Category Archives: Claims Management

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Colorado Flood Damage Estimated at Over $2 Billion

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Colorado River at Flood Level

Economic damages from the recent flooding in Colorado are expected to surpass $2 billion, according to a recent report from catastrophe risk modeler Eqecat. Most of that financial burden will fall on residents because very little flood risk is insured in the state.

Between 1,500 and 1,800 homes have been destroyed and thousands of homes have been damaged, leaving more than 10,000 people displaced. The estimated total cost to repair destroyed homes averages $300 million and early reviews of residential flood damage indicate an average of $20,000 to restore each of the 17,500 flooded homes that were not destroyed. But because of exclusions to the basic homeowners insurance policy, most of the losses will not be covered by insurance.

Historically, a very small portion of homeowners purchase flood insurance on homes outside of the 100-year flood zones outlined by the U.

S. National Flood Insurance Program, which provides insurance as part of a mortgage. Of the 17 counties impacted, most of the areas are not within defined flood zones.

President Obama declared a major disaster in nine of the hardest-hit counties, making residents eligible for direct federal grants to repair their flood-damaged homes, replace personal property and provide rental assistance, Reuters reported. This status also allows workers left jobless by the disaster to claim unemployment payments of up to 26 weeks and makes special low-interest loans available to farmers and small businesses to help cover their uninsured flood losses.

While these measures may help with immediate need, the extensive damage will require months of recovery and more rain is currently expected to cause rivers to crest another foot above flood stage today. With hundreds of miles of road flooded and many bridges and dams damaged or destroyed, Eqecat estimated losses to commercial and government properties and related expenses to total around $1 billion. Colorado officials announced a Dec.

1 target to complete temporary fixes to at least some of the heavily damaged roads, according to the Weather Channel. State highway crews and National Guard troops have already begun work to repair highways to mountain towns cut off by the flooding – roads that will only lead to more treacherous situations in remote areas as winter approaches.

Residents of one town have been told they will be displaced for up to six months, according to NBC News. Lyons town administrator Victoria Simonsen told a public meeting last week that E. coli bacteria had contaminated the drinking water system and the wastewater system incurred at least $1 million in damage, leaving the town unlivable for the foreseeable future.

This morning, authorities announced the eighth confirmed death from the flooding. Reuters reported that the search for hundreds of missing residents is winding down, with all but a half-dozen people now accounted for.

The New Reality of Risk

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In wondering what the new year has in store for the insurance industry, Marsh hosted “The New Reality of Risk – U.S. Insurance Markets and Risk Trends in 2013,” a webinar produced on the heels of their Insurance Market Report 2013 publication. The webinar touched on firming in the market, Superstorm Sandy, cat models and workers comp, among other things, with insights from:

  • Dean Klisura, U.S. risk practices leader for Marsh
  • Cliff Rich, managing director in Guy Carpenter’s global business intelligence unit
  • Duncan Ellis, Marsh’s U.S. property practice leader
  • Jon Zaffino, Marsh’s U.S. casualty practice leader
  • Chris Lang, U.S. placement leader for Marsh’s FINPRO practice
  • Claude Yoder, head of Marsh global analytics

Catastrophe Market

“One thing we have seen change dramatically in the past two years relates to cat losses,” said Klisura. As he noted, insured losses over the past 10 years have averaged $50 billion, with a spike in 2011. The industry has experienced two straight years of well above average losses — coupled with feeling the effects of low interest rates and a shaky economy. “However, the industry still remains well capitalized,” Klisura remarked.

Klisura doesn’t envision a hardening environment, but claims certain sectors of the market are in transition. “A few things risk managers should keep an eye on in 2013 are cat exposed property risk, including risk with flood zone exposures — it will be a big one,” said Klisura. He also noted that certain sectors of workers comp market will may experience changes along with complex financial institution risk and competition among insurers, which is expected to remain intense in 2013.

Reinsurance

The reinsurance market at January 1 was characterized as stable. Superstorm Sandy, crop losses and other severe weather outbreaks resulted in global losses of $60 billion, which was less than 2011 losses, but the sector continues to be challenged by the macroeconomic environment — namely, the economy. “Casualty rates increased modestly in 2012 but at January 1, 2013, renewal rates, casualty pricing stabilized,” said Cliff Rich.

Cat Limits

According to the panelists, carriers are being a little more stingy around cat limits. For cat sub limits, they are seeing carriers limiting the amount of flood coverage. For deductibles, they’re seeing a push for per-location deductibles on flood vs traditional per-occurrence deductibles. For premiums, there is renewed pressure on some cat exposed insureds and on a client by client basis. “For 2013, I think it’s much of the same we’ve seen,” said Ellis. “2012 could be the third year in a row that property insurers have not realized a profit. The big unknown? 2013 losses.” There is a potential for “trading” between retention and premium, he explained.

Cat Models

In terms of catastrophe models, Ellis feels they will change to take into account both Irene, which had insured losses of $4.4 billion, and Sandy, which had insured losses of $18 to $25 billion. This drives home the point that insureds should provide high quality data for models. “What I’ve heard is that losses from Sandy are what was expected from modeling,” Ellis said. “But models will change.”

There are several widely used models for wind and earthquake, Ellis pointed out. But that’s not the case with flood, despite flooding being the loss leading peril over the last few years. “There’s nothing consistent market-wide yet,” he said.

Casualty Market 

Jon Zaffino explained that insurer competition is strong. However, challenges may arise from clients with difficult loss experience and certain individual risks, or line of business characteristics. “It’s a tug of war between the technical and trading environment,” he said. “We may see rates flattening in some lines in 2nd half of 2013.”

  • Technical – macro factors such as loos-cost trend, interest rates, etc.
  • Trading – insurance supply/insurer appetite and market depth and breadth

Workers Comp

This segment continues to operate at historically unprofitable rates for insurers. Marsh illustrates this with a graphic based on their client accounts.

“Medical expenses as a percentage of toal claims continues to rise, along with the escalation of prescribtion drug use and abuse,” said Zaffino.” Active pre- and post-loss programs, medical cost containment measures and a variety of other technigues help clients manage their claims.

“The largest trend we’re really seeing in casualty is the need to create a comprehensive view of total cost of risk, or TCOR,” said Yoder. “For workers comp, there is much available data, advances in the way insurers calibrate their underwriting and pricing, and a wave of claims-based modeling. Plus, predictive analytics use in claims modeling is accelerating.”

Directors and Officers 

According to Chris Lang, rates in the management liability market are trending upward. As 2012 progressed, leading insueres obtained upwards of 10% increases, and average program rate increases of 5%. “Smaller sized market companies are experiencing higher rate increases than are larger companies,” said Lang. “In 2013, expect insurers’ rate discipline to continue.”

Regulatory actions are increasing. According to NERA, in 2012, settlements rose 6.6% compared with 2011, to 714.

 

Opioids in the Office

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Narcotics abuse among the American public has received a good amount of publicity lately — and rightly so. There are now more workers addicted to opioids than ever before. And it seems physicians may not be doing all they can to regulate patient intake.

In fact, a new report by the Workers Compensation Research Institute (WRCI) states that one in 12 injured workers who started prescription narcotics were still using them three to six months later. “Longer-Term Use of Opioids” examined long-term use of narcotics in 21 states and how often physicians monitored injured patients after prescribing the drugs.

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“This study addressed a very serious issue: how often doctors followed recommended treatment guidelines for monitoring injured workers under their care, who are longer-term users of narcotics,” said Dr. Richard Victor, WCRI’s Executive Director. “This study will help public officials, employers, and other stakeholders understand as well as balance providing appropriate care to injured workers while reducing unnecessary risks to patients and costs to employers.

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”

Among the key findings were:

  • Longer-term use of opioids continued to be prevalent in workers compensation, especially in Louisiana and New York, as well as Texas, Pennsylvania, South Carolina, California and North Carolina.
  • Drug testing was used less frequently than recommended by medical treatment guidelines. Among claims with longer-term use of narcotics, 18-30% received drug testing in most states studied, with the 21-state median at 24%. Over the study period, the percentage of workers with longer-term use of narcotics who received at least one drug test increased from 14 to 24% in the median state.
  • Use of psychological evaluation and treatment services continued to be low. Only 4–7% of the injured workers with longer-term narcotic use received these services in the median state. Even in the state with the highest use of these services, only 1 in 4 injured workers with longer-term narcotic use had psychological evaluation and 1 in 6 received psychological treatment.
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    Little change was seen in the frequency of use of these services.

The graph below is disturbing, considering the addictive nature of opioids, especially the longer the patient is dependent on them.

In response to these findings and the media coverage surrounding them, the Office of National Drug Control Policy (ONDCP) issued a statement regarding an initiative aimed at addressing the problem. The agency unveiled its new web-based program that was developed to help doctors prescribe addictive medications, such as Oxycontin and Percocet, in a more safe and controlled manner.

Prescription drug abuse is the nation’s fastest-growing drug problem and affects everyone from teenagers to stay-at-home moms to, most likely, the very people you work with. We are dealing with what the Centers for Disease Control and Prevention classifies as an epidemic. And though the Obama Administration’s National Drug Control Strategy and the ONDCP’s 2011 Prescription Drug Abuse Prevention Plan are helpful in addressing the problem, they will in no way solve it. For that, education is key, not only in the homes and schools of the American public, but in the workplaces as well. It’s smart risk management.

The 3 Most Curious Claims

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As an editor of a publication, I get a lot of emails that don’t amount to much — mostly press releases. But every once in a while, there is a gem in a pile of useless information. Today, I found a gem. The following are the three most curious claims as reported by Mercury Insurance’s Special Investigations Unit:

  1. A Shot in the Dark — An LAPD gang detective reported his expensive BMW stolen from a Los Angeles-area strip mall. Police responded quickly, but became suspicious when the detective’s nephew arrived on scene seconds later to give him a ride home. Doubts deepened when the detective suffered a mysterious gunshot wound shortly after they theft. He alleged the shooting and theft were gang retaliation for his work fighting gang crime in the city, but the real story turned out to be quite different. LAPD and Mercury’s SIU were able to prove the detective orchestrated everything, including the shooting, in an attempt to defraud Mercury out of thousands of dollars. The investigation revealed the detective was more than $1 million in debt and he faked the carjacking to collect on his insurance policy. He then shot himself trying to bolster his disintegrating story, but later pled guilty to all charges and was sentenced to prison. His claim was denied.
  2. Oscar-Worthy…Not So Much — The insured’s car lightly collided with a stationary public bus. The much larger bus didn’t budge and no damage occurred to either vehicle, though one woman onboard claimed she suffered significant neck and back injuries. The SIU went to work investigating this injury claim and uncovered video footage of what transpired.
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      You be the judge:  (click here to watch the video). That flop puts soccer players to shame. No surprise, her suit was dismissed by the court.

  3. Let It Burn — The insured owned a $160,000 motor home and was having trouble selling it. Conveniently, it became the target of an arsonist – setting up the insured for a major payday. Think that sounds a bit too good to be true? So did investigators. The arsonist, who turned out to be the insured’s next door neighbor, was severely burned during the crime and quickly arrested. SIU investigators then obtained the name of a middleman, a 22-year-old friend of the insured, who hired the arsonist. Prior to any interrogation, though, he died in a suspicious motorcycle accident following a night of drinking with, you guessed it, the insured. As SIU’s investigation continued, the arsonist was handed a 16-year prison sentence. While serving time, his recorded prison phone calls implicated the insured as the architect of the crime and the ploy was exposed. The insured received a hefty prison sentence and his claim was…denied.
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“I’m continually amazed by some people’s brazen, foolish attempts to cheat the system,” said Dan Bales, Mercury’s national director of special investigations.

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Brazen and foolish seem like a bit of an understatement.