Everyone is likely to have thought “it will never happen to me” when assessing the likelihood of a significant event impacting them personally. This psychological phenomenon known as optimistic bias left the nation in shock in March 2020 when the UK’s Prime Minister announced we would be entering into a national lockdown.
As an example of how deep this bias can run, despite all the compelling evidence being shown worldwide exhibiting the deadly nature of what the world would come to know as COVID-19, the annual races at Cheltenham festival continued to host over 60,000 people less than 2 weeks before this announcement. Prior to this, attendees of the festival would have been more likely to attribute the consequences of the COVID-19 pandemic to the storyline of a sci-fi film rather than what would become our new normal.
Senior managers in regulated organisations such as insurance companies are required to think more strategically and with a greater aversion to risk than race-goers at the Cheltenham festival. As well as their SM and CR obligations, there are strict regulations specific to operational resilience and planning.
This poses the question, why do we often not prioritise planning for such occasions? Whilst reading this many are probably arguing “but I do”, although there may be plans in place, are they robust enough? Are they future proofed against the potential risks they are used to defend against?
Insurance companies are nearly always impacted by these events, and most commonly through a claims surge. Optimistic bias can often lead senior managers to de-prioritising implementing effective and detailed surge planning for these “one in a million” events. However, this approach will leave Insurers exposed and unprepared to respond quickly and effectively for their customers.
This is often exacerbated by the fact most people moving into senior positions inherit the plans of their predecessor and reviewing these likely come low down on the immediate priority list. Unless such planning is a specified responsibility it’s unlikely to be covered in the first 100 days, potentially even the first year of a new role.
The definition of a surge can be misleading, surges can be frequent and predictable. Insurances companies don’t plan for storms during the summer however during storm seasons, tactical contingency planning will be in place to ensure operational resilience and this planning is likely to be a repeatable BAU activity. This ultimately aids understanding of the ebbs and flows of the business; however, this is not relevant for large catastrophes.
Allianz’s 2024 risk barometer [1] evidenced out of 16 selected countries, 7 listed natural catastrophes, 13 listed business interruption and all excluding one listed cyber in their top 3 risks. This indicates there are credible threats that exist outside of expected surges and planning for such threats should be prioritised and executed accordingly.
The biggest challenge for insurers during a claims surge can often be attributed to simply the sheer volume and complexity of claims that need to be processed, usually within a short timeframe. As a result of these issues, several factors contribute to the overall challenge:
· Overwhelmed resources
· Claims backlog
· Resource allocation
· Maintaining a high standard of customer service
· Availability of additional skilled resource
· Fraud prevention
· Regulatory compliance
· Technology limitations
· Effective communication
How can Insurers not fall victim to this way of thinking, and ensure they aren’t caught out by their predecessors’ optimistic bias?
The first thing is to ensure an understanding of the current plans in place, who is responsible for them, when they were last reviewed and what scope the plan covers. For many managers, this first step of gaining an understanding may be the only action required if plans in place are adequate. However, overlooking the importance of this may leave the business at serious financial and reputational risk.
Ultimately the ability to address these challenges comes from a detailed and flexible response plan. This plan needs to cover areas such as resource management, communication strategies and data security measures to name a few. It is also crucial not to overlook regular reviews of these processes and therefore the response plan to remain in line with regulatory and customer service standards.
A response plan for a claims surge is a toolbox for insurers to ensure they can effectively manage the increased workload, maintain a high level of customer satisfaction, and adhere to regulatory requirements. Here are the key processes that Insurers should include in their response plan for a claims surge:
Risk Assessments – Likely to be already a BAU activity, risk assessments should be completed on a regular basis, tailored to the business to identify their potential triggers for a claim surge. This should include events which are likely to result in an increase in claims, for example, natural catastrophes.
Resource Deployment Plan – A plan for being able to quickly identify resource requirements and allocate those resources is vital to enable prompt action. Conducting thorough resource planning ensures that you have the right number of staff with the relevant skillset available to handle the surge in claims. Maintaining strong relationships with your skilled and temporary resource providers is extremely beneficial when there is a requirement for additional resource. Often considering temporary staff or outsourcing certain tasks can be the most effective way to meet increased demand without incurring long-term costs.
Clear Communication Protocols: Establish clear communication protocols for internal and external stakeholders. This includes communication with policyholders, intermediaries, regulatory bodies, and other relevant parties. Clear communication helps manage expectations and maintain trust.
Continuous Monitoring and Review: The response plan should be regularly reviewed and updated accordingly through feedback, lessons learned, and changes in the industry or regulatory environment. Continuous monitoring allows for proactive adjustments and improvements. It is particularly crucial to review the plan post any claim surge events as the lessons learnt are likely to be extremely valuable.
Data Security and Privacy Measures: Ensure robust data security and privacy measures are in place to protect sensitive information, these protocols are particularly important during a surge as there is likely to be an increased risk of cyber threats. Other aspects to consider are data retention policies and the risk and impact of using third party resources.
In additional to a response plan, there are operational strategies which can be implemented to allow a quick mobilisation of a claims surge response team. It is important to consider these operational efficiencies alongside the more detailed processes and protocols.
Effective Adjuster Allocation: Allocate adjusters based on their expertise and the complexity of claims. This ensures that experienced adjusters handle more complex cases, while less experienced staff can manage routine claims, optimising costs without compromising service quality for customers.
Define Prioritisation Criteria: Establish clear criteria for how your adjusters should prioritise claims. Criteria should consider severity, urgency, vulnerability, and other relevant factors. This allows focused resources on the most critical cases while ensuring that all claims receive attention whilst mitigating potential financial and reputational risks.
Cross-Training & Staff Development: A multi-skilled resource pool gives increased flexibility when allocating resources where demand dictates during a surge, ensuring a more efficient use of personnel. You should also ensure that claims staff are well-trained and kept informed of the latest industry best practices. Continuous training and skill development can enhance the ability of claims personnel to handle a surge effectively.
Additionally, it is important to consider a potential claims surge when developing wider BAU strategy and any technological advancements to the business.
Claims Management Systems – consider whether your claims management systems and infrastructure are scalable to handle sudden fluctuations in claim volumes. Scalable systems allow you to adapt quickly to a surge without major disruptions. These systems may include automation tools, digital communication platforms, and data analytics to streamline workflows and improve accuracy.
Self-Service Options – Exploring self-service options for policyholders to report claims, check claim status, and upload documentation can drastically increase your adjusters’ capacity. This can reduce the overall resource demand and improve the overall customer experience.
Proactive Fraud Detection: Implement proactive fraud detection measures to identify potentially fraudulent claims early in the process. This can help reduce costs associated with illegitimate claims.
In summary, senior managers need to consciously push back against our natural optimistic bias and take ownership and accountability of their inherited plans. It is critical to ensure these plans can withstand the threats they face and are not actioned as a one-off exercise. Fighting this internal bias isn’t as easy to do as may seem, as evidenced by the 60,000 people who enjoyed the races at the Cheltenham festival, and the large proportion of those attendees who likely hold senior managerial positions in insurance companies, brokers, and other financial institutions.
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