What the superstorm taught us about auto claims.
Nearly a year ago, Superstorm Sandy ravaged the island communities of the Caribbean before delivering a devastating blow across the Eastern Seaboard. Today, clean up continues as towns and seaports rebuild and response organizations assess their performance and commit to future readiness. At the same time, the insurance industry continues to analyze its own catastrophe response to the disaster.
With insured losses estimated at $18.8 billion (excluding flood losses), Sandy is the third-costliest storm in U.S. history, behind Katrina in 2005 and Andrew in 1992, according to the Insurance Information Institute. What we’ve seen with Sandy is that technology, as a driver of innovation, allowed insurers to effectively scale up and manage their responses. Yet technology alone cannot solve customer service challenges. True advancement comes from pairing technology with planning expertise, organizational skills, and an unrelenting commitment to customers.
FNOL and Valuation
In retrospect of events of the magnitude of Sandy, consider two basic phases of the automotive claim process: first notice of loss (FNOL) and vehicle inspection and valuation.
Improved claims handling begins with a streamlined and scalable workflow that is compliant and cost effective for insurers. It also must be optimized for accuracy and vehicle owner satisfaction. Best practices established in recent years contribute to “best process” in a catastrophe:
In the days following Sandy, carriers that were prepared to quickly scale up personnel were able to get appraisers into the field to immediately start the total loss valuation process. Several major insurers brought in a catastrophe claims unit to better serve customers. With online access to valuation databases and experts, fair market values were available for 85 percent of claims, and 95 percent were available within the same day. The remaining five percent of claims—for cars uncommon to the marketplace or in isolated market areas—required a day or two of specialized research to ensure accuracy.
In the wake of such a huge storm, the increased proportion of total loss claims and the wide variety of vehicles involved required staff with training in special lines of vehicles like RVs, motorcycles, boats, and Jet Skis. A combination of deep expertise, access to market data, and powerful search capabilities all work together to ensure that fair, accurate, and fast standards apply not only to the typical family passenger car but also on claims for special and commercial lines.
Flooding and Total Loss
The flooding that took place during Sandy was extensive, and the effects of it—like in any flooding situation—were not necessarily immediate or apparent. Vehicle damage resulting from high water can destroy mechanical components, causing pistons to bend, engines to crack, and cylinders to rust. In addition to potential destruction of the transmission, flood damage can cause airbags to deploy incorrectly and electronic components to short-circuit.
Because many flooded vehicles ended up back on the road after Hurricane Katrina, appraisal guidelines were adjusted to flag a vehicle with water above the rocker panel as a potential total loss. With waves as high as 32 feet and inland water levels well over normal high tide, a consequence of Sandy was a high proportion of total losses.
After Sandy, some carriers were able to flag potential total losses at FNOL simply by asking the claimant how high the water reached. Instead of a repair facility, a total loss would be designated for a salvage yard, which can save days of cycle time and unnecessary moving fees.
Improving Processes
Beyond taking care of the customer’s property, one thing carriers now understand better than ever is how critical it is to give claimants the opportunity to “tell their story.” In the aftermath of Sandy, one carrier’s CEO cited the importance of empathy and the art of listening, as validated by customer feedback. Merely listening can help tremendously in the wake of a disaster.
Of course, the enduring relationship between a carrier and the customer is largely based on how well the insurer and its partners performed in a crisis. Any claim may represent a “crisis” for a particular individual. In a catastrophe scenario, carriers are under more pressure to meet higher demands for speed, accuracy, and customer service, which means they must have streamlined processes to make FNOL reporting easy for the customer. In addition, efficient and accurate appraisal dispatch, integrated rental car solutions, fast valuation processing, and engaging claim settlement methods are essential.
Looking back at Sandy, the most important aspect of the insurance industry’s response was putting “boots on the ground” as quickly as possible. Some carriers brought in company representatives from outside affected areas; others used independent agents and adjusters. All were required to quickly adapt to the regulations of their newly assigned locality to guarantee claims were handled in accordance with government mandates. Regulations in New Jersey require that insurers inspect damaged vehicles within seven working days upon notification. To make this happen, field teams worked constantly, seven days a week for almost a month until replacement catastrophe teams arrived.
Gaining Access
Although Sandy caused power outages and network disruptions across the region, insurers took the lead to create mobile command centers that supplied electricity and Web access that expedited claims processing. Carriers also were prepared to supply their own fueling tankers in order to ensure field appraisers could travel to inspect flooded vehicles across the region. Before mobile command centers were set up, appraisers inspected a dozen vehicles at a time and reported each one to a total loss valuation provider over the phone.
New innovations also contributed to the response effort. Some insurers deployed software tools that offered agents the ability to quickly give vehicle owners a choice of repair facilities for repairable claims. And those repair facilities with the capability to communicate real-time repair status via the Web, social media sites, or mobile devices—complete with online photos that showed the progress of the repair—were in the best position to engage and deliver a better customer experience.
Optimizing Planning
Even for small insurance companies or partner companies, a disaster response plan must be part of the operations manual. The plan should include processes to follow, contingencies, temporary partnerships, and resources that allow all parties to act quickly and decisively. In other words, the time for claims industry businesses to develop or update their catastrophe response plan is now.
Since past performance can be an indicator of future results, carriers can and should look at the performance of their staff and processes, as well as their key partners, to get insights into both business-as-usual times and recent catastrophe events. Factors to consider during this type of analysis should include:
One time-sensitive action that carriers carefully considered during Sandy’s aftermath—and one that should be addressed in a catastrophe response plan—is mandated reporting of total loss vehicles to the National Motor Vehicle Title Information System (NMVTIS).
Since the creation of NMVTIS in 2009, many more salvage and flood-loss vehicles are reported today than ever before. Compliance with NMVTIS reporting at every change of ownership is on the rise, and the number of incidents of flood-totaled cars re-entering the marketplace continues to decrease.
However, many states do not integrate their own reporting with the requirements of the NMVTIS program. As a result, total loss vehicle information may have to be reported to multiple databases to remain compliant, most of which must be re-keyed manually, which increases the likelihood of error. Additionally, in the case of NMVTIS, carriers may be fined $1,000 for every vehicle that is not reported correctly or within the designated time limits.
Embracing New Technology
As the insurance industry gears up for future disasters, the next sea change in auto claims revolves around vehicle identification technologies. Today’s technologies are tightly integrated with estimating and valuation systems and integrate a traditional vehicle identification number (VIN) decode with regular production option (RPO) codes to identify both standard and factory-installed equipment, packages, engine details, and paint and interior codes.
This technology can make a world of difference in flooding situations, where it is extremely challenging to perform an accurate inspection and ensure the identification of all vehicle options. After Sandy, many carriers gave their appraisers emerging vehicle identification tools so that RPO options would be automatically selected, leaving appraisers with a handy list of options to efficiently verify with the driver in cases where physical inspection was not possible.
In the future, partners that use integrated vehicle identification technologies will be able to offer vehicle identification options in a self-service model directly to vehicle owners. Self-service claims reporting and vehicle identification will accelerate processes and result in earlier triage, giving vehicle owners increased satisfaction and greater control.
Mobile devices clearly will continue to influence claims process efficiency and customer experience. Vehicle inspections, estimates, and valuations will soon be performed within minutes of the event and in collaboration with the vehicle owner. The self-service model will be one of many options a carrier can offer, even during a disaster, with enhanced ability to serve tech-savvy customers while deploying staff more readily to care for those customers who value a traditional customer service model.
As the growth of mobile devices and smartphones indicate, the future in auto claims simply points to greater engagement and involvement on the part of the customer. Demand for claims information to be provided to customers in new ways—from texting to tweeting—will increase.
In reviewing the industry response to Sandy, it’s clear that the use of technology in mounting a response, leveraging partnerships, and the handling of claims all contribute to delivering an exceptional customer experience via completion of a claim in a timely, efficient, transparent, and satisfactory manner.
The strides that the insurance industry has made so far show great progress, but challenges remain. Large-scale natural disasters stretch every resource to the limit, so how a company and its partners perform in response to them may be the best indicator of advancement in the integration of technology and process.
Consumer Groups Rate insurers
J.D. Power’s Insight publication (Spring 2013) reports favorably on the insurance industry’s handling of claims following Sandy, compared with those from Hurricane Irene in 2011. Most notably, insurers’ processes were judged to be more streamlined, and initial payments averaged 3.5 days faster than with Irene’s claims.
Conversely, Consumer Reports took stock of Sandy’s impact with a survey six months after the disaster. One finding was that satisfaction with the handling of insurance claims was relatively low. Normal total loss claims settlement is 15-17 days, but usually three days go by before the vehicle is even inspected. In a disaster like Sandy, many days passed before conditions on the ground improved enough for field appraisers to even reach many vehicles.
As larger threats loom, pressure grows on litigation execs and attorneys to untangle the thorny issue of billing guidelines and adjustments
Tanya Elkins is vice president of valuation and identification solutions at AudaExplore. She has been a CLM Fellow since 2013 and can be reached at tanya.elkins@audaexplore.com
CLM’s Transportation Committee provides education, training, and solutions on significant current commercial and personal transportation issues facing insurance carriers, corporations, and other entities and individuals.
