million at the half year mark in 1998. This rise represents acquisitions in 1998 which included the purchase of UK adjusters Ellis & Buckle and Hambro Insurance Services.
The company’s net earnings dropped considerably from 1998’s half year mark — a gain of $1.5 million last year to a net loss of $2.0 million in 1999. The earning differential can be attributed to growing pains from the numerous 1998 acquisitions, with the company’s operating ratio rising to 101.7 this year compared to last year’s 96.6. The company does appear to be turning the corner on the decline. Operation costs are down resulting in net earnings of $270,000 in the second quarter, an improvement on the first three months, but still considerably smaller than last year’s second quarter $800,000 net earnings.
The angular figure of our senior underwriting manager emerged from the elevator facing me, and, as usual, Judy’s face was a mirror of her inner feelings. It was also quite clear that these feelings were not too positive.
She grunted a perfunctory greeting to me. We walked out of our company’s front doors and stood together on the sidewalk. In a moment or two the Branch Manager of our downtown branch office, Fred Wilson, would arrive in his car to take us to the semi-annual meeting of our Broker Liaison Group. This meeting was always held “off site” at a local hotel, so that our out-of-town brokers could have a comfortable place to stay overnight. As our company’s senior marketing representative, my job would be to bring our brokers up-to-date on some of the new programs we had under way. En-route to the hotel, we were going to pick up two of our lead brokers, Bob and Harry.
‘Tough day?” I asked as gently as I could, and Judy treated me to a deep frown. “You could say that, Dave,” she sighed. As she did, she reached into her briefcase. She extracted a long sheet of continuous-print computer paper, folded it one section and jabbed her finger at it. “Enough to make a stone weep,” she grumbled, handing the paper over to me. “I was scanning through the E-mail messages my underwriters send to our brokers, and I spotted this one. I printed up this hard copy because I mean to put this mess down in front of that underwriter and let him in on a little secret: this is lousy communication!”
Judy had a reputation in our company as an excellent communicator who expressed herself well and expected others to do the same. I lifted the crumpled section of paper, smoothed it out, and read the underwriter’s message aloud:
“I am in receipt of your communication of September 7th in connection with our office’s handling of the McDermott Manufacturing situation and despite the fact that our underwriting team is at this point in time managing and processing in excess of 300 active files I would like to point out that your request was accommodated well within the normal time parameters allowed for this type of business transaction and in addition was executed with extreme accuracy.”
I was about to comment when Fred’s car slid up to the sidewalk beside us. We climbed into the back seat and headed across town. In the rearview mirror I saw Fred’s eyes scan us both quickly. They came to rest on Judy, who had tossed her briefcase at her feet and was staring moodily out at the traffic. “Well, you two,” Fred said cheerfully, “I trust you’re in fighting form. All briefed up on our marketing initiatives, Dave?” He coughed gently. “Ready to be kind and considerate to all our nice brokers, Judy?” I caught his quick wink in my direction.
“Well,” I said quickly, “I think we’re up for it. But Judy is really ticked off at an E-mail letter one of her crew sent to a broker.” I read the offending letter out loud. Fred pulled up at a stoplight as I finished reading. “Hmm,” he said quietly. “It is a bit stuffy, isn’t it?”
“It certainly is!” Judy said heatedly. “It comes across as pompous and defensive. Full of puffed-up phrases. And, — it’s one great long sentence without any punctuation in sight!”
As he pulled away from the stoplight, Fred gave a small smile. “How would you have worded it?” Judy looked over at me and flipped her right hand over. “Turn that sheet over, Dave,” she said. “I already re-wrote it in plain English.” I turned the printout over and read out Judy’s neat handwriting:
“I have your September 7 letter about McDermott Manufacturing. We have a 300-file backlog right now, but I’m happy to tell you that your request was handled accurately, and on schedule.”
I saw Fred’s head nod quickly. “Uh-huh,” he agreed. “That’s better. Cuts out all that excess verbiage but gets your point across in a more positive way.” Judy sighed and rubbed her eyes. “Why do people work at making things more complicated instead of keeping them simple? They say ‘in receipt of’ when they should say ‘have.’ They say ‘in connection with’ when they should just say ‘about.’ They write down ‘despite the fact that’ when they mean ‘although.’ They also lard up their letters with fancy-sounding phrases like ‘at this point in time’ when ‘now’ says it a whole lot better.”
As she finished speaking, Fred pulled in to the side of the road beside two familiar figures standing on the sidewalk. They were Bob, who ran a successful midtown brokerage, and Harry, whose suburban brokerage was one of our company’s best producers. Bob slid into the front seat and Harry joined Judy and me in the back. Greetings were exchanged all round.
“Watch out what you say, you two,” Fred said with a chuckle as we threaded our way back into the traffic stream. “Judy here is on the warpath today against bad business writing.” Bob laughed and made a face. “Been reading my correspondence, have you?” Beside us, Harry dropped his valise on the car floor and turned to Judy. “It’s about time someone got on the warpath about that,” he said. “We’re surrounded by lousy writing these days!” He shook his head. “Last month a company CEO wrote to me to explain a figure I had questioned in their results. He said, and I quote: ‘that figure was a negative increase of sixty thousand dollars.’ In other words, he meant a sixty thousand dollar loss!”
“Weasel wording I call it,” Fred grunted. “There are lots of examples around these days. For instance, nobody is fired any more — they’re de-hired. People don’t meet, they ‘interface’. Nobody just talks. They ‘dialogue’. Things don’t work. Oh no, — they’re ‘viable’. And of course, nothing just grows any more. Nowadays it ‘maximizes’.”
From the front seat of the car, broker Bob groaned as he read our underwriter’s E-mail. “Why do people insist on “tarting up” letters with tired old cliches?” he said to no one in particular. You see this kind of stuff every day. They write ‘acknowledge receipt of’ instead of the clear and direct ‘got.’ They stick in “due to the fact that’ when ‘because’ is simpler and clearer. And instead of ‘in the event that’, why not just say ‘if’?”
“I can add to that list,” I interjected. “People write ‘for the purpose of’ instead of the much more simple word ‘to’. They say ‘in the very near future’ instead of ‘soon’; ‘please feel free to’ rather than just ‘please’, and there’s that old favorite, ‘in the amount of’ instead of just ‘for’.”
“Right on!” Judy said vehemently, leaning forward. “You know, some time ago I read that the average business letter costs between thirty and seventy-five dollars, when all costs are factored in. All the more reason to apply the KISS formula: keep it simple, stupid.”
Beside me I could see Harry’s head bobbing in agreement. “I read that same story on business letter costs, and it made me think. I began to review all our office correspondence. I can tell you — it wasn’t that good! So, last year I began to rotate everyone in my office to a better business writing course that is staged at our local technical college…”
“Great idea, Harry!” Judy said enthusiastically. “I’ll bet the letters and E-mails coming out of your office have shown a big improvement.” Harry nodded. “They have. I know they have, because I read through our client letter files as often as I can.” He smiled. Among the things the better business writing course cured were those crazy redundancies, like ‘absolutely perfect’ instead of just ‘perfect’. I mean, if something’s perfect, it can’t be any more perfect…”
“Not unless you’re talking about me, of course!” Bob said with a laugh, then let his face grow serious. “Actually, I saw one of those dopey double-words just yesterday. One of my other companies sent me details of a new marketing strategy which they had called their ‘Advance Plan’.” He snorted. “I mean, a plan is something you prepare in advance anyway, isn’t it?” I chuckled in agreement. “And how about ‘close proximity’? Don’t they mean ‘near’? Or ‘final outcome’ instead of just ‘outcome’. Then there’s that golden oldie ‘goals and objectives’ when ‘goals’ is all you really need.”
“You know what?” Fred said a
s we turned a corner. “I seem to be wading through more and more endless E-mails and Memos these days. You know the kind. They consist of one gigantic sentence that goes on and on with no punctuation at all. Frankly, I think E-mail correspondence is partly to blame. People don’t really write letters any more. They simply sit down at a terminal, pour their thoughts out on to the computer screen, don’t bother to use “Spell Check” or even to re-read their message, before they hit the ‘Send” button. Result? Word diarrhea.”
Good point,” Harry agreed. “I was always taught that each paragraph should be restricted to one thought, and that a sentence should be between seventeen and twenty-two words – no longer.”
“You’re absolutely right!” Judy said forcefully. “That’s one of my better business writing rules.” Bob swiveled around again on the front seat. “Hey, Judy, you’ve got a captive audience here. Why don’t you lay your rules on us?” Judy’s sober face broke into a smile. “I thought you’d never ask,” she said, with her hand over her heart. Then she held up her right hand and spread the fingers apart. “Five simple rules. One: be brief and be clear — the “KISS” formula. Two: write as you normally talk, in terms your reader will understand. Three: never use the passive when you can use the active…”
Noticing a quick frown flit across Harry’s face, Judy added: “In other words, instead of saying ‘It has been discovered that an underwriting mistake occurred’, say ‘we found a mistake in our underwriting.’ Four: never use a figure of speech you see or hear every day. And five: when in doubt, leave it out.”
“Not bad at all,” Harry said with a emphatic nod. “You just forgot one thing.” In response, Judy asked, “what’s that?” Harry replied with, “we need another rule that makes it a criminal offence in our business to use any more of those acronyms we love to throw around. You know — P and C, PL and PD, RIMS, FIIC and…”
“Please!” I interrupted, throwing up my hands in mock horror. “We need these! They’re part of the special insurance language that only those of us in the business can speak. I mean, if someone overheard us saying ‘
A VP from IBC and two senior CEOs with IBAC and RIBO to discuss the PR value of rewarding new FIICs in the P and C industry…well, they might have trouble figuring it all out. Our secrets would be safe.”
A chorus of hoots filled the car as the familiar shape of the hotel came into view. Fred turned left into the driveway and pulled up to the front entrance. “Here we are, ‘wordmeisters’,” he said, then with a sly chuckle, added: “We had to drive down the parkway so we could park on the driveway.”
Judy let out a groan, but wasn’t to be outdone. “All right, Fred,” she replied with a twinkle in her eye. “The same way you fill out a form by filling it in, and your alarm clock goes on when it goes off.”
We picked up our briefcases and got out of the car. Bob held open the door to the hotel. “Just don’t forget,” he said with a grin, “that in our business a house can simultaneously burn up and burn down.”
“Oh, we’re sharp today,” Fred laughed as he led the way forward. “This could be a lively meeting!”
Canada Brokerlink Inc. posted first quarter results for this year showed business growth of 67%, and, at the same time, nearly doubling its assets to $67 million compared with the level for the same period in 1998. Revenue for first quarter of 1999 amounted to $6 million against the first quarter of 1998’s $3.6 million.
Rationalization initiatives, the company says, were completed in March 1999, this, however, contributed to an operating loss for the first quarter of 1999. Net income declined from 1998’s first quarter loss of $395,401 to a loss of $1.3 million in 1999, amounting to a loss per share of 4c. Brokerlink president Rick Glass is confident of the network’s ability to return to profitability this year.
The Hub Group Ltd. faired better than its counterpart for the first three months of 1999, posting revenue of $16.1 million with net earnings of $1.4 million. These are the first set of results the network has released since its initial public offering in February this year. The network’s earnings for the quarter amounted to 9c a share. Hub also announced the acquisition of two brokerages, Andrew Gauthier & Associates Inc., of Montreal, and The Independent Brokerage Group Inc., of Vancouver, BC. Combined revenue from these operations will boost the network’s annual commission revenue by $4.3 million, the directors say.
The following correspondence has been sent by Noble Insurance, an Ontario-based insurance brokerage, to Robert Gunn, president of Royal Insurance Company of Canada, Noel Walpole, president of Economical Insurance Group, Robert Landry, president of personal finance solutions at Zurich Canada and George Cooke, president of Dominion of Canada Insurance Company. The letter was forwarded to the CSIO for distribution to members and to Canadian Underwriter for publication:
Dear Sirs:
After much deliberation, and thought-provoked reflection of our EDI accomplishments to date, it is with great regret that our conclusions will result in Howard Noble Insurance abandoning all further efforts to continue utilizing the CSIO upload functions to forward new business applications to you, effective immediately.
It bewilders the writers, that in an age when we are inundated with information for a new century, the industry in which we survive is without technical advantage. We exist in a vacuum of old thinking and poor choices. We are unable to foster a common will that could bring us to a mutually beneficial solution. In the meantime, brokers accept little revenue for much work (average revenue for premium-generating endorsements over a one year period amounts to $1.70 per endorsement – excluding all non-premium endorsements), and companies speak of ‘host-to-host’, call ‘our hotline’, and other single-minded, company specific solutions.
The demise of The Synchron Project, beyond the loss of much overdue collective thinking on issues of EDI and technology for our time, said much of the ability and sensibilities of the individuals and entitles in an industry formed of partnerships. Pitting company against company, association versus association, vendor against vendor, with brokers maybe or maybe not becoming reasonably informed about the process and the technology – is it surprising this initiative failed? And where do we go from here? Did we learn from the failure and forge ahead – believing that a common solution – single entry, multiple company interface, was still a reality we could achieve? Or, did we retreat to our respective corners, lick our wounds, and quietly agree to stop the fight. CSIO new business upload, in its current form, is not the solution. It is unwieldy and due to an excess of company differences, unmanageable in a multi-location to multi-company environment. The evolution of this functionality has not resulted in cost-savings for either partner and no added efficiency seems evident to our brokerage.
Rather, the process requires skilled insurance professionals to dedicate their time into understanding coding and company system differences, in a process riddled with errors and unexplained delays. Customer service representatives and producers are expected to comprehend and complete this process, in addition to honing their sales and services skills and maintaining educational standards. Is this the reality we envisioned for SEMCI – the leading edge technology that will take us into Y2K to rival the competition and come out winning?
If the solution were easy, we would have overcome the problem sometime ago. It may be perceived as some form of heresy to surrender, especially since we have long supported the ideal and process of EDI, including new business upload. Beyond the immediate business case, which we can no longer ignore, being a participant in raising the bar on our current status, and potentially compel ALL partners, including our associations and governing entities, to strive for an advanced, efficient, REAL edi solution that will work for our INDUSTRY, is a challenge we are ready to face.
As we embark on a new century, let’s not continue to settle; rather, we can work together in a spirit of partnership, toward the advancement of EDI solutions, for the sake of our industry now, and into the future.
Vibration from construction equipment, or blasting operations commonly results in claims from nearby homeowners for structural damage to their residence. It is now common to conduct pre-construction surveys of such residences to document any existing damage prior to starting the construction project. This is especially true if blasting is to occur.
There are still many instances where damage is claimed, but there is no pre-construction survey, so the adjuster must decide whether the cause of damage was related to the work done by their insured contractor. There are analytical techniques available to assist this decision, so adjusters should be aware of this and hire experts as required.
Homeowners are often convinced that the vibration cracked their home, so the claims are not fraudulent. However, homeowners are often mistaken in their belief, so it takes an expert opinion report to convince them of the real cause of damage.
Over the years, there have been numerous tests and studies of construction vibrations. Papers have been published throughout the world on this topic. The International Standards Organization has published a Standard ISO 4866, first edition 1990, to provide guidelines for measurements and evaluations of vibration effects on buildings.
Soil vibration is measured in different ways, but one common measurement is peak particle velocity (PPV). Testing indicates PPV of 0.01 in/sec is perceptible to humans, while PPV of 0.30 in/sec is disturbing to humans. When humans detect vibrations in this range, they then assume that these vibrations are damaging their structure.
In fact, vibration damage thresholds for structures start at 2.0 in/sec PPV, based on testing. At this level, “cosmetic damage”, such as hairline cracks in drywall can begin. To reach the second level of damage, “minor”, where cracks through bricks can occur, requires at least 5.4 in/sec PPV, and “major” damage, such as foundation shifting, can begin at 7.6 in/sec PPV.
Variables, such as magnitude and frequency of vibration, soil type, and distance from source to structure, are important in estimating the PPV in any given situation. An expert can visit the site, examine the damage, collect the necessary data, and estimate PPV exposure to the structure. This can then be compared to damage thresholds, and an opinion on the cause of damage can be developed.
When faced with vibration claims, don’t get “shook up” about it; just call an expert to tell you whether cause is vibration, settlement or some other mechanism.
