Blown Away

Hurricanes Charley, Frances, Ivan and Jeanne created the largest ever hurricane damages bill and a wave of new challenges for the insurance industry.

The swift assessment of four large loss claims submitted within a month presented its own problems for the industry. Individual hurricanes mean unpredictable problems for the industry, but four hurricanes present countless conundrums.

"A hurricane could happen anytime, anywhere and planning for it can be extremely difficult," says Axis managing director Peter Shortland. He said the 2004 hurricane season presented a unique set of problems.

He lists: unprecedented strain on the mechanisms set up to deal with singular disasters; staff resources were rapidly exhausted; government and company financial contingency funds were stretched, and basic resources such as clean water and electricity were unavailable in some places.

These issues have had a direct impact on how efficiently insurers responded to the crisis. Shortland says the industry's initial response model has been tried and tested by countless individual hurricane events, but was not prepared for the impact of four hurricanes.

"You could only plan in your worst nightmares for four hurricanes," says Shortland. A swift response, he says, helped prevent more problems arising and allowed claims to be handled quickly.

"In the case of places like the Caribbean it was difficult getting loss adjusters there," says Shortland. "When they were on the island they faced a list of problems. For instance, in the Cayman Islands there was no running water so we had to get bottled water on to the islands. We needed a temporary office, electricity, and cars to get around in. These were all things we had to take into consideration."

Kiln claims manager Ashley Lawrence says sourcing effective staff from a global network of loss adjustors was difficult.

"We spread the work out among the loss adjusters to make sure we had the resources to deal with any problems," he says.

Loss adjusters have to pick over the wreckage and embark on a lenghty series of communications withclients, insurers, local emergency services to assess damage.

"Getting the right loss adjuster is crucial," says Lawrence. "There is always a huge amount of work to be done very quickly and it is up to the loss adjuster to prioritise."

Financially the strain can be too much for some companies that have to pay out hundreds of claims in a short space of time.

Shortland says Axissuffered the economic pressure of the extreme weather season. "We always have some money put aside for hurricanes, but this was an initial strain on us," he says.

"It is impossible to set aside the level of money needed to cover this scale of disaster."

Lawrence says having the capacity to manage hurricane claims - "which you cannot anticipate" - is essential.

Florida has a contingency fund to cover some of the economic impact.

But in smaller islands rarely hit by hurricanes, funds do not exist.

"It varies from island to island," explains Lawrence. "Each place has a different way of handling hurricanes. There are some set standards, but in some places it can be more difficult than others."

The set response procedures came into being following Hurricane Andrew, which hit the Florida peninsular in 1992. Andrew was the most costly US storm on record until 2004 with total losses of $26.5bn.

In the hurricanes' aftermath, contractors moved into Florida in large numbers to reap the financial rewards of the clean-up programme. The law has since been changed to prevent cowboy contractors from exploiting the process.

It also restricts loss adjusters from entering the state until the emergency services have made their initial assessment.

As a result, people living in the state have become more aware of what they are entitled to in the hurricane aftermath.

Ashworth Mairs group chief technical officer Kevin Wood says the emergence of a claims conscious culture means that policyholders are becoming more aware of their compensation rights.

"People have greater expectations of their insurers now," he says.

According to Shortland policyholders are also more understanding of the problems facing insurers in catastrophic events.

In most cases loss adjusters are working closely with the client. Two-way communications between the parties, he says, can help to prevent problems from arising.

Disaster ready

Awareness of the extreme weather cycle has also increased, encouraging more people in the US to be prepared for hurricane disasters.

According to meteorologists, extreme weather could become a feature of 2005.

The way the industry prepares and responds to the weather could evolve rapidly as a result. Technology will develop further to meet the challenges presented by hurricanes.

There could also be changes to the way premiums are paid as experts gather more knowledge of how the cycle operates.

Shortland says there are no certainties. "We don't know what is going to happen to hurricane coverage if people begin to perceive it as an active cycle."

Hurricane Andrew caused the collapse of 12 home insurance companies in the US and pushed many Lloyd's syndicates to the brink of financial collapse.

The 2004 hurricane season will create the biggest ever damages bill, higher than the $20bn (in current values), caused by Hurricane Andrew.