Renewed response: recent mega-disasters have prompted insurers to look more closely at catastrophe staffing and contingency plans.

Global warming or not, property/casualty insurers know their risks have changed in recent years--not just their exposures, but their response efforts--and most are prepared, or are preparing, to meet these mega-threats head-on.

The Sept. 11th terrorist attacks and natural catastrophes such as hurricanes Katrina, Rita and Wilma of 2005 and the four back-to-back Florida windstorms of 2004 have forced companies to take a second look at their disaster preparedness, said John Eager, senior director of claims services for the Property Casualty Insurers Association of America.

"Major insurer companies of PCI have contingency plans in place and have upgraded or at least taken a look at them since 9/11, and again after Katrina," said Eager, who has been with the organization 18 years. "Deployment of cat teams is ongoing for many of our companies."

PCI represents more than 1,000 companies that write some 41% of the nation's automobile, homeowners, business and workers' comp insurance.

No one could have predicted the hurricane season of 2004, even as a possibility, said Lawrence Hinkel, director of catastrophe operations for independent adjuster BrightClaim of Norcross, Ga. The 2005 projections, however, came to fruition, while the 2006 projections did not.

And so the relatively quiet 2006 hurricane season did give cat adjusters "time to catch their breath" and insurers time and incentive to take a hard look at their preparedness, added Hinkel, who oversees a team of independent field adjusters and also helps carriers develop contingency planning for catastrophes.

"What did happen last year on the heels of Hurricane Katrina and the following storms, was that most every company was forced to revisit at the very least their catastrophe contingency planning. Some were forced to visit it for the very first time," Hinkel said. "We had to collaborate with several carriers that were more or less developing or redeveloping a catastrophe plan in the early stages of 2006. They were all scrambling, making sure they had their ducks in a row."

Boston-based Liberty Mutual Group has a catastrophe office in Orlando, Fla., and a full-time staff of cat adjusters around the country working with the company's regional property and auto operations, said Sue White, vice president and manager, homeowners claims.

"We have all gotten more sophisticated in our planning of catastrophes and the methods in which we respond to catastrophes, from our underwriting processes with geocoding, down to the satellite imagery that we use to help adjust claims," White said. Geocoding involves determining the latitude and longitude of each customer's home. "That's when GPS systems come in very handy to lead you to the right location."

The company revisited its contingency plans following recent storms and major catastrophes, she said.

"Since 9/11 and the four hurricanes and Katrina, we have been constantly looking at better ways to satisfy our customers," White said. "How much faster can we do it? How much more effective can we be, so we can get the customer back in their home, back on their feet, back being a family again?"

Expandability

Hinkel said insurance carriers traditionally use three methods to assemble a cat-adjuster staff during an emergency: dispatching their own staff; outsourcing to an independent cat responder; or a combination of the two. The P/C industry as a whole has been using independent adjusters more frequently since 2004, he added.

"The major carriers now have catastrophe teams that can be deployed when you get a major catastrophe," Eager said. "A lot of companies have expandability. They have a core number of people on their disaster team. ... Some have preloaded contracts with independent adjusters and can expand their adjuster teams, if needed,"

Other P/C carriers have training programs for individuals who could be used as part-time employees in the case of a major catastrophe, he added.

Allstate Corp. prides itself on being "the first insurer on the scene" of any given disaster by staffing cat-team members just outside the storm zone, "as close to the storm as is safely possible," said spokesman Mike Siemienas.

"We really have it down to a science," he said. The company maintains a full-time cat team of some 460 employees--the Allstate National Catastrophe Team--which was assembled in 1996 in the wakes of both Hurricane Andrew and the Northridge, Calif., earthquake. The company also hires part-timers, retirees and independent adjusters as needed. The full-time cat team responds only to major disasters such as tornadoes, hurricanes, wind or hail storms.

In addition, Allstate has a fully outlined response plan just for hurricanes that includes hiring numerous independent adjusters. The company also owns six Mobile Response Units--recreational vehicles-turned mobile claims offices.

"We have several different processes in place to make sure we're prepared for whatever size catastrophe strikes" Siemienas said. "We really focus on making sure we're prepared when they strike, and make sure it doesn't impact our system countrywide."

Liberty Mutual Group hires retirees and independent adjusters as needed, White said. The company also maintains a fleet of satellite-equipped RVs for emergency catastrophe response, using 14 units alone for Hurricane Katrina, she said.

"It allows us to have better communication via satellite phone when our cell phones aren't working. It also enables our customers to come up to the RVs. They can report their claims right there using the satellite phone," she said. "At the same time we can process their claim and hand them a check."

State Farm Group, the largest P/C insurer nationwide according to A.M. Best, has its own fleet of emergency response vehicles, said spokesman Dick Luedke. Its team, State Farm Catastrophe Services, includes more than 1,700 members who are ready to respond to a projected 600,000 to 800,000 cat claims yearly, he added.

Working back-to-back catastrophes can be trying for adjusters, and companies should be looking closely at their staffing needs, Eager said. Florida's four hurricanes in a row in 2004--Charley, Frances, Ivan and Jeanne--"stretched the adjusters to the limit."

John Rogan, president, chief executive officer and chairman of Sunshine State Insurance Co. in St. Augustine, Fla., agreed: "It becomes hard. It takes a special, compassionate person to do this. If you ever deal with the psychology of this, the people are almost in a trance state. They can't believe their home is gone. There's so much damage: their neighborhood, their home, their schools, their churches. ... All of it is gone."

Rogan once even met with a local pastor to discuss debriefing techniques for his adjusters during a major hurricane response. "It becomes very mentally challenging," he said.

"Insurance carriers might believe that the effect on a person's psyche and physical well-being is very well compensated for by the catastrophe pay that they get," Hinkel said. "But after a period of time there's a saturation level of tolerance. The adjuster eventually raises their white flag and says, 'I can't do this anymore.' And if we're dealing with an unhappy adjuster, they're not doing their job as quickly and efficiently as they could"

Rogan recalled when Hurricane Opal hit Destin, Fla., in 1995, forcing adjusters to work 18-hour days, seven days a week. "They finally just burned out," he said. "We watch them quite closely now for their own self-preservation."

Upgrading Response

"Some of the things we've looked at are changing some of our systems to improve our triaging so we can speed up the payment process," Liberty Mutual's White said. Better triaging also frees up staff for handling claims and issues closer to home--for policyholders who weren't affected by this particular catastrophe, but perhaps are dealing with their own emergency.

"We've added staff and capacity to our catastrophe-prone areas, increasing it by roughly 25% over the past several years," White said. Last year the commercial property side of Liberty Mutual Group launched a series of four disaster preparedness seminars around the country.

White and her commercial lines counterpart, Wayne Klocko, are two of the "very few" at their management level to go on-site for catastrophes. "We're not sitting back in our offices. We go to those locations so we know what our customers are going through," White said. "It speeds up our processes."

Rogan, of Sunshine State Insurance, said talking with Best's Review about contingency planning gave him the chance to "dig out and review" his company's own plan.

"We have an extensive disaster recovery plan. It deals with every' aspect of the corporate operation as well as our primary function at that time, which is to get boots on the ground, to have people in the field to service our customer policyholders," Rogan said. A regional insurer, Sunshine State Insurance covers nearly 50,000 policyholders in South Carolina and Florida. "You make these contingency plans and people think you will probably never use it, but when you have to use it, you have to have it read)."

The St. Augustine office employs 17 people; others are posted in Sarasota, Fla., and Columbia, S.C.

"We contract with a company who, if our office is destroyed, will bring in a mobile office within 48 hours," Rogan said. Agility Recovery Solutions of Charlotte, N.C., provides them with a self-contained doublewide trailer equipped with satellite computers and phones, Internet access and a generator.

"In addition, we keep our claims off-site," Rogan said. "Our claims are handled in Columbia, S.C., which isn't coastal. We have a complete, temporary back-up office for that facility in Winston-Salem, N.C. All the computer tapes are backed up in an additional vault that is both waterproof and fireproof."

There are even backups in California and Atlanta. "The biggest thing you have to worry about is getting your data; you can't do anything if you don't have data," Rogan said.

Additionally, Sunshine State has pre-signed contracts with several independent adjuster firms in Florida for extra hands when necessary. The company incurred some 26,000 claims during the 2004 and 2005 storm seasons, and paid out some $355 million in losses for a total of eight storms, Rogan said.

Learn More

Liberty Mutual Insurance Co. A.M. Best Company # 02283 Distribution: Direct agents, independent insurance brokers, independent agents and captive agents

Allstate Corp. A.M. Best Company # 58312 Distribution: Captive agents

State Farm Group A.M. Best Company # 00088 Distribution: Exclusive agents

Sunshine State Insurance Co. A.M. Best Company # 12117 Distribution: Independent agents

For ratings and other financial strength information about these companies, visit www.ambest.com.

Key Points

* Changing weather patterns and I the advent of terrorism risk have changed the way property/casualty insurers look at catastrophe staffing.

* Many P/C insurers have revisited their contingency plans or created plans where there were none.

* Some of the major P/C insurers have created dedicated cat teams, and many are augmenting those with third-party adjusters, part-time responders and retirees.

Answering the Call

Allstate Corp.

* Third-largest U.S. property/casualty insurer*

* Uses six Mobile Response Units * Equipped with satellite and other telecommunications equipment

* MRUs named after major hurricanes: Frances, Dennis, Bertha, Isabel, Hugo and Opal

* Augments fleet with as many as 32 rental RVs

Liberty Mutual Group

* Seventh-largest U.S. property/casualty insurer *

* Uses four catastrophe RVs, 35 feet to 38 feet long

* Equipped with satellite hook-ups and phones

* Includes a fully functioning office and meeting space

State Farm

* Largest U.S. property/casualty insurer *

* Response vehicles include: two Mobile Catastrophe Facilities, each a custom-built 53-foot semi-trailer; three Catastrophe Response Vehicles, each a 35-foot fully equipped motor home; and five Catastrophe Response Trailers, each a 25-foot motor home.

* Equipped with power generators, satellite hook-ups and computer access

* A.M. Best Co. rankings based on 2006 net premiums written.

It Takes a Village

Responders to a typical catastrophe site include the Federal Emergency Management Agency, the American Red Cross, property/casualty insurers, and local government representatives such as the local mayor. PCI recommends all these entities converge in one staging area, "a so-called Insurance Village," said John Eager, senior director of claims services for the Property Casualty Insurers Association of America. "When you go into a disaster area, especially if it's a significant disaster, some corroboration with other responders and agencies would be real helpful."

Displaced policyholders would then be able to go to this temporary village and visit their insurance carriers to find out their coverage; federal agencies to find out if they qualify for a small-business loan or other federal benefits; and the local town administration to find out if homes have been inspected, and if it's safe to go back, Eager said.

"You could have one-stop shopping," he said. "It might not be perfect, but it's better than if you didn't try to coordinate it. Part of the stress in a disaster is trying to find out who can help you, and where are they?"

The insurance-village concept is just one of many ideas proposed to state lawmakers via the "PCI Regulators Kit--Recommendations for Disaster Preparation and Response," which the organization completed and began distributing to insurance regulators in the nation's most disaster-prone areas in mid-2006.

The kit contains model regulations covering five "critical" areas: establishing an insurance emergency operations center; disaster-claims-reporting requirements; cancellation and nonrenewal of insurance under disaster conditions; suspension of premium payments under disaster conditions; and mediation of disputed claims.

The disaster model included in PCI's kit is based on the disaster plan of New York City, and includes a set of "Pre-Disaster Information Surveys" of local businesses that look at the business's continuity, plan, Eager said.

"Everyone should be doing them," he said. "We have other companies that should be doing them just to make sure they will be ready if they're hit. We're all well-intentioned. We want to be ready."

There is room to improve in some insurance companies' disaster planning, just like New York did long before the 2001 terrorist attacks, Eager said. He noted a post-Sept. 11th industry conference, where a PCI member asked of the guest speaker, former New York Mayor Rudy Giuliani, "How were you able to do such a good job? You must have put together one heck of a plan," Eager said.

Giuliani's answer: "The plan existed before I activated it." Eager's advice to P/C carriers then would be to get a disaster contingency plan on the books; update that plan; and much like New York, "if you ever get hit with anything, you'll be ready."