How insurers can manage losses as NatCat events ramp up

Whatever’s driving increasingly devastating storms over the past decade, one thing is certain — insurers have watched NatCat losses ramp up over the past decade.

“It used to be an unusual year where you’d have more than a billion dollars in cumulative Cat loss activity in the country,” Graham Haigh, senior vice president and chief operating officer of Wawanesa Mutual Insurance told CU. “Now, the industry expects higher than a billion on an annual basis.”

In response, Wawanesa has engaged in some retooling to handle the new normal. For example, the company’s claims function now includes a national catastrophic loss team.

“We deploy them throughout the country,” Haigh said. “When these events occur, we’re on the ground as soon as we can be…helping with mass evacuation costs and any additional living expenses, in addition to any structural damage they might have.

“That Cat loss team is a relatively new team. We used to manage it with our regional folks, and it was enough. It’s not anymore. We now need dedicated resources specialized in dealing with all aspects of NatCats.”

Increased storm frequency — which creates a destroy, rebuild, repeat cycle — makes everyone’s job harder. It’s become difficult for both insurers, who’ve promised to get clients back to where they were before a storm took place, and the restoration companies, which must race to complete work before the next catastrophe strikes.

The rising frequency and severity of NatCats creates processing backlogs.

“Carriers are keeping files open for longer periods and they are exposed to additional risks while waiting for homes to be rebuilt,” said Greg Smith, president of Canadian operations at Crawford & Company. “A lot of time and effort goes into temporarily securing the properties to avoid additional theft or vandalism, and water or wind damage, as they wait for repairs.”

During those waiting periods, “there’s a risk the price of reconstruction will increase with localized inflation, causing the value of the loss to go up. There is a continuing demand for construction materials, crews, labour and equipment.”

Barriers to resolution

A big problem with speed to settlement is the lack of portability for adjusters due to provincial regulations, noted Glenn McGillivray, managing director of the Institute for Catastrophic Loss Reduction.

“Sometimes it’s hard to move contractors or adjusters from province to province due to licensing requirements,” he said. “If we can make it easier to move people around [during] emergencies, that would be great.”

Harmonizing rules governing the work adjusters do among the various provinces would also help. Several sources noted it’s often easier to bring Americans up to certain Canadian provinces than it is to move an adjuster from one province to another. The same can be true for building contractors.

Lack of bodies for both sets of tasks strengthens the case for building back better by upgrading materials and updating building codes to ensure rebuilt homes are more durable, McGillivray said.

“We still have homes in Barrie, Ontario that are not repaired from the [2021] tornado. We have homes in Calgary from the 2020 hailstorm that still are not repaired. We’re way behind,” he told CU. “There’s a housing crisis in this country…. And yet, we’re taking hundreds and often thousands of homes offline every year due to hazards. We can’t keep this up. We’re not even treading water. We’re going backwards.

“If we can build more resiliently…and if we can improve building codes and try to protect these homes, we wouldn’t lose as many.”

This story is excerpted from one that appeared in the November print edition of Canadian Underwriter. Feature image by iStock.com/sesame