A Crawford & Company Situation Paper: August 2015

10 Years After Hurricane Katrina:A Retrospective on Claims Handling

“Hurricane Katrina August 28 2005 NASA” by Jeff Schmaltz, MODIS Rapid Response Team, NASA/GSFC. Licensed under public domain via Wikimedia Commons.

1

7:00 a.m. Central Daylight Time, August 28, 2005: The National Weather Service’s National Hurricane Center issues a warning that Hurricane Katrina, a “potentially catastrophic Category 5 hurricane,” is headed for the Northern Gulf Coast. In the days that follow, the storm will become the largest insured loss event in history, claiming more than 1,800 lives and generating more than 1.7 million claims worth over $41 billion (in current dollars, claims totaled more than $48 billion). Total economic damage from Katrina will ultimately exceed $100 billion. The epicenter of claims from the storm was in New Orleans, where storm surge and failure of levees led to catastrophic floods that deluged more than 75% of the city.

Katrina formed off western Africa and became the 11th tropical storm of the 2005 Atlantic hurricane season, a particularly active one even when compared with the prior year, when 15 named storms formed, six of them major hurricanes of Category 3 or greater. The storm was named Katrina on August 24 as it moved over the Bahamas and strengthened into a Category 1 hurricane before striking south Florida. Once it entered the Gulf of Mexico, Katrina intensified, escalating from Category 3 to Category 5 in a matter of hours. Satellite and radar imagery indicate Katrina was a very large storm. On August 28, at its peak intensity, Katrina’s hurricane-force winds extended 90 miles from its center, and tropical storm-force winds went out to 200 miles, according to the National Oceanic and Atmospheric Administration. Katrina’s maximum sustained winds of 172 mph (150 knots) ranked it among the strongest hurricanes ever recorded. Its eye would roar ashore near Buras, La., on August 29 as a Category 4 hurricane.

The arrival of Hurricane Katrina triggered one of the largest-ever evacuations: more than 1 million people across Louisiana, Mississippi and Alabama made their way out of the area. But many more stayed, either unable to leave or deciding to take their chances. The biggest population center in Katrina’s path was the City of New Orleans, which was particularly vulnerable because its average elevation is below sea level. The U.S. Geological Survey determined that major breaches in New Orleans’ network of levees caused flooding in more than 75% of the city. In a report issued after the storm, the U.S. Army Corps of Engineers, which had built the flood defenses, admitted engineering failures and using outdated information during their construction. After Katrina, Congress authorized a $14.5 billion program to rebuild and fortify New Orleans’ flood defenses, a multiyear project that was largely completed in 2012.

10 Years After Hurricane Katrina:A Retrospective in Claims Handling

2

While the insurance industry paid out more than $41 billion in Katrina claims, according to the Insurance Information Institute, many residents whose property was damaged lacked insurance— particularly for floods. The story of Hurricane Katrina did not end when the storm weakened and moved away from the Gulf. Instead, a new chapter would be written about the responsiveness of the global insurance industry and how lessons from Katrina are enabling the industry today to help individuals, businesses and communities to rebuild after catastrophes.

Crawford & Company®’s ResponseThe immediate aftermath of a major hurricane is chaotic, both for policyholders filing insurance claims and the adjusters who are trying to quickly get to the affected area. Katrina presented unprecedented challenges for Crawford & Company®’s teams: access to the worst-hit areas was nearly impossible in the first few days. Despite all these challenges, however, Crawford’s teams were able to get to the serious work of adjusting losses and enabling insurers to process damage claims.

The damage from Katrina “was absolutely devastating,” said Bud Trice, vice president of catastrophe services for Crawford®. “We set up a command post in Mobile, Alabama, because you couldn’t find anything past the Alabama line. There was literally nowhere to find food, fuel or a place to sleep,” he recalled. “Usually adjusters try to get to the worst damage first. In many cases, we just couldn’t do it for several weeks,” Trice said.

Crawford’s teams of adjusters literally commuted several hours each way from Mobile into the affected areas, Trice said. Lack of fuel was partly due to wide-area power outages. “We could not get gasoline because even if you have full fuel

tanks, you need electricity to pump it out of the ground. When you don’t have fuel, time seems to take forever. On the other hand, the days after Katrina were a whirlwind experience,” he said.

The devastation Katrina caused was widespread— and shocking, even for experienced catastrophe adjusters, Trice said. For example, New Orleans had severe flooding even though it was not directly hit by Katrina. East of New Orleans, through Mississippi and into Alabama, suffered the brunt of the damage from wind and storm surge, he noted. “Point Clear, Ala., was 150 miles from where Katrina made landfall. Some properties there had wind damage and four feet of water inside them,” he said.

“I’ve been working with catastrophe claims for 38 years. When Hugo hit Charleston, S.C., in 1989, it was the worst I’d seen. Then Andrew in 1992 made Hugo look like a Category 2 hurricane. Katrina made Andrew look small. And then when you pile Rita and Wilma on top of Katrina, in the same year, things just got crazy,” he said.

One of the things that enabled Crawford’s teams to handle claims soon after Katrina hit was a satellite communications truck that the company deployed and set up in Mobile. Access to New Orleans and the worst-hit areas remained difficult, but the truck allowed adjusters to download assignments and upload reports, Trice said. “That was a success story. We found a vacant office, rented it, pulled up the truck and raised the dish. We had phone and Internet before we had power in the building,” he said.

Deploying the Katrina ModelKatrina forced Crawford to adopt both a new approach to catastrophes and how to prepare to handle multiple events, Trice said. “The ‘KRW

Costliest Atlantic hurricanes by insured losses. Storm Dates

Insured Losses when Occurred* In 2014 Dollars

Katrina Aug. 25-30, 2005 $41.1 billion $48.4 billion

Sandy Oct. 28-31, 2012 $18.8 billion $19.3 billion

Andrew Aug. 24-26, 1992 $15.5 billion $23.8 billion

Ike Sept. 12-14, 2008 $12.5 billion $13.6 billion

Wilma Oct. 24, 2005 $10.3 billion $12.1 billion

Charley Aug. 13-14, 2004 $7.5 billion $9.1 billion

Ivan Sept. 15-21, 2004 $7.1 billion $8.6 billion

Rita Sept. 20-26, 2005 $5.6 billion $6.6 billion

Frances Sept. 3-9, 2004 $4.6 billion $5.6 billion

Hugo Sept. 17-22, 1989 $4.2 billion $7.1 billion

* Excludes losses under National Flood Insurance Program

Sources: Insurance Information Institute, Property Claim Services, ISO

3

experience‘ of Katrina, Rita and Wilma all striking within a short time in 2005 provided important lessons for the industry and Crawford, he said. Crawford considered the following elements in forming what it now calls ‘the Katrina Model‘ for simultaneous major catastrophes. This model will enable Crawford to deploy its resources even more quickly and handle claims with greater efficiency in future events. Key components of the model are:

� Resources: How many adjusters can be deployed?

� Logistics: How best to get adjusters into the impact zone? How best to create an infrastructure that will support them?

� Sequence of storms: How to effectively handle big events occurring over a short period of time?

� Claims handling: What are the most efficient ways to process a large volume of claims?

� Causation: Katrina prompted a debate in the insurance industry regarding damage from wind vs. water, and many losses due to storm surge or flooding were excluded from standard property policies.

“We had to look carefully at the claims we saw in Katrina. A boat on top of a house? Boats don’t fly, so that would likely have been caused by water. But a bare slab: was that wind or water? Water may or may not have washed the house away, but it definitely washed the evidence away,” Trice said. Adjusters couldn’t make assumptions without a detailed examination of what remained to ensure fairness to both insured and insurer.

Part of the Katrina Model involved creating a special team that combined the resources of Crawford’s Catastrophe Services group with adjusters from Crawford’s Global Technical Services® unit, which handles large and complex losses exceeding $1 million. “It worked like a charm and enabled us to get the right kinds of claims into the right hands,” Trice said.

Richard Lafayette, senior vice president and chief technical officer of Global Technical Services, agreed. “The Katrina Model worked extremely well, and it’s a big part of our plan for handling similar events in the future,” he said.

Heavy CaseloadsThe vast majority of claims that Katrina generated was for personal property damage, about 70% according to the Insurance Information Institute.

The amount and severity of commercial claims was significant, however, recalled Lafayette.

Chris Gentile, now an adjuster in Crawford’s Global Technical Services unit, joined Crawford in 2005 after graduating college. “I lived in Charleston through (Hurricane) Hugo. There is nothing to compare to Katrina’s damage that I’ve ever seen,” Gentile said, adding he also lived in New Orleans for several years as a child.

He returned to New Orleans as a professional claims adjuster, after intensive training and as part of a mentoring program with senior adjusters. Seeing the city devastated was difficult for him. “The hard part for me was seeing the spray paint on the doors, noting that houses had been checked and whether there were any deaths, and being in that town that previously had so much life in it, then seeing it dead. It was really sad.”

“Katrina was the most complicated event I ever worked, including even Andrew,” Lafayette said. “The logistics made it nearly impossible to get work done. It took three to five hours just to drive to New Orleans, inspect losses and drive back to where the hotels were. At times it was overwhelming.”

Just locating a claim site was challenging during Katrina, Lafayette noted. Ten years ago, adjusters in the field were beginning to use the Global Positioning System, a satellite-based navigation system made available for civilian use in the 1980s. “GPS is better now. That was somewhat

An in-ground swimming pool pulled out of the ground and left leaning against a house, demonstrating the strength of the storm.

4

new to adjusters during Katrina. At that time, we could get within 20 feet of a loss location, but that often wasn’t precise enough,” he said. For example, adjusters used GPS to get to a coastal spot and “they could only see slabs near the beach. The property numbers and other identifying marks for a specific claim location were gone.” GPS and satellite imagery today make finding specific addresses much easier, Lafayette said.

On top of those challenges, the caseloads for each adjuster were extraordinarily heavy, Lafayette said. “Hundreds of claims were coming in a day, and some of them in multiple locations. One of our largest clients, which had exposures all over the Gulf Coast, had 3,500 large losses” from Katrina. “We saw some losses in excess of $100 million, but most of the commercial losses probably averaged between $5 million and $10 million,” he said.

“Historically, a lot of catastrophes generate residential losses, so our focus has been in adjusting residential losses,” Lafayette said. “In Katrina, we also had to focus on commercial losses.” One learning from that experience is Crawford’s Catastrophe Services team each year now provides additional commercial loss training to its residential claim adjusters, he said.

Crawford’s teams worked almost nonstop for months after Katrina, which was exhausting, Trice recalled. “People sometimes ask, ‘How can you handle your job as an adjuster when you’re always seeing the worst?’ Actually, it’s during times like that when people pull together, and you often see people at their best,” he said. That perspective is echoed by others at Crawford who also experienced Katrina.

Ready to Respond to Future CatastrophesSince Hurricane Katrina in 2005, advancements in technology and new tools have helped Crawford’s teams to respond even faster and work more efficiently. Communication, monitoring and claim intake technology have been areas of particular importance, noted Brian Flynn, Crawford’s global chief information officer.

“Some of the more significant investments we’ve made are in business process management tools that help us enhance and automate processes and derive analytics,” Flynn said. “This enables us to make decisions during dynamic events like Superstorm Sandy or Hurricane Katrina.”

Flooding through downtown New Orleans.

Tidal surge line in Mississippi.

Abandoned house in New Orleans. Markings spray-painted to the left of the door show the house had been inspected by FEMA and that no people were found inside.

5

Katrina knocked out millions of phone lines and disrupted cell phone service— in some cases, for several months after the storm. In 2005, the principal means of contacting Crawford’s adjusters in the field was by phone and e-mail, recalled Lafayette. “That can take a long time when you have to reach hundreds of adjusters,” he said.

Today, two of Crawford’s key technology advancements are CAT Connection, a proprietary event resource management system that allows all Crawford adjusters to remain in constant contact, and the Performance Management Center, which enables Crawford to monitor events and claim activity in real time from its headquarters in Atlanta, Flynn said.

“The Performance Management Center is the heartbeat of our catastrophe response,” Flynn said. The center is a large room with multiple large monitors dedicated to certain types of response, such as weather, claims and, for a hurricane, the projected point of impact. “Our analytics assist us in determining where the point of impact will be and what areas may have limited access. We can overlay on top of that policyholder information to determine the potential impact by client,” he said.

The Performance Management Center “allows us to view every claim at any point in time,” Bud Trice said. “We’re handling claims today on a level we never could have before.”

CAT Connection and the Performance Management Center “feed into each other,” Flynn said. “With CAT Connection, we are able to

An adjuster and a claimant

Phyllis Funches had a strong perspective as a loss adjuster during Katrina: she was both a claims professional at Crawford and a victim whose own home in New Orleans was damaged.

She evacuated her home in the Upper Ninth Ward with her two daughters as Katrina strengthened to a Category 5 hurricane and went to stay with a friend in Florida. “I knew I needed to get my kids settled. I didn’t know if I had a house left, but I had a job and I wanted to go to work,” said Funches, who has been a Crawford employee since the early 1990s. The company provided for her family’s living expenses and, once her children were safely settled and enrolled in school in Florida, she began taking on claims along the Mississippi Coast.

“Figuring out where houses were was challenging. People put up plywood with their addresses on it, because the houses were gone,” she said. Pass Christian, Miss., before Katrina had beautiful oak trees. “After Katrina, their leaves had been replaced with tattered bits of clothing— pieces of people’s lives,” Funches recalled.

Funches encountered a lot of angry claimants as she visited sites to inspect losses. “People would tear into me and say I didn’t understand. I would say, ‘I do understand because I live in the Upper Ninth Ward of New Orleans and I don’t know if I even have a house left,’” she said. “People felt more comfortable because I was living it with them. That made a big difference for me in being able to move forward. It was horrible to live it and work it, but it made me more effective in dealing with people. And that experience has carried over to other storms,” Funches said.

Happily, her home survived, but it did have roof and water damage. Funches and her daughters were able to move back into their home in New Orleans full-time in December 2005, more than 3 months after Katrina. And even 10 years later, there are a few repairs still to make. “You still have to live life while you’re trying to fix things,” she said.

“Katrina definitely gave me a different outlook on helping others through events like that,” Funches said. “We had so many people helping us. You have an appreciation for that and it makes you want to give that gift back to others.”

Below: Crawford Performance Management Center

6

pre-deploy adjusters, even before an event, and we can start deploying them prior to the point of impact.”

Beverly Trice, vice president of catastrophe operations, uses CAT Connection to assist in getting teams on the ground faster to help handle claims even sooner. Crawford launched the system in 2013. “CAT Connection has integrated different systems and makes it easier to coordinate and set up our deployments. During Katrina our main method of contacting adjusters was by phone, and with outages it was hard to locate people,” she said.

“Today, with our technology, we can determine not only who is available but also their location, certifications and skills to help us make the right selections for deployment as well as assigning claim files remotely. For example, if adjusters in Louisiana are heading to inspect flood damage in Mississippi, they receive the necessary files before they get to Mississippi. It’s amazing how far we’ve come in just the past 10 years,” she said.

One element of CAT Connection that further enhances Crawford’s ability to communicate with its adjusters around the world is a proprietary, private social media network, Flynn said. “This lets us reach out to adjusters and have conversations with them wherever they are, via personal computer, tablet or mobile,” which also assists in assigning claims, he explained.

“In the old days, it was hit or miss, and it was hard to schedule and distribute claims to the people closest to the impact zone,” Flynn said.

Still working on Katrina claims

Tammie Wright is a Crawford adjuster who lived through Katrina and is still working with clients to settle claims from the storm 10 years later. Like Phyllis Funches, she also has a personal perspective: her property in Mobile, Ala., lost its roof and an adjacent barn.

She and her husband lived in temporary housing in Houma, La., while she worked on claims in and around New Orleans. “I was driving every morning to St. Bernard Parish. What I remember most is the dead silence— no birds, no people, no dogs, just devastation. It was there but it was all underwater. That was very humbling to me,” Wright said. “I worked claims during Andrew, Hugo and many other storms. Katrina was different. Unlike Andrew, where everything was blown away, in Katrina everything was underwater.”

New Orleans and the gulf coast are “building back, but I don’t know if it will ever be back to normal,” she said. “A lot of the neighborhoods just aren’t there anymore. It’s still weird to drive through Biloxi, Miss., and see empty lots where historic homes once stood.”

Wright and her husband repaired most of their home’s damage, though it took three years to rebuild their barn.

As an adjuster, “it’s rewarding to me to know we’re helping to rebuild communities,” Wright said. “New Orleans will be a better place. It came at a huge cost, but buildings will be stronger and people will be better prepared” for future events.Below: Bridge repair on Lake

Pontchartrain, Louisiana.

7

“Our technology today permits automated assignment and scheduling. Using the GPS coordinates where adjusters are, our algorithm can assign claims automatically based on an adjuster’s qualifications.”

Crawford’s investments in technology have dramatically enhanced the claims-handling process. For example, “a decade ago, adjusters used to take notebook paper and put their notes into the claims management system. With mobile technology today, the adjuster’s notes are immediately entered into the system,” Flynn said.

Similarly, “It used to take hundreds of people to orchestrate a response. Now we can push tens of thousands of claims through to our adjusters in a matter of minutes, and our systems identify bottlenecks so that we can balance our workforce and caseload,” Flynn added.

A team of business analysts at the Performance Management Center provides continuous inventory monitoring, identifying trends in the data and developing initiatives to improve Crawford’s service to clients. The center is

another way that Crawford is bringing strategic innovation to its on-the-ground service.

“Our systems have made us much more efficient,” Beverly Trice said. “Technology has moved us forward, and even though it’s not always visible to the client, there is a big impact in how well we are now able to service them.”

Crawford proved the worth of its investments in technology to accelerate claims handling during Superstorm Sandy in 2012. That event generated more than 42,000 claim assignments for Crawford— slightly more than the approximately 38,000 assignments from Hurricane Katrina, according to Bud Trice. On average, Crawford adjusters after Sandy made contact with claimants within one day, completed inspections within 12.7 days and filed reports or estimates within 14.6 days. “Given the high volume of assignments and access challenges after Sandy, our claim-handling activities were conducted in record time,” he said.

Above: Views of inundated areas in New Orleans following breaking of the levees surrounding the city as the result of Hurricane Katrina. New Orleans, Louisiana. 2005 September 11.

Photographer: Lieut. Commander Mark Moran, NOAA Corps, NMAO/AOC.

Crawford’s investments in technology

have dramatically enhanced the

claims-handling process.

8

“Crawford had a learning experience during Katrina,” Gentile said. “The company is very well prepared for a catastrophe, with people on staff and on standby, and it’s well equipped for the next one. Technology has helped this industry greatly, and Crawford has invested heavily in supporting its adjusters.”

Benefits of planningA key component of Crawford’s catastrophe logistics is its Pro-Act Team, which convenes as events develop to help the company deploy resources more efficiently. “The team comprises volunteers from key areas of the company to support people who are responding to events,” Bud Trice explained. “They are responsible for delivering solutions, whether it’s to solve a travel problem or compliance or whatever the situation might require.”

Planning before an event occurs provides important benefits for Crawford’s clients, said Mike Reeves, executive vice president and head of Global Technical Services. “Annually, we identify teams of people who would respond in the event of a large loss. We also meet with our major clients to see what their exposures are and how those might have changed,” he said. “While you can’t always plan for every contingency, it’s important to have as much pre-planning in place as you can. Insurers and risk managers that implement pre-planning invariably get the best out of the claims experience vs. those that don’t,” Reeves said.

“During Katrina, when we realized that the levees in New Orleans had failed and 75% of the city was underwater, we knew the impact was going to be huge,” he said. “There were people being evacuated from the city and we had problems getting our adjusters into the region. When policyholders have to evacuate their property and leave the city, and it’s difficult to gain access to the affected areas and survey the damage, we know it’s going to be a tough event,” Reeves said.

“Major losses require the best people we’ve got and finding the right man or woman for the job. Our value is keeping our promise to the markets and committing resources to our partners,” he said. Whether in Katrina or other catastrophic events, “we see claims as our opportunity on behalf of our industry to bring our professionalism to bear and help people rebuild their lives.” n

Adjusting complex energy claims

Some of the most complex claims that Crawford handled after Hurricane Katrina, and later that year, Rita, involved damage to onshore and offshore energy assets, said David Brocklehurst, senior vice president of global markets at Crawford.

The pair of hurricanes disrupted offshore oil and gas production and onshore refining. Katrina alone shut down more than 56% of daily Gulf of Mexico oil production and 34% of the Gulf’s natural gas production, according to the U.S. Minerals Management Service. Some insurance industry estimates put the total insured energy losses from Katrina and Rita as high as $15 billion.

“The amount of damage to assets in the energy industry from Katrina consumed virtually all of the expert resources at the time. That was a major challenge, but not the only one,” Brocklehurst said.

“At first, nobody knew the true nature of the losses, which included damage to pipelines on the seabed in the Gulf of Mexico. That created a challenge for insurers in setting their claim reserves— should they reserve based on the best case or the worst-case scenario? Another major challenge for insurers was covering additional expenses, such as paying standby rates for energy contractors while facilities underwent reconstruction, or paying for shutdown and evacuation costs for offshore platforms,” he said.

The situation was made more difficult for adjusters because of variations in policies covering oil and gas assets. “The Lloyd’s and London market companies came together to try to resolve the recurring claim issues from Katrina. Even though claims were settled on an individual basis, the companies established reasonable criteria to bring a more uniform treatment to some of the coverage issues,” Brocklehurst said.

In 2013, Crawford acquired a majority interest in Lloyd Warwick International Ltd., a London-based loss consulting company that specializes in marine and energy claims. LWI provides loss adjusting, major claim management and litigation support. “Crawford is well-positioned to respond to catastrophes that require specialized claims expertise,” Brocklehurst said.

Opposite page: Biloxi, Mississippi, October 4, 2005. Destroyed Mississippi gulf coast Highway I-90 as a result of winds and tidal surge from Hurricane Katrina. The support columns are all that remain of this section of I-90 that connects Biloxi with Ocean Springs, Miss.

Photograph by John Fleck . This image is from the FEMA Photo Library. Licensed under public domain via Wikimedia Commons.

9

The Crawford Solution,® the most comprehensive global solution for claims administration. The System was developed by Crawford & Company.

NYSE: CRD-A, CRD-B | Crawford & Company | 1001 Summit Blvd.Atlanta, GA 30319 | 800-241-2541

Crawford & Company is an equal opportunity employerTM

TM

CAT_whitepaper_Katrina10YrsAfter_v3

Cover image: Aerial of a flooded neighborhood with homes flooded to their eaves. In the background is one of the breached levees with water entering the area. New Orleans was mostly evacuated as a result of floods from hurricane Katrina. Thousands of people had been rescued from the flood waters by moving to their roofs and attics. Photo by Jocelyn Augustino/FEMA. This image is from the FEMA Photo Library and is licensed under Public Domain via Wikimedia Commons.