Welcome to the 28th Edition of the Claim Solutions' Newsletter. This Edition covers the severe weather event which affected Queensland earlier this year and the impact of Catastrophes on the various parties to an insurance claim.
We are also pleased to include a featured article by Sid Levett on the subject of Risk Management.
In addition the newsletter includes our ongoing list of possible insured events on page 4. It details fires, ammonia leaks, lightning strikes and gas leaks.
All of the articles in this and previous newsletters are also included in an insurance knowledge base at: - www.insuropedia.com
All our readers are invited to contribute their experiences to this knowledge base. For all those who have sustained a loss we wish you: -
- A speedy recovery.
- An appropriate insurance policy.
- A responsive insurer.
Queensland - And The Drought Breaks
Following a period of prolonged drought, news reports suggest that in mid-January 2008 some 70% of Queensland was underwater. Queensland covers an area of 1,852,642 kms2 so this means that around 1,300,000 kms2 was affected!
The Bureau of Meteorology (BOM) reports that on 4 January 2008 Tropical Cyclone Helen formed above the sea some 400 kms southwest of Darwin. It crossed the coast approximately 100 kms south of Darwin weakening to a Tropical Low. The intense low pressure system eventually moved east into Queensland. It resulted in significant storms accompanied by torrential rain as it travelled through the State.
Damage was sustained to infrastructure such as roads and rail links and while many towns were affected, media attention focused on Emerald, Charleville and Rockhampton.
Charleville, bordering the Warrego River, and with some 3,500 residents, was the first of these three towns to be affected. Domestic and commercial damage was sustained.
With a population of 15,500, Emerald borders the Nogoa River. The town has largely been protected from flooding since 1972 with the construction of the Fairburn Dam some 25 kms southwest and upstream of the town. The intense low pressure system caused the flood gates to be opened on 18 January, the first time in 17 years. Evacuation announcements commenced on 20 January. A week prior the dam was only 29% full. As with Charleville, both domestic and commercial damage was sustained.
Fears were held for the major centre of Rockhampton as the swollen waters made their way to the Fitzroy River and towards the coast. Fortunately, the city escaped major damage but financial losses were sustained as tourists stayed away from the region due to the reported deluge.
Many losses were also sustained to Queensland's mining district.
Ongoing downpours were experienced in February 2008 affecting centres such as Mackay.
The events in Queensland in January/February 2008 raise many insurance issues.
What is the proximate cause of the damage? Is it storm or flood? The business community has suffered financial loss without property damage. For example, business was isolated by floodwaters, road closures, etc. The Mark IV Industrial Special Risks Policy contains a Prevention of Access clause which needs to be considered carefully.
Other businesses sustained financial loss because customers or suppliers sustained property damage. The Mark IV Industrial Special Risks policy may contain a Customers & Suppliers Extension which may respond.
Similarly financial loss has been sustained as power supplies have been interrupted. Commercial insurance policies may contain a public utilities extension which may also respond.
The severe weather event in Queensland focuses attention on understanding the cause of property and other financial loss and the need for adequate insurance cover.
A Claim Preparer can offer many benefits to an Insured. Some of these include: -
Catastrophes such as the weather event in Queensland earlier this year, Hurricane Katrina in New Orleans in 2005 or Ash Wednesday in Victoria in 1983 have significant implications for the insurance industry. Spare a thought for the various parties to an insurance claim.
The Insured - The Insured is the most important party to an insurance claim. As well as financial loss, the emotional loss. The Insured requires professional, prompt and considered insured is also likely to have
sustained personal or attention to his/her individual circumstances and claim.
The Insurance Broker - A large volume of claims created by a catastrophic event may also place considerable pressure on the Insurance Broker. The Insurance Broker is often the Insured's first point of contact and the administrative pressures placed on the broker increase considerably. A thorough system is required to ensure the Insurer and other consultants are notified and claims handled efficiently.
The Insurer - Catastrophic events impose a significant administrative and financial commitment on the Insurer. The Insurer needs to manage the influx of claims, appoint loss adjusters, understand the nature of the loss, determine policy response and manage cash flows generated by the event.
The Loss Adjuster - There are several major loss adjusting firms in Australia, each with a specific number of staff, each of which specialise in particular areas of insurance. A catastrophic event, generating a large number of claims significantly increases workloads. This necessarily reduces loss adjusters' response time.
It is simply a question of economics. Understandably the industry cannot afford to retain a large number of Loss Adjusters during periods of "normal"workloads to enable them to respond to a catastrophic event which may only occur once every two to three years. Adjusters can be brought in from interstate or overseas but greater response times should be expected.
Loss Adjusters may also be required to spend extended times in unfamiliar surroundings with limited facilities away from the office and family.
The Claims Preparer - Like the Adjuster, catastrophic events also increase the workload of claim consultants. Claim Preparers may be required to work extended hours, travel to remote locations and carefully prioritise client requirements and respond to their cash flow issues.
CONCLUSION - Claims caused by catastrophes place pressure on all parties to an insurance claim and consideration and respect of each party's role is required.
These two acronyms are often mentioned in discussions on risk management processes but what do they mean and are they of practical value? ERM is Enterprise-Wide Risk Management and BCP is Business Continuity Planning.
ERM is a process by which all risks that could adversely impact on the business are reviewed, methods of dealing with each risk are assessed for effectiveness and the residual exposure to the business is prioritised. This is a broad ranging process that should not be restricted to conventional risks but should evaluate all types of risk including those which may be regarded as being outside the organisation's control, such as interest rates and currency exchange.
BCP is generally applicable to a specific manufacturing site or administration centre and again risks are identified and controls evaluated. Additionally plans are established for continuing to supply customers or provide services in the event the location is unable to operate.
Both processes are applicable to businesses of all sizes and should not be seen as being relevant only to large organisations with regulatory requirements for corporate governance. Various methods can be utilised to obtain the necessary information but for an ERM process a workshop comprising the senior management group is recommended and for BCP a workshop with the site management team.
Sid Levett Former General Manager - Risk, Amcor Limited
Clients interested in applying these processes can contact Sid Levett of Objective Risk Advisory Services (ORAS Consulting) on 0407 997 054.
Back in November 2007 news reports indicate that Mr & Mrs Everson had an unpleasant surprise while driving their minivan back to their hotel. Somewhere near Manson, Washington there was an enormous "bam" when a falling object struck the bonnet and smashed the windscreen. To their horror they discovered that the falling object was a cow which had missed its footing on a cliff some 61 metres above the road. The cow was found to weigh some 270 kilograms. Apart from shock the Eversons were unharmed but unfortunately the one year old heifer did not survive. The claim form would be worth framing: - "Impact by Falling Cow!"
The Articles which appear in this Newsletter are not intended to be a substitute for specific technical advice.