Adjusting Special Risks

An industry expectation is for insurance adjusters to educate themselves on an ongoing basis to respond to an expanding and changing market. Special risk claims hold a unique niche within that market; the skill set and education needed to adjust these kinds of claims is even more varied, the experience more precious. A special risks adjuster may draw from his or her past experiences in a variety of industries, including commercial property, manufacturing, petro-chemical, oil and gas, offshore energy and corporate law. Increasingly, however, experience in these specialized skill sets is diminishing even as the number of special risk claims increases. When things go wrong today, the results can be far more disastrous than ever before. The cost of doing business has escalated year after year. The cost of blunders has grown exponentially. As we move into 2010, just when these specialized skill sets are needed most, we are in the midst of a talent gap.

NICHE RISKS

Over the past four years, computer crime, once a barely significant blip on the insurance radar, has increased by 75%, costing more than US$268 million as of 2008.With every major company on the planet using computers, the potential for future exposures is barely calculable.

The oil and gas industry is an industrial colossus with unprecedented potential for exposure. The cost of oil spill clean-ups can begin at US$2.07 per litre. A barrel of oil contains 158.99 litres. A larger tanker is able to hold 200 million barrels. You do the math — but when you do that math, don’t make a mistake!

Professionals work in an environment demanding consistently higher standards and accountability. The need for directors and omissions (D&O) and errors and omissions (E&O) insurance was never highlighted as brightly as it was in 2007 and 2008, when the sub-prime lending crisis in the United States sparked an increase in D&O and E&O claims. At last count, these claims have edged into the US$8 billion range.

THE EXPERIENCE GAP

The independent adjuster’s ability to meet these needs will enable him or her to remain a valuable ally to both the insurer and the insured. Adjusters must continue to offer their knowledge, experience, education and an ever-evolving understanding of the market. More than at any other time, however, the industry is faced with an extant, if not burgeoning, shortage of adjusters with the necessary skill set to address such needs. In a crisis mirrored in many industries, insurance companies and their strategic partners are struggling with an increasing talent gap. Experienced employees are retiring, leaving new hires armed only with formal education to learn the “street ropes” that turn education into experience. Concurrently, the social trend of career changes happening every five years has people in almost constant motion, applying valuable, yet interchangeable skills from one industry to another.

Some boutique adjusting firms still have the employees required to handle special risk claims, but these firms are limited in their geographic coverage. The larger independents may cover more ground, but size presents other challenges. For example, when employee bases grow, the trends noted above are magnified. A larger company can equate to a larger group of inexperienced — albeit educated — adjusters working under a group of experienced retirees. In some cases, this tendency has resulted in a homogenization in the industry: the trend is to discourage niche skill sets in favour of flat-rate, easy-to-learn, close-the- file desktop adjusting (i. e. accounts that bring in the volume and that new hires can handle). Unfortunately, this also limits the employee’s ability to grow. The circle is clear.

The industry cannot halt what is happening in the market; the potential for exposures will continue to evolve as it has been over the past 140 years. A change must occur, but it must occur from within. As industry leaders, as strategic partners and as service providers, the onus falls on the independent adjuster to drive that change. Although independents cannot affect the social trends driving market change, they can leverage strategic partnerships.

ASSESSING AND TRAINING NEW TALENT

Communicating changing needs with the schools and institutes offering CIP, FCIP and continuing education courses would be an excellent first step. Annual needs analyses, conferences and seminars with these institutions must become the norm rather than the exception. Schools build their curriculum against needs. They will not learn about those needs through osmosis; they must be made aware of the transferable skills so highly valued in the industry, and accredit accordingly. Independents nationwide know what is required. Work with these institutions as partners. Communicate the need and hold them to a standard. In return, offer formalized job placement strategies, involvement in career fairs, internships and other scholastic work programs.

The industry should also concentrate on the talent within its own offices. Grow talent internally! Do not wait for the talent gap to close — close it yourself. Special risk adjusters have an exquisite skill set.

They are technically outstanding, can draw and apply understanding from a variety of industries and are able to continually expand their knowledge base as the need requires. The industry needs to ensure that as soon as a new hire walks in the door:

• that new hire is assessed;

• internal training picks up at the point at which the colleges and institutes have left off; and

• the company learns the new hire’s strengths and expectations.

Immediately outline a clearly communicated, formal training program. These programs should be designed specifically to reflect the new hire’s current ability as well as the industry’s immediate and future needs. Looping clients into the program will help to ensure that the clients, too, have a clear understanding of the investment in dollars and man-hours being made on their behalf.

MENTORINGS

Whether new employees are coming in from college or from another industry, whether they are trained by the institute or in-house, their technical skill-set training is only a base. It must be overlaid with practical experience. The most effective way this can be done is through mentoring. Formalized mentoring programs in all independent adjusting companies will ensure that those people who need the training get the training. The industry can no longer afford to ad hoc its way through fuzzy-lined “buddy-systems.” Mentors must be compensated. Protges must have a clear understanding of expectations, timelines and ultimately rewards. Connect new hires with old pros. Leverage in-house employee experience as long as possible; modify retirement packages to allow the passing on of tacit skills that separate the good adjuster from the star. Special risk claims adjustment will be learned on the road, not in a class.

This training, mentoring and communication of expectations will help form some of the defining elements of a larger and equally necessary framework, one that includes a formal career path. All of the training and mentoring an employee absorbs is worthless if the competition looks better across the street. This special risk claims skill set is in demand. The industry needs to grow its own talent — and keep it. Employees should know what to expect and when. Communicate, evaluate, train, mentor and reward. The very week that new hires walk through the door, they should know exactly where they will be at the end of the month, or the next year or the next 10 years. Put tools into place to support them. Give them compensation that reflects the time they have invested not only in themselves, but also in the company.

Special risks by definition will remain a niche adjusting market. This does not mean, however, that the market is small by any means. The number of exposures will continue to grow and the industry must be prepared to handle the volume. The current labour crisis has been identified; this is the first step to solving the problem. Independent adjusting companies must now take this opportunity to address the need and direct, rather than react to, the requirements of the ever-changing market.

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The independent adjuster’s ability to meet the needs of the niche risks market will enable him or her to remain a valuable ally to both the insurer and the insured.