By Tim Molony, AIC, MGA
Tim Molony
The Reinsurance Podcast Episode #62 is thought provoking. Jerad Leigh and Ben Rose dig into the current hard market. To me, some of the discussion begs the question, “Why does it seem that the insurance/reinsurance industry always appears to be reactive, rather than proactive?”
In some ways I believe the industry is forced to be reactive in that rates are, in large part, based on historical data, in particular loss ratios. Actuaries and other smart number crunchers immediately start considering new variables as soon as they’re spotted (i.e. pandemic). The problem is they’re reacting. No matter how quickly a new variable is factored into algorithms, it’s often too late to be considered proactive.
We all have a primary lens that we look through. Having been a claims adjuster for 30 years, this year, I regularly look at the industry through the claims lens. Below is the progression (OK maybe 1 & 2) I have witnessed over the last 30 years:
- What Was: Write and document the damages.
- What Is: Write the damages and document everything, especially what isn’t damaged.
- What Could Be: Truly knowing the risk ahead of the claim.
OK Tim, what does that mean? When I started handling claims in 1993, we had paper files housed in various locations across the country. When you needed to see a prior loss, you often had to request it. A courier would deliver that file. What you received is significantly different than what you would expect today. What Was had adjusters so focused on what was reported as damaged that too often nothing else was considered. The prior loss might have 2 photos, a risk photo and a photo of reported damages. What Changed were major events where what was simply wasn’t adequate. Following Hurricane Ike, a major plaintiff law firm identified this major issue and relentlessly attacked. They filed tens of thousands of lawsuits and focused on the current what is. They didn’t attack what was, they attacked what was missing. The homeowner or business owner “didn’t report that” wasn’t an adequate response to the tens of thousands of lawsuits. “I didn’t get in the attic” wasn’t a sufficient answer.
What did the insurance industry do? It reacted. It changed best practices and raised the bar. File requirements now generally mandate inspections and documentation of everything deemed to be within reason.
At one point (what was) the property forms written in Texas were policies very unique to Texas and lacked ADPL (Accidental Direct Physical Loss) language. What happened? Well, in a way, it started in Dripping Springs TX with what we now refer to as “The Ballard Case.” Following this, most every single property carrier in Texas had significant unsustainable losses. The issue was damages weren’t limited to direct physical loss. This opened up indirect losses that ended up being much more significant than the direct. No longer was damage from moisture limited to what the water touched. Consideration was given to every square inch of indirect damages from “mold.”
What did the industry do? The industry reacted. The industry advised The State of Texas that it could not conduct business in Texas without policy language that is used in the other 49 states – ADPL.
Have you identified “What could be” solutions? I’m interested in hearing from you. Please feel free to share in comments or with me directly. In my professional life, this is my favorite subject. I can’t get enough.
Tim Molony is Director of Business Development for BSC Forensics. He has 30 years in the property and casualty industry and leads a forensic claims team that specializes in complicated cause and origin analysis. Tim has published numerous articles about best practices in claims handling and speaks throughout the country to insurance industry audiences. You can reach him at [email protected].
LMA Newsletter of 8-7-23
