Post-Cat claims: Are cashouts worth it?

With increasing Cat activity in Canada, carriers and independent adjusters may be looking at more claims cashout models. But they should consider both the positive and negative aspects of this type of model before making a decision, experts suggested last week during the CatIQ Connect conference.

Claims professionals in Canada have historically shied away from cashouts, unlike in the U.S., says moderator Glenn McGillivray, managing director of the Institute for Catastrophic Loss Reduction. But with increasing Cat magnitude and frequency combined with decreasing resources, McGillivray asks whether project managing the restoration or rebuild is still the way to go.

Adjuster capacity is an important factor, panellists say during the claims session. “There’s simply too many claims coming in during a catastrophic event,” says Kyle Winston, chairman of independent adjusting firm CRU Group. “We’re in a knowledge drain, not only the adjuster side, but trade side as well, where the amount of contracting firms and adjusting firms can’t keep up with the volume of claims that are coming in.”

For Alena Kharkavets, director and head of claims for North America with WTW’s Insurance Consulting and Technology business, 2024’s record-breaking $9.1 billion in insured losses still resonates.

“The mindset is, what if it’s double?” Kharkavets says. “And really, everyone is asking, ‘Am I set up for that doubling? We can imagine that it can happen.”

Choices, choices

For Kharkavets, there’s no clear answer as to whether cashouts or ‘project managing’ the restoration or rebuild is the way to go. “There are some national carriers with whom I’ve had a number of conversations and they are saying, ‘We want to shift our model to be more cashout-based and it’s because we are concerned about our efficiencies and we promise [a] lower price to the customer,’” she says.

“There are some regional players who say, ‘Yeah, I know hail in Calgary was painful a couple of years ago, but I’ve had discussions with the reinsurers why our claims are open for a very long time, and it’s because we are a value-based insurer where we want to hold the hands [of policyholders]…,” she says. “So, it becomes…[a] strategic question for carriers.”

Cortney Young, senior vice president of business development at property restoration firm Paul Davis, agrees that capacity resources are an issue within the industry, particularly when there are back-to-back Cats. “So cashout seems to be the option to close the file the quickest.”

But she warns that fly-by-night contractors who provide unreliable repairs could leave homeowners with more problems down the road. “Although they’re cashed out and done with their insurance contract so-to-speak with the insurance company, that whole experience is going to tie back to, ‘It all started with my claim with my insurance company.’”

Winston notes the industry has seen some fly-by-night contractors “but at the end of the day, it’s the homeowner, the policyholder, who really should drive the decision” on whether they want a cashout. “There are a lot of positive things that can happen in cashout, but yes, also some bad things happen.”

Other options

McGillivray asked about hybrid approaches, such as partial payouts, tiered options, or structured (negotiated) payouts.

Young notes that although some policyholders may thrive on the ability to manage their claim and handle repairs, “I think the vast majority buy insurance for a reason, and don’t want the headache. And so, it does come down to choice, educated choice though, to fully understand what that means and what you’re getting into if you take the cashout.”

CAIB New Edition 1.0 – a New Standard for Broker Education Image

Insights Paid Content

CAIB New Edition 1.0 – a New Standard for Broker Education

Preparing brokers to navigate an increasingly complex insurance landscape.

By 

Sponsor Image

One option is an insurer who has provided a cashout and, even though they’ve closed their file, they have a help desk or line a homeowner can call to receive adjuster or broker counselling, for example. “Hybrid, I think, is the way we have to go,” Young says.

But there’s also a downside to too many options, Kharkavets says.

“The problem is that the adjuster gets confused if there are too many paths in front of them…,” she says. “We need to remember that the adjusters are the ones who will have to navigate that matrix, and it needs to be simple. Because if it’s not simple, it’s only going to make things more complex and will lead to more problems.”

Editor’s Note: This article has been changed to clarify that a regional insurer shared that it was their reinsurers who were questioning why claims remained open for an extended period of time. The insurer explained that the longer claim duration is a result of their value-based approach.

Jason Contant

Jason has been an award-winning journalist with Canadian Underwriter for more than a decade, including the past three years as associate editor and, before that, as digital editor for seven years.