With overall claims costs rising, cost management has become an increasingly important focus for insurance carriers.
Over 17 years, from 1997 to 2013, the average cost of a claim payment, or average claim severity, rose 7.8 percent—more than three times the rate of inflation, according to the “Trends in Homeowners Insurance Claims, 2015 Edition” report by the Insurance Research Council. What does this mean for insurance companies as they continue dealing with more frequent and severe catastrophic events?
Insurers can find some relief—and support—by looking more closely at temporary housing, which can represent one of the larger parts of a claim’s expense. Temporary housing providers can help claims professionals work through housing obstacles, such as limited inventory and seasonality, and root out additional cost efficiencies with strategies, data, and tools to better manage the additional living expense (ALE) portion of a property claim.
ALE claims can be complicated, and homeowners often misunderstand what ALE coverage actually includes. Most ALE claims are paid out on an “as incurred” cost basis—in essence, for expenses a policyholder incurs to maintain her household’s normal standard of living while the home is being repaired. ALE dollars are usually the first paid under a homeowner’s policy because they are needed for immediate necessities like clothing, meals, and temporary housing.
The Challenges
Claims teams already have a lot on their plates after a catastrophe, so the additional responsibility of managing the housing search for policyholders can quickly become a challenge, especially when they’re faced with limited inventory, fluctuating market conditions, seasonality, and long claim cycles.
Immediately following a large catastrophe—such as the recent wildfires in Alberta, Canada and Northern California—local inventory can become limited when large numbers of displaced homeowners are looking for temporary housing in the area and claims professionals need housing nearby to help policyholders with their claims.
Other housing obstacles can surface during peak-demand periods, including holidays and convention seasons in popular destinations, resulting in blackout dates and higher pricing. During special circumstances, like a natural disaster, hotels often will set aside inventory especially for local walk-in guests, resulting in further restricted availability.
Claim cycle time is another potential issue, particularly with complex claims, and this could cause considerable disruption in a policyholder’s lifestyle. The sooner a policyholder can be placed in long-term housing, the better the cycle time and resulting cost savings, making communications between the resolution professional, contractor(s)/third parties, and housing provider a critical factor.
Effective Strategies
Choosing to work with an experienced housing provider, instead of managing housing claim files in-house, can help insurance professionals navigate through potential challenges by planning both short- and long-term housing strategies to match policyholders with the appropriate housing for the necessary length of time.
To get started, a housing provider will help develop a catastrophe housing plan that will generally include:
• A specific reporting process.
• Communication tactics for policyholders.
• Status and reporting needs.
• Agreement on insurance carrier and housing provider expectations.
• Communication on market conditions, any housing challenges, and urgent deadlines.
Two important factors that heavily influence claims costs are the average daily rate and the average length of stay in a hotel. Short-term housing usually involves placing policyholders in hotels immediately after a catastrophic event.
However, moving policyholders quickly out of hotels and into serviced apartments and longer-term housing can often score significant savings and enhance overall customer satisfaction with the housing experience. Expert housing providers can provide an initial cost comparison between an apartment or home vs. a hotel stay to identify potential cost savings on an ALE policy.
Often, policyholders become comfortable in hotels with premium services such as parking, room service, and housekeeping. But these amenities are not typically “like kind and quality” compared with a policyholder’s usual living situation. These added hotel amenities quickly drive up costs and eat away at limited ALE dollars. Also, when opting for a hotel, there is a risk of blackout dates or that the rate could continue fluctuating.
The typical breakeven point for the costs between a hotel stay and placing a policyholder in a furnished apartment is between 15 and 18 days. If a policyholder needs housing past that point, typically for 30 days or more, then a furnished apartment offers significant efficiencies.
Data That Delivers
Reporting, data collection, and tracking are crucial to keeping costs in check. An experienced temporary housing provider will have the tools to help resolution professionals track and report on costs and other essential details throughout the lifespan of a claim, from locating the right housing at the start, to ensuring good customer service, to successfully closing the claim.
When it comes to managing ALE limits and extensions, housing providers can offer support and guidance with a service team trained in understanding the nuances of individual carriers’ ALE policies and budgets, and specific tools to manage ALE benefits on behalf of insurance clients.
To help track ALE costs, housing providers should check in with resolution professionals during critical checkpoints throughout the housing cycle by:
• Asking resolution professionals the right questions from the start to better understand the policy and nature of the claim. Questions should include:
o What type of loss (i.e., flood, fire, etc.)?
o What is the best option immediately, a hotel stay or a home/apartment?
o Can we start the search for a home/apartment immediately?
• Identifying and tracking total ALE dollars available for housing.
• Tracking a claim’s ALE balance whenever an extension is made.
• Keeping the housing end-date open to accommodate extensions as needed.
• Providing shorter vacate notices to allow for unexpected circumstances.
• Notifying the resolution professional when a policy is within $5,000 of the ALE limit.
• Obtaining records upfront for any initial ALE payouts to the policyholder from the adjuster to ensure those payouts are included in the total ALE calculation.
Other “cost creep” areas a housing provider can assist with include security and pet deposits; and fees for applications, brokers, utility set-up, parking, garage space rental, commissions, and move-out.
In addition, a housing provider that offers a single-sourcing platform can help adjusters quickly find housing of “like kind and quality” for policyholders. The platform allows a carrier to identify the critical housing requirements and a specific timeframe to provide housing options. It also enables the resolution professional to work with just one provider while gathering multiple options from several providers. Additionally, it aligns the reports and data across all providers, so the carrier can analyze the outcome faster.
Today, policyholders want and expect more from their insurance carriers. Online and mobile communications drive expectations for immediate responses. Interestingly, while temporary housing is the smallest dollar portion of claim—around five percent—a policyholder’s experience in his temporary home can heavily influence the overall claims experience. Consequently, to improve customer service, claims professionals can use the opportunity to leverage a good housing provider’s expertise to quickly find appropriate housing and deliver a positive customer experience.
Claims teams that decide to work with temporary housing providers should expect to save time and rein in costs with comprehensive short- and long-term housing strategies that successfully match policyholder and carrier needs; data and reporting processes and tools, such as a single-sourcing platform, that match housing inventory against custom criteria with one request; and proper guidance and communications, including critical checkpoints, to better track ALE costs.