A year on from the floods, Helen Groom asks insurance insiders to judge the industry’s response to the crisis and outlines the lessons that have been learnt.
Twelve months ago, the insurance industry was faced with approximately 180,000 claims from the floods that hit the UK. Not only was the damage devastating for householders and businesses, but the total cost of claims is estimated to be around the £3bn mark.
The 2007 floods put an enormous strain on the insurance industry, which dealt with an estimated 130,000 domestic, 30,000 commercial and 20,000 motor claims, according to the ABI.
Dealing with any major claim involves many people and companies, all part of an established supply chain. The floods generated a deluge of claims, but with many links in a complicated chain of claims management and suppliers, did the system stand up to the pressure, and what has the industry learned since?
“The industry did a tremendous job in how it coped with an unprecedented event,” says Biba technical services director Steve Foulsham. “When you think of the number of claims the insurers and brokers had to deal with in such a short space of time, that’s especially true.” And by May this year, around 96% of people who were affected by the floods were back in their own homes, he adds.
Foulsham’s positive outlook on the response to the floods is broadly shared by others within the industry. “The service provided to commercial clients and household clients was outstanding,” says Broker Network managing director Mark Wood. The geographical spread of the flooding caused some problems for all elements of the supply chain, with resources initially moved to the Hull and Sheffield area to cope with the first floods, and then shifted to the west of England to cope with the second event. Resources were very tightly stretched in all areas, with many operators bringing in additional equipment from other European countries to help cope with the strain.
“Had the second event not occurred, there wouldn’t have been an issue in terms of resources at all. All of us in the supply chain had to move resources away from the first area to react to the second event,” says Mark George, client development director for Cunningham Lindsey.
“Fundamentally there were too many claims,” says The Revival Company managing director Graham Orriss. “I don’t think there was any restoration company that could have handled that without extra staff.”
So while the industry coped admirably in challenging circumstances, what could be done better next time the rains come? “We could do things slightly differently in terms of the way we reinstate buildings after they have been flooded,” says Foulsham.
“Clearly if the homes are in an area where there is likely to be flooding again, you can do things like build concrete floors and put the electric sockets higher up the wall. But the overarching thing is that we really feel that the government needs to take action on the amount of spending on flood defences.
“More could also be done in encouraging SMEs to take out business interruption cover and to put contingency plans in place,” Foulsham adds. Given the fact that some of the areas affected in 2007 had never been considered a flood risk, that is a lesson the industry should try to communicate to its clients.
At an understandably emotional time for homeowners knee-deep in water, maintaining ‘ ‘ a good communication channel was paramount. Many people had never been flood victims before and had no idea of the timescale needed to resolve their claims properly. Explaining to them from an early stage that it could be a lengthy process, with multiple contractors involved, was key to ensuring customer satisfaction.
“The customer is so traumatised by the event that what you say on day one or day two needs to be repeated on a regular basis,” says Norwich Union supply chain manager David Eldridge.
“The consistency of communication to policyholders didn’t work so well,” admits George. “You have a large number of people involved in the chain. There are the insurer and loss adjuster, and then a disaster recovery firm, so consistency and continuity of communication was a problem.”
Part of this issue was managing the expectations of policyholders about when they would be able to get back into their properties. “Flooding can be a pretty horrendous event, particularly if the flood has come above the skirting board level,” says George. “You have to manage expectations, as you’re really talking about more than six months to repair.”
The competitive nature of the insurance industry, with each insurer having its own service standards and contractors, is another area of friction. Foulsham says: “We would like to see more co-ordination between the insurers and the loss adjusters.”
In an ideal world, a single loss adjuster could act for multiple insurers in resolving all the cases on one street, meaning standardised communication with homeowners and uniformity in claims management. But it is difficult to make this happen when insurers are intensely competitive in securing both commercial and personal lines policyholders.
“We could have done better in working together with the insurers as a community as opposed to working in individual company silos,” says Wood.
But not everyone agrees. “I don’t see how it is possible,” says Orriss. “Every insurer has different practices, operating standards and service levels, and if you give one street to one company people might not be getting what they expected from their insurer.”
If an event on the scale of the 2007 floods hit the UK again, would the industry respond successfully to the challenge? The recommendations from the forthcoming Pitt Review on flood defences and management will shape the thinking of the government and the industry for future events, hopefully for the better, and those within the sector seem confident of its ability.
George says: “Should another event of that magnitude occur, we as part of the supply chain, and the insurers and brokers will be better prepared. A huge amount of work has gone into things like having better relationships and plans, more robust systems and more understanding of what is going to happen.”
Eldridge says: “I think the industry would cope, but it would cope more effectively. Every event like this produces lessons that we can take forward.”
In the front line
Loss adjusting was naturally one of the front line elements of the supply chain. With adjusters often the first face of the insurance industry a claimant would see, co-ordination between them and insurers and other elements of the supply chain was paramount in successfully and efficiently resolving claims.
Norwich Union supply chain manager David Eldridge says: One of the first things we implemented was conference calls with our loss adjusters, so that we could understand what resources were available, and where and what they were doing to set up offices to communicate with local communities. In doing so, the insurer made sure that communication with people on the ground was at the forefront of its supply chain management strategy.
Some however, thought that the unique scale of the event presented difficulties for the loss adjusting element of the chain. Broker Networks Wood says: When the loss adjusters went to the personal lines clients in particular, there was such an overwhelming number. They didnt want to say to the policyholders that it could take up to a year. The managing of the message to the client could have been better, and it could have been that they didnt want to upset the client.