When exploratory drilling rig Deepwater Horizon suffered a catastrophic blowout in 2010, the whole world looked on in helpless horror. From both an ecological and an economic standpoint, the impact was profound and protracted: the companies involved will forever be associated with the disaster in public memory, which ultimately cost over $65 billion.
Mass liability events live on in our collective memory. They can strike any industry, energy and power included, and in any geography.
As the above demonstrates, mass liability claims events can occur regardless of whether a company has robust safety and preventative processes. A board’s decisions today relating to the needs of wronged third parties can help to either salvage or bury its company’s reputation tomorrow.
Preparing now protects the public, the shareholders, and the company
From our work with insureds across the energy and power sectors, we have found inconsistent approaches to mass liability claims events. While boards take comfort in reducing the likelihood of a disaster occurring or from purchasing insurance and other financial protections, too often they invest little in confronting and testing how to cope effectively when the worst actually does happen.
Those insureds that have made some investment in crisis management rarely go as far as addressing the significant, and sudden, mass operational claims management burdens resulting from these events, typically assuming that their insurer will manage the process. The truth is that insurers are rarely prepared to cope with a surge of tens of thousands of claims and emergency payments (and hidden fraud), which can overload their processes and capacity.
For insureds as well, ramping-up an operations centre and recruiting large numbers of claims handlers at short notice can be difficult without proactive planning, testing, and exercising, especially for the claims leadership team, which often takes the form of a Claims Management Committee (CMC). The CMC leads the response and ensures that claims are considered as part of the wider crisis management exercise programme and response.
Where financial protection is provided by a captive or through government support, or insurance is not triggered (e.g., due to a wording exclusion as was the case for Fukushima), claims management responsibility may then revert to the insured.
Companies should ensure that they have full knowledge and control over the claims solution in place (e.g., by chairing the CMC), and where appropriate, establish a resilient back-up plan to cater for nuances and unknowns (e.g., exclusions, unexpected heads of claims) which again, can be developed through exercising.
Ultimately, if the board and senior executives lose control of an evolving situation, the risk of further losses to the insured (and its shareholders) can become material. Indeed, impact on wronged third parties now forms a huge part of the evolving media narrative around a mass liability claims event, and government intervention is more commonplace.
At a time when public scrutiny of energy and power companies has never been higher, meeting claims obligations effectively is more vital than ever.
Know your go-to operating model for mass liability claims events
Learning lessons from some of the biggest mass liability claims events in recent history, Marsh Risk Consulting has co-developed a Mass Claims Target Operating Model (TOM) blueprint, which can be customised to any company in the energy and power sectors, enabling them to get on the front foot meeting liabilities during a disaster.
The Mass Claims TOM differs in ambition from business-as-usual (BAU) operating models: it has to be rapidly scalable, well-tested, and involve multiple stakeholders working together effectively across a variety of fast-moving and stressful scenarios. While the Mass Claims TOM leverages BAU processes, it’s too important to simply improvise in the moment: for instance, in a nuclear claims incident, what are the 30 most common types of claim (e.g., loss of livestock, stress, economic loss) and how is each impacted by any evacuation requirements?
The Mass Claims TOM consists of three familiar layers.
- Strategic – including the over-arching governance for the situation, linkages with government and other regulatory bodies, and communications.
- Operational – including modelling claims staffing requirements and stock processes from triaging to payment that are robust and efficient.
- Foundational – including data gathering, analysis, and compensation frameworks worldwidecompensation frameworks worldwide.
Many boards will recognise some of the above and may have invested in a few of these elements. However, few have considered mass claims events holistically, as key elements often fall between traditional crisis and financial risk management roles.
Even fewer boards have pressure-tested their organizations’ plans through wider crisis preparedness exercises to see where points of failure lie, whether internal ones or in the complex choreography of response with other important stakeholders such as governments, insurers, or external call centres — and across borders, as disasters do not respect jurisdictional boundaries.
That’s why it’s important for energy and power insureds to work with specialists through the entire process, from diagnosing their claims needs and objectives to designing and developing their customised operating model.
Finally, fitness of the model needs to be demonstrated throughout via robust testing and exercises, helping to build internal and external (e.g., regulator) confidence in the insured’s readiness should the worst happen.
The lattermost relies heavily on bespoke deterministic modelling to find plausible “what-if” and worst-case scenarios against which to test the Mass Claims TOM robustly.
Where do I start?
Not all energy and power insureds start from the same place. It’s important to understand where the gaps are in your existing plans before (re)developing a Mass Claims TOM (see above).
The development process can be daunting, but by investing in it, you are helping to ensure your company’s reputational and financial resilience in the face of disaster.
Without a tested plan in place, at the darkest hour your company’s improvisation skills and survival will be on the line.
Marsh JLT Specialty has developed an online free self-assessment tool, the Maturity Rating, which can help you quickly identify which gaps most need to be closed in your mass liability claims event plan.
For further details about the self-assessment and the Mass Claims TOM, please contact either of the authors:
Dr. Bev Adams (Beverley.Adams@marsh.com), Consulting Director and Head of Catastrophe Planning and Visual Intelligence, Client Advisory Services or Rob Powell (Rob.Powell@Marsh.com), Chief Claims Officer International, Marsh JLT Specialty.