The age of catastrophe

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Hoping for just one or two climate disasters a year is no longer tenable, and the insurance industry needs a new model to combat a continual state of weather damage

THE CLIMATE genie is out of the bottle and insurance industry stakeholders need to adjust the way they do business to reflect the never-ending string of disasters that repair specialists face, according to one leading firm on the frontline of extreme weather events. “A decade ago, our industry would anticipate and budget for one or two catastrophic events each year,” says Darren Trott, executive general manager of clients and customer care at Construct Services. “Over the past couple of years, we've seen more than 20 significant weather events stacked back-to-back. “They're just coming with such a degree of frequency and severity that it's pretty much unprecedented – but it's no longer a surprise.” Construct Services’ business model is built upon industry-leading technology and a scalable national operations team, which recognises how the impacts of climate change have become the new ‘business as usual’. Events that were once infrequent and unpredictable can now be planned for, so

Construct Services is Australia’s trusted insurance repair restoration specialist, which has provided property repair solutions exclusively to the insurance industry for more than 33 years. Founded in Perth in 1989, the 180-strong team now provide services nationally, across metropolitan, regional and rural areas. The company’s services include 24/7 emergency make-safe; repairs to home, commercial and strata properties; catastrophe response; handling major and complex claims, including for heritage property. Construct Services’ executive leadership team bring together a unique blend of insurance building and claims management experience, with a deep understanding of stakeholder engagement and the importance of open communication to achieve the best customer experience.

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Major recent insurance catastrophes in Australia

Feb 2022

“[Significant weather events] are just coming with such a degree of frequency and severity that it’s pretty much unprecedented – but it’s no longer a surprise”

Darren Trott, Construct Services

when they do occur the response can be predictable, with customer outcomes anticipated. But the paradigm shift across the insurance industry is moving at a slower pace than the barrage of severe weather events, leaving many companies without sufficient resources to deal with the deluge of claims that naturally flow from them. The system needs to change When there were fewer catastrophes the insurance industry traditionally operated with a boom-and-bust pattern, only ramping up capacity when a cyclone or fire struck, and not investing in a constant level of readiness throughout the year. This old approach doesn’t work well in the age of continual catastrophe, with repair capacity now constantly exceeded for the industry due to the frequency and scale of the events. “It's fair to say that with the events … that have happened on the East Coast with the floods in Queensland and New South Wales, no insurer, no builder, no loss adjuster anywhere has the capacity to deal with that level of damage,” says Trott. “Just when they're about to catch their breath, along comes the next catastrophe event.”

Market matters The insurance market for nonprofits was equally difficult last year. “We have seen a hard market combined with the pandemic, and large losses in certain classes made it very challenging,” Sree says, although she notes that pricing has stabilized and auto claims are down. Pamela Davis, CEO of Nonprofits Insurance Alliance (NIA), describes the market over the past year as “kind of two different worlds. From our perspective, we’ve grown last year. We grew about 25%, which is unheard of for a 30-year-old organization. So, we saw a market where commercial insurance companies really turned their backs on the nonprofit sector, turning away what I would consider to be very good

Construct Services sees up close how old ways of thinking affect brokers and those involved in a disaster. In the traditional insurance model, an insurer offers no guarantee of work to builder, maintains an approval-driven process requiring each step of the inspection and repair process to be signed off along the way, and yields a high level of oversight to drive down the costs of materials and labour. When a major event occurs, this model simply doesn’t cope with the load, resulting in lengthy delays and cost escalations, leaving insured customers and business owners feeling disappointed, angry and frustrated. Brokers are left

to try to manage their clients’ expectations when they can’t even get through to an insurer’s call centre. “The industry’s biggest challenge is to break out of the existing paradigm by working collaboratively with insurers, loss adjusters, insurance builders and brokers to streamline claims processes and to invest in sufficient resources to manage the large volumes of claims generated by these severe events, because they are no longer one-off unexpected occurrences,” says Aeron Rowe, executive general manager of operations. “If we did this successfully, we would all have a far bigger base to pull from.” A better way Construct Services’ business strategy anticipated the impact of climate change with a model that enables it to scale up quickly and respond appropriately. “We keep a close eye on weather patterns in anticipation of severe weather events,” says Trott. “We've got local project managers, supervisors, inspectors and tradespeople based in metropolitan, regional and rural areas across Australia, which we mobilise in advance of the event hitting." Rowe adds: “Our technology and workflow allow us to focus on the front end by flying people in to see and inspect repairs, with the administration and project management completed anywhere in the country.”

“The industry’s biggest challenge is to break out of the existing paradigm by working collaboratively with insurers, loss adjusters, insurance builders and brokers”

Aeron Rowe, Construct Services

Brokers can make a massive difference in driving the outcome and ultimate success of a claim by proactively engaging the right make-safe provider who can quickly provide temporary fencing and tarping of roofs, disconnect power and take other actions designed to mitigate further loss. Construct Services provides this service to brokers across the country and keeps its 24/7 emergency response team fully staffed around the clock. Brokers benefit from getting consistency of response for their clients, who in turn see the value of the broker relationship when they really need it most. The formula has worked well for Construct Services, especially

over the last two and a half years when staff numbers have increased from 80 to around 180 employees nationally. Trott says the firm is recruiting for another 40 people expected to come on board by Christmas. In the latest year to 30 June, the company’s revenue increased by 80% compared to the previous period and is on track to grow another 30% this financial year. There’s an old debate about whether hurricanes are good or bad for the economy. While they are never good for people, perhaps Construct Services’ new model will help Australia cope with catastrophes’ economic and social fallout better.

Source: Insurance Council of Australia

NSW, QLD

Record-breaking floods

Oct 2021

SA, VIC, TAS

Severe storm with large hailstones

Jun 2021

VIC

Storm damage and flooding

Apr 2021

Cyclone

Mar 2021

NSW, QLD

Flooding and storm damage

Feb 2021

Bushfire

Oct 2020

QLD

Severe thunderstorms with high winds and hail

Some of the inspection work is carried out with remote virtual inspection technology, adopted by Construct Services prior to the COVID-19 pandemic and that proved invaluable during lockdowns over the last two years. A key factor that ties in to having capacity constantly ready to deploy is speed. “The critical task at the outset is to triage claims so that the right resources can be directed where they're needed the most,” says Trott. “This depends on the geographic location, the nature of the event and the loss, and the availability of trades and materials.”

Normalised loss value caused by natural disasters (2019 to mid-2022)

Source: Insurance Council of Australia

$15.3bN

Construct Services prioritises work that will help the community as a whole survive the disaster, whether it involves damaged lifeline infrastructure such as a medical centre or supermarket, or a major employer in the area being unable to operate, with business interruption costs escalating and employees facing unemployment. “So it's about looking after the people, not just the claim, which is a unique part of what our culture is all about,” says Trott. Being proactive Some insurers are better than others when it comes to speed, but it’s often the first movers who end up securing repair capacity for a lengthy period down the track. “Insurers who provide guaranteed volumes of repair work quickly help us secure the available tradespeople,” says Trott. “These insurers also provide clear delegated authorities and work in partnership with us to reduce delays and to eliminate unnecessary administrative hurdles.” Their impacted customers benefit by getting repairs underway immediately and are generally back in their homes and businesses more quickly, often noticed by neighbours who may be insured with a slow mover.

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