As noted in Sunday’s post, the Risk and Insurance Managers Conference was held in Orlando this week. In a reflection of the economy (and most of our stock portfolios), the attendance was down 40% over last year. Corporate risk managers are facing budget cuts just like everybody else. Even the large insurance broker, Willis, reflected the austere mood by having no booth and greeting people in an open area.
I noticed a few trends worthy of note. The number of restoration companies and disaster contractors has significantly increased. This industry has boomed in the last decade. Their business model before the large catastrophes led them to market adjusters and insurance claims departments for leads to policyholders with losses. It was not uncommon for them to arrive, arm in arm, with an insurance adjuster. In response, insurance companies obtained the promise of a bid proposal and work which would be less than local contractors. Insurance companies essentially controlled the scope of work and therefore, the adjustment by having a "favored vendor" do the repair work. Whether the work was excellent or left something to be desired is hard to tell when covered up with paint. If the policyholder did not want to choose that contractor, the adjuster would simply use the lowball estimate of that contractor against the policyholder. These contractors wined and dined field adjusters and claim departments to get these leads.
After the 2004 storms, these restoration contractors more frequently directly marketed their services to policyholders. They claim to be "insurance recovery and restoration" firms and go so far as to claim that they will negotiate the policyholder’s rights with the insurance company. This is illegal, but this is how many, not all, market their services. They will contract to do the work for whatever the insurer will pay.
This scenario sets up a situation where the insurance company often is overcharged on pricing, especially labor charges, and the policyholder gets inferior work. There is no bidding and negotiation regarding quality and price. Insurers are overpaying for what is done and policyholders are not getting enough done and in the quality the policy provides. But, that industry, unlike other aspects of construction, is booming.
Computerization of claims and the sophistication of database mining is evolving. Before long, insurers will be able to profile very private and subtle aspects of every policyholder. "Good" policyholders will be those who pay premiums and never call an agent, much less report claims. Your risk as an insured will be tracked on your property and how aggressive you are expecting payment. CSC Corporation is a leader in this insurance computerization field.
The message is clear–"if you make a claim, you are not as good a policyholder as one that does not. Do not rock the boat or we will make you somewhat uninsurable." Risk managers are often evaluated on how well they keep premium costs down. They should also get evaluated on how much courage and effectiveness they have getting the insurer to pay promptly and fully.
Mega-disasters and the effects of global warming was the subject of prominent discussions. The concern is that the floods, tornados, and hurricanes are getting stronger and bigger. Whether this plays out over the long term or is just something which appears as a trend, is something we will find over time. Yet, there were many more "disaster preparation" seminars and vendors at the convention.
Trends are important to me as I try to analyze the decisions and circumstances that affect my clients. Many lawyers seem to think you become an "expert" (lawyers do not ethically call themselves "experts" in certain types of cases) in a field of law by reading cases and doing enough of them to advertise some experience. The truth is that the best in my field know what has, and is, going on with our opponents and their motivations for various activities. This is learned by talking with people at various levels and in different disciplines of the insurance industry and by observing–not by reading insurance case law, which a second year law student could do.
