German buyers and brokers unhappy with claims handling delays

“Generally a procedure in which an expert analyses the claim and determines the extent of a loss should not take more than six months,” Peter Wesselhoeft, partner at the Hamburg-based broker Gossler, Gobert & Wolters, told Commercial Risk Europe. “But in our experience there have been many cases where these experts encounter difficulties making inspection appointments with one another or the company, where they demand additional information for their reports and where they take more than 12 months to complete.”

For the companies affected by property losses this can become a severe problem. After a loss they need to restore production as soon as possible in order not to lose business and clients to their competitors. Their business continuity depends to a great extent on the money they receive from insurers.

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Manufacturer Dornbracht encountered the following problem in 2009 after an explosion at a chemical plant. The fire spread to the neighbouring Dornbracht factory, which produces kitchen and bathroom fittings, destroying parts of the premises. Dornbracht had taken out fire insurance worth €125m with a consortium led by the UK insurer RSA. It carried 45% of the risk, Chartis covered 25%, Allianz 20% and Helvetia 10%.

Following the fire, it took the company almost three years to return fully to the market, according to Dornbracht’s Managing Director Ralph Dihlmann. “This was mainly because the consortium split up due to disagreements about how to handle the claim,” he said. “In addition to that, Allianz challenged the leadership clause of the contracts and sent its own experts to analyse the claim.”

Otherwise, Mr Dihlmann explained, the insurer threatened to stop payment for the loss. As a result, Dornbracht had to deal with rival experts analysing the damaged production hall. “We had some very strange discussions with Allianz’ experts about whether soot covered operating instructions in boxes are still usable or not,” Mr Dihlmann said.

The insurers’ business practice to delay payments and let clients wait puts companies under enormous pressure in negotiations with banks, brokers complain. “It is extremely important that the management board be in a position to make reliable statements on their future claim payments,” Mr Wesselhoeft said. But until the experts have finished their reports, the insurers’ would not make concrete promises on the amount of compensation.

He believes cost cutting is one reason for these drawn out processes. “There are not enough qualified staff, so the insurers are happy about every job they can outsource to an external expert. In addition, experts have vested interests,” he said. “The longer the experts work on a report, the larger the bill becomes.”

And insurer’s can also gain from this drawn out process. “The longer a company has to wait for the urgently needed sum insured, the more likely it is that it will have to accept a settlement and less money from the insurer than it is actually entitled,” said a colleague of Mr Wesselhoeft who did not want to be named. “One has to be sceptical about the self-proclaimed neutrality of the experts.”

Uwe Cors, Managing Director of the claims experts’ association, Bund Technischer Experten (BTE), disagrees. He does not believe that experts are dragging out the claims handling process for their own benefit. “Experts can only send their bills to the insurer when a claim has been dealt with and the analysis is finished,” he said. “It is also in the interest of the technical experts to close the claims as soon as possible.”

Nevertheless, he has seen colleagues who appear very casual. “There are some experts who work only on behalf of insurance companies and who tend to decide accordingly,” he said. But this is the exception, he said, emphasising that BTE has standards that do not allow its members to act in the way the brokers and insurance buyers have claimed.

Christian Hinsch, Chief Executive of German insurer HDI-Gerling, has also observed problems in the claims arena. “I welcome discussions like this, because I think that these problems, in fact, exist in the market,” he said. However, he denied that HDI-Gerling deliberately slows down claims handling. “I cannot vouch for each claim we are handling, but I can say that we are not doing this systematically,” he said. “This may distinguish us from some of our competitors.”

From his point of view a lot of insurers underestimate the importance of claims handling. “They invest in sales staff and underwriting, but are lax on the number and quality of claims handling experts,” he said.

“We have our own engineers who analyse claims,” he added. “We do not have to hide behind external surveyors who do not manage to finish their reports on time.”

Clients often care more about low premiums than claims handling capacities when deciding which leading insurer to choose, said Mr Hinsch. “When you focus on the price, the bill may come later,” he said. “To offer policies at low rates is not difficult as long as you have no claims. But when an insurer does not have qualified staff and gives the wrong incentives, this can end badly.”