It’s the most opportune moment in recent memory for the insurance industry to invest in its own reputation.
A few weeks after the ravages of Superstorm Sandy, affected policyholders, residential and commercial, are completing the cleanup even as their insurers assess the damages and their own exposure. Opinions as to whether the industry is being reasonably helpful, responsive, forgiving, and flexible during this crisis are therefore premature.
Yet it’s noteworthy how reputational concerns have already figured prominently into published commentary on the challenges facing the industry. Industry experts specifically reference the litigious mess that occurred after Hurricane Katrina along with reminders of how public officials are eager to avoid similar delays post-Sandy. Insurers would likewise do well to remember the reputational bath some companies took as a result of 911 coverage disputes that haunted the front pages for so many months.
Of course, we need to be realistic. Insurers are not going to relinquish their contractual entitlements in some sort of multi-billion dollar post-Sandy potlatch, and nor should they. At the same time, horror stories about inadequate coverage and excluded claims will continue to attract attention simply because they’re great human interest stories, in which insurers are at least implicitly depicted as impersonal and indifferent. For insurance companies, that familiar caricature is simply a reputational cost of doing business in the aftermath of many disasters.
The governors of nine affected states already gave homeowners a big break by forbidding insurers from declaring that Sandy made land as a hurricane. If categorized as a hurricane, residential policyholders would be subject to deductibles based on a percentage of property value instead of fixed rates. But it’s the governors who get the public’s thanks for that, not the insurance industry. Especially problematic for insurance companies are reports that their total exposure ranges from $10 billion to $20 billion, while total storm damage is estimated at $50 billion. Much of that differential has been tagged to flood exclusions or sub-limits, as well as a bevy of other policy provisions.
All that said, the insurance companies remain most favorably positioned. As Peter Gillon points out, the industry now enjoys a significant fiscal surplus. “There were no other major catastrophic claims in 2012, their premiums have increased slightly, and the equity markets in which insurers invest have been steadily going up,” says Gillon, a partner at Pillsbury Winthrop Shaw Pittman LLP who represents major corporate policyholders.
With bottom-line pressures so much lower, the industry can afford to be generous where possible. Such generosity is certainly in their interest. They will want to be seen paying claims quickly and to reap significant goodwill by eschewing some purely technical coverage disputes in order to both strengthen customer loyalty and appease politicians. As always, “seen” is the operative term in any such communications strategy.
No less than banks or hedge funds, the insurance industry has suffered its own considerable share of public hostility in recent years. For elected officials (especially those perceived to have played heroes’ roles during the Sandy crisis), insurance companies are, politically, sitting ducks if they take a Scrooge-like approach to claims at the very moment when they can presumably afford to behave more like Old Fezziwig.
As Gillon points out, however, commercial policies are a lot trickier than residential coverage in terms of what the insurers can or cannot do on behalf of insureds. Because commercial coverage and pricing are often extensively negotiated, and done so at arm’s length, insurers are more inclined to stick to the terms.
That said, in the interest of being “commercially reasonable,” there are areas at least open to discussion. For example, commercial policies typically carry two deductibles, one for wind and one for flood – even when the flooding is caused by the wind. For good commercial reasons, the insurers might simply forgive the second deductible. The fact that, since Hurricane Irene, so many more businesses have purchased flood insurance, until Irene relatively uncommon in the Northeast, should further encourage the insurers to be as flexible on deductibles as possible.
Yet the surest reputational investment for insurance companies may be the least costly in terms of hard dollars. Simply determine what major policyholders are being responsibly advised to do – and then help them do it.
The determination is easy enough to make. After any major disaster, diverse professional insurance counselors predictably distribute in-depth collaterals specifying best practices in dealing with insurance companies. For example, Gillon’s Insurance Recovery & Advisory team at Pillsbury published a paper right after Sandy that urges companies to review and evaluate all potentially applicable coverage (including everything from marine cargo policies to pollution policies); “meticulously” follow instructions for providing notice to the insurer; document and photograph all losses, including losses directly following the storm (such as inventory exposed to moisture); recruit specialist advisors such as forensic accountants to detail business interruption loss; and memorialize in writing any deadline extension for submitting sworn proofs of loss.
There is ample opportunity here for insurers to surpass their existing policyholder support systems. Not just by advancing insurance payments for cleanup and other initial response work, insurers can also provide enhanced customer service to expedite each of these specific customer needs if only by being impeccably responsive when inquiries as to scope of coverage are made, or clarifications on notices or extensions are sought.
There is ample opportunity here for insurers to surpass their existing policyholder support systems. Not just timelier claim payments, the seller can provide enhanced customer service to expedite each of these specific customer needs if only by being impeccably responsive when inquiries as to scope of coverage are made or clarifications on notices or extensions are sought.
Who knows, such value-added service might become a permanent part of the insurer/insured relationship – even when the industry is no longer sitting on a pot of money right after a devastating emergency.
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Richard Levick, Esq., President and CEO of LEVICK, represents countries and companies in the highest-stakes global communications matters — from the Wall Street crisis and the Gulf oil spill to Guantanamo Bay and the Catholic Church. Mr. Levick was honored for the past four years on NACD Directorship’s list of “The 100 Most Influential People in the Boardroom,” and has been named to multiple professional Halls of Fame for lifetime achievement. He is the co-author of three books, including The Communicators: Leadership in the Age of Crisis, and is a regular commentator on television, in print, and on the most widely read business blogs.
