FitzGerald Consulting Ltd – Submission for British Insurance Awards – MAJOR LOSS

L’Aquila Earthquake Loss -San Salvatore Comuto Hospital - April 2009

INTRODUCTION
Italy has a long history of earthquakes. A 6.3M earthquake struck l’Aquila, north east of Rome, on 6th April,2009 at 3.32.a.m. 294 were reported dead with around 1,000 injured, 100 seriously. Approximately 29,000 were left homeless and 15,000 buildings were damaged. The incident received global media coverage and in the immediate aftermath the Italian President, Silvio Berlusconi, visited the area.

BACKGROUND
The insured, ASL Aquila, a Regional Authority, has property in the immediate area of the earthquake which sustained substantial damage. The property encompassed numerous buildings and, in particular, a very large hospital known as San Salvatore Comuto. The whole hospital complex covers approximately 130,000 square metres.

In light of the injuries caused by the earthquake, the insured hospital was a key focus for media and governmental attention.

For the insurer, as the incident was so high profile in Italy, it was important that its reputation in Italy was not harmed – and, if possible, could be enhanced - by its handling of the claim.

THE INSTRUCTION
FitzGerald Consulting was instructed by our client, RSA, at Group Head Office level, shortly after the loss sustained by one of their policyholders occurred.

THE BRIEF
We were appointed as consulting executive adjusters, managing the adjustment process in Italy and directing a local firm of adjusters, Studio Campana, based in the Abruzzo region where the earthquake occurred. We were to support RSA’s local Italian and Group Head Office Claims personnel.

We were to assist RSA with the Reinsurance and PR aspects of the matter.

A key objective was to ensure that the co- and reinsurers fully supported the primary insurer so that repayments of likely very substantial sums paid to the insured by RSA were achieved smoothly and rapidly.

There was an aftershock 72 hours after the original and it was our responsibility to determine whether there was a separate claim to consider.

OUR OBJECTIVES
In summary our objectives as consulting executive adjusters were therefore to –

Establish all the necessary re-instatement cost information
Achieve the best possible settlement of the loss
Do this as quickly and fairly with the insured as possible
As a corollary of points one and two to help the hospital to re-open as quickly as possible
Secure any further savings against indemnity spend, e.g. subrogation or dual insurance contribution
Support the insurer in protecting and indeed enhancing its reputation
Ensure speedy and smooth reimbursement of outlays from co- and reinsurers.

EXECUTION
Following our appointment, we immediately visited L’Aquila and were amongst the first adjusters to gain access to the damaged areas, once they were opened up by the authorities.

Subsequently, liaising with the local adjusters, we provided our client insurer – and then their co- and reinsurers, with a comprehensive report dealing with all the issues this loss raised.

We also arranged high-quality presentations to all these interested parties.

The issues included – a variety of policy coverage and legal points; naturally, complex technical work on the nature and extent of the damage, including the question of possible pre-existing damage and/or previous poor workmanship; and potential dual insurance.

We provided a detailed estimation of the damage sustained by the insured over the ‘Buildings, ‘Stock’, ‘Machinery & Plant’ and ‘Business Interruption’ headings covered by their policy.

The insured’s gross loss was estimated at up to €200m. A major part of this related to BI but, unfortunately, they only had limited cover in this respect. After taking this into account, the insured loss was in the early stages estimated at between €75m and €125m.

In addition to our managing director, who project-managed the entire matter, we provided a dual-qualified chartered engineer/chartered loss adjuster to work alongside the local adjusters and focus on buildings-related aspects. We also brought in reclamation specialists and local Italian lawyers as part of an overall team.

THE RESULT
By the end of May, we had progressed the claim very quickly, in particular resolving a series of coverage issues, so that an early payment on account, of €5m, could be made which enabled the insured to carry out immediate partial/internal repairs and facilitated the partial re-opening of the hospital.

This very early and substantial payment on account was, we were told, the first such payment by Insurers related to this incident and reflected extremely well on our clients in the Italian market.

We arranged evaluations of the loss on several different bases, eg full reinstatement (‘new for old’); indemnity (ACV); a mixture of the two and in June were able to convene a meeting with the insured and their brokers with a view to agreeing a very early ‘cash’ settlement. This had potential benefits both for our insurer client and the insured – principally bringing early closure and certainty to a major loss which was the subject of intense regional and also government scrutiny – and of course also to the media.

The settlement negotiations which we managed were successful and the loss was agreed at just below €50m in July. RSA paid the entire balance of claim in early August.

Thereafter because of the channels of communication established, they very rapidly, and smoothly, recovered their outlays from their co-and reinsurers.

Furthermore, RSA received excellent publicity in Italy – not just in the insurance market – for having dealt with this very large loss so fairly and with such speed.

In terms of our original objectives we:
Achieved an excellent settlement, very significantly less than had the claim been allowed to run a normal course.
Concluded this major loss within four months, an exceptional result especially in the Italian market.
Obtained a dual insurance recovery which formed part of the negotiated settlement
Significantly enhanced our insurer client’s profile in the Italian market
Arranged prompt and smooth reimbursement of our client insurer’s outlays from all co- and reinsurers
Left the Insured very pleased with the outcome despite inadequacies in policy cover

As the Italian version of ‘Financial Times’ – ‘Sole 24 Ore’ commented: ‘The English (insurer) has already paid for all the damage (50millions). The others are behind’

 

Bev FitzGerald - Managing Director