Making major sense of loss

In 2001, an explosion at the Corus steelworks in Port Talbot in South Wales resulted in three workers being killed and a blast furnace being incapacitated. Prior to the disaster, Corus had appointed a nominated loss adjuster, Capita Insurance Services, in consultation with broker Heath Lambert.

When the blast occurred, Capita's existing knowledge of the company, its processes and its culture proved to be a distinct advantage in dealing with the ensuing claim and business continuity issues. With relationships already in place, decisions could be made quickly, action taken and the impact of the loss minimised.

However, prenomination of an adjuster by the insurer is not the normal way in which the market operates. Insurers usually maintain a panel of two or three adjusters to which major loss work is distributed. For example, Allianz Cornhill uses Cunningham Lindsey, Davies and GAB Robins for commercial property and major catastrophe. Similarly, Zurich Commercial has Capita and Cunningham Lindsey on its panel.

The appeal of smaller panels

Panels have grown ever smaller because of the procurement strategies that insurers have devised to control their claims spend. Furthermore, imminent Financial Services Authority regulation is forcing the formalisation of contractual arrangements with adjusters, strengthened by ongoing competency testing and auditing. This again makes smaller panels more attractive to insurers and favours the larger firms. However, there is still room for specialist adjusters with expertise in fields such as construction, engineering, oil and gas.

Mark Bass, UK technical director at Crawford Technical Services, says: "A significant amount of major loss work, but by no means all of it, is distributed to panel members. A proportion is led by individual adjusters, selected for their personal skills and experience. This is more so in the upper reaches of the loss value scale, or where specific industry skills are an issue."

This view is confirmed by Axa, which has solus deals with specified adjusters for household, property and liability. Claims director David Williams explains: "Where we have contract negotiations for panels, it's for volume work, not major loss. There are a lot of different factors to consider with a major loss. The nature of the loss is important. For a gas explosion, you would need a specialist in that field. You are thinking of the right person to handle a particular set of circumstances."

If a small to medium-sized enterprise incurs a loss, they will normally be allotted a panel adjuster selected by their insurer, though this does not suit larger organisations that want to be in the driving seat. They want to know in advance who they will be dealing with. It has, therefore, become increasingly common for large corporates to pre-appoint an adjuster, particularly if they are multinationals.

"With multinational companies, it is not uncommon for business interruption to affect a number of locations worldwide," says Sue Willmott, major and complex loss director at GAB Robins. "In such an event, a single global adjuster with representation in the affected countries can be invaluable to the smooth handling of the process. Most accounts of this kind prenominate adjusters with global coverage."

Another factor leading to prenomination is the trend towards higher deductibles.

The sheer scale of operation of a large national or multinational organisation results in more frequent losses, both insured and self-funded. This, in turn, creates the need for a properly structured and planned response.

Deductible level

"The large corporate client naturally expects to have a voice at the table when the adjuster is chosen," says Mr Bass. "The higher the level of self-funding by the corporate entity, the more vocal they are about adjuster selection and their precise role."

For a large corporate, a £250,000 deductible is not unusual. The company's risk management department may look after claims up to a certain level, or they may get an adjuster, a broker or some other provider to supply claims management services. Very often, the company will want to form a relationship with a loss adjuster, which can provide a range of services within and beyond the deductible level.

The £250,000 level is the point at which insurers regard a loss as falling into the category of 'major loss'. They will, therefore, insist on being informed of any losses above £100,000 as such losses may well have the potential to exceed the deductible level.

Where the pre-appointment of an adjuster is jointly approved by client, insurer, broker and maybe captive manager, it can work well, but there remains the potential for conflict. Adjuster nomination by the client begs the question - for whom is the adjuster working at the time of the loss?

In terms of FSA compliance, responsibility for the claim lies squarely with the insurer. Harry Rule, claims manager for Allianz Cornhill, states: "I would like a free choice of adjuster. But we can live with nominations, providing they are on our panel. Accepting a nomination that is not on our panel is disadvantageous for all concerned - policyholder, adjuster and insurer. I can't give delegated authority to someone not on the panel.

The process is slowed down because they have to check procedures." Consequently, it is a rare event for Allianz Cornhill to accept an off-panel nomination.

Zurich's head of supply chain, Tony Emms, has similar reservations. Due to large corporate clients nominating adjusters, Zurich has had to put protocols in place with major adjusters such as Crawford and GAB Robins that are not on its panel.

He also has strong views about insurer panels, adding: "Historically, insurers have had one-stop-shop panels dealing with everything from a smashed television set to a major factory fire. That is a flawed model.

It is the individual, not the firm, who is important in major loss. You give the work to him rather than to the name on the door. So, if three or four people jump ship, you have to consider whether or not you continue with that adjuster."

He adds: "I predict that major loss will be split away from the rest of adjusting work. Major losses are where adjusters make money, and this subsidises the losses they sustain on small-volume stuff. Insurers are guilty of beating adjusters to death over fees. The adjuster should be allowed enough money to properly deal with the loss."

Prenomination of adjusters by large corporates has been happening for at least 20 years. However, now that insurers have whittled down the number of adjusters on their major loss panels, they are determined to influence any such nomination. They will soon inform clients and their brokers if they are not happy with a particular adjuster.

Brokers are also keen to influence the choice of adjuster. They will often organise 'beauty parades' at which different adjusters are asked to give presentations to clients. Adjusters can even be required to submit formal tenders. Some brokers have tried to secure prenominations across their entire commercial book of business. The idea is to impose the same standards and systems for all their clients. This is where conflict can arise between broker and insurer.

For his part, Mr Williams believes that broker involvement causes him more problems than clients themselves nominating an adjuster. "Some brokers want to nominate an adjuster on the basis of personal friendship. We want a person with a particular skill, especially in view of FSA scrutiny."

Assessor recommendation

He also dislikes the tactics of some loss assessors. "I have a big problem with some assessor firms who don't add a lot to the business," he says.

"If an assessor like Deloitte is appointed, we welcome their professional involvement, but not 'bucket shop' assessors - the sort who sniff around fire-brigade radio stations and turn up at the scene."

Mr Williams thinks some brokers recommend assessors too easily and that this represents an abrogation of part of their responsibilities. Indeed, he has seen major cases change hands because of the broker's lack of involvement when the client has a major loss.

There is some discord within the market as to whether prenomination of adjusters speeds the recovery process. Some insurers, such as Zurich, are emphatic that it does not. Adjusters generally think it does. Ms Willmott says: "Working closely with the same insurers, brokers and adjusters on a long-term basis has proved to be a most effective combination. When claims occur, there is immediate understanding on the part of the adjusters, which is needed to make rapid and effective decisions, control claims spend and add real value to the process."

However, she does not think the absence of nomination necessarily precludes the speedy handling of a claim or the efficient mitigation of loss. The all-important requirement is for the adjuster chosen to have the appropriate technical skills, experience and back-up resources.

The case of the Center Parcs fire at Elveden tends to bear this out.

Center Parcs had not nominated an adjuster before the fire broke out, but this did not prevent a speedy recovery. Within 15 months, the holiday village had been rebuilt and re-opened for business. Cunningham Lindsey was the adjuster chosen by the insurers and Center Parcs survived the incident practically unscathed. Chief executive officer of Center Parcs, Martin Dalby, says: "We got the right people together and our business continuity worked pretty much as we'd planned."

Benefits of existing relationships

On the other hand, there are examples like Corus, where the existing relationship between the claiming company and adjuster proved beneficial.

Jon Abbott, director of finance at Corus, says: "We had worked with Capita previously on much smaller claims and the established practices ensured that key decisions affecting the financial impact on the company were taken quickly and by mutual consent, so that the impact on the bottom line was kept to a minimum."

Large corporates such as retail chains tend to have claims on a recurring basis - something that naturally inclines them towards nomination. Harry Roberts, a director of Cunningham Lindsey, points out: "You deal with these people on a regular basis. They want to talk to the same person, not three different adjusters from the same firm. For a business interruption claim, they want to talk to someone who understands their management accounts."

He also thinks that a relationship between insured and adjuster gives the insured a better understanding of what is and what is not covered.

Far from the adjuster being 'in the policyholder's pocket', Mr Roberts argues that this relationship moderates claim expectations. The insurer benefits because they do not have to decline invalid claims.

Brian Polley, property director at adjuster QuestGates, supports this argument. "A nominated arrangement enables inadmissible claims to be properly explained and far more readily accepted by the insured. Under a nominated arrangement we have with a major insurer, repudiation levels are significantly higher than under the previous ad hoc arrangements."

In the last five years, a change has also occurred in insurers' tactics.

They now have their own specialist major loss handlers in their claims departments, who are encouraged to play a proactive role. At one time, the insurer would have sat back and waited for the adjuster's 50-page report. Now, their major loss handler is one of the first on the scene.

Insurers are no longer able to rely on investment income to offset underwriting losses. This is another example of how they have sharpened their focus on controlling claims spend and will no doubt continue to do so.

MAJOR LOSS PANELS

Insurer: Panel Adjusters

Allianz Cornhill: Cunningham Lindsey, Davies, GAB Robins

Axa: Capita, Crawford, Cunningham Lindsey, GAB Robins

Norwich Union: Capita, Crawford, Cunningham Lindsey, GAB Robins

RSA: In-house adjusters PCS, Crawford

Zurich: Capita, Cunningham Lindsey

All insurers use specialist adjusters in addition to those on their panel.