The frequency of CAT events is increasing. At home and around the world, we’re seeing more extreme weather — resulting in a record number of claims.
The new year began with significant flooding events on both sides of the Pacific, specifically in New Zealand and Southern California. Aucklanders and Angelenos experienced record-breaking rainfall, prompting local governments to issue state of emergency declarations for those regions just days into January.
Claims from the Auckland floods are expected to hit a billion dollars. California subsequently received record-breaking amounts of snowfall — up to 700 inches in parts; more than double the average.
As we adjust to more extreme weather and emergency declarations, we are monitoring the effects of this “new normal” on CAT response — and evaluating how processes must change in order to meet increased, steady demand. Here are a few considerations.
Frequency versus severity: Assessing what you’re working with
When talking about extreme weather events, we need to be cognizant of the difference between frequency and severity. The difference can determine the size of response and signal government cooperation (if a state of emergency is declared).
Severity refers to the location, size, and scope of an event. Where populations are unprepared or underprepared for severe weather, severity can translate to maximum devastation. A CAT event in a densely populated region that doesn’t normally get these events —which is the pattern we’re seeing — suggests a greater number of people and systems may be affected, demanding a large-scale CAT response deployed in a short amount of time.
Severity can occur without frequency. Consider that in 2021, Sedgwick witnessed more severe claims from two events — the deep freeze in Texas and Hurricane Ida in Louisiana — than the rest of the year’s weather events combined. In 2022, CAT response in the U.S. was quiet for the first nine months of the year, before teams ratcheted up efforts in response to Hurricane Ian and a cross-country band of winter storms.
These days, it’s possible to see flooding, cyclones, and earthquakes in the same region within a three-week period. Weighing severity versus frequency of extreme weather events helps inform capacity planning — how we determine what actions to take and whom to send in.
Mobilizing: What assets do you need to get into the area?
Recurring emergency declarations should enable faster and stronger response channels, right? Ideally, yes. It’s much easier to mobilize in a country or region where you already have license to, and the infrastructure to support that mobilization. However, when severe weather events occur in places they typically do not, you’re talking about scaling up within your business-as-usual model.
In these scaled-up response scenarios, you look at what people and assets you have in the area and whether they can handle the situation. If not, what assets and colleagues do you need to get into the area to assist?
Interestingly, it can be harder to mobilize when a weather event is severe but not declared a state of emergency. When a hurricane hits Florida and the governor declares a state of emergency, out-of-state adjusters can obtain emergency licensure. Without a declaration, though, our field response relies on a resident adjuster’s license. The winter storms that pummeled the U.S. between Christmas Eve and New Year’s Eve last year bore one CAT code that spanned 40 states, but there were no emergency declarations. Our response team turned to in-state relationships instead of deploying existing resources to a region.
Response challenges
Government rulings impact response in other ways. Since the adoption of the General Data Protection Regulation (GDPR) by the EU in 2016 (and the UK in 2021), we’re bound by law to get a customer’s permission before processing their data outside their country of residence. A UK resident, for example, must be serviced by a UK adjuster. The same applies to the U.S.’ northern neighbor; It’s much easier to help U.S. citizens with a claim in Canada right now than it is to assist Canadians in the U.S.
Compliance with new data privacy laws can slow claims processing significantly, not to mention increase the cost of resolution given the high price tag on moving adjusters around the globe.
It’s not just the cost of visits we have our eyes on; costs are rising across the board — including for insurance coverage. A higher number of catastrophe events means more loss exposures, which in turn causes rates to go up. Increased size and scope of losses, longer adjudication times and the potential for multiple persons to be added to a case also translate to costs the insurer can pass on to end users. When an insurer stops underwriting excess lines or seeks reinsurance, premiums are driven up still further.
What happens when a resident or vacationer in an extreme-weather zone decides to forego insurance? It goes without saying that CAT response is limited where coverage hasn’t been purchased.
Despite these hurdles, the market is demanding faster claims resolution than ever. Clients expect the most complex losses to be handled like high-frequency, low-severity losses. Losses that take six months are given two; 28-day cycle losses are cut to 10 days. Technology is the most obvious solution for expediting claims, but the rollout of digital tools has highlighted a growing problem in the industry: not enough adjusters.
There’s a divergent age gap in this line of business — about 30 years between veteran adjusters and new-in-the-role neophytes. Between them is a huge skill drop-off that can make getting everyone on the same page tricky when time is short.
The future of response
Fortunately, while we may be living in uncertain times, Sedgwick’s technology-driven approach and purpose-built infrastructure keep the company poised to continue providing customers with the highest level of care well into the future.
Carriers have become more willing to allow for virtual discussions, “desk adjustments” and non-visual adjustment (e.g., use of satellites, drones, and imagery). Sedgwick’s award-winning suite of digital tools help to expedite claims processing while driving down the cost of visits.
Fulfillment services and repair solutions are easily addressed through Sedgwick’s strategic relationships. Where finding a quality repair contractor or engineer can prove a big challenge to claims resolution, our CAT field response includes a dedicated team of building consultants. Our relationship with EFI Global allows for ready access to engineering solutions.
Moving forward, we’re aware that better advance planning is key to improving business outcomes — especially when it comes to the transfer of client data before a CAT event. Just as we aim to take care of the “no-brainers” prior to deployment (like pre-approval for ladder assists), we seek to pre-authorize the information we might need in a response scenario while respecting the privacy of our clients and honoring procedure at the state and local level.
In many ways, pre-planning strategies are shaping the CAT response of the future. We are fostering as much dialogue outside of CAT events as possible, so we can be ready to assist when disaster strikes. With extreme weather here to stay, we’re committed to finding low-cost, rapid-response solutions for customers in their greatest time of need through seamless collaboration behind the scenes.
Learn more > get the latest updates from our CAT resource center.