Claims Rain On Shelter

Quarter-sized hail raining down from cumulonimbus clouds can put a big dent in a claims processing operation.

Dave Perdy, branch manager with Shelter Insurance Cos. in Springdale, said hailstorms alone that occurred between April 21 and May of 2004 resulted in about 2,000 claims at the center.

Perdy said Shelter Insurance has a catastrophe-response team (CRT) for high-volume claim situations.

“Those adjusters are on-call anytime to come to branch locations like this one to assist us with storms,” Perdy said. “If we need additional personnel, they go to a call-up list to ask for help from other branches.”

For the last round of hailstorms in the spring of 2004, Perdy said his claims processing center had a team of about 20 people assigned to those specific hail claims for about two weeks. For the two to three months following the hailstorms, the claims center had about five to six people working on just those claims. Shelter Insurance has 32 employees in its center in Springdale.

“Typically [Shelter] assigns local adjusters to the storm and then adds the CRTs, so the idea is that normal business goes on,” Perdy said.

Shelter Insurance adjusters in his office process claims in an area that stretches from the Oklahoma state line as far east to Harrison, south to Waldron and north as the Missouri state line.

Shelter Insurance also has a claims center in Jonesboro and one in Little Rock.

Perdy said property insurance, whether related to homes, businesses or personal property is not a profitable business.

“They are paybacks from one side of the business to the other,” Perdy said. “It is very difficult to make a profit in property, especially in the central part of the United States. So you rely on other types of businesses to help supplement that.”

Insurance companies handle high-volume claim situations through a system Perdy calls policyholder surplus, or in other words, money that is put into a reserve fund to handle future claims. Insurance companies dip into those surpluses in situations such as hailstorms.

A situation that brings in 3,000 to 4,000 claims could cost an insurance company $30 million to $40 million for a large hailstorm.

That’s why deductibles for reinsurance coverage can run as high as $25 million on one storm.

“That’s how the industry takes care of catastrophic losses,” Perdy said.

He said reinsurance are renegotiated annually based on industry experience and fluctuate depending on a particular company’s experience. Shelter, among many other companies, has a reinsurance division that provides insurance for larger risk clients.

For example, Perdy said, a huge cargo ship carrying freight across the ocean would not just have one insurer.

That type of coverage requires a group of insurers, of which a company like Shelter might take part.

State Farm Insurance Cos.’ premiums totaled $478.4 million in 2003. The firm was ranked No. 1 and retained 14 percent of the market share in the state. Shelter Insurance ranked No. 4 in 2003 under Farmers Insurance Co. and Farm Bureau Mutual Insurance Co. of Arkansas Inc. with $230.5 in premiums and 5.2 percent of the market share.