Delivering on the promise to pay

Richard Foulger, Head of Claims — AEGIS London.

Managing the impact of HIM – hurricanes Harvey, Irma and Maria – is one of the biggest tests the Lloyd’s market will face this decade. Richard Foulger, Head of Claims at AEGIS London assesses the trio of financial, logistical and reputational challenges that arise out of HIM.

When catastrophes strike, the market’s first focus tends to be on estimating the cost. Hurricanes Harvey and Irma alone are estimated to have caused the market losses of $4.5bn – rising to $60-$90bn for the industry as a whole. It is too early to calculate the impact of Maria, but early estimates from AIR are suggesting a total industry-wide insured loss of up to $85bn.

The last time the market experienced catastrophes on this scale was another triple whammy - Katrina, Rita and Wilma (KRW).

HIM is not only bigger than KRW, but for AEGIS at least, it’s much harder to coordinate because the damage caused by HIM has largely been to domestic property with some smaller scale commercial losses. This means there is a far greater number of potentially smaller claims requiring an even more rapid response.  So, while estimating the loss is challenging, managing the logistics is even more so.

In the case of Maria, for example, the combination of winds over 100 mph and more than 30 inches of rain meant the whole of Puerto Rico lost power and was under flash flood warnings. In this kind of total wipe-out scenario, the first thing that happens is that the information stops flowing and direct communication shuts down. The situation will continue to evolve for some time, making it extremely challenging to get boots on the ground and money and practical support to where it is needed fast.

Ironically, this is particularly the case where multiple Lloyd’s syndicates are involved. As syndicates, we are united in a common purpose to deliver on the policies we have underwritten, and Lloyd’s is behind us 100% in supporting and enabling us to meet our commitments. But the reality is that in the immediate aftermath of a disaster scenario, where information is patchy and the situation is constantly evolving, even Lloyd’s ability to control and coordinate a market-wide response across multiple players is challenged.

The situation is made even more complicated as many syndicates operate on a delegated basis through a network of TPAs and coverholders, providing a wide range of policies, each of which is governed by a separate contract with individual service level agreements negotiated with brokers.

Our immediate response was to increase authority levels and loss funds to TPAs and coverholders to facilitate the best possible claims service, but we also checked in with our brokers and coverholder/TPA network to understand if there was any more we could do.

Essentially, this exercise confirmed what we already knew - where syndicates can deliver best value in the immediate aftermath of an event is via speedy decisions and a rapid release of funds. On that basis, we have now sent a member of the claims team out to work with our TPAs and coverholders to ensure they have the support they need to deliver the service our brokers expect and deserve. Although it will be complicated, our hope is that by providing access to an AEGIS decision-maker on the spot, we will be able to resolve claims and transfer funds as fast as possible.

While we still face the trio of challenges – financial, logistical and reputational – we are determined that our reputation, and that of Lloyd’s will not be hampered by the logistic or financial challenges. The test of insurance is whether it pays and the more effort that the market puts into making that process as seamless as possible, the better it will be for our customers, and ourselves.

First published in Insurance Day 06 Oct 2017.