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COVID-fueled supply chain disruption a crunch point for insurance claims

A lack of parts, materials and labor to repair cars and buildings is hampering the ability of the insurance industry's claims apparatus to adapt to new working conditions amid the coronavirus pandemic.

The outbreak has thrown a number of challenges at the insurance claims community, such as handling claims when most staff are working from home, and assessing damage when there are restrictions on movement and travel.

'Significant' disruption

Although claims professionals were caught off-guard and had to move quickly, some companies seem to have tackled the bulk of these problems. Kath Mainon, claims CEO at U.K. and Ireland based loss adjuster Davies Group Ltd., said the company is still able to respond immediately to customers' claims and inspect, assess and triage claims despite the difficult conditions.

But one particular sticking point is the repair work needed to finalize property and motor claims. "What we can't, right at this moment, control through to completion is the repair fulfillment process," Mainon said in an interview. The problem, said Mainon, is that the supply chains for property and vehicle repairs "are now significantly disrupted."

For property repairs, "builders' merchants just are not in business and/or are not able to supply building contractors," she said.

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Tom Helm, head of claims consulting at Willis Towers Watson PLC, has seen a similar trend. He said in an interview that the situation is "mixed," where some property repair work can continue because some tradesmen will have kept their doors open, while others will have closed because of the pandemic and work will stop.

He added: "Building merchants have had to shut off their operations, which means even the trades that are keeping going will probably have had to stop some aspects of the work because they can't get hold of the supply."

It is a similar story for replacement car parts.

"Because of worldwide lockdowns, the availability of parts has been a real problem," Mainon said. She added that some repair shops have closed down or shortened their working hours because of staff availability.

"We have a core network of repairers who remain open, but that is by no means the same as saying that we can repair cars and vans in the normal timescales because of that matter of parts availability," she said.

The problem is particularly acute because the supply chains, and the lockdowns, are global. Even if parts and materials are being manufactured, it can be difficult to get them to where they are needed.

"The transport of them is going to be impeded by the lack of movement around shipping, flying and border controls," Helm said.

Not all claims companies are struggling with materials supply. Rohit Verma, global COO of loss adjusting firm Crawford & Co., said in an interview that the company had not yet heard of any specific supply chain issues either for motor or property claims. But he conceded that problems could emerge further down the line.

"A lot of times supply chain issues may not hit you for another 20 to 30 days and may happen after that," he said.

Mitigating factors

Although some claims operations are struggling for parts and materials, certain side effects of the coronavirus pandemic are working in their favor. Several insurers have reported a slump in motor claims because of the reduction in vehicles on the road amid the lockdown, easing pressure on the need for supplies.

Verma said motor claim frequency was down by between 20% and 25% in some parts of the world, while in others claims had fallen by "close to 50% if not more than 50%." He added that property claims have been generally stable, although they were down by 15% and 20% in some parts of the world, including the U.S.

The global nature of supply chains and the pandemic could also come to the rescue, as countries are at different stages in their battle with the virus. The BBC reported April 8 that the lockdown in the Chinese city of Wuhan, where the outbreak began, had been lifted.

Mainon said: "The relevant lockdown is not necessarily ours. In time terms [the U.K. is] behind some of the countries, and if their lockdown is eased then that starts to help us in terms of making parts and materials available."

But a whole new supply challenge could emerge when the crisis lifts. Some policyholders have had to settle for temporary repairs on their houses, for example, which will need a permanent fix. Motor claims will increase as more people start driving. And people who sat on claims during the crisis could submit them.

Helm said, "If things haven't been produced, if things haven't been shipped, and there is an increased demand, then there is going to be some challenge around how you get through that initial post-lockdown phase."