Insurance Insights
After the storm.
Can insurers save businesses after disasters?
July 2012
Matt Pearson
Executive General Manager - Claims
Commercial Insurance
Suncorp
1
Summary
On 2 February 2011 the destructive winds of
Cyclone Yasi smashed into the small North
Queensland township of Tully. A large proportion
of homes were damaged but the major impact of
the cyclone on the area was the damage to Tully
Sugar Mill.
It not only badly damaged the mill – it nearly
destroyed a community.
Many of the locals worked at the mill and it was the
life blood of the surrounding sugar cane farms.
It was crucial to have the mill operating four
months after the disaster in time to crush the next
sugar harvest.
Insurer Vero, part of the Suncorp Group, had its
Events Response Team in place within five days of
the cyclone striking. Using its special relationship
with building management multinational Lend
Lease, the insurer was able to ensure the mill was
up and running in time to meet the needs of the
harvest.
This was just one of thousands of larger
businesses hit by major weather events in recent
times.
Small businesses are especially susceptible to the
aftermath of a disaster.
A storm in Cooroy, near Noosa, in February, saw
the roof blown off a complete block of shops.
Using an internal assessor and a preferred panel
builder experienced in event response, Suncorp
handed back the property, repairs completed, a
month later. This achieved a major saving in loss
of rent thanks to the quick response.
A number of major weather events have struck
Australia in recent years. 2011 was especially
devastating. Queensland was still struggling with
the widespread flooding at the end of 2010 and the
beginning of 2011 when the northern part of the
state was hit another blow by Cyclone Yasi.
According to figures from the Insurance Council of
Australia (ICA) insurable losses relating to the
catastrophes of 2011 and early 2012 exceeded
$5.3 billion, with insurers handling more than
300,000 claims.
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suffer major disasters and are not insured or are
under insured fail within 12 months.
2011 ... the Year of Disasters
$2,500,000,000
120,000
108,564
100,000
$2,000,000,000
However, with the present economic uncertainties
there is evidence that some businesses are
reluctant to ensure they have adequate cover.
80,000
73,250
$1,500,000,000
60,000
58,685
50,063
$1,000,000,000
40,000
$500,000,000
20,000
7,983
$0
Number of claims
410
405
Putting aside the issue of the majority of SMEs
being underinsured (a topic in itself and outside
much of this paper), the need to recover quickly
after events such as Yasi and the various floods is
crucial to businesses.
6,408
8,914 0
Cost (current figures)
Source: Insurance Council of Australia figures March 2012
Business requirements post-loss are different to
those of consumers. Rapid settlement or repair is
critical to businesses.
Businesses have substantial financial
commitments in respect of staff, rent and other
fixed costs. Interruption to business activities,
which starves cash flow, can threaten the viability
of businesses.
This is particularly an issue for small to medium
enterprises (SMEs). SMEs generally operate on
thinner margins, have less resilience, and suffer
more significantly from underinsurance, particularly
in respect of business interruption cover.
So can the insurance industry help them
back on their feet?
It is perhaps sadly ironic that with the numerous
weather-related disasters in recent times insurers
have become better at doing their jobs. That is,
moving rapidly and efficiently - both on the ground
at the disaster and in the claims centres – to help
people and their businesses back on their feet as
soon as is possible.
But is the insurance industry ready for the Next Big
One? How well positioned is the insurance industry
to help businesses recover quickly post loss? How
good are its processes and its people? Is the
industry responding and adapting?
This paper examines the readiness of the
insurance industry and what is required by an
insurer to be prepared „after the storm‟ to help
businesses get up and running again.
It also looks at what other stakeholders governments and local bodies – should be doing to
ensure businesses and communities are protected.
The impact of these events on SMEs has broader
economic ramifications.
The SME Association of Australia says the sector
is a vital part of the Australian economy with about
two million SMEs. SMEs represent more than 99.7
per cent of actively trading businesses and employ
70 per cent of the Australian workforce.
Yet it is estimated that every year one in 500
Australian business will experience a severe
disaster and half of the businesses that suffer
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major losses fail within two years.
The litany of major catastrophes in the last few
years has dealt some severe body blows to SMEs.
According to the ICA, most small businesses that
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Background
events are the same, a robust plan as a base is
essential.
Cyclones are a fact of life across northern
Australia. Locals live with this knowledge and
children grow up hardened to the destructiveness
of Mother Nature.
A focus on continuous improvement allows an
insurer the ability to deliver a response in line with
the needs of its customer base.
But in the last decade, Queensland has had a
frightening realisation of just how damaging
cyclones can be for a thriving regional centre.
Internal and external research is critical to
understand what is predicted and what insurers
need to deliver via customer experience.
Two events in particular have shifted the
goalposts.
Inviting weather experts (for example, the Bureau
of Meteorology) or disaster response personnel to
share information, projections and planning can
help insurers justify cost and rationale for
investment into response planning.
On 20 March 2006, far north Queensland was
reminded of the dangers of the storm season when
Cyclone Larry, graded category 4, with winds of
2
240km/h , hit the coast and tore apart the town of
Innisfail, south of Cairns, along with a number of
towns nearby. Throughout Queensland, Cyclone
Larry resulted in roughly $1.5 billion in total
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damage in its aftermath.
Larry was described as the second largest cyclone
to hit Australia after the horrific Cyclone Tracey in
Darwin in 1974 – that is until Yasi took its place
years later.
In the early hours of 3 February 2011, tropical
Cyclone Yasi – which ultimately, reached category
4
5 - hit far north Queensland. It crossed the coast
at Mission Beach and proceeded to destroy much
of the townships of Tully and Cardwell before
moving on to spread its damage across a greater
area that once again included Innisfail and a
number of townships that surround it.
Many insurers were able to utilise their event
response planning experience from previous
events, especially Cyclone Larry. For example,
event teams specifically created by Suncorp to
manage natural disaster claims and recovery were
so successful for Larry that the insurer still applies
this approach to event claims management today.
So, what are the key elements an insurer needs to
have in place before an event to set them up for
success in dealing with the volume and complexity
to come? How can insurers become event fit in the
off season?
Forward planning
Insurers have had so much practice in the last 10
years, that each would have its own „lessons
learnt‟ from its responses.
Having an event response plan – similar to disaster
recovery plans that most sophisticated businesses
have – is a critical element. Although no two
Inviting brokers and clients who have claimed as a
result of natural disasters to share their
experiences and ideas for improvement is critical
for not only process refinement but also the
creation of advocates and support within the
marketplace.
Simulation of disaster scenarios is critical to test
that the business has the necessary process,
people and infrastructure to provide a suitable
response.
While the industry had good practice with actual
events, periodic simulation exercises are important
for learning and pressure testing processes.
Insurance businesses never stand still and might
be, for example, implementing major IT
infrastructure that has never been under the strain
of events before.
Auditing and post implementation review of the
event response process is beneficial for providing
insight into the effective management and the
success of the response.
Location, location, location
Having assessment teams close to disaster scenes
as soon as possible is paramount to speed up the
process of helping businesses to recover after an
event.
Ironically, many insurers had event response
teams already working on Queensland flood event
claims when Yasi struck. This meant they were
„battle ready‟ and better prepared for Yasi in the
days before the cyclone made landfall.
However, with a number of disasters the damage
is so widespread that accessibility to devastated
areas is difficult, delaying recovery operations.
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Persistent rain in the impacted region in the weeks
following Larry made the assessment process
especially difficult. Some townships were
completely isolated by flooding and, even where
access was available, assessors and repairers
could not safely access damaged roofs because of
heavy rain.
Mobility is the key. After Yasi, Suncorp launched its
Customer Response Teams (CRTs), all-terrain
vehicles with on-board office equipment and
independent communication networks. They can
be set up anywhere and are manned by a claims
team ready to attend to the inquiries and needs of
customers following a devastating event.
Communication
Communication internally within the insurance
organisation, externally to brokers, their clients,
and to the market is critical during event response.
Event response planning allows identification of
the parts of the business that play a role in the
response. From this, communication protocols,
plans and accountabilities can be designed and
embedded. These can also be tested as part of
simulations and post implementation reviews.
Teams who manage internal and external
communications play a critical role in keeping the
business informed on how the response is
proceeding and keeping the public updated on
response actions.
Claims teams managing claims arising from the
event communicate constantly with brokers, clients
and a range of people who support the response
process – assessors, builders, and repairers.
The coordination of this web of communication is
challenging to insurers but critical to the success of
claims management and the response outcome.
Strong process, training and support are required
for claims officers during this time. They are
generally the face of the customer experience, so
they need to be skilled in delivery of information,
appropriateness of messaging and have access to
the correct tools to perform their duties.
Expectation agreement, communication and
management with brokers and clients are essential
to a successful outcome.
Resourcing/third party providers
The close proximity of the Queensland floods to
Yasi highlighted a number of major challenges for
insurers.
For example, there was a chronic shortage of
assessors across the industry.
Competitive pressure has led many insurers to cut
back on excess resourcing in this area. This works
well until catastrophes create demand for
resources. Assessing can become a bottleneck
since it is essentially the first stage.
For Yasi, insurers had to bring in overseas loss
adjusting teams to help the already overloaded
local teams.
The ability to quickly resource up when disaster
strikes is essential.
A core team of experts needs to be available at all
times. However, the ability to “bolt on” further
personnel on a needs basis as a disaster
escalates is vital.
For instance some insurers have drafted in their
business development managers and sales
personnel who have events management training
and local knowledge, to assist with the multitude of
claims that pour in after a disaster.
Creating a reliable, cost efficient supply chain is
also essential in times of rebuilding after a
catastrophe.
However, a large event, like a cyclone, creates
widespread damage and the complexity around
building project management is time consuming.
The need for highly qualified third parties to partner
with insurers for such major operations is
imperative.
Insurers faced a massive scale of damage after
Cyclone Larry.
There is a limit to how much insurers can lock
down supply chain arrangements pre-event.
Insurers need to understand not only their own
resourcing limitations, but also their expertise
limitations.
The particular challenges of large scale
catastrophes require skills more akin to
construction project management rather than
claims management.
For example:
Access to trades and vetting processes.
This is particularly an issue in remote
locations
Scope control
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Labour and material rates
Businesses require rapid rebuilding or settlement
to avoid business interruption impacts. Insurers
also need to control cost (on behalf of both
shareholders and reinsurers) and quality.
During Cyclone Larry Suncorp partnered with
building management multinational Lend Lease to
implement a project managed approach to repairs.
This meant that cost, quality and time were
managed for customers and resulted in a
controlled repair process. Suncorp worked with
Lend Lease to recruit a panel of endorsed
repairers – including as many from the local area
as possible - to undertake repairs for Larry claims.
The Suncorp relationship with Lend Lease now
immediately swings into action for any major
events.
Working with intermediaries
Strong relationships between insurers and brokers
are vital in the trying times after disaster strikes.
But this is one area the industry can continually
improve on.
Working with brokers can assist in the flow of
communication between insurers and end
customers.
Inviting brokers and customers who have claimed
as a result of natural disasters to share their
experiences and ideas for improvement is critical
for not only process refinement but the creation of
advocates and support within the marketplace.
Suncorp carries out post event broker road-shows
which prove invaluable in improving a greater
understanding between the insurer and the brokers
when disasters strike.
An example of how an insurer and broker can work
closely for the mutual benefit of the customer came
in the recent Roma floods when Suncorp colocated with the broker who had the highest
customer exposure to the event.
This enabled the broker, who became part of the
team, to provide valuable feedback and
prioritisation of customers based on their needs or
special circumstance.
Technology
Utilising the latest technology is key to how
insurers will respond to natural disasters in the
future.
However, the industry‟s ability to use devices,
including iPads and smart phones, will be
dependant in the early stages of the event on the
severity of damage to the telecommunications
network in the effected region.
Insurers found when responding to Cyclone Larry
that most of the network was also destroyed in and
around Innisfail with only limited coverage in the
first week after the event. In 2011, post Cyclone
Yasi, the communication network was not as badly
affected. However, power outages can affect the
early stages.
In recent times effective claims management
systems have made the handling process quicker,
more accurate and trackable.
Work from home capability means that staff who
are prevented from accessing normal working
premise can continue to service clients and
brokers during event scenarios. (Suncorp‟s
Commercial Insurance claims staff worked from
home during the Brisbane floods as they could not
get access to Brisbane CBD).
Mobile technology means that claims staff,
assessors and support staff can operate from the
impact area, to provide that „on-the-ground‟'
support to clients and brokers.
Collaborative culture
A unified approach across lines of business within
an insurance company is important. All parts of the
response must operate in a coordinated, planned
manner to ensure customer confidence.
Event response plans must capture and reflect the
role of each participating business area, their role,
and responsibilities.
Benefits can be obtained from fully utilising all
services on offer across the business (e.g. why go
to an external communications company, when
there is an in-house team who can provide the
same services, with an existing understanding of
the business and at a lower cost?).
Benefits can also be obtained from utilising scale
to leverage purchase costs, obtaining services
(electronics, bulk accommodation or travel
bookings), etc.
Smart planning and a collaborative approach to
response means that real estate can be shared,
providing a more unified approach. In Roma,
Suncorp assessors were working out of a broker‟s
office. This is not just a cost saving, but means
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fewer barriers to communications resulting in better
outcomes, quicker results for customers.
A key element of staffing is the continuity of “event”
experienced staff. Insurers need a core of
experience to tap into - not just experienced claims
personnel, but those who have lived through
events and know what issues can arise, and how
to deal with them quickly.
An insurer‟s event response plan should include
recruitment and training plans. As mentioned
above, it is much easier to scale up if the insurer
has the base of event experienced staff.
Economic resilience
According to a Deloitte Access Economics
research paper commissioned by Suncorp, the
summer disasters are estimated to have reduced
Queensland‟s gross state product by $6 billion and
annual economic growth by 2.5 percentage
5
points.
Personal impact
Even with experience, planning and resources in
place, insurers felt the challenge of significant and
consecutive natural disasters in the last few years.
Many insurance employees were directly impacted
by catastrophes (the Queensland floods
especially), losing their own homes and personal
belongings and, at the same time working on the
claims of their customers.
Others experienced fatigue from the long hours
and the sensitive and upsetting nature of the work.
Many insurers made counselling services available
to their employees and their families.
Stakeholder education
There is a crucial role for the insurance industry both insurers and brokers – to educate businesses
about the risk they face.
Insurance has a major role to play in promoting
economic resilience of communities and the
business within them.
Research carried out by the Cameron Research
Group in 2010 found that 90 per cent of small
businesses believed that they were „adequately
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covered‟ for their general insurance.
The income flows provided by insurance claims
payments helped stabilise the economy following
the initial shock from the disaster.
But in reality the research showed that many did
not have the necessary insurance in key risk
areas.
The financial stimulus from claims payments
promotes a more rapid adjustment to normality.
More than half did not have business interruption
insurance – which can prove vital for small
businesses but is often overlooked.
Claims expenditure continues to flow through an
economy after an event. This provides an
important impetus to recover in the longer term,
particularly by supporting employment and
businesses continuity.
This is primarily because of a lack of
understanding of what types of insurance cover –
especially business interruption covers - were
available to keep them in business.
Suncorp – as the largest insurer in Queensland –
estimates its disaster-related payments contributed
about 0.16% to the Queensland economy in 2011.
This is a clear opportunity for brokers, who can
assist the more complex businesses to be
adequately protected.
Over a 10-year period, Suncorp‟s overall impact to
the Queensland economy is projected to be $1.2
billion.
Even micro businesses, which have basic
insurance needs, can obtain appropriate covers
online – if they are aware they need it.
This is over and above that provided by
governments in their post disaster responses.
Unfortunately, small business owners are reluctant
insureds. It seems clear from underinsurance
statistics that they often do not understand the
importance of insurance or do not place the
appropriate value on it.
Without private insurance coverage the economic
impact on communities and businesses would be
substantially greater.
Perhaps ironically the underinsurance or absence
of insurance of many businesses means natural
disasters have, ultimately, a greater impact on the
broader economy.
Earlier this year, the national Vero SME Insurance
Index found that 40 per cent of SMEs surveyed did
not believe they were getting value for money with
7
their insurance.
7
The recent weather-related events have not helped
„win over‟ businesses.
The Vero SME Index noted half of SME decision
makers have been made more wary of the
insurance industry after the recent events.
The perception that insurers are reluctant to pay on
a claim has also hampered efforts to convince
businesses of the need for insurance.
Cameron Research noted that despite one in five
small businesses enjoying a positive claims
experience, the majority continued to fear being
treated “unfairly” in the event of a claim.
What the industry didn’t do right
While insurers now have well-oiled machines that
can be brought in when disasters strike, inevitably
things can go wrong.
The sheer size and the chaos that follows an event
and, not surprisingly, the human elements involved
can lead to frustrations and even anger on the part
of customers.
While much energy and investment goes into
improving how insurers communicate, this is an
area where improvement can always be made.
Both the Federal Government and the Queensland
and NSW state governments have been fairly mute
on the matter of mitigation. The insurance industry
– led by the ICA – has been lobbying the various
governments as well as the local bodies in
impacted areas for some time on mitigation with
slow progress.
Yet, those communities protected by appropriate
mitigation experienced substantially less damage
and disruption from the recent catastrophes
compared to those left vulnerable to extreme
weather.
Some areas have been proactive. For example,
local Queensland councils in Charleville and St
George have invested in levees and parts of Far
North Queensland have reconstructed to higher
building standards after Cyclones Larry and Yasi.
A positive side effect of mitigation has been lower
average insurance premiums in areas with welldefined mitigation plans.
But other areas have not been so proactive. Roma
in Queensland, for example, has had three floods
in the last two years and nine since1983.
For example, insurers should invest time in the „off
season‟ to consult with brokers to educate them on
the response process and to look for improvement
opportunities.
Suncorp took the unusual step recently of
announcing that it would not write any new policies
for Roma and nearby Emerald until firm funding
and timetables were in place for initiatives that
better protect these towns from flooding. A levee is
now under consideration in Roma.
A key issue is the education of businesses and the
community on the value of insurance. As an
industry we could do more to educate (see
„Stakeholder Education‟).
But local councils cannot work alone in developing
robust mitigation plans. State and Federal
governments need to take a leadership role in
funding mitigation plans in risk-prone areas.
Insurers can always respond quicker. However,
there is a fine balance between responding without
understanding the impact of an event (location,
severity, volume of claims, and type of damage)
and quickly responding when well briefed.
It’s not just up to the insurance industry …
While this paper has focused on what insurers can
do to help businesses and the communities get
back after disasters, activities by other
stakeholders are crucial.
The need for better mitigation, particularly flood
management, was highlighted by the Queensland
disasters.
In a country where natural disasters are becoming
more frequent, preventive measures to minimise
the impact of the disasters has been poor.
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Conclusion
The frequency of major weather-related
catastrophes in recent times has seen Australian
businesses again and again trying to recover from
the aftermath.
While the damage to homes and communities
made the headlines, the impact on businesses,
particular SMEs, is often overlooked.
Businesses are more vulnerable and the impact is
often terminal. They cannot afford to be
inoperative for very long.
It can take weeks or even months to get a
business back to full operation after an event such
as a fire or flooding. All the while, expenses like
rent and wages still have to be paid which can turn
a profitable business into one that is making a loss.
The businesses which have adequate insurance
cover generally survive, with insurers well aware of
the need for speed when disaster hits a business.
Yet many businesses remain underinsured and
with the economic uncertainties reluctant to
maintain the level of cover they need.
This is aggravated by the fact that, post the major
catastrophes, many insurers have been forced to
increase premiums. While businesses accept the
increase in such costs as purchasing new
equipment, they often baulk at ensuring they have
the insurance to cover those increases.
Businesses‟ understanding of what cover they
need is limited. There is a crucial role for the
insurance industry to educate businesses about
the necessity of proper insurance cover.
unprecedented pressure on claims, assessing,
hydrology and loss adjusting resources.
And, not forgetting the toll on its own people.
But while the spate of concurrent and consecutive
natural disasters put an incredible strain on the
insurance industry it, perhaps ironically, has seen
some positive effects.
The pressure has forced the industry to think
„outside the box‟ and do things differently when
each new catastrophe hits.
From each disaster insurers have learnt how they
can help customers better.
The catastrophes have taught insurers about a
new level of response and created new
dimensions to review their portfolio of products as
they piece together the costs, consider the
heightened risks and work out how to deliver to
their customers.
No two catastrophes are the same, even if they are
of the same type (cyclones, major flooding, etc)
and insurers will have to continue to review and
evolve their catastrophe response plans.
Another by-product of the recent series of
catastrophic events has resulted in growing
community awareness of the value of insurance
being greater than ever before.
It has demonstrated that the insurance industry
plays a vital role rebuilding communities and
helping people at a time of need.
The industry needs to work as one to demonstrate
the value of insurance to businesses.
However, while the insurance industry is
proactively ensuring it can help businesses and
communities when disaster strikes, governments
and local bodies seem to be dragging their
collective feet.
The cumulative effect of the recent catastrophes
on SMEs has correspondingly impacted on
Australia‟s economy.
The need for governments and local bodies to take
pragmatic and practical mitigation action to
minimise the effects of disasters is now paramount.
Government help has been limited and it has often
been the private sector – the insurers – who have
been there to pick up the pieces.
The litany of disasters in recent times should be a
trigger for authorities to proactively take measures
to protect risky areas.
But this has come at some cost to the industry,
both financially and in terms of resourcing
demands.
Otherwise, insurers will either become more
reluctant to insure various areas or be forced to
increase premiums to cover the repeated costs
they have to pay out on risk areas being hit time
and time again by events.
After the horror catastrophes of 2011 and 2012
insurers were expected to continue delivering
despite the extraordinary circumstances and the
Claims are the moment of truth for insurers - and
the insured.
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APPENDIX ONE
Sources
1
Disaster Recover Journal Volume 13, Issue 2
2
Bureau of Meteorology
3
Insurance Council of Australia
4
Bureau of Meteorology
5
“The Road to Recovery: The impact of insurance
following the Queensland summer of disasters”
(Deloitte Access Economics)
6
“The Australian Business Market for Financial
Services: 2010; Insurance and the Small Business
Market” (Cameron Research Group)
7 “
Vero SME Insurance Index 2012” (Suncorp)
The Suncorp Group
Suncorp Group Limited and its related bodies corporate and subsidiaries (collectively „Suncorp‟) offer a range
of financial products and services including banking (Suncorp Bank), general insurance, compulsory third
party (CTP) insurance, workers compensation insurance, life insurance and superannuation (Suncorp Life)
across Australia and New Zealand. Suncorp has around 16,000 employees and relationships with over nine
million customers.
Suncorp Commercial Insurance (CI) provides a wide range of business insurance products to small and
medium sized businesses as well as corporate customers. These products are distributed nationally both
directly and indirectly through intermediaries. CI provides workers compensation insurance in Western
Australia, Northern Territory, the ACT and Tasmania, and operates managed fund schemes in New South
Wales. CTP insurance is provided in New South Wales and Queensland.
CI offers a wide range of insurance products and distributes them under the Suncorp, Vero, GIO and AAMI
brands.
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