Sedgwick | The impact of the pandemic on handling of MCL insurance claims
July 4 2022
Each country, region, insurer or loss adjusting company, has a threshold for defining whether an insurance claim falls into the Major Complex Loss (MCL) category, lower value claims can be complex, however in simple terms, in Asia, once the claim value or quantum exceeds a certain threshold limit, the claim is deemed to be an MCL. As an international loss adjuster and Sedgwick head of MCL – Asia, it is my job to oversee the handling of these types of losses across different markets in the region. As you can imagine, the role involves a substantial amount of travel.
As an international adjuster, before the pandemic, not meeting the insured as soon as possible face to face in the aftermath of a loss was virtually unheard of. In the normal course of business, we would aim to travel to the incident location, meet with the insured and document the loss associated with the damage within days of the incident occurring. This way, we are able to outline the extent of policy cover to the insured, identify areas of the claim where there may be issues and, if necessary, assist the insured by providing access to a network of consultants ranging from forensic engineers, equipment specialists and expediting experts. We are also able to feedback our findings to insurers, advising on the extent of the damage, potential cause and likely estimate of claim quantum.
All that ended abruptly two years ago, and the insurance industry had no option but to adapt. Gone were the days where we would jump on a plane and head off to some far-flung location. Whilst you may be sitting there reading this thinking that sounds great, a job with travel, let me just say, this is not as exciting or exotic as it seems. I’ve had the dubious pleasure of attending claims in regions where kidnapping, or worse, is a real and present danger. In these circumstances, a personal security detail involving armed guards and, or armoured convoys is a must.
This brings me to the crux of the issue. As we all start to emerge from isolation and the world starts to get back to a new normal, I find myself organising a face-to-face meeting with an insured that suffered a major loss over two years ago at the beginning of the pandemic, just as all of the travel restrictions were taking hold and countries were shutting their borders.
On the day when the loss occurred, I was in Japan on other business. My phone rang, and it was the office with the news that we have just picked up another major loss. The advice was followed by a request for me to change my return flight and head down to meet the insured. In normal circumstances, this is not a problem, however the news feeds were indicating Covid-19 was becoming a major issue and Singapore was starting to go into what was termed locally as a “circuit breaker”. Travellers faced two-week quarantine upon arrival in the country. As Japan wasn’t yet on the list of restricted countries, I decided to head home, with the view to see how things panned out over the coming weeks. Then came the blocks on travel, limitations of group sizes and recommendations to work from home, which over time became enshrined in law.Weeks turned into months, and years with no travel, no direct contact with colleagues, or for that matter insurers or insureds.
Faced with these restrictions, the insurance industry was very quick to pivot to virtual meetings, so welcome to the “new norm” of Webex and Teams calls, using essentially untried or certainly at that time, unused technology.
In the beginning, this was extremely challenging. Normally regional MCL losses involve meeting the insured several times over the course of the loss in order to build a relationship, then the vast majority of work behind the scenes is carried out via email, phone calls, interspersed by periodic face-to-face meetings etc. Depending on the size of the claim, meetings with insurers could be a little more laissez faire and were conducted on an as and when required basis and could take the form of face-to-face market meetings or informal catch-ups over lunch or coffee where the claim would be discussed.
During the pandemic, this all came to a screeching halt, and I think the majority of us struggled with isolation, missing contact with colleagues, which we had previously taken for granted. Video conferencing then filled the void, and I found myself with a virtual diary full of video conference calls where normally I would have none.
Most of the calls were manageable if the list of attendees was small but it could get unwieldy when a cast of thousands dialled in, as online etiquette had not yet evolved. Attendees left their microphones turned on drowning out all conversation with an ocean of background noise. People also struggled to come to terms with things that had never been an issue before when working out of an office, such as low bandwidth, barking dogs, crying children, doorbells ringing. In addition, during the early stages, very rarely would people’s cameras be activated, you would be faced with a wall of black boxes containing people’s names. This makes it extremely difficult to gauge people’s reactions when discussing the claim.
Nevertheless, we were all in it together and all faced the same difficulties and steep learning curve. People met under the formal guise of work were suddenly seen to be more than just someone we worked for or with. This proved positive as it brought a different dimension and depth to pre-existing relationships.
So, in terms of effect, the pandemic caused claims to go on for longer periods of time, which in turn increased the overall value of the claims. However, it’s very difficult to benchmark the exact durations and cost associated with this, as each individual MCL loss is unique. Nevertheless, on face value, it appears that the pandemic has resulted in complex claims taking several months longer to resolve, which in turn results in an increased cost for insurers.
This increase was generally down to travel restrictions and or lockdowns either preventing travel altogether, or in some instances where travel was allowed, the lengthy in-country quarantine intervals encountered on arrival. Ultimately, this resulted in specialists or vendors’ representatives being unable to attend site to assist with reinstatement or commissioning of damaged equipment.
As a work around, insureds had to either put up with the delays or turned to technology. As an example, in one instance during the procurement phase of a reinstatement project, due to travel restrictions an insured was unable to plan for vendors technicians to attend site to install and commission replacement equipment. The insured decided to utilise their in-house maintenance workforce and, at considerable expense, procured wearable technology in the form of smart glasses, intended to link their workforce to the vendor located in another country in real time. This would allow the insured’s maintenance personnel to receive first-hand guidance from the assigned vendor during the installation and commissioning process.
Unfortunately, due to the fluid nature of country specific lockdowns, by the time the insured was ready to install and commission the equipment, the restrictions had been lifted and the vendors’ representatives were able to attend site. This resulted in additional cost to the claim, which in the long run proved unnecessary, but as the associated daily business interruption loss was extremely high, insurers had no choice but to agree to this course of action.
Furthermore, at the height of the pandemic, the impact of freight delays and country specific lockdowns also played a part, impacting reinstatement scheduling as the cumulate effect of delays in the manufacture and delivery of spares resulted in extended project durations.
As the old saying goes, time is money, so essentially if claims take longer to complete, the more it costs for insurers. This is bad enough from a property damage perspective when encountering delays in procurement and shortages of manpower. However, if the insured has business interruption cover, this is where the impact of any delay can be heavily felt. Every day that the insured is unable to resume their business operation, this results in additional costs for insurers. This can very quickly escalate to the financial loss being an order of magnitude greater than the cost for the respective delays to the associated property damage claim.
So where do we go from here? Hopefully as the world emerges from the constraints of the pandemic, things will gradually get back to normal in terms of manufacturing lead times, freight and travel etc. – somewhere more akin to the pre pandemic status quo. On a positive note, one of the good things to come out of the last two years is the use of digital communication. Whilst admittedly this can never take the place of face-to-face meetings, especially at the beginning of a claim, it can be used as a tool to streamline and potentially speed up the overall claims process, adding value for insurers and insureds alike.
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Nigel Cook Head of Major Complex Loss – Asia Mobile: +65 9179 8189 Email: [email protected] |
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