CAT Season and How Insurance Companies Can Prepare
Anticipating CAT season: How insurance teams can prepare for natural disasters
Natural disaster season, also known to the insurance industry as ‘CAT' season, occurs from November to April in Australia. A catastrophic event in the insurance industry is typically a natural or man-made disaster that is unusually severe and causes significant damage, loss and disruption. These events result in a high volume of insurance claims filed within a concentrated city or region.
A CAT is defined by a predefined cost, a certain number of eligible policyholders and the number of insurers affected by one event. The Insurance Council of Australia (ICA) is responsible for deeming an event to be a catastrophe.
Common catastrophic events include cyclones, severe storms, tropical storms, floods, earthquakes and bushfires.
We explore some of these significant events, the challenges of dealing with CATs for insurance providers and how they can prepare for this hectic time of year.
CAT events in Australia
Insurance industry leaders and team members are all too familiar with changes to business-as-usual arising as a result of a catastrophe declaration by the ICA.
Such a declaration escalates and prioritises the insurance industry’s response to support policyholders affected by the natural disaster that triggered the declaration. Claims from affected policyholders are prioritised and triaged to direct urgent assistance to property owners most affected.
ICA specialists are mobilised to work with government agencies, businesses, local communities and emergency services to expedite assistance on the ground. Meanwhile, an industry task force is established to address insurance, claiming and other issues.
It’s important to note that a CAT doesn't only cover the date of the event. Insurance customers have up to six years to lodge a claim under their policy and still dispute the claim in court.
For example, following 2020’s Halloween hailstorm in Queensland 2020, 1.08 billion dollars worth of claims were incurred in 12 months, comprising 44,000 claims. Insurers had received around 26,000 claims by the end of the first week from the day of the storm - less than 60% of the expected total number.
Recent Insurance Council catastrophic events
Widespread CAT natural disaster events have occurred across the country in recent years, with a heavy concentration on NSW and Queensland communities, particularly the Gold Coast, Brisbane, and north and northeast NSW.
Each designated catastrophe is allocated a number by the ICA, with claims data recorded for each on the ICA website.
According to the Insurance Catastrophe Resilience Report 2021–22, the economic impact of the 2021-22 year alone was $6.41 billion (up by $3.9 billion from the previous year), with 380,760 insurance claims.
Here's a summary of the significant CAT events that have occurred in Australia in recent years.
CAT223: Victorian, NSW and Tasmanian floods
The ICA declared a significant event which was then changed to an Insurance Catastrophe in October 2022 following heavy rainfall and a subsequent flood emergency in Melbourne, central western NSW and Tasmania. Thousands of residents were evacuated. To date, the ICA reported 22,000 claims lodged to a total value of $698 million.
CAT221: Catastrophic flooding event, Australia’s east coast
The ‘rain bomb’, as weather experts described it, first struck Maryborough in South East Queensland and slowly travelled south through Northern Rivers in New South Wales. Three separate weather systems combined to cause devastating flooding in northern NSW and beyond, resulting in loss of life and property.
More than 14,000 houses and over 10,000 commercial properties were damaged from late February to early March 2022, with 241,000 claims lodged. Labelled "Australia's most expensive flood" by the Insurance Council of Australia, these devastating floods have so far cost the insurance industry $5.28 billion alone.
CAT216: Severe storms in Victoria, parts of South Australia and Tasmania
Winds of up to 100 kilometres accompanied by hail and lightning left a trail of destruction across multiple states in October 2021, with $848 million in losses reported by the ICA for 2021-2022 year.
The role of insurers in Australian natural disasters
Insurers provide rapid response, support and action to support their members to safety and security in extraordinary circumstances. The extent of response and support provided by insurance companies can vary depending on the company's policies, the extent of the disaster and the terms of individual policies.
Insurance companies provide crucial protection against financial loss, facilitate post-disaster reconstruction, help affected individuals, families and communities recover and mitigate the impact on public resources and government budgets.
But they do much more than that. Dedicated hotlines or emergency response teams are established to help policyholders in immediate need. These teams provide guidance, answer questions, organise repairs and assist with emergency services like temporary housing and repairs.
Customers and members are often distressed, and the kind, caring, considerate and compassionate voices at the end of the line offer clarity and aid when it's most needed. They are true heroes in every sense of the word.
In recent years, many insurers have also begun sending warning notices to customers when the Bureau of Meteorology forecasts potential emergency events so people have time to prepare their homes and businesses.
Understanding CAT season and its challenges for insurance providers
Insurance companies face several challenges during disaster events, which can impact their ability to respond effectively. Here are some common challenges they may encounter:
High volume of claims. This can lead to operational challenges, including strained resources, processes and systems. Insurance companies must handle a large number of claims efficiently and provide timely assistance to policyholders.
Complex claims assessment. Assessing the extent of damage and calculating appropriate compensation can be challenging in the aftermath of a disaster. Disasters often cause widespread destruction, making it difficult to determine the cause of loss or assess the pre-disaster value of properties.
Catastrophe modelling and risk assessment. Accurately predicting the frequency and severity of natural disasters can be challenging due to factors such as climate change, evolving weather patterns and limited historical data.
Legal and regulatory frameworks. Laws governing insurance operations may differ across regions and states. Insurance companies must navigate complex regulations and comply with specific guidelines while providing assistance and settling claims during disaster events. This can lead to additional administrative burdens and delays.
Fraud. During times of chaos and distress, fraudulent claims may increase. Insurance companies must be vigilant in detecting and preventing fraudulent activities.
Insurance companies can overcome these challenges by investing in disaster response capabilities, leveraging technology for claims processing and risk modelling, collaborating with industry stakeholders, and continuously enhancing their disaster response strategies.
6 tips for improving your insurance team CAT processes
CAT events demand a well-organised and streamlined approach to mitigate damage, help policyholders and facilitate recovery. Efficient CAT season processes play a pivotal role in the insurance industry's ability to respond effectively to natural or man-made disasters.
Most insurers have a well-defined CAT plan that outlines the entire team's roles, responsibilities and workflows. Here are some valuable tips to enhance your CAT season processes and optimise disaster response efforts.
1. Establish robust staff policies and procedures
Establishing robust staffing policies and procedures is crucial to ensure a smooth transition into CAT mode when disaster strikes. Consider cross-training staff from other areas of the business, enabling them to back up and expand the CAT team during peak periods. This flexible workforce can provide additional resources and expertise to handle the increased workload efficiently.
Develop backup staffing plans to address potential workforce shortages. Identify critical roles and cross-train employees to ensure coverage in case key personnel are unavailable.
2. Clear reporting lines and authority
Clearly define reporting lines and decision-making authority during a catastrophe. Ensure that employees know who to contact and how to escalate issues or concerns. This clarity helps streamline communication and decision-making processes, enabling a more efficient response.
3. Streamline claims management
Efficient claims management is essential during CAT events. Implement processes that prioritise speed and accuracy.
Leverage technology solutions that automate workflows, facilitate efficient data entry and simplify documentation requirements. Arnie’s advanced automated workflows enable total control over the claim management process, reducing double-handling and labour.
This enables claims adjusters to handle higher volumes effectively while ensuring accurate assessments and prompt settlements for policyholders.
4. Redirect systems and processes
During CAT events, it is vital to redirect systems and processes to optimise resource allocation and workload distribution.
Motor claims management solutions, such as Arnie, are designed to improve systems to spread the load in times of need. Insurers are then able to expedite processes, such as organising an assessment, by proactively having their repairers contact the customer to arrange an inspection.
This allows the insurer to continue managing incoming enquiries and lodgements without delaying the claims handling process for other customers.
5. Specialised operators for different CATs
Develop a team of specialist operators with in-depth knowledge and understanding of specific CAT events.
Assigning dedicated experts to handle different types of disasters, such as storms, bushfires or floods, ensures that claims, repairs and customer support are managed by professionals well-versed in the unique challenges of each type of catastrophe.
6. Automated customer communications
Implement automated customer communication systems to enhance engagement and provide timely updates during CAT events.
Consider sending text message alerts to customers when severe weather warnings are issued. These alerts can provide important safety information, claim filing instructions and other relevant updates. Additionally, leverage system workflows that trigger notifications and updates to keep customers informed throughout the process, promoting transparency and customer satisfaction.
Be prepared with disaster strikes with Arnie
Critically thinking about your CAT processes, both from the people and systems perspective, can ensure your organisation is well prepared to rise to the occasion with disaster strikes.
The general industry plays a pivotal role in managing natural disasters and catastrophes by demonstrating empathy, care and compassion alongside simple, smart software solutions.
Arnie claims management software can automate processes while maintaining quality control and allows staff and suppliers to collaborate in real-time to deliver the best results for your clients. Contact us to book a tour.
Originally published 08 November 2021. Updated June 2023