CRAWFORD GLOBAL TECHNICAL SERVICES SPECIAL CATASTROPHE ISSUE€¦ · 4 Tech Talk Damage to Rose...

Special Catastrophe Issue 2013 A publication of Crawford & Company’s Global Technical Services®

C R AW F O R D G LO B A L T E C H N I C A L S E R V I C E S ®

SPECIAL CATASTROPHE ISSUE

INSIDE THIS ISSUE

Earthquake in ChileFacing the Unimaginable: The Challenges Posed by a Cataclysm .. 3Previously presented at Swiss Re conference,

August 2012

A City without a Heart:Christchurch Strugglesafter Earthquake ......................... 4Previously published vol. 3, issue 1, 2012

Australasia CAT EventsSpotlight CBI Claims ................... 6Previously published vol. 3, issue 1, 2012

Japan Earthquake Changesthe Course of Risk Management ... 8Previously published vol. 2, issue 2, 2011

Using CatastrophicLoss Experts ............................. 10Previously published vol. 1, issue 1, 2010

Thailand, 24 Months On ............ 12Previously published vol.4, issue 1, 2013

Crawford Responds toSuperstorm Sandy AmidHigh Claims Volumes andUnique Challenges ..................... 14Previously published as a Crawford & Company

situation paper, November 7, 2012

Articles can be found online atwww.crawfordgts.com/TechTalk

Although care has been taken in the preparation of this newsletter, it should be used for general guidance only. Crawford & Company is not offering legal advice and does not accept responsibility for any factual errors or for any loss, direct or indirect, that reliance on the information in this newsletter might cause.

Comments or suggestions for Tech Talk?E-mail: [email protected]

Editor: John L’Abate,Public Relations Manager

GTS Tech Talk is published by Crawford & Company. © 2013

Crawford & Company1001 Summit BlvdAtlanta, GA 30319

Crawford & Company is an equal opportunity employer.

This special edition of Tech Talk highlights some of the recent articles

and papers written by Crawford subject matter specialists following

catastrophic events in Australasia, Japan, and Thailand. Events in these

regions and countries were severe and as we know, sadly resulted in

loss of life and tremendous � nancial loss. What we should not overlook

is that for many insured’s man-made or less publicized events can be

as devastating as these major events. Crawford & Company is perfectly

positioned to deal with either man-made or natural disasters alike, be it

localized or regional. Years of experience in responding to these events,

coupled with the ability to deploy exceptionally well-quali� ed adjusters

and support staff offers peace of mind to both our clients and insured’s

knowing that they will receive service second to none.

Our accredited adjusters are selected depending on the nature

and location of the event, are supported by well-established

administrative and logistical infrastructure arrangements, and are

generally available on short notice. Extended deployment is and

will remain a constant challenge for us and our competitors but

we are able to address this through the depth of our adjuster pool.

Understanding the scope and extent of a catastrophic event as soon

as possible after the occurrence is often a high priority for many

of our clients. We have learned that we are usually able to use our

past experience (depending of course on the extent of correlation)

to assist in getting event estimates done in short order. We maintain

an extensive record of global large loss data which assists us in

determining various averages and lifespan requirements.

Given the frequency and severity of events over the past few years,

planning ahead is the only sensible alternative. Please feel free to

contact me for further information regarding our ability to assist

with planning, event assessment & modelling, suggestions regarding

systems, security and management information, logistics and pricing.

I hope that you will � nd value in revisiting these papers and look

forward to further discussion on the topic.

Please feel free to contact me directly regarding any GTS-related issue

at [email protected].

Dr. Andries Willemse is responsible for the

global administration of GTS, including

managing the global GTS strategy and plans;

development and implementation of the GTS

brand and value proposition, and management

of the Global Large Loss Database. Willemse

started with Crawford South Africa in 1998 as

a senior adjuster and has served in several

senior operational, compliance, and project

management roles in Africa, the U.K., and U.S. n

Tech Talk2

3Special Catastrophe Issue 2013

Earthquake in ChileFacing the unimaginable: the challengesposed by a cataclysm

By Javier Carvallo Pardo, President, Crawford Chile

Previously presented at Swiss Re conference, August 2012

NOBODY WAS PREPARED

Chilean people know that they live in a country of a high seismic risk. Chile is

situated in the Paci� c Ocean’s “Ring of Fire” which, in essence, represents the

boundary between the oceanic and continental tectonic plates that surround the

Paci� c Ocean, extending for almost 40,000 kilometers, from Chile to New Zealand.

The collision between these enormous plates causes energy to build up and then

suddenly release itself as earth tremors. Chilean history records 17 land movements

of a magnitude 8 or greater between 1570 and 2010, including the largest earthquake

ever recorded in the history of mankind, which struck the city of Valdivia on May 22,

1960, reaching a magnitude of 9.5 on the Richter scale.1

For such reasons, Chile has building regulations that are among the world’s strictest

ones2 and, at a government level, it has a National Emergency Of� ce that works 365

days of the year.

From the point of view of the insurance industry, the seismic risk has always been

a factor to consider. In 2010, the regulation for the establishment of catastrophe

reserves required insurance companies to establish a reserve above the Cresta

Zone � gures3 of highest exposure, applying a Maximum Probable Loss of 10% for

physical damages and 15% for engineering risks and business interruption (BI), net

of reinsurance plus a 10% safety margin.

At a market level, the recent modi� cations for catastrophes had always been based on

the 7.8 Richter magnitude earthquake of March 1985 offshore of San Antonio, which

struck the Cresta Zone III cities, where 68,1% of the losses were concentrated. This

phenomenon resulted in 5,016 losses paid at US$ 85 million4.

1 Echeñique, Joaquín. “Impacto de un sismo hoy en Chile (Impact of an earthquake today in Chile).” Conference given to the Chilean insurer market on March 15, 2000.

2 The NCh433. “Seismic Design for Buildings” of the National Normalization Institute.3 CRESTA- Catastrophe Risk Evaluating and Standardizing Target Accumulations. https://

www.cresta.org.4 Source: Presentation of the Chilean Association of Insurers A.G. in the International

Workshop “Insurance for Adaptation to the Climatic Change,” held in Lima, Peru, in October 2011.

Above: View from the Llacolén Bridge in Concepción, Chile,

after the earthquakeon February 27, 2010.

Photo: Claudio Núñez(Wikimedia Commons)

Right: The country had beendivided into 5 “Cresta

Zones”

Photo: CRESTA- Catastrophe Risk Evaluating and

Standardizing Target Accumulations.www.cresta.org. | CONTINUED ON PAGE 16

4 Tech Talk

Damage to Rose Chapel resulting from February 2011 earthquake in Christchurch.

Photo: FEMA Photo Archives, via Wikimedia Commons.

A City without a Heart: Christchurch Struggles after EarthquakeBy Benedict Burke, BA, ACII, FCILA, Senior Vice President, Global Markets

Previously published in Tech Talk, vol. 3, Issue 1, 2012

It’s not unusual for major catastrophic events to take on a transient feel as time

goes by. Natural disasters requiring the support of insurers and adjusters are sadly

all too frequent for each one to remain front of mind with anyone, other than those

directly involved, for very long.

For over a year, the city of Christchurch in New Zealand has endured the aftermath

of a series of devastating earthquakes that rendered vast swathes of this important

regional hub completely uninhabitable. The earthquake of February 22, 2011, struck

in the early afternoon, causing widespread damage to New Zealand’s second most

populous city, whose infrastructure had already been weakened by an earthquake

the previous September. One hundred eighty-�ve people were killed and the region

experienced more than 10,000 aftershocks in the following 12 months.

When I visited the city earlier this year, I felt a palpable sense that this is a

forgotten catastrophic event. Christchurch remains a city without a heart even one

year on. Its once thriving commercial business district continues to be cordoned

off, requiring authorized access, and the conditions are reminiscent of many U.K.

cities during the 1960s and ‘70s, when plots of land were cleared after demolition

from WWII bomb damage.

In addition, continued seismic movement has placed everyone on continual alert

and health and safety remains of paramount importance. The city’s damaged

and crumbling buildings are an ongoing challenge, personally for residents and

professionally for insurers, engineers and adjusters. For example, two six-level

apartment blocks were determined by the Canterbury Earthquake Recovery

Authority (CERA) to require demolition after a quake on December 23.

The reconstruction of Christchurch is essential to the entire economy of the South

Island. The current focus of insurance activity in the region is on carrying out

engineering evaluations and demolition and shoring up repairable buildings while

insurance settlement strategies and negotiations are underway. We are partnered

with our New Zealand Associates TPA Godfrey (TPAG) adjusters, and our Crawford

Global Technical Services (GTSSM) adjusters will be in country for at least another

six months and possibly longer, as our clients and their appointed professionals


advance engineering assessments, claim settlement

strategies and valuations.

Crawford GTS adjusters had their work cut out after the

2010 Chile earthquake struck almost exactly one year

earlier, but Christchurch has proven in many ways a

more complex task. Technical handling challenges such

as building code issues, under insurance in�uencing

reinstatement options and uncertainty around the

insured’s continued investment in Christchurch make

this a unique situation. The city has depopulated,

damaging con�dence in business and the wider

economy, despite the government and CERA’s best efforts

to encourage a return (such as the June 2011 buyout

offers it made for 5,100 properties in Christchurch).

SHIFTING GROUND, CHANGING POLICIES COMPLICATE REBUILDING EFFORTS

Adjusters have faced an enormous challenge to keep their

insurer clients fully apprised of their �nancial liabilities

because Christchurch has become a town of shifting

sands in more ways than one. From a literal point of view,

underground liquefaction is a signi�cant by-product of

the �ve major earthquakes that have impacted the area.

A huge amount of effort has gone into �nding

sustainable, creative rebuilding solutions that can

counteract the effects of liquefaction, including the

resurrection of 17th century deep piling techniques

designed by architects who grappled with the same

problem in Amsterdam during the Age of Enlightenment.

However, problems have emerged that are causing

headaches for property and professional indemnity

insurers alike. With rebuilding being the preferred

option, uncertainties around the building code in New

Zealand have thrown a spanner in the works.

It is understood that lobbyists are pushing for a change

to the rules; in very simple terms, buildings that had

been earmarked for repair under one set of guidelines

may soon be subject to much stricter code rules. This,

together with continued seismic movements, may

have a signi�cant impact on the insurance liabilities of

carriers exposed to this event. The main outstanding

question is whether building strengthening can be

linked to the required consent to repair it; hence, should

there be an automatic legal requirement to undertake

those repairs? Consequently, the argument about who

accepts �nancial liability is an important question.

To explain further, there are possible future changes in

the required seismic tolerance levels within the New

Zealand building code and who will take �nancial

responsibility for these

Inspecting earthquake damage in Christchurch.

Photo: U.S. Navy, via Wikimedia Commons.| CONTINUED ON PAGE 19

6 Tech Talk6

The last year and a half brought an unprecedented

number of catastrophic events to the Australasian

region: the widespread �ooding of Australia and

Thailand, earthquakes in New Zealand and the

earthquake and tsunami that engulfed Japan.

Those events have given rise to multiple contingent

business interruption claims and tested the

understanding of current policy wordings among

insurers, claim preparers, brokers and loss adjusters

alike. They also have demonstrated the signi�cant

variability between wordings, even among policies

issued by a single insurer.

In many cases, the practical application of policy

constraints has been poorly considered. Further, those

policy constraints have been inconsistently applied

across the industry.

In more extreme cases, there have been attempts to

relate losses to a combination of possible insured

contingencies, deliberately ignoring the more practical

issues that have given rise to differences between

expected turnover and actual turnover. Many of those

variations do not arise from insured events.

BASIC COVERAGE LOSSES

Business interruption claims generally are triggered by

covered damage at the premises of the insured (unless

the Material Damage Proviso has been deleted).

Most contingency claims similarly require that

there be damage at a third party location that can

be covered under the insured’s policy. That means

Australasia CAT Events Spotlight CBI ClaimsBy Martin Miller, BSc (Hons), PhD, FCA, CILA, National Technical Manager of Financial and Forensic Accounting, Executive General Adjuster, Crawford GTS (Australia)


damage must have occurred to property that would

have been covered by the insured’s policy by a peril

that is not excluded (if an all-risks policy) or by a

peril that is insured (in the case of a defined

events policy).

In general, there may be cover under the business

interruption section of an insured’s policy for:

� Denial of access to the insured’s premises

as a result of damage in the vicinity

� Damage in buildings, shopping centers and

the like occupied by the insured

� Losses �owing from damage to utilities

that are normally restricted to speci�c

locations such as sub-stations, but not

necessarily to transmission lines and

similar infrastructure

Such policies are frequently endorsed to provide

cover for losses flowing from damage at a

customer’s or supplier’s premises. However, the

cover for loss of profits does not routinely extend to

losses flowing from:

� Denial of access to a customer’s or

supplier’s premises or utilities

� Losses �owing from damage to the

premises of a customer’s customer

� Loss of power to a customer’s or supplier’s

premises

� Losses where a public authority turns off

power as a precautionary or preventive

measure unrelated to damage


Flooding in Brisbane, Queensland, Australia, in January 2011.

Photo: David Jackmanson (bit.ly/djackmanson)

� Migration of the population away from

a disaster zone (as in the case of the

Christchurch earthquakes in New Zealand).

There are, however, many variations to this theme,

and in all cases a copy of the policy wording, schedule

and any endorsements must be obtained before

making a determination.

PRE-EVENT CLAIMS

Before the Queensland �oods and cyclones, residents

and businesses received warning about the expected

timing and location of the weather events. In some

cases, this meant:

� Employers sent employees home so they

would not be stranded at work and could

prepare their homes and personal property

for a storm.

� Center management evacuated commercial

complexes and took precautionary

measures such as turning off power.

Shutting down electricity meant that �re

and security systems and elevators would

no longer operate.

� Employers shut down computer systems,

which restricted access to them both on-

and off-site.

At the time businesses took these and other

precautionary measures, property damage from

weather events had not yet occurred. Therefore, a

strict interpretation of policy wording would exclude

compensation for losses �owing from

these precautions.

EVENT CLAIMS

Irrespective of the location, damage caused by an

excluded or uninsured peril or to excluded property

is not insured. However, the general Industrial Special

Risks (ISR) wording or other standard wording may

have been modi�ed.

This would mean that damage caused by �ood is

excluded (as it is excluded under the Perils Exclusion

section of the Standard ISR policy). Similarly, damage

to roadways is not covered (as it is in the Property

Exclusion section of the Standard ISR policy). So, just

as damage to insured property is not covered in these

circumstances, a similar situation would apply to third

party property, whether it is at a supplier’s, customer’s

or in the vicinity of the insured’s premises.

There are, however, many variations to contingency

wordings, which are often modi�ed to include damage

by perils that is ordinarily excluded or damage to

property that is ordinarily excluded, or in some cases a

combination of both.

OTHER UNINSURED LOSSES

Losses arise from multiple causes in many situations,

and it is those circumstances that cause the most

confusion and where the link between the insured

and uninsured components of damage often is dealt

with poorly. | CONTINUED ON PAGE 18

8 Tech Talk

The cost of rebuilding shattered areas of Japan

continues to rise, according to of�cial �gures, and fears

for the economic future of those regions hit hardest

by the March 11 earthquake and tsunami are growing.

This catastrophe has been one of the most signi�cant

in history in terms of the tragic loss of life and the

economic and broader consequences for the country.

In insurance terms, this event has come with new and

unique features that will change the course of risk

management thinking and planning.

CRAWFORD TEAM ASSESSES INITIAL LOSSES

Crawford was one of the �rst loss adjusting �rms to

access earthquake- and tsunami-damaged areas and

months later the devastation is still plain to see. From

day one, Crawford was working with clients in the

region, but travel restrictions due to fears about the

severity of radiation leaks from the Fukushima nuclear

facility meant that we were restricted to operating

from our of�ces in Singapore.

However, as soon as we were given permission to send

adjusters to the area, a team led by Mike Patton, vice

president, Global Markets, traveled to Tokyo to discuss

the issues faced by clients and to get a view on the

ground as to just how much devastation had been

caused.

Mike was in Japan following the Kobe earthquake and

quickly assessed that the events of this past March

would likely surpass the damage caused by Kobe. He

has been proven right, sadly, and despite the speed

with which roads and other infrastructure in some

Japan Earthquake Changes the Course of Risk ManagementBy Mike Reeves, Executive Vice President, Global Markets


areas have been restored, our teams in the country

have seen �rst-hand the sheer scale of the task ahead.

In addition, Crawford President and CEO Jeffrey Bowman,

Richard Martin, Crawford’s CEO for the Asia-Paci�c

region, and Eiichi Shigematsu, Japan country manager,

were allowed to tour two of the hardest hit areas—

Sendai and Ishinomati. They returned with images that

clearly show the scale of the destruction and the slow

progress that has been made with restoration.

Crawford has been dealing with hundreds of

multinational claims with reserves of many millions

of U.S. dollars. This work has come from both the

Japanese market and from the Global Markets client

base of Fortune® 500 companies. Large corporate clients

have noti�ed us of many losses, but actual claims are

still dif�cult to quantify at this time, as coverage issues

are being addressed.

In addition, Crawford representatives have visited key

reinsurers in Europe and the Far East and will continue

to liaise with them as they determine what exposures

they have experienced. We also have contributed to

the debate around coverage issues in various markets,

including an AIRMIC live forum for the U.K. and

London Market risk community.

COSTS AND CLAIMS MOUNT, WHILE RECONSTRUCTION IS SLOW

In July, the Japanese Cabinet of�ce released new �gures

for the costs to rebuild the infrastructure, housing and

other facilities ravaged by the earthquake and tsunami,


but those estimates excluded costs resulting from the

damage and claims that are sure to arise from the

Fukushima nuclear facility radiation leaks. The Cabinet

of�ce estimates are around 16.9 trillion yen ($215.4

billion U.S.), just under double the cost of the Kobe

Earthquake in 1995, which was estimated to have cost

the country 9.6 trillion yen ($122.4 billion U.S.).

These estimates are

based on discussions

with various national

government ministries

and the nine affected

regions— Aomori, Iwate,

Miyagi, Fukushima,

Tochigi, Ibaraki, Chiba,

Niigata and Nagano—

and are more accurate

than the costs of 16 trillion to 25 trillion yen the of�ce

estimated in late March. The costs will be much larger

when the effects of radiation leaks from the troubled

Fukushima Daiichi nuclear power plant are included,

observers said, fueling concerns over the outlook for

the country’s economy and �scal health.

The total included a �gure of more than 10 trillion

yen for the restoration of buildings that were

damaged or destroyed by the earthquake and in

excess of 2 trillion yen for national infrastructure,

such as roads and port facilities.

Japanese domestic insurance companies have already

handled in excess of 500,000 personal lines claims,

but the commercial market continues to struggle to

quantify the exact amount of losses.

There is growing concern for the future of the areas

of Iwate, Miyagi and Fukushima, which were worst

hit by the event. It is no exaggeration that entire

municipalities have been destroyed, and the sheer

level of destruction forced tens of thousands to �ee the

area. At present there is little reconstruction, therefore

no facilities, and it seems little willingness from the

population to return. Elderly farmers have simply

walked away from their agricultural facilities and huge

parts of the regions remain uninhabitable.

In addition, regular rotational power cuts throughout

Japan continue to impact the ability of �rms to

resume normal production levels, and are affecting

businesses across the country, not just those in areas

that suffered physical damage. Firms are beginning to

move their factories to other areas or abroad due to

those power shortages and increasing concerns that

customers will look for suppliers in areas less prone to

major natural catastrophes.

CBI, SUPPLY CHAIN ISSUES LIKELY TO IMPACT RISK MANAGEMENT, COSTS

In respect to contingent business interruption (CBI),

clients are still trying to quantify and qualify losses

as issues evolve around supply chain exposures. For

example, IT analyst Gartner has warned that the

semi-conductor industry and those it supplies will

continue to feel the full effects of

Many companies were simply unaware

of the potential risks they faced in

the country, and a large number of

coverage issues related to CBI and

supply chain disruption won’t be

sorted out for some time to come.

| CONTINUED ON PAGE 18

Earthquake and tsunami damage in Japan.

10 Tech Talk

According to an old joke popular in New York City,

a stranger stops a local and asks, “How do you get to

Carnegie Hall?” The local answers, “Practice, my friend,

lots of practice!”

For the adjuster, a Carnegie Hall performance may be a

catastrophic loss, when the adjuster arrives at the scene

of a disaster where chaos reigns and no one seems to

be in charge. You only have one opportunity to handle

a major loss correctly, and to accomplish what needs

to be done requires teamwork. It is important that you

have in place a list of quali�ed experts and resources

that can mobilize the necessary professionals, crews

and equipment at a moment’s notice. Whether you need

an engineer, contractor or attorney, it is paramount that

you choose your experts carefully.

Exactly what constitutes a catastrophic loss? Within

the risk and insurance industry, the term “CAT loss”

generally conjures up a Category 3, 4 or 5 hurricane,

a tornado or blizzard, earthquake, large �re or major

�ood. But those are not the only catastrophes to

which an adjuster may be assigned. A major product

liability situation, with dead or dying victims across a

region or the nation, an epidemic spread by travelers

or an environmental disaster might well warrant the

insurance industry’s classi�cation of a catastrophic

loss. Such was certainly the case in the September

11, 2001, World Trade Center terrorist attack, when

buildings fell, workers were killed and airlines were

devastated. Even a multi-vehicle collision on a multi-

lane highway can create a catastrophic situation.

WHO’S IN CHARGE?

Authority to act is often dif�cult to pin down in a

disaster. The adjusters dispatched by their insurers

are not in charge of the disaster – they are only

in charge of the claims assigned to them, and

must maintain control of those elements of the

claim within their range of authority. It is usually

a governmental agency, such as an emergency

management authority, a state or provincial

government, an environmental protection agency or

the police, who is in charge. Consider, for example, a

truck driver involved in a serious vehicular accident.

If able, he must be in control of the scene, placing

warning �ares or signs, contacting authorities,

assisting the injured or extinguishing a �re until the

authorities arrive, but that driver is not in charge.

That is the role of the �re department, emergency

medical technicians and the police. Likewise, the

adjuster at the scene of a disaster must be in control,

even though he or she is not in charge. The authority

to act is limited to the coverage that will be involved

in the claim.

It is important to determine who the key contacts are

and how they can be reached, whether they are the

insured, police investigators, �re department or the

agent or broker. Identify the known witnesses and

arrange to interview them as quickly as possible. If there

is an indication of possible negligence on the part of

the insured or the potential for subrogation, involve the

appropriate experts and legal counsel early to assist in

the investigation and preservation of evidence.

By Bohdan (Bob) Krywiak, CIP, FCIAA, CCFI-c, Executive General Adjuster, Global Technical Services, Crawford & Company (Canada) Inc.


Using Catastrophic Loss Experts


THOUGHT BEFORE ACTION

While considerable pre-loss preparation is necessary

for the adjuster who may be involved in adjusting

catastrophic claims, when the moment comes, every

action must be preceded with analysis. Ordering in the

experts and contractors and engineers and attorneys

may be crucial, but all will hinge on the coverage that

applies to the loss. Coverage, �rst and foremost, is the

key to adjusting a catastrophic loss. In many disasters,

a variety of loss factors will be involved. To illustrate,

in Hurricane Katrina millions of dollars in litigation

costs resulted from coverage disputes as to whether

wave wash and tidal surge constituted windstorm.

Was a house that no longer existed damaged by wind

or by �ood or by both? Time may be of the essence,

as attorneys are prone to suggest, but haste can be a

deadly enemy in a catastrophic loss situation.

For example, suppose the disaster is an overturned

truck on a major highway outside a large city. The

carrier for liability and physical damage to the truck

dispatches an adjuster to the scene. But the truck was

carrying a cargo of hazardous material, a liquid that is

burning, giving off toxic fumes, and also �owing into a

creek that leads to the city’s water reservoir. The truck

driver has been rushed to the hospital, and the adjuster

is approached by the authorities with the question,

“Well, who’s going to clean up this mess?” And, by the

way, they have just evacuated the neighborhood. Is the

liability insurer of the truck also responsible for the

environmental impairment claims, which may cost

millions of dollars? Is the truck’s driver liable in the

accident? All the pre-planning in the world will not help

if the adjuster approves anything without authority or

without applicable coverage. This may be the insured’s

own problem, not that of the insurance company.

LINING UP THE EXPERTS

While the adjuster cannot predict what the next

catastrophe will be, he or she must have a ready list of

quali�ed resources for any and every contingency. In

many cases, this will involve some type of engineering

service that offers cause and origin investigation,

structural, mechanical,

metallurgical, electrical,

environmental, data

processing or hydrological

— even geological—

engineers. In many cases,

national engineering

services that advertise

their expertise to the

insurance industry have such a cadre of experts

available on short notice, even if they must travel

across a nation to reach the scene.

Adjusters also need various resources for salvage

operations, including salvors that can assist in

inventory and protection of salvageable goods or

products from a building or cargo loss. Often, security

services may be required in cases of pilferage or theft

at the site of a loss, especially when expensive cargo or

merchandise is at risk. While it is usually the insured’s

responsibility to protect the property | CONTINUED ON PAGE 20

While considerable pre-loss preparation

is necessary for the adjuster who may be

involved in adjusting catastrophic claims,

when the moment comes, every action

must be preceded with analysis.

12 Tech Talk

Since Thailand suffered what was by far the biggest insured � ood loss in history,

some tough lessons have been learned.

The Thai � oods hit nearly 1,000 factories feeding global supply chains - particularly

in the auto sector - costing insurers an estimated $20bn.

Crawford’s own Bangkok of� ce handled an unprecedented number of serious

incidents, with many hundreds of individual claims valued at seven � gures

or over, in a disaster which placed the global underwriting community under

signi� cant pressure.

However, despite encountering myriad problems along the way, knowledge gleaned

from the challenges faced by the market in Thailand over the past 18+ months has

encouraged the creation of a system at Crawford in which adjusters can respond

more effectively when major disasters strike.

THAILAND ADJUSTING CHALLENGE

The adjusting community has been managing the

surge of claims caused by the Thai � oods for over a

year. Given the � ooded area was the size of Denmark

and contained seven major industrial facilities which

were each the size of Birmingham, England, and

contained the world’s leading manufacturers of computer hard drives and major

automotive part manufacturers, adjusters faced huge challenges.

Richard Martin, Crawford’s CEO Asia Paci� c, explains. “The � ood waters took

months to fully subside and the claims remain ongoing. Japanese insurers issued

their half yearly results in September and we were under increasing pressure from

those clients to close or at a minimum update all losses so that they had current

information for their own � nancial results.”

With these objectives de� ned, Ian Baxter, regional director of Crawford Global

Technical Services® in Asia Paci� c, added: “We doubled the size of the Bangkok

of� ce to accommodate demand since October 2011, and despite the obvious

The Thai fl oods hit nearly 1,000

factories feeding global supply chains—

particularly in the auto sector— costing

insurers an estimated $20bn.

Volunteers and members of the Royal Thai Army, military police, fi ll and place sandbags to redirect fl ooding in the northern Sai Mai

district through the Khlong Hok Wa canal.

Photo: U.S. Marine Corps Cpl. Robert J. Maurer,(Wikimedia Commons).

Thailand, 24 Months OnAn evolution of Crawford Global Technical Services blueprint for catastrophic claims handling



pressures were able relatively quickly to deploy permanent and quali�ed staff in

Thailand. We also knew the advantage that translation support would give us so

we ensured there was a strong network of Japanese and Thai interpreters available

for our adjusters and client relationship managers.”

“We currently have 140 staff working on the claims arising from the �oods in

Thailand and of that number around 50 have been brought in from overseas”

con�rms Martin. “That level of international engagement has been constant

throughout. What we have clearly demonstrated is that insurance is a global

industry and as adjusters we need to have a global resource to meet the needs of

our clients.”

The company’s ability to bring in highly experienced adjusters, from Australia, the

U.K. and the U.S., has been an added bonus, some of whom returned to the front line

from management positions as the pressure on the adjusting community intensi�ed.

SUBMERGED FOR WEEKS

As Richard Martin points out, what in many ways de�ned the Thai �oods was the

length of time that the waters remained after �ood prevention measures taken to

protect Bangkok ultimately left insureds’ factories submerged for weeks.

“Clearly this �ood is not like an earthquake which while catastrophic, is over in

a relatively short space of time. We had signi�cant problems with accessing the

area immediately after the �oods and the slow rate at which the �ood waters

receded meant that it was very dif�cult for access to be gained to take any steps

to tackle the oxidation process which clearly caused greater levels of damage to

plant and machinery.”

“The specialist nature of the businesses affected by the �oods was underscored at

this point. We have been dealing with claims where valuable, specialist machinery

needed to be replaced or repaired if at all possible,” he says.

As project managers for many aspects of the cleanup, Crawford GTS® made

substantial efforts to coordinate resources in the region so that contractors who

specialize in the preservation, restoration or replacement of this machinery could be

on hand as quickly as possible. Ian Baxter explains further: “What is perhaps unique

about the Thai �oods is that building damage was largely super�cial in comparison

to the machinery and business interruption losses incurred by manufacturers

in the region. Where possible, we were able to deploy the resources of specialist

contractors to help insureds protect their assets and even to liaise with the original

manufacturers of the industrial equipment where necessary.”

Adjusters have faced a challenge of diplomacy as a result, particularly where

negotiations between parties looking to manage down costs would tend to pursue

restoration over reinstatement. Richard Martin says in many instances this was

done successfully but in others, because of the high degree of sophistication and

tolerance, restoration efforts were impractical.

“Ultimately we’ve gathered a lot of knowledge about what is possible from a large

scale commercial, industrial manufacturing loss after one of the severest �oods the

world has ever experienced. We had at all times to consider that insureds needed to

get back in to production as quickly as possible.”

MAINTAINING MORALE

Early on in the process, Crawford recognized that its experience in Thailand

would provide a framework of knowledge and transferable skill which can be

implemented for future events. Richard Martin points out how human resources

will be an important component in that framework.

True-color satellite image showing flooding in Ayutthaya and Pathum Thani Provinces in Central Thailand (bottom), compared to before the flooding (top).

Photo: NASA Earth Observatory, via Wikimedia Commons.


14 Tech Talk

With 80 mph winds hurling an unprecedented 13 foot surge of seawater at New

York City, Superstorm Sandy hit fast and with force at the end of October. In its

wake, it left a total of 175 people dead, almost 8 million without power, �ooded

the New York subways, and closed the stock market for two days. Total damage

estimates are between $30-50 billion and total cost to insurers is expected to be

between $10 and 20 billion. These estimates indicate that Superstorm Sandy may

become either the second or third most expensive storm in U.S. history, according to

the forecasting �rm Eqecat. That would rank it behind Hurricane Katrina and either

slightly above or below Hurricane Andrew.

Crawford has already received a large number of Sandy-related claims including

marine, transportation, property damage to schools, businesses, amusement

arcades, boardwalks, retail stores, healthcare facilities and high-value brownstone

homes. Via our 24-hour ClaimsAlert® call center, we continue to take in large

volumes of claims but incoming assignments have leveled off from the initial spikes

in call activity. Additionally, hold times and processing cycle times are dropping due

to ef�ciency improvements.

Our Castrophe (CAT) management team is monitoring real-time feeds of all relevant

news and maintaining constant contact with the �eld force. One of the primary

focuses of management is achieving the proper levels of case load balancing to

maximize ef�ciency. We continue to increase �eld staff deployments in affected

areas ranging from Virginia to Massachusetts and the inland states of Ohio and

West Virginia. We are using the Allentown, PA of�ce for redeploying adjusters in

the high volume claims areas of New York and New Jersey. Clients can monitor the

progress and access claim reports on demand via XactAnalysis®, a claims analytical

and reporting tool.

However, Superstorm Sandy does have some unique challenges. The biggest challenge

for adjusters is travel delays due to a major fuel shortage and massive infrastructure

damage. As of Tuesday, November 6, The New Jersey Gasoline, Convenience,

Automotive Association estimated that at least 75 percent of the state’s gas stations

are closed either because they have no gasoline, no power or both. Stations with

Crawford Responds to Superstorm Sandy Amid High Claims Volumes and Unique Challenges

Pickup truck damaged when a tree fell on it during Hurricane Sandy in an auto-parts store parking lot along NY 208 in the Town of Montgomery, NY, USA, October 30, 2012.

Photo: Daniel Case, via Wikimedia Commons.

Previously published as a Crawford & Company situation paper, November 7, 2012


electricity are having dif�culty staying supplied with gas

because of damaged roads and dif�culties coordinating

deliveries from suppliers. In New York, the situation is

improving, with the EIA estimating that only 24% of gas

stations in the New York metropolitan area do not have

gasoline available for sale.

As November 6, there were slightly less than 1 million

customers without power in 21 affected states, down

from the more than 8.5 million at the outage peak

according to the U.S. Department of Energy. In fact,

Crawford �eld adjusters are reporting more than 250%

increases in rates they are being charged as power is

restored at the hotel properties.

However, another northeast storm, Athena, with winds

between 25 and 70 miles per hour is predicted to hit the

tri-state area today with rain, light snow and a storm

surge between two and �ve feet, according to NWS

meteorologist David Stark. This could undo temporary

repairs to power lines already damaged by Sandy.

Electrical management of several New York and New

Jersey area power companies are preparing for further

damage and putting contingency plans in place.

These challenges are making travel in this area

extremely dif�cult, slowing down and in some cases

preventing adjusters from getting to large areas

of insured properties. In the New York metro area,

adjusters report spending as much as two hours a day

in gas station lines to re-fuel.

Crawford has adjusters strategically positioned in

almost every area but even these �rst responders

are often unable to reach the insureds due to these

transportation challenges. Another storm will simply

complicate matters even further. While these issues

are slowing response efforts, our management team is

drawing on their vast expertise and working diligently

to mitigate the transportation issues as best as possible.

Crawford Catastrophe

Services has more than

40 years of experience

of handling major

catastrophic events like

Superstorm Sandy. In

fact, our current CAT

management team has personally handled all of the

top ten insured loss-producing U.S. hurricanes. From

Hurricane Katrina to Irene, Crawford adjusters are no

strangers to major disasters and the unique challenges

they bring.

The sole focus of Crawford Catastrophe Services is to

respond quickly to natural and man-made disasters.

We have the �exibility and autonomy of a CAT-only

company combined with the resources and support

of the world’s largest independent provider of claims

management solutions. As we work through the

signi�cant claim volume coming out of this major

storm event, Crawford will continue to scale up

and support our clients with our broad network of

adjusters. This will ultimately turn out to be a long

term event, and one we are committed to in helping

meet the expectations of our client’s policyholders in

this time of need. n

With 80 mph winds hurling an

unprecedented 13 foot surge of seawater

at New York City, Superstorm Sandy hit

fast and with force at the end of October.

Looking north toward Jacob Riis Houses from FDR Drive, in Manhattan’s Lower East Side, showing flood damage from Hurricane Sandy.

Photo: Beth Carey, via Wikimedia Commons.

16 Tech Talk

In 2000, the Chilean Association of Insurers estimated

that a loss similar to that of 1985 could result in

payments for US$ 1.397 billion, which would rise to

US$ 2.617 million if the “…maximum probable loss

occurred….”5 It is true that this estimate increased

gradually over the next 10 years, as the “Insurance

Density” (Per Capita Premium) rose, but nobody ever

though that a damaging event – no matter how serious

it was – could result in 222,416 losses, and in payments

for US$ 6.235 billion6, as happened after the 8.8 Richter

magnitude earthquake that occurred on February 27,

2010, at 3:34 a.m., off shore of Cobquecura, Maule Region.

The catastrophe

comprised an area of

165,796 square kilometers

and extended along 959

kilometers of the Chilean

coastline. The damage

was aggravated due to

subsequent tsunamis

that caused waves up to

11 meters high, followed

by 72 hours of chaos

and looting in the most

affected areas.

For the world’s insurance

industry, the Maule

earthquake was the most

expensive catastrophic

event of 2010 and, up until

then, it had become the

second most expensive

earthquake in history, a position that— we know—

will be taken by the Christchurch, New Zealand, and

Tohoku, Japan earthquakes of 2011, where the insured

losses have been estimated at US$ 13 billion and US$

35 billion, respectively.7

THE WORK LOAD THAT HAD TO BE BORNE BY CRAWFORD CHILE

Crawford Chile received 39,710 claims, made up of

3,707 industrial and commercial claims, and 36,003

residential claims. In 30 days the number of claims

usually received in 10 years was reported.

5 Ob.cit.: Echeñique, Joaquín. Speech at a Seminar on Earthquake – March 15, 2000.

6 Source: Chilean Superintendence of Insurance and Securities. “Reports on Payments for Housing Loss at November 31, 2011; payments for Losses Other than Housing at May 31, 2012 and Reserves for Outstanding Losses at March 31, 2012.

7 Source: “Topics Geo” 2012 Magazine edited by Munich Re.

The Problem with Commercial Losses

Technical complexity, high amount and geographic dispersion

Commercial losses were 3,707, but it was a deceiving

�gure, because a single loss could involve multiple

locations. Thus, for example, a supermarket chain,

department stores and banks claimed 324 different

stores that made up a �le, although, in practice, they

should be adjusted on a per location basis.

On the other hand, the most expensive loss – for which

Insurers paid US$ 532 million – comprised damage to

26 industrial plants located within an approximate

area of 400 kilometers on the coastline.

Consequently, for the purposes of analysis, it will be

necessary to consider a work load of about 10,000

losses as a regular situation. However, the problem was

not in the number and dispersion of the losses, but in

another two factors: high technical complexity of some

of these losses and excessive amount of damage.

In fact, most of these cases posed almost unsolvable

engineering problems, where demolition,

disassembling and reconstruction were not even

feasible. An example of this was the port area of San

Vicente and Talcahuano, in Region VIII, Chile, where

there is still no viable technical solution, despite the

fact that this loss has been settled:

The Critical Topics

Although it may be surprising, the critical topics

related to managing claims were mostly related to

the form rather than the substance. In fact, perhaps

the greatest problem arising from the handling of

a catastrophe of the type in question is the mix

between the “Several Liability” and “Control and/or

Claims Cooperation” clauses of universal application

to reinsurance contracts. Such provisions grant each

reinsurer the right to be informed and to make their

own decisions regarding a particular loss, which is

perfectly possible in individual losses, but becomes too

complicated when there are 3,707 open claims.

From a legal conceptual viewpoint, there were some

speci�c dif�culties arising from the rather clumsy

importation of contractual provisions of common use

in international markets, which were incorporated

to the policies without the necessary explanation

of what these provisions meant. Examples of these

were the “Leeway,” “Swing,” “Full Value,” “Adjustment

of Amount” and “Errors and Omissions” clauses, to

name a few, which had to be construed in accordance

with the Chilean legislation, which makes the

Earthquake in ChileCONTINUED FROM PAGE 3

Shake map of the magnitude 6.9 earthquake offshore Pichilemu on March 11, 2010. Epicenter marked at star.


Insurer responsible for their writing and enforces the

construction that is most favorable to the Insured “…

in case of doubt regarding the meaning of a provision

in the general wording of the policy or clause.”8

Finally, at a market level, there were some dif�culties to

delimit the expression “location,” which was essential

to apply the deductibles for earthquake (2% of the

amount of all property in one location); for “looting,”

which is not a crime itself under the Chilean law, but an

aggravating circumstance of theft or robbery and some

con�icts related to the expression “causality,” arising

when the risks of earthquake, tsunami and looting

were not necessarily covered under a policy or when

such risks had no separate deductibles or sub-limits

affecting the indemnity.

But such speci�c dif�culties were resolved in a uniform

manner and by consensus, posing no great dif�culties.

In fact, of the 3,707 reported claims, only 1 is partially

under litigation, representing 0.027% of the total claims

adjusted in this area.

Work on Housing Losses

High Volume, socio-political problems and involvement of supervising entity

Notwithstanding the above problems with policy

provisions, what further complicated the Chilean

insurer market the most was the underlying socio-

political problem behind the 190,299 housing losses

that were ultimately reported. In fact, that �gure

represented 19.7% of the total houses insured against

earthquake in the affected regions, and behind many

of these cases there was a social drama that needed to

be urgently solved.

It was also the aspect of the catastrophe that most

concerned the Superintendence of Insurance and

Securities, which, from the very beginning, stated that

they would not accept any extension in the regulatory

adjustment period in respect of housing losses,

except for exceptional cases supported by a schedule

of activities that each adjuster had to submit to the

supervising entity for each speci�c loss.

Crawford Af�nity did not remain aloof to this problem

either, because the losses they received represented

approximately 41 months of housing losses entered

on a regular basis. In this context, the preparation of

an individual schedule of

8 Cited textually from letter e) of Article 3 of the Chilean Insurance Law contained in the D.F.L. N ° 251.


A cameraman standing alongside the Don Tristán condominums in Maipú, Chile, while the building collapses

due to damage from the February 2010 Chilean earthquake.

Photo: Jorge Barrios, via Wikimedia Commons.

18 Tech Talk

the earthquake and tsunami for the remainder of the

year given the vital role Japan plays in the industry. The

analyst has cut its worldwide revenue growth forecast

to $299 billion, representing growth of 5.1 percent

compared to previous estimates of 6.2 percent, due to

the unstable supply chain caused by the events in the

Far East.

In fact, we expect that CBI and supply chain losses

likely will have a signi�cant impact on future risk

management among multinational organizations. In the

most recent IBM CEO study, leaders told the company

that “the complexity of operating in an increasingly

volatile and uncertain world” is their primary

challenge. The events in Japan brought this home.

Many companies were simply unaware of the potential

risks they faced in the country, and a large number

of coverage issues related to CBI and supply chain

disruption won’t be sorted out for some time to come.

Though it’s hard to predict how many of those

coverage issues will be resolved, two outcomes of the

experience in Japan are clear: the cost of insuring

supply chain risk will almost certainly rise. And if

risk management hasn’t already been elevated to the

C-level in an organization, it will be now.

As executive vice president for

Global Markets, Mike Reeves

is responsible for business

development among global

clients. Reeves joined Crawford

in 1982 as managing director

in Malaysia, and after growing

business there, went on to

establish companies in Sweden,

Norway and Denmark and

serve in a variety of operational, marketing and business

development roles in Europe. Contact him at

[email protected]. n

Aside from those situations described earlier,

in�uencing features that are potentially uninsured and

most often ignored include:

� Losses �owing from wider area damage

� Loss of attraction claims

� Trading activity that is subdued because

customers are dealing with their own

property damage

� Fear of further events

� Closure of transport routes.

The consideration of “clawback” (the recovery of

turnover that is not lost, but merely delayed) is also

often understated or ignored completely.

More often than not, the perception of claimants and

some of their advisors is that where an event has

occurred and the business’s turnover has diminished,

an insured is entitled to compensation for the

shortfall that has occurred. This misunderstanding

largely occurs because they are not applying the “but

for” test appropriately.

The case of Orient Express and Assicurazioni General

S.pA (UK Branch),* which dealt with issues of business

interruption at a New Orleans hotel after Hurricane

Katrina damaged the city, provides useful guidance to

the question we ask. An event may have occurred that

resulted in loss, but is the damage insured or caused by

an event insured by the policy and, if so, to what extent?

As national technical manager

of financial and forensic

accounting services for

Crawford GTS in Australia,

Martin Miller heads up

operations, sales and account

management for the division.

He has more than 18 years of

experience in forensic loss

adjusting and has worked

extensively on multi-million-dollar financial risk claims

throughout the world. Contact him at

[email protected]. n

* For more information on this court ruling, visit: http://lexisweb.co.uk/cases/2010/may/orient-express-hotels-ltd-v-assicurazioni-general-spa-uk-branch-trading-as-generali-global-risk

Australasia CAT EventsCONTINUED FROM PAGE 7

Japan EarthquakeCONTINUED FROM PAGE 9


remains unclear. The issues have not been fully ironed

out by the government, and opposing concerns are

being laid bare. On one hand, engineers are in favor of

increasing those tolerances to safeguard against future

professional indemnity litigation and keep themselves

covered; on the other hand, property carriers could see

their reinstatement costs rise.

In general, the current requirement is that the original

building needs to be constructed to within 33 percent

of new building standards or be able to withstand

another moderate earthquake. If this is lifted to more

than 66 percent, as some supporters are hoping,

this will potentially place buildings that were within

acceptable tolerances into the bracket for demolition

or signi�cantly greater repair. We are monitoring this

situation carefully from both perspectives to advise our

clients of their reserve position and any likely change

to settlement programs.

GOVERNMENT, INSURANCE INDUSTRY PARTNER IN RECOVERY

Christchurch may be beginning to �nd its way towards

a sustainable path for reconstruction and renewal. The

city was growing and economically viable before the

quakes, and it has no serious rival as the South Island’s

main urban centre. I have been impressed at the way

the insurance industry and government have worked

together on many aspects of the recovery following last

year’s earthquake. There is a belief that the government

will need to step in still further and kick-start some key

developments to create recovery and build momentum.

For example, plans have been submitted for a possible

new convention center, and the state has already

committed NZ $20 million to a new, temporary sports

stadium constructed after the city’s home ground was

badly damaged before the 2011 Rugby World Cup.

For now, loss adjusters are at the coal face and will

remain there for some time to come. The scale of their

task is illustrated by the fact that CERA has expressed

a need for 20,000 to 30,000 additional building workers

once full-scale reconstruction is underway.

Like any natural disaster, the Christchurch earthquakes

may struggle to maintain status as headline news, but

I’m glad to say we’ve played our part in helping people

and getting the city back on its feet.

A chartered loss adjuster by

training, Benedict Burke served

in several key leadership

positions for Crawford before

joining the Global Markets

team, which is responsible

for relationships with the

Company’s international clients,

as senior vice president in

2011. He has been involved

in a number of strategic projects, including Crawford’s

acquisition of Specialist Liability Services, throughout his

executive career. Burke is an advisory board member

of the Chartered Insurance Institute’s Claims Faculty

and served on its task force that led to the pivotal

Aldermanbury Declaration on professionalism. Contact

him at [email protected]. n

ABOUT CRAWFORD & COMPANY

Crawford & Company (www.crawfordandcompany.com) is the world’s largest independent provider of claims management solutions to the risk management and insurance industry as well as self-insured entities, with an expansive global network serving clients in more than 70 countries. The Crawford System of Claims Solutions® offers comprehensive, integrated claims services, business process outsourcing and consulting services for major product lines including property and casualty claims management, workers compensation claims and medical management, and legal settlement administration.

Crawford Global Technical Services (GTS®) is the single best global resource for adjusting large or complex losses. Our unique combination of experienced and qualified professionals, infrastructure and leadership enables us to strategically manage major losses anywhere around the world.

A City without a HeartCONTINUED FROM PAGE 5

20 Tech Talk

from further risk of loss, many insureds have little idea

of how to undertake such protection, such as tarping

a roof after a windstorm or �re or securing a valuable

cargo that has overturned in a ditch. Storage sites often

must also be located where goods or merchandise can

be kept safely until a damaged building is restored.

CALLING THE PROFESSIONALS

In addition to the various kinds of engineers who may

be needed in a catastrophe, proper claim handling may

require a wide variety of other professionals. In a toxic

tort disaster, quali�ed physicians may be required for

independent medical examinations to con�rm or rule

out whether potential claimants have been affected.

For example, in the aftermath of the asbestosis crisis,

class action attorneys were signing up clients who

may have been exposed to asbestos, but did not have

any resulting disease. In any toxic disaster that results

in evacuations, quick action to contact and rule out

claims with negative statements is crucial.

In many catastrophes where commerce is affected, the

evaluation of business interruption losses will require

forensic accounting expertise. In death claims, for

example, economists are often called upon to place

values on certain aspects of a deceased’s earning

capacity. In almost any type of loss, prevention of

litigation is crucial, but the guidance of attorneys who

specialize in various types of tort and contractual law

can be absolutely necessary. Attorneys may also be

needed in complex subrogation cases.

DEALING WITH COVERAGE ISSUES

Another aspect of a catastrophic loss includes

determining who will be the spokesperson for the

insured. The adjuster should never assume this role.

In a major disaster, the media will press anyone at

the scene to comment, and such comments can be

harmful, legally and in terms of public relations, if not

carefully planned and executed. Major corporations or

governmental agencies and their legal counsel need to

plan in advance who will speak in a catastrophe.

Whenever a coverage issue may exist, it may be

prudent to have the insured sign a non-waiver

agreement or issue a reservation of rights, especially

when the cause of loss or its potential rami�cations

may not be known. To prevent misinformation or

misunderstanding with the insured or the designated

experts, immediately agree on a chain of command

and identify respective responsibilities. Identify and

make clear the relevance of information required and

agree on a protocol for developing and accumulating

such information. Set a timetable as to when each

participant is expected to complete his or her

respective task, followed by a critical path letter that

details, in writing, respective responsibilities and

timing for completion of those duties.

INVESTIGATIVE ROADBLOCKS

Some disasters bring unique investigative dif�culties

with them. Access to a site may be restricted due to

roadblocks and could be restricted for a considerable

period of time. Police may be reluctant to share

information. The site may have been declared a crime

scene, for example, and neither adjuster nor experts

will be allowed to enter. The �re department may

not be able to access the site to put out �res, which

can mean further damage to a property and loss of

evidence. It may be necessary to involve legal counsel

early to assist in the release of information and

preservation of evidence.

Environmental impairment disasters, such as

exploding trucks, warehouses or rail cars, create

hazards not only for emergency responders, but also

for any adjusters dispatched to the scene. Personal

safety must be a constant consideration for the

adjuster. Consideration must also be given to the

coverage issues that are presented in a disaster, as

a single situation can trigger a number of different

insurable perils covered by a variety of different

policies – or as is often the case, by no insurance policy.

If a copy of the applicable policy wording is not readily

available from the underwriter or the insured either

because premises have been destroyed or access has

been denied, arrange for the agent or broker to provide

a copy for early review to identify potential exclusions

or limitations of indemnity. Following such preliminary

review, immediately inform both the insured and the

agent or broker of potential coverage issues. Often, the

insured may have other coverages that could apply to

excluded or non-covered losses. Factors that can trigger

problems include the period of indemnity, such as in

a business interruption claim, excluded property, such

as money or securities, excluded perils, often including

terrorism or food spoilage due to lack of refrigeration,

insuf�cient policy limits, coinsurance factors and

policy sub-limits. Restoration to code may also present

problems for the insured if not covered by the policy. For

businesses, data recovery can be a factor to consider.

These issues have the potential to quickly exhaust

policy limits before the insured has been fully

CAT Loss ExpertsCONTINUED FROM PAGE 11


indemni�ed for the loss. This could result in the

insured looking for other deep pockets, such as an

agent, broker or other insurance professional, if

adequate coverage or policy limits have not been

provided. These parties need to maintain necessary

notes, letters, emails and faxes in their �les that

support any coverage advice given, and determine

whether a proper statement of values was obtained

from the insured.

SCOPING AND ACTION

Unlike a limited loss, such as a dwelling �re or

plumbing break, catastrophic claims involve a wide

variety of exposures and interests, including the

building structure, a business’s stock, furniture, �xtures

and equipment, leasehold interest in improvements

and betterments, demolition and debris removal costs,

property of vendors or lessors of equipment, property

of employees or others perhaps held in a bailment

situation, and computers and other electronic data

processing equipment, as well as valuable papers,

records and other key documents. When an insured

property is awash in �ood waters, demolished in an

explosion or blown apart in a windstorm, every one

of those factors can provide signi�cant veri�cation

problems for both the insured and the adjuster.

TEMPORARY AID

As it may be months before an insured can reoccupy or

rebuild a home or business damaged in a catastrophe,

the insurer’s adjuster must know how to assist the

insured within the terms of the coverage during the

interim. Advance payments, or debit cards, can be

made available for homeowners to use for temporary

living expenses – shelter, food and clothing – or

for businesses to try to salvage sales or business

relationships from a temporary location. However, the

adjuster must make certain that advanced funds are

used for the purpose intended and are not excessive

or unrealistic. While some expenses, such as those for

water and utilities, can be temporarily cancelled, other

costs, such as taxes or rent, may continue whether or

not a home is habitable or a business is operating.

The adjuster arriving at the scene of a catastrophe

must be prepared for any and every contingency. He or

she must be knowledgeable about what the insurer’s

policies do and do not cover, and, after locating the

insured, review what can and cannot be done to

help. Unrealistic promises or assurances that are not

backed up by the policy may expose the insurer to a

waiver and estoppel situation, so the adjuster must

proceed cautiously in maintaining control in the loss.

Ultimately the insured must take charge, utilizing the

knowledgeable guidance of the adjuster.

Bohdan (Bob) Krywiak began

his career in the insurance

industry in 1972, joining

Crawford in 1995 after working

for three major insurance

companies and serving as an

insurance salvor. He holds a

large number of Canadian

and international professional

certifications for adjusters and

fire and explosion investigators. Krywiak has expertise

in building and construction, engineering, mining and

power and energy claims, and handles major property

and boiler and machinery losses in Canada and around

the world. Contact him at [email protected]. n

22 Tech Talk

activities for the adjustment of 36,003 losses was not a

trivial task; let alone managing its compliance.

Specific difficulties that the market had to face in the adjustment of housing losses.

There were no technical complexities here, but

complexities of a different type:

� 89.51% of the houses insured against

earthquake were under a mortgage loan,

with the policy having been taken out

through a �nancial entity that played a

double role, namely, “contracting party”

and “bene�ciary.”

� Since portfolios are dynamic, the

databases were generally in the hands of

the contracting �nancial entity and – in

many cases – were outdated, incomplete

or just wrong, causing all kinds of

dif�culties.

� As a result and in view of the non-existence

of a mechanism that acted as a screen,

many of these losses were reported once

or three times, which was only evidenced

upon arrival at the place.

� Since there was no single policy for housing

insurance, the earthquake surprised the

market with a wide range of wordings that

made parameterization, which is the basis

for the implementation of a computing

system for massive adjustment and

settlement, complicated.

� On the other hand, nor was there a master

plan in place that allowed the rational use

of human and material resources destined

for dealing with the catastrophe. As a

result, three or more adjusters arrived at

many buildings or condominiums, resulting

in the inevitable disparity of criteria that

very much complicated settlements,

because the neighbors realized this

and “formed a union” seeking the most

advantageous proposal for their interests.

� All policies were subject to a 1% deductible

applicable to sums insured per location,

but, at the same time, many of these

contracts were subject to depreciation

due to obsolescence, wear and tear and

underinsurance average. There were cases

that were the subject matter of an actual

cascade of deductions, generating many

con�icts that had to be settled one by one.

� Shared areas in buildings and

condominiums were another problem,

particularly where the administrator had

not taken out earthquake insurance. How

can the structure, elevators, or parking

areas of a building where only a few co-

owners have insurance be repaired? The

diligent insured was left with no solution

to his residential problem, despite having

taken the necessary precautions.

� Finally, the payment process was also

problematic, because each �nancial entity

was empowered to decide what it intended

to do with the payment it received. Some of

them agreed to the settlement being paid

directly to the debtor, trusting that it would

carry out the repairs; others allocated the

same to the debt, particularly in cases of

delay in payment; only a few managed the

repairs that were being carried out to the

damaged property.

None of the above aspects

had been foreseen by the

insurer industry and it is

one of the main lessons

that the earthquake left.

The good news is that

much progress has been

made in this regard; in fact,

the Chilean market already

has a single mandatory policy in place against �re and

additional risks for houses under mortgage loan, which

solves most of the above dif�culties.

Crawford Catastrophe Plan

In addition to the above dif�culties faced by the

entire market, Crawford Af�nity faced another one of

its own: “MASCAT,” the “catastrophe plan” that had

been developed to face an event like the one we are

concerned with, proved useless and had to be ruled out

for the following reasons:

� The plan had been structured based on “in-

situ” adjustment by electronic and mobile

technology means.

� The mechanism worked adequately in

normal situations, but it was not capable

of undertaking massive tasks, because it

lacked an organizational model, which was

the structural work of the entire system.

� As it had been developed based on state-

of-the art technology, the system required


What further complicated the Chilean

insurer market the most was the

underlying socio-political problem

behind the 190,299 housing losses

that were ultimately reported.


long and complex training, which became

a problem impossible to solve due to the

large number of people who had to be

incorporated into the operation.

� The plan assumed the availability of certain

infrastructural utilities, such as, mobile

technology for electronic data transmission,

which is some damaged areas took a long

time to reach an acceptable reliability level.

� But the main obstacle was not having a

previously agreed operation protocol in

place with the other parties to the process

(mostly mortgage creditors and insurance

companies), and which was impossible to

structure after the earthquake had occurred.

As a result, Crawford had to develop – during the

claims management process – a new plan that solved

such inconveniences. The result was the development

of a computing system based on modules, which

made up a “work-�ow” that served as an actual

adjustment report factory, with the following stages

and/or functions:

� Parameterizer Module: its function was

to con�gure the different policy wordings

that came into the process based on

bene�t plans, covers, limits, sub-limits,

deductibles, etc.

� Notice of Loss Entry Module: intended to

receive individual and massive notices of

loss. It had control mechanisms to verify

the consistency of the data and detect

eventual concurrence of policies.

� Integration to “Call Center” Module: fed

with entries, it generated the tasks for the

“Call Center,” which was implemented as

the contact door between the insureds and

the team responsible for processing claims.

� Survey Module: it was intended to collect

and back up adjusters’ on-site work.

� Audit Module: it allowed evaluating each

survey on site, including survey reports,

photographs, detail of valuation and other

information gathered by the adjuster.

� Adjustment Module: Activated by each

portfolio manager and consisting of a

remittance that included such claims that

went through to the �nal report release phase.

� Release Module: Physical remittances

in the previous module went through

a last random physical audit to detect

eventual errors in form or substance. If it

was an error in form, it was immediately

corrected; if it was an error in substance,

the claim was removed from the

remittance and returned to the previous

stage, triggering an investigation on the

cause of the error.

� Management Module: Its function was to

visualize the status of each claim at any

particular moment, in order to overcome

any bottlenecks and ensure the normal

development of the work �ow.

� Objection Module: Its function was to

enter, review and solve objection letters

from insureds or insurers to comply with

the regulations.

� Payment Module: It

was developed at the

request of insurers

and its function

was to set the dates

of payment, verify

their materialization,

process the supporting

documentation and

detect such situations

in which the insured

rejected payment,

and to take action

accordingly.

� Statistic Module: It was intended to

provide statistic information about the

process, which included entered, surveyed

and adjusted losses, amounts paid,

rejected losses and reason, payments and

compliance with standards previously

agreed with insurers. The above could be

accessed on-line through a password with

speci�c visualization attributes.

Once the system was operative, the following work

standard was achieved for most processed claims (see

Figure 1).

Thus, the requirements set by

the supervising entity could be

Stage 1 Day 1 Reception of claim and notice of loss

Stage 2 Day 2+3 Survey

Stage 3 Day 3+4 Review by Head of Surveyors

Stage 4 Day 5+6 Adjustment

Stage 5 Day 7 Adjustment Quality Control

Stage 6 Day 8 Report and Release Form

Stage 7 Day 9 Quality Control and Report Release

Stage 8 Day 10 Release of Adjustment Report

Stage 9 Day 11 Reception of Release Form, authorization and payment

Figure 1. Daily Timeline - Claims Adjustment Process from Reception to Payment

Feb 10 Mar 10 Apr 10 May 10 Jun 10 Jul 10 Aug 10 Sep 10 Oct 10 Nov 10 Dec 10 Jan 11 Feb 11 Mar 11 Apr 11 May 11

Notices of Loss

0.30% 54.64% 78.63% 94.37% 95.76% 97.76% 99.54% 99.77% 99.88% 99.93 100.00%

Survey 20.05% 52.57% 64.95% 76.81% 91.39% 95.57% 97.57% 98.57% 99.27% 99.64% 99.94% 99.99% 100.00%

Adjustment 15.73% 39.69% 70.11% 82.73% 91.53% 95.67% 97.77% 98.92% 99.19% 99.64% 99.93% 100.00% 100.00% 100.00%

Figure 2. Monthly Timeline - Percentage of Completed Adjustments| CONTINUED ON PAGE 24

24 Tech Talk

complied with and the following issuance percentages,

shown in Figure 2, could be obtained.

KEYS TO THE SUCCESS OF THE PROCESS

At July 1, 2012, with all claims already settled,

except for four that are still open due to exogenous

circumstances, the result of the claims adjustment

work can be considered as satisfactory; the �gures

speak for themselves.

Below are the keys that explain such results:

The Regulatory Framework

For several years, the insurer business has been

considered a key element in Chilean economic

development. Therefore, both the private and the public

law regulated insurers. Legislators have understood

that what is at stake is public trust and that one speci�c

insolvency episode not only affects the clients of the

bankrupt company, but the entire market.

Inspired by this principle, the law confers the necessary

regulatory capabilities upon the Superintendence

of Insurance and Securities to supervise all people

and companies that, in one way or another, become

involved in the insurer industry, including insurers,

reinsurers, insurance brokers, reinsurance brokers

and adjusters, among others, whose operations they

may examine, or ask to be informed or even become

involved, without prejudice to their ability to punish

any violation with an admonition, penalty, suspension

or revocation of the authorization of existence.

With this regulation scheme in place for so many

years at the time of the earthquake, each player of

the market knew exactly the task it had to develop,

because its functions, faculties and obligations were

perfectly clear and de�ned.

Maturity and Responsibility of the Chilean Insurer Market

The behavior of Chilean insurers will need to be

analyzed in two chronological instances: before and

after the earthquake.


In Concepción, the remains of the 20-story Alto Río building, which collapsed during the 2010 Chilean earthquake.

Photo: Claudio Nuñez (Wikimedia Commons)


The years before the earthquake, insurers could have

pushed to the limit the regulations on catastrophic

technical reserves and, in particular, entering into

reinsurance contracts, the requirements of which

were minimal – not to say marginal – because

reinsurance entities were required to have risk

ratings equal to or over BBB and a minimum equity

capital equal to US$ 4,738,614. However, no insurer

ever speculated in this respect and, therefore, the

Catastrophic Earthquake Reserves at the time of the

event were more than enough, as was the �nancial

capacity, seriousness and reserves of the reinsurers

with whom they were under contract, and whose risk

ratings were in no case below “A-.”

On the other hand, the post-earthquake behavior of

the Chilean insurer market is evidenced by the fact

that no claim was left unsettled and that the degree

of con�ict was minimal: cases under litigation at a

market level are no more than 30, which is absolutely

marginal compared to the number of reported losses.

Reinsurers’ Reply

On the other hand, the exceptional �nancial response

of national and international reinsurers was one of the

keys to the successful performance of the market not

only in terms of the timely payment of the reinsured

percentages, but also in terms of the essential

provision of cash-�ows, because insurers’ assets were

not even remotely suf�cient to face the earthquake

effects with their own resources.

The above should be highlighted, because not all

reinsurance contracts required reinsurers to provide

funds in advance and – as we have seen – it may be an

essential aspect in the event of a catastrophe.

The reinsurance brokers involved, who are responsible

for a signi�cant share of the placements of the

proportional, facultative and excess loss insurance

contracts that followed the earthquake, also played an

important role in �nancial response.

The Loss Adjustment Procedure

Among the requirements that a well-organized

insurance market should meet is the need for rules

intended to ensure that insurers handle their claims

in a prompt and fair manner, through clear, well-

known and formal processes. Since 1989, Chile has a

procedure in place that meets such requirements, and

that is contained in the Decree Supreme No. 863, the

source of which is in the Decree with Force of Law No.

251 on Insurance Companies of 1931.

The enormous advantage of the above procedure is

based on the fact that losses go through a process

with time periods, start and end, and intermediary

instances that allow the parties to express their

opinion regarding the contractual and numeric aspects

that have an in�uence upon the amount intended to

be paid, assuming, of course, that indemnity is payable

per the terms and conditions of the policy.

In this process, the mere

fact that 222,416 claims

had to be substantiated by

a single, formal procedure,

known by all the parties

involved and subject to

the supervision of the

supervising entity was,

no doubt, a key aspect in

effective catastrophe management, and explains the

low level of litigation in the Chilean insurer market.

The Importance of Being an International Corporation

Finally, the support that Crawford Chile received from

Crawford & Company was crucial. It was not only

evidenced by the participation of a group of adjusters

from all over the world, but also by the corporation’s

willingness to make itself available to the worldwide

insurance and reinsurance market to support the work

on this catastrophe.

BALANCE AND CONCLUSIONS

From a quantitative viewpoint, 39,710 claims

were received and there are only �ve outstanding

settlements. So far, the proposed settlements amount

to US$ 2,170,480,999.

As for the work itself, Crawford Chile feels a

legitimate satisfaction for the work done and

appreciates the support received from the Chilean

and overseas markets.

Javier Carvallo is the president

of Crawford Carvallo S.A.,

providing services for the

insurance industry in Chile,

Mexico, Colombia and Peru.

Among his other professional

activities, Carvallo is Arbitrator

of the Arbitration and Mediation

Center of Santiago, Arbitrator

of the Chilean Chapter of the

Association Internationale de Droit Des Assurances and

President of the Eduardo Carvallo Gundelach Foundation

for the Education of Autistic Children. He can be

contacted at [email protected]. n

On the other hand, the post-earthquake

behavior of the Chilean insurer market

is evidenced by the fact that no claim

was left unsettled and that the degree of

conflict was minimal.

26 Tech Talk

“Thailand has been a tough place to operate from

an overseas adjuster point of view and given the

conditions that we have faced, we have been keen to

put in place a program to rotate staff to reduce the

risks of stress and burn out,” he says. “There have been

a lot of challenges for those working in the area and

while we have had a core team that has been involved

throughout, we have monitored our employees’

wellbeing carefully.”

“In addition, like any project in which one has an

interest, the needs of our insurer and reinsurer

clients have been our major objective. Those with

the very largest exposures in the region were

provided with constant liaison and I’m con� dent the

business has the right approach to putting senior

individuals in customer facing roles so that lines of

communication can be kept open and effective.”

No CAT claim is the same as another, and each will

present its own challenges for adjusters at the coal face.

Working with a global client base means there is no one

size � ts all approach to adjusting and Crawford has a

robust system of peer review and audit so its reports to

the insurance market stand up to scrutiny.

Ian Baxter concludes: “Culturally, geographically, and

logistically: ours is a responsibility to adapt to the

local conditions. On one hand that simply means the

physical challenges of the environment in which we

� nd ourselves, but on the other we must also adapt to

the needs of the insurers we represent. The experience

of handling CAT claims in an industrial context within

South East Asia has been invaluable.” n

GENERAL DYNAMICS

One year on and the insurance response to the Thai fl oods is still on going and the impact on the country remains severe.

Outside of Japan, Thailand is Asia’s most developed vehicle parts market and a hub for the likes of Toyota, Honda and Mercedes-Benz; making cars and car parts was the country’s No. 1 export last year. The fl oods disrupted more than 100 of the industry’s component makers.

Manufacturers such as Toshiba are moving machinery to the second story, setting up sister operations in other countries and fi nding back-up warehouses and suppliers, though the bulk of operations remain in Thailand.

Toshiba’s factories are in the Bangkadi industrial estate, one of seven parks built on former rice paddies on fl oodplains north of Bangkok that were inundated last year, affecting companies such as Sony, Canon and Honda.

Close to where workers are still toiling to build new fl ood defenses to protect the complex is a bronze statue of an elderly couple standing on sandbags. They are the estate’s founders and the statue commemorates a fl ood in 1995 in which 1 million sandbags were used to fend off high waters, a reminder that this is not the fi rst time the estate and the country have been threatened.

INSURERS REFOCUS ON FLOOD RISK

For insurers the fl oods have seen all eyes turn to what other fl ood risks lie in wait for underwriters in the region.

In the rush for development that has lifted millions out of poverty in Asia, many factories have been built along coasts, especially in river deltas. According to insurance industry executives, most construction was done without long-term historical data on fl oods and storms.

Rising sea levels, increasing rainfall and more intense storms - together with more people and infrastructure - mean the risks have multiplied. Brokers and underwriters say the industry is vulnerable to another major fl ood, with scientists identifying the coastal plains of southern China as one area at great risk.

“When I go and look at these industrial parks and ports in some of the low-lying coastal areas, I just have to stand back and think: Who’s insuring these things? Who’s done the risk assessment?” said Adam Switzer, a coastal scientist at the Earth Observatory in Singapore.

The goal, insurance executives say, is to break the cycle of paying for the same losses over and over again.

CHINA AND INDONESIA CONCERNS

After the Thai fl oods, reinsurer Swiss Re reassessed fl ood risk in emerging markets. Its No. 1 risk was China, whose vast industrial estates are at the heart of global manufacturing, making everything from iPads to brake pads.

Many in the insurance sector agree that an even bigger loss is likely in China, the motor of global manufacturing, where large areas of factory estates are vulnerable to fl ooding and storms. “If we have a really extreme event in China, I am quite certain there would be some surprises for the insurance industry,” said Jens Mehlhorn, head of Swiss Re’s fl ood group. “The fl ooding we see currently in China is just average fl ooding. We haven’t seen a 50- or 100- year fl ood event in the past 5 to 10 years.”

Insurers and reinsurers are also worried about dense concentrations of factories in other parts of Asia, particularly in and around the Indonesian capital Jakarta, where fl oods in 2005 and 2007 hit large areas. This low-lying coastal city has 13 rivers fl owing through it, is subsiding in parts and faces rising sea levels. It is the nation’s manufacturing base with U.S., European and Japan ese fi rms operating factories.

ThailandCONTINUED FROM PAGE 13

Thai soldier steering boat through fl ooded Pathum Thani urban area north of Bangkok, October 31, 2011.

Photo: Voice of America, via Wikimedia Commons.


Right: Aerial views of the damage caused by Hurricane Sandy to Casino Pier, Seaside Heights, New Jersey, October 30, 2012. See article on page 14.

Photo: Master Sgt. Mark C. Olsen/ U.S. Air Force/New Jersey National Guard, via Wikimedia Commons.

The New Crawford GTS Search AppWe are happy to announce a new

mobile application: Crawford GTS

Search. The mobile application

extends the adjuster search

functionality of the Crawford GTS

web site (www.crawfordgts.com) to

mobile devices. It allows users to

search for and connect with a GTS

adjuster from anywhere in the world

to anywhere in the world using

mobiles phone and tablet devices.

The application runs on iPhone,

iPad, Android, and Blackberry

phones and tablet devices and is

available from online application

stores: Apple iTunes App Store,

Google Play Android Apps, and

Blackberry App World. To install the

application on your device, please

search for Crawford GTS Search

using your device’s app store feature

and follow the instructions. n

Above: Screenshots of the new GTS Search App.

Left: GTS icon featured in the search app.

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