Gone with the Wind

Most claims professionals are familiar with the satellite images of weather systems forming off the African coast, moving across the Atlantic, and building into monster storms hundreds of miles wide and with wind speeds over 100 mph. Now imagine all of that wind energy compressed into a single system that measures one mile wide or less, and has wind speeds topping 260 mph. What you will have is an F5-strength tornado.

The massive F5 tornado that struck Moore, Okla., on May 20, 2013 was reported to be on the ground for less than 40 minutes, but it caused an estimated $2 billion in damages. Aerial photos of the ground path of the tornado could be described as if someone reached down from the heavens and raked a finger across the land. The National Weather Service has made tremendous strides forward in preparing and monitoring for tornadoes, and the 30-minute advance warning provided for this storm is credited with saving countless lives.

Hurricane systems, on the other hand, are monitored and tracked for days, with constant updates that provide projected landfall locations. Preparations are made for evacuations and coastal residents nervously wait and wonder if this year is their turn. Those more jaded among the inland populace often argue that those coastal residents made a conscious decision to live on the coast and should bear the increased insurance costs associated with such a choice.

That argument loses steam when considerations are made for tornado and severe thunderstorm risks. The Storm Prediction Center of the National Oceanic and Atmospheric Administration (NOAA) has recorded tornadoes in every state in the U.S. at some point or the other—even Alaska. While the 30-minute warning for the Moore, Okla. tornado was critically important, the fact remains that many tornadoes appear suddenly and drop from the sky in a matter of seconds. They are deadly and indiscriminate in what they destroy, and they do so with remarkable efficiency.

In 2014, insured losses from severe thunderstorms (which include the sub-category of tornadoes) were reported by Munich Re to have reached $12.3 billion. That figure dwarfs the amount suffered from tropical cyclones for the same time frame. Total U.S. damages—which include both uninsured and self-insured losses—exceeded $17 billion for 2014. Tornadoes are reported to constitute 35-40 percent of those damages in the severe thunderstorm category.

When the insurance industry is pumping $12.3 billion into the economy for rebuilding efforts, you can be sure that there will be a long line of anxious peripheral players waiting in line to get a piece of the action. That creates a paradigm that the insurance industry must take into consideration when addressing the settlement processes and practices for insurance claims.

Damages Unique to Tornadoes

When consideration is given to the massive amount of compressed energy found within a tornado funnel, there are few construction techniques economically feasible to withstand such an onslaught. The focus on safe rooms and reinforced structures has been more for the protection of human life, as it rightfully should.

While structures directly struck by a tornado almost assuredly will be considered total losses, the intense wind variations found in the immediate vicinity of a storm’s path may have direct impact on structural components of surrounding buildings. These buildings typically are designed and constructed to “breath,” and some movement of most structures is always a consideration. However, when wind variations exceed the design parameters, the investigation of damages will need to address major structural components, such as framing and sealed elements like doors and windows. These types of damages may not be readily visible to the untrained eye of many insurance claims professionals, and catastrophe claims professionals brought in for support may be under pressure to get to the next claim and fail to properly investigate the full extent of damages.

Costs associated with repairing and rebuilding tornado-damaged structures also can fluctuate greatly. For instance, there will be substantial wreckage removal costs involved due to the fact that debris fields may go on for miles. You may have a home that escaped with relatively little damage to itself, but has a yard covered with the remnants of their neighbor’s homes or even those from the next town over. In keeping with that thread, what about the home that is completely missing? Obviously, there would be no removal costs involved in the rebuilding, but that structure lies in pieces somewhere.

Contents Damages

Contents losses can be the “stepchild” of the claims process. Typically, they take a long time to complete, often are filled with supplements, and seldom totally accurate. They also are ripe for abuse if not handled properly. “Handled properly” means more than just handing an insured a blank inventory form and telling them to list everything they lost. Not only is that a poor way to handle a loss situation, it is a downright coldhearted way to deal with someone who perhaps narrowly escaped death and lost everything they own in a matter of minutes.

In this day and age of digital electronics, when even your cellphone doubles as a digital recorder, there is no reason why every underwriting file for a piece of property should not have a digital recording of the complete interior of a property with all the contents shown. That same principle applies to the exterior, as well.

Addressing this problem at policy inception makes more sense and gives insurers the opportunity to improve its customers’ satisfaction. For instance, insurers could offer a modest premium discount if insureds provide a contents video with their applications or an updated one at renewal. Add another discount if insureds provide make/model/serial numbers for their major electronics and appliances.

The end benefit will greatly cover the costs involved. It has the front-end benefit of providing better and more accurate underwriting assessments on a risk, and it will have a dramatically improved and more accurate claims analysis on the back end. Think about how your insured will feel when they are provided with a copy of that recording and are able to work with contents specialists on their loss inventory. What can be an emotionally draining and stressful process for insureds suddenly has been dramatically reduced and leads to greater satisfaction all around.

An additional factor to consider if the underwriting file contains a digital recording of the interior contents is that this information can be provided to file handlers at claims locations all over the country. Contents specialists can then step in to assist in the disaster area without ever leaving their current office location and homes. That decreases the claims expenses incurred from sending people into a disaster zone, and allows resources to be drawn from departments where claims activity may be in a temporary lull.

Lost Peace of Mind

While the emotional impact of a natural disaster—whether it is a tornado, hurricane, or earthquake—is not specifically an insured risk under a homeowners’ or commercial property policy, ignoring the emotional extent of the loss can affect the bottom line of the claims settlement. John Dotson of Dotson and Associates is often a first-responder into tornado ravaged areas due to his work with handling claims for municipalities. He spoke to me of the emotional toll that tornadoes can bring and the fear of the smallest cloud that victims of these events go through.

“Part of the training for all claims professionals needs to include a portion on dealing with trauma victims, which is exactly what these insureds may be,” says Dotson. “Many ‘storm chasers’ were roofing salesmen the week before. Expanded training and a proper explanation of what to expect in the affected areas can be an integral part in successful resolution of the claims related to these types of events. There also needs to be awareness of the possibility of some forms of post-traumatic stress disorder in both insureds and insurance personnel who are first to arrive on the scene.”

Is it possible to prepare for the unexpected, or does the very definition of the word make it impossible? Tornadoes that can drop from the sky at a moment’s notice, but there have been strides made in the practical approaches to dealing with these events.

For instance, for the past four years the Oklahoma Insurance Department has been bringing professionals together for its National Tornado Summit in Oklahoma City. The summit serves as a forum for insurance professionals and regulators as well as international, national, and state experts to exchange ideas and recommend new policies to improve emergency management and responses.

The very nature of insurance is to prepare, as preparation serves as the first step in recovery. The preparation hopefully is never needed, but the failure to do so can be catastrophic on many levels.

As those of us in the insurance business know, the next fire is just an accident waiting to happen, the next hurricane is an African weather system away, and the next tornado could be swirling in that massive thunderstorm on the horizon.