CAT Claims Gone Wrong & How the Industry Can Do Better

When a disaster strikes, policyholders count on their insurers to make them whole again. Sometimes, their insurers fall short. 

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In most cases, insurers want to do the right thing, but their teams and processes are overwhelmed by the massive surge in claims. When claims professionals are overworked or spread thin, mistakes happen, and claims fall through the cracks.

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Insurers may also struggle to determine which claims are real and which are fraudulent. According to the Coalition Against Insurance Fraud, 10% of all property and casualty insurance losses involve fraud. Fraud tends to increase after a disaster. The National Insurance Crime Bureau estimates that insurers paid up to $9.2 billion extra in disaster claims due to insurance fraud in 2021. 

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Recent Headlines

For homeowners, slow claims cycles and unresponsive insurers can add insult to injury after a disaster. Even if most claims are handled promptly and satisfactorily, the ones that go badly always make the headlines.

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Hurricane Ian struck Florida as a Category 5 storm in 2022. It caused $112 billion in damages, making it the costliest storm in Florida’s history. According to WMFE, around 14% of the 700,000 claims remain open one year later and 200,000 claims were closed without payment. In one case, a homeowner filed a claim for a water spot in the ceiling after the storm. The claims adjuster said the damage wasn’t significant enough for a claim. The insurer denied the claim and then dropped the policy. Unfixed, the water spot became worse, eventually causing the roof to cave in.

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Similar stories emerged after Hurricane Michael – another Category 5 storm, that hit Florida in 2018. According to Tampa Bay Times, nearly 18,000 insurance claims were still open nearly a year after. Although 3,612 remained open due to lawsuits, lawmakers in the state could not figure out why the others were taking so long despite a law requiring insurance companies to pay claims within 90 days.

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Although insurance problems are especially common after large hurricanes, other natural disasters have also led to poor claims experiences. For example, KCRA reported that homeowners were still battling insurance companies three years after Camp Fire devasted the city of Paradise in 2018.

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How the Industry Can Do Better

Severe storms and catastrophes are occurring more frequently. As an industry, we need to change the improve our catastrophe readiness and response. AI is the solution. By automating processes, AI can empower insurers to handle CAT situations better. With AI-driven solutions, insurers can:

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• Leverage digital FNOL with SMS capabilities. After a disaster, claimants may not have access to desktops or laptops. If your FNOL intake process includes a multilingual chat option,policyholders can quickly and easily submit claims from their phones.  

• Streamline claims with AI-powered record lookup and verification. Claims professionals have their hands full in the aftermath of a disaster. Verifying records can be tedious, eat up time, and increase the risk of error. By leveraging AI, claims professionals can improve the accuracy of this process and make it less time consuming.

• Use AI to detect fraud. AI has proven to be a powerful tool in the fight against fraud. In the Coalition Against Insurance Fraud study, 55% of respondents said they were using predictive modeling to detect fraud in 2018; by 2021, this had increased to 80% of respondents. As AI models improve, fraud detection will become even more effective.

• Use AI to triage claims. When insurers fail to provide a quick response, small problems – like the water spot in the above example – can become major issues. By adding AI-powered triage to your digital FNOL process, you can get claimants the immediate support they need to prevent additional damage.

• Expedite claims approval and payment when claims meet certain criteria. After a large-scale disaster, an insurer simply might not have enough claims professionals to manage every claim in a timely fashion. However, many of these claims may not require human intervention. The insurer can establish criteria for automatic approval. Then, claims that fall within these parameters will receive approval and digital payment immediately. The claimants will be happy, and the claims professionals will have more time to deal with the cases that require their attention.

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It’s not a question of whether another major disaster will strike – it’s a question of when. With Liberate’s automated digital FNOL process, you’ll be ready to handle the influx of CAT claims. Learn more.