Catastrophes & claims – why the contingent workforce can save your collection efforts
Australia’s insurer losses due to catastrophic natural disasters
Australia is prone to natural disasters due to its geographic location, and this year has seen some of the country’s harshest weather conditions. Some of the worst flooding was recorded, with Southern Queensland and northern New South Wales (NSW) each experiencing more than a year’s worth of rainfall by the end of the first week in March.
The floods led to mass displacements, loss of business, and even death, demonstrating just how devasting this catastrophe was for so many communities. With catastrophic loss comes a surge of insurance claims, as individuals and businesses try to salvage and cope with the impacts natural disasters have on them.
The Insurance Council of Australia (ICA) recently released figures revealing insured losses have increased 6% from last month to a record-breaking AUD $5.134 billion[1]. They have now ranked the catastrophic floods experienced and still expected in 2022, as the fourth most expensive natural catastrophe event ever.
Insurance sectors are and will continue to be overwhelmed with claims processing during 2022 and into- 2023, however, it is not just the claims they will need additional support in.
Other key implications involve the need for increased reinsurance spending, the threat of fraudulent claims, and avoiding reputational damage.
Australian insurers should significantly increase their reinsurance spending or their budgets for catastrophes
Extreme weather claims filed in Australia and New Zealand in FY22 more than doubled from the previous year. 2 major insurers have implemented their largest-ever risks allowance to address the intensity and frequency of extreme weather events. The usage of reinsurance contracts has increased in tandem with these insurance firms’ recent severe losses from weather extremes and natural catastrophe dangers.
The same can be seen in the property market insurance industry claims. According to Reinsurance News, over the following five years, the loss ratio is anticipated to stay over 80% levels, which will have an effect on insurer profit margins.
The paid claims of Australia’s property insurance segment are predicted to rise at a compound annual growth rate of 4.0% from AUD6.0 billion ($4.5 billion) in 2021 to AUD7.3 billion ($5.5 billion) in 2026, according to the research “Australia General Insurance: Key Trends and Opportunities to 2026.”
The anticipated increase is almost certainly going to have a damaging effect on the property insurance market, resulting in underinsurance and possibly even non-renewal of policies over time. The Climate Council of Australia predicts that by 2030, 4% of properties won’t be insurable [2].
Increase in Fraudulent claims
According to recent statistics, between February 28 and July 31, 2022, Services Australia opened 793 investigations into allegedly false claims. The federal government discovered more than 27,000 instances of suspicious behaviour in the previous six months alone, which indicates that the floods in NSW and south-east Queensland have significantly increased the number of fraudulent applications for disaster relief payments. Social media has also seen reports of fake applications, with claims that people were allegedly asking for pay-outs despite not being harmed by flooding.
The Federal Government has provided emergency assistance totalling more than AUD $862 million to flood victims in Queensland and New South Wales[3].
Residents who have been impacted by floodwaters are eligible for a one-time payment of AUD $1,000 for adults and AUD $400 for children, and applications are frequently accepted in a matter of minutes.
In order to claim back, individuals must have had substantial property damage, been gravely injured during the floods, or be a close relative of someone who has passed away or gone missing in order to be considered badly afflicted.
Avoiding reputational damage will be key
Insurers will not only have to think about fraudulent claims but also, face risking reputational damage if empathetic and skilled collection handlers are not utilised, so ensuring internal teams are equipped with experienced staff will be critical.
There is no dispute that reputational damage within any industry for any business can have serious negative repercussions on the company’s bottom line. This is of course no different for those operating in the insurance industry, and in truth, such a situation can be particularly damaging for businesses in this space. It’s reasonable to even argue that reputational damage caused by an increase in complaints, or a wider perception of mistreating customers, will be more damaging for insurers than the fines or wider regulatory penalties which may also follow in such a situation. Penalties alone can largely be repaid, but the trust and loyalty of customers cannot be corrected nor paid for, and retaining customers’ trust and faith will be key in the months to come as economic uncertainty post pandemic and the natural disaster, for many remains widespread.
Why must a focus on collections be your main priority?
Collection efforts in respect of these vast sums of claims must now become a priority for all Australian Insurers, who will need to embed newfound speed and agility in their operations.
Evaluating responses to the crisis as insurers and ensuring that their claim collection efforts are efficient and effective will be crucial.
Many will unquestionably have to turn to additional resource to help drive their collection efforts and ensure that claims issued are going to be paid back in a full, fair and timely manner.
Insurers continue to employ more people and contractors to resolve claims for impacted customers, however, delays are being experienced because of a shortage of experts needed to carry out loss assessments and significant constraints on builders and building materials.
Collections alone aren’t the only challenge
The other prominent risk factor tied to the claims issued during the collections process is that there needs to be proof of adequate KYC and AML efforts on behalf of the insurers at the point where claims decisions were initially made.
As a result, investigative and fact-checking teams will be in high demand to ensure that all necessary steps have been taken to avoid fraud or any type of financial crime.
How can Momenta help your business?
Momenta specialises in providing small- or large-scale teams of people on demand and at speed for specialised business projects. We have the flexibility to scale up or down as required per project and where necessary can assist with the design and delivery of training. This is what we have been doing for financial service clients across the globe, for over 30-years.
We enable you to provide a cost-effective turnkey solution – or specific elements to -complement your existing capacity and skillsets.
Our associates are experienced, customer-focused professionals who understand how individuals and businesses alike have been impacted by natural disasters and the empathy needed to discuss claims.
They are appropriately skilled to ensure that they have oversight on any fraudulent claims so that insurance firms remain compliant to wider regulatory requirements.
Our people become your people and are available on demand, to assist with increased insurance claims processing, for a range of businesses. Fully interviewed and assessed, they can work from a remote or stipulated location and be managed by you or Momenta dependant on your organisational needs.
Works cited:
[1] Insurance Council of Australia. (n.d.). $2 billion in flood payments already made by insurers – Floods now Australia’s second costliest weather event. [online] Available at: https://insurancecouncil.com.au/resource/2-billion-in-flood-payments-already-made-by-insurers/ [Accessed 16 Aug. 2022].
[2] Jackson, Daniel. “Climate Change Events Increasing Claims Paid in Australia – Reinsurance News.” ReinsuranceNe.ws, 2 Aug. 2022, www.reinsurancene.ws/climate-change-events-increasing-claims-paid-in-australia/. Accessed 22 Aug. 2022.
[3] the Guardian. (2022). ‘Real venom’: federal government extends NSW flood relief after pressure from local MPs. [online] Available at: https://www.theguardian.com/australia-news/2022/mar/17/really-messed-this-up-government-mps-blast-flood-disaster-funding-as-one-prepares-to-quit.
