For all the damage, loss and business upheaval it caused, Hurricane Andrew also caused many insurance companies to become better at what they do -- which has put the industry in a much stronger position to respond to subsequent natural catastrophes, according to William Pieroni, chief operating officer of New York-based brokerage Marsh Inc. "Today the average carrier, broker or reinsurer is better at this," than they were 20 years ago, says Pieroni, who joined Marsh nearly a year ago after stints in the carrier (State Farm), broker (Aon), vendor (IBM) and consultant (McKinsey) worlds. "People understand how important it is. They have learned by going through something like that -- that gets embedded in the DNA of the organization, and they get better at it."
One reason for the improved proficiency and performance is because insurance industry professionals recognize that a storm of Andrew's magnitude is not an aberration -- "it is no longer a 'black swan' event," Pieroni says. "It created an increased level of awareness and preparedness." Coupling Andrew with the mid-2000s gulf catastrophes Katrina, Rita and Wilma (known in the business as KRW, according to Pieroni), the fact that these hugely destructive events happened within 20 years of each other "heightened the preparations of all the stakeholders -- brokers, carriers, reinsurers, insureds." There's a higher level of industry "savvy," he adds, about what is required for effective catastrophe planning and response.
This extends to underwriting and even to what customers expect from their carriers, Pieroni says. "Underwriters are savvier about pricing and underwriting," he contends. Meanwhile, "customers are more savvy today" about insurance company financial strength, as well as the costs of rebuilding a damaged home or property. "The market wasn't efficient enough to reflect that before, [but today] the market is doing better at showing the costs."
In addition to these changes, the industry of course has benefited tremendously from technologies and tools that barely existed in 1992, such as real-time access to internal and third-party data or "untethered computing," Pieroni points out. "The claims software that existed was asynchronous, [but] now you're onsite with iPads [as Marsh representatives were in Japan following the 2011 Tohoku earthquake]. In addition to today's mobile, untethered capabilities, improvements in integration of the claims supply chain also have transformed the industry's claims response capabilities, Pieroni says. Additionally, automated alerts and tools to manage claims adjusters' queues, so they are not spending as much time look for critical information, means that "search costs have been reduced."
"Claims best practices are embedded in IT and in the workflow," he states. "Before there could be variations in how a claim was settled. Today, it is a truly repeatable, disciplined process."
Pieroni also emphasizes the importance of improvements to predict weather "with greater reliability and accuracy [about] where and when it's going to hit -- the ability to take model data to understand weather patterns." Rounding the industry's transformed abilities to prepare for and respond to catastrophes since Hurricane Andrew struck, Pieroni adds, are "better building codes. Insurers have worked closely to get the right building codes in place, and are doing more inspections."
Katherine Burger is Editorial Director of Bank Systems & Technology and Insurance & Technology, members of UBM TechWeb's InformationWeek Financial Services. She assumed leadership of Bank Systems & Technology in 2003 and of Insurance & Technology in 1991. In addition to ... View Full Bio