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Mutual Insurers More Sensitive to Catastrophe, Process and Technology Can Bridge the Gap

Policy holders concentrated by type and geography are among the reasons mutual insurers are more susceptible to catastrophe claims challenges, but proactive measures and technology solutions can enable carriers to compensate, according to Willis Re.

Speaking at the 2013 International Cooperative and Mutual Insurance Federation (ICMIF) Claims Seminar in London yesterday, Barry Costi-Mouyia, Technical Claims Director of Willis Re said that mutual insurers face more acute catastrophe challenges than other carriers. However, in an exchange with Insurance & Technology, Costi-Mouyia and other Willis experts affirmed that a combination robust claims management and business continuity plan can enable mutual insurers to compensate for lack of experience or limited resources.

“Mutual insurers' policyholder memberships are typically drawn from similar homogenous groups,” Costi-Mouyia commented at the Claims Seminar. “These concentrations can lead to the impact of catastrophes being felt more sharply.”

[Related: Weathering the Storm: Hurricane Sandy Validates Philadelphia Insurance Companies' Business Continuity Plan.]

Geographic concentration can affect mutual insurers focused on certain geographic retions which can be affected in their entirety by a given catastrophe, elaborates Robin Swindell, executive vice president of Willis Re. In cases where policy holders are drawn from like groups, “they can be susceptible to claims that are similar in nature regardless of their immediate location,” he adds.

Swindell offers the example of mutual insurers of utility companies, whose common requirement for water in the power production cycle creates a common exposure type “They are all close to water, and therefore they share a common risk of flooding,” he says. Mutuals are also likely to feel the impact of catastrophe more keenly because they generally don’t have reserves of capital above what is reasonably anticipated, notes John Haydon, executive vice president, Willis Re.

“When mutual insurers have more capital than they need, their natural instinct is to look to return it to members, such as by reducing the cost of cover or by way of dividends,” Haydon explains. “They are not in the business of gouging their customers; they are there to deliver consistent, long-term sustainable protection and policyholder value.”

[Related: Hurricane Sandy Proved A Perfect Storm To Test Insurers' Mobile Capabilities .] Haydon adds, “Also unlike publicly traded carriers, when capital is unexpectedly depleted, they cannot turn to the stock market, so reinsurance is more critical to them. ”

Mutual insurers can take advantage of some of the same simple, straightforward measures as other insurers in order to ensure the efficient handling of claims from catastrophe losses, said Costi-Mouyia in an exchange with Insurance & Technology.

Among those measures are catastrophe excess of loss programs, which include event clauses that determine how losses are to be treated, according to Costi-Mouyia. Loss schedules detailing individual losses that have been aggregated to form the net loss of the reinsured provide significant assistance, he adds.

“These schedules record for each component part of the Net Loss the date that the loss occurrence took place on the original claim, as well as having a field to record that this is in relation to hurricane ‘x’ or earthquake ‘y’, for example,” Costi-Mouyia explains.

Costi-Mouyia affirms that mutual insurers have the necessary IT tools available to them in the market place. “Each insurer is at liberty to explore this market to decide upon a product most suited to their needs,” he comments.

Costi-Mouyia counsels suitable business continuity plans, including systems redundancy, for insurance offices located in the same region and thus exposed to the same perils. “Concerning resources, partnerships should be considered with third-party providers in times of high volume claims following a catastrophic event,” he advises. “Speedy adjustment of very high numbers of claims is vital to policyholders interests and bringing in outside qualified assistance should be pre-planned.”

Anthony O'Donnell has covered technology in the insurance industry since 2000, when he joined the editorial staff of Insurance & Technology. As an editor and reporter for I&T and the InformationWeek Financial Services of TechWeb he has written on all areas of information ... View Full Bio

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