Ways to improve resourcing for natural disaster responses are up for discussion after rolling catastrophes exposed shortcomings

By Wendy Pugh

Insurers dealing with natural disaster volatility must watch with some envy when retailers boost casual workforces before Christmas to handle an influx of customers that happens like clockwork.

Rolling natural catastrophes that escalated into record-breaking floods across the eastern states two years ago, amid covid impacts, were far from that scenario, and insurers are still facing scrutiny and a parliamentary inquiry into their responses after struggling to ramp up resources.

Disputes lodged with the Australian Financial Complaints Authority jumped as claims rose following the floods and issues spilled over to other areas, while General Insurance Code of Practice subscriber breaches soared as time frames blew out.

“We saw that their resourcing levels were such that they just weren’t able to pivot and respond when they needed to,” complaints authority Code Compliance and Monitoring General Manager Prue Monument last month told the federal parliamentary committee inquiry into the 2022 floods.

“That, coupled with their over-reliance on manual processes, put a complaints strain on their systems and processes.”

How insurers decide on resourcing models required to meet code obligations is a commercial decision, she says, as approaches are weighed and parliamentary inquiry hearings continue.

Finity Principal Rade Musulin says local insurers are not alone in facing such issues. Hospital emergency rooms and airlines must deal with demand surges and disruptions, while underwriters worldwide have met similar challenges dealing with catastrophes arriving one after another.

“It’s somewhat inevitable that you’re going to have some dislocation when extreme events occur because this isn’t like the Christmas rush at a shopping centre where you know it’s going to happen,” he tells Insurance News. “It’s not like you can set your watch by it, like you can in some industries.”

Mr Musulin says factors including complicated flood issues and supply chain constraints exacerbated recent problems, and while insurers will make changes in response, solutions aren’t simple, and affordability issues must also be considered.

Insurance Council of Australia Chief Executive Andrew Hall told the inquiry the workforce surged by 2200 people during 2022 amid a historically tight labour market.

“It’s no secret that as we emerged from covid, insurers were struggling to fill the vacancies we had,” he said. “We are constantly looking at all options to find the skilled staff to help customers and manage claims.”

Claims handling problems led to more complaints and shortages in internal dispute resolution, where Mr Hall says insurers are in competition with the complaints authority itself, banks and others for people with the necessary skills.

Discussions around improvements in claims handling technology to smooth processes run parallel to concerns over training levels for staff in dealing with traumatised clients after catastrophes, and the need to ensure policyholders can speak with someone when needed.

“Insurance claims are a people-intensive activity,” Mr Musulin tells Insurance News. “You’ve got to have time to be empathetic with clients who have lost their homes or their property, and if you get too much pressure to just speed everything up and not spend that time, you may end up not serving the public as well. So it’s a bit of a balancing act.”

The Australian Securities and Investments Commission, which has completed its own claims handling review, says insurers should consider long-term increases in resourcing given there do not appear to be substantial quiet periods between events.

“We would expect insurers to be thinking about the level of resourcing relative to the average level of claims that they’ve had in recent years, and then to also be able to identify the ability of their level of resourcing to respond to events similar to those extreme events we’ve seen in recent years,” Commissioner Alan Kirkland told the parliamentary inquiry.

“They need to be measuring their ability to deal with what’s the new normal level of claims, but also to respond to events similar to what we’ve seen in 2022 and since.”

QBE Group Chief Executive Andrew Horton says the industry is looking at the issues. Having extra claims staff on hand for major events, but who are underutilised at other times, would increase insurance costs for everyone, and several approaches need exploration, he says.

“We can’t obviously have the staff for the worst event ever, because then we have an affordability issue,” he tells Insurance News. “What we are trying to do is find resources we can reallocate and help out the claims team when these events happen, whether they’re external or internal.”

Measures could include calling upon internal claims staff from other regions, while the use of artificial intelligence may be considered to support claims staff in ways that allow better use of their skills.

“Increasing catastrophes are not a surprise. This is something that has been talked about and known about for quite some time.”

“There are a number of things the industry has to look at, and of course we’re all learning from having had the largest claims event ever at the beginning of 2022,” Mr Horton says.

Restoration Industry Association Australasia’s Advocacy and Industry Communication Head Marcus Taylor says there has been an increase in the concentration of major events, running parallel to rising business-as-usual activity, putting pressure on insurers and supply chain participants.

“It is simply not viable for many businesses to hold equipment and staffing in anticipation of event season,” he told the inquiry.

“Even on-demand access to equipment is limited within the Australian market.”
Australia’s geographical size, spread of population and limited access to on-demand labour presents challenges when managing major catastrophes compared with North America.

Mr Taylor says in the US, the Federal Emergency Management Agency provides access to government-stored and managed equipment and temporary accommodation structures.

IAG says in a submission that it is revitalising an “all hands on deck” program that provides access to the broader employee base, and has put in place an enhanced training program, while NRMA Insurance Chief Executive Julie Batch told the inquiry extra claims handling staff added in the past couple of years had been retained.

“We haven’t let any resources go and we’ll maintain that level of resourcing even though the claims volumes are now starting to come down,” she said.

The parliamentary inquiry has explored constraints that have added to pressures, including tradespeople and materials shortages, insufficient rural and regional accommodation, policy wording complexities, issues with third-party oversight, the lack of hydrologists, and confusion over whether inundations have come from rainwater run-off or riverine flooding.

The Australian Consumers Insurance Lobby says insurers should be more proactive in building up staff numbers when alerted months in advance to La Nina or El Nino climate drivers that are associated with increased natural disaster risks.

The Insurance Council-commissioned Deloitte report into the record Queensland and NSW floods found the struggle to quickly onboard people led to training shortcuts and other problems. “Reactive recruitment” is a necessary part of insurers’ responses but should be only one tool, it says, and process and technology improvements have a key role to play.

The council has accepted the report’s recommendations, while noting insurers “need to carefully consider how the costs of potential future investments in operational response processes and technology improvements to improve claims and complaints handing will impact on premiums”.

Ms Monument says the code compliance committee will be holding insurers to account on resourcing adequacy by looking at how they meet their service and conduct obligations.

“Insurers need to determine what resourcing level they require not only … to manage the business as usual but also to respond to catastrophes. Increasing catastrophes are not a surprise,” she told the inquiry. “This is something that has been talked about and known about for quite some time, and insurers are in the business of responding to catastrophes.”