KANSAS CITY, Mo.--(BUSINESS WIRE)--April 6, 2006--Just as a 90-mile-an-hour wind can cause serious property damage, it can also threaten some vital relationships along the insurance value chain.
In a new white paper from GE Insurance Solutions, experts from the company's claims and legal departments argue that the insurer-reinsurer relationship needs special attention in the event of a natural catastrophe.
What tends to complicate matters, they say, is that primary insurers and reinsurers have sometimes common and sometimes competing interests.
In the wake of a hurricane, for example, a primary company's first objective is to investigate and pay claims.
"The sheer number of claims and inquiries can be overwhelming -- tremendous energy is required just to get your arms around the problem," says Chris Carpenter, a Claims Consultant at GE Insurance Solutions.
That inclination by the primary insurer, Carpenter says, is often driven by political pressure or lawsuits to expand coverage beyond what was intended by the policy. Carpenter points out that post-Katrina, insurers were often cast as insensitive for their reluctance to ignore flood exclusions contained in the policies.
A reinsurer of necessity takes a much different view of events following a catastrophe. First of all, it wants to make sure it isn't placed in a tenuous position due to sub-standard claims handling by its cedant, or worse, jeopardized by deliberate efforts to pass on losses that could have been avoided.
"Some fundamental but often overlooked truths emerge in the immediate days after a large-scale disaster," says David Newkirk, Associate General Counsel of GE Insurance Solutions. "First, catastrophic events are not business as normal, and require more communication between primary and reinsurer rather than less. Second, the process is a zero sum transaction; dollars borne by primary carriers are not borne by reinsurers and vice versa. Third, the process works as intended when neither side of the transaction attempts to 'game' the other. Fourth, reinsurers are not without recourse if a primary insurer acts improperly. After the loss, the primary insurer can be held to a minimum standard of care -- usually read as proper and businesslike handling of claims in good faith. Before the payment of the loss by the primary insurer, the reinsurer often has some right to associate in the claim."
Newkirk authored the white paper "Utmost Good Faith: Reinsurance Relationships After the Storm" with Carpenter and Robert P. Arnold, Esq. of the law firm Lord Bissell and Brook LLP.
Ultimately, according to the experts, each entity brings its own unique strengths to the table. As one of the world's leading reinsurers, GE Insurance Solutions offers differentiated and practical risk expertise to its primary insurance customers. That, according to Carpenter, is something that is not lost on those companies.
He says, "Primary companies in a post-catastrophe environment face unique challenges and often welcome, rather than reject, the reinsurers help."
To read "Utmost Good Faith: Reinsurance Relationships After the Storm", visit http://www.geinsurancesolutions.com/erccorporate/inst/ic/pp/nh/ 060301_utmo.htm. (Due to its length, this URL may need to be copied/pasted into your Internet browser's address field. Remove the extra space if one exists.)
Carpenter and Arnold, along with Zachary Rudman of GE Insurance Solutions, also presented on this topic at the recent Catastrophic Event Insurance Claims conference in New York City.
GE Insurance Solutions (NYSE:GE) is a group of companies that protects people, property and reputations. With more than $50 billion in combined assets, GE Insurance Solutions is one of the world's leading providers of commercial insurance, reinsurance and risk management services. More information is available at www.geinsurancesolutions.com.
Contacts
GE Insurance Solutions
John Novaria, 816-448-7608
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Jeff Wilson
GE Capital Corporate Finance
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