‘Escape of water’ claims are a growing problem for insurers
It might seem odd to be thinking about cold weather and burst pipes when the sun is beating down and our thoughts are turning to holidays abroad, but “escape of water” claims are fast becoming a major worry for claims managers.
Such is the growing significance of this class of claim that one leading property insurer has started to promote a dedicated claims-handling service just to manage the consequences of such losses. If it proves its worth, no doubt others will follow.
It would be nice to think the motivation for such a dedicated facility is the worthy desire to offer a premier service to its customers. But while this may be a factor behind the move, the real reason is more likely to be linked to the ability to seize control of such claims quickly to manage costs and limit what can sometimes be the extensive and even catastrophic nature of this kind of loss.
This certainly makes good practical sense in terms of effective claims-handling. The costs of dealing with these claims has been rising well ahead of inflation, becoming a major consideration for underwriters in both pricing and managing the profitability of their property portfolios.
So why is this particular soggy chicken coming home to roost now? First, modern housing presents the challenging combination of flimsy stud walls and press-fit plastic piping. This is not a marriage made in heaven when the weather takes a turn for the worst and a leak or burst occurs. Not only is it sometimes difficult to identify where the actual leak is, but by the time it has been located, the damage is probably already extensive.
All this assumes that it has been possible to get someone to sort the problem and begin repairs in the first place. And thereby hangs another tale. The complexity of the host of delegated authorities dictating who does what and when, can make the process complex and time-consuming when insurers just want to get repairs underway.
Escape of water losses need a single, focused point of contact when a loss occurs – this is absolutely crucial. Unfortunately, market experience tells us that, all too frequently, this is simply not the case. Any claims specialist knows that, while an insured property is flooded with water, the possibility is that the insurers are receiving a flood of letters and emails.
Then there is the issue of how we reward the parties along the repair chain. The concern is that this can encourage longer settlement times than we would like, which in turn means additional costs and less-than-happy customers who are parked in alternative accommodation for far longer than they should be, while the meter is running on levels of expense and dissatisfaction.
If we continue to fail our policyholders, then they are going to sort the problem for themselves or, more to the point, find restoration companies who will do it for them. In the private car market it was exactly this issue that gave rise to the concept of credit hire and we need to avoid such a recurrence in the property sector.
Given that rates in the property market are at the bottom of the cycle and static at best, the risks to profitability are obvious, especially as the market continues to recover from the £1.5bn hammering from the storms and rainfall in 2007. A hot summer is predicted and, if it arrives, we will need to manage the increase in subsidence losses on top of the rise in recessionary-related losses that are increasing claims costs well beyond inflation.
Add to that a wet and cold winter in 2009/10 and the market could be truly under water if we are not more efficient in managing our escape of water claims.