The property & casualty insurance sector has seen claims soar in recent years. It could be turning a corner, though, as new attitudes to repairing goods could save the sector millions of pounds each year. David Fanning looks at what companies like The Source are doing in this sector.
Insurers and claims handlers around the world are finding that replacement or repair and restoration of expensive household and business items is far more cost-effective than simply handing over the cash value and allowing the insured to make the decision on what to do.
This is particularly true in the case of high-value goods like computer and photographic equipment, antiques and collectables, designer and one-off furnishings and the like.
There has been an encouraging change of attitude, which is saving insurers – and other policyholders – a lot of money. Rather than discard items as being beyond economical repair or irreplaceable, many types of goods are frequently fully reparable using modern tools and techniques. The range of suitable items for restoration to their former state is broad and impressive, from high quality clothing and state-of-the-art laptop computers to exotic Persian rugs and widescreen digital television sets.
This development, now coming into its own as claims costs are biting more sharply, is good news for the property & casualty insurance industry. It presents a substantial opportunity to save perhaps millions of pounds each year – and it doesn't mean asking policyholders to accept anything less than the complete restoration or physical replacement of their damaged property.
Generally, insureds are insistent that they receive the full cash value of their damaged property, but this is an expensive solution for insurers – particularly when goods can be repaired or replaced on a like-for-like basis at considerable savings on a cash-value settlement.
It is worth considering some real incidents from around the world. A smoke damaged video and sound recording studio; an adjuster, relatively inexperienced in computer and electronic equipment, assessed the solid state electronic recording and editing equipment and computers as being unrestorable and agreed a write-off value of £250,000. Beta tapes filed near the electronic equipment were irreplaceable, and the insured insisted that they should be cleaned and restored. That worked well, but the point is that beta tapes are more susceptible to irreparable damage than electronic equipment and computers, which could have been cleaned and returned to use for around £50,000.
In another case, the offices of a small financial services company were hit by lightning and the company claimed for three entire computer systems valued at £20,000, saying they were total losses. The adjuster brought in a qualified technician who identified minor programming adjustments and some part replacements to fully restore the systems to operation. Not only that, but the claim was grossly inflated. As a result, the insurer saved more than £18,000.
Cloth and leather goods were damaged by smoke and soot after a house fire. The adjuster decided the items were a total loss, but the insurance company asked for a second opinion from a specialist cleaner, which claimed to be able to restore the goods to their original condition – and not to charge for any failed efforts. Of a total of nearly 400 pieces of clothing, shoes, and leatherware, only 12 were rejected after cleaning. The insured replacement cost of the goods was £14,000, but the actual cleaning cost only came to £2,000 or so, giving savings of around £12,000.
"You can multiply these commonly occurring scenarios by a thousand for every day of the year," says a property loss specialist. "The cash value of potential savings is absolutely immense. The ultimate competitive pricing advantage for insurers who harness this opportunity could be enormous."
Daniel Mitchell, managing director of computer claims support specialist The Source, says that computer and IT equipment insurers can benefit most from adopting a policy of repairing wherever possible and replacing if economical repair is not possible, and only paying cash or issuing shop purchase vouchers as a last resort.
"We rarely have to recognise the phrase 'beyond economical repair' and, as a result, we reduced our clients' costs by an average of 23% last year."
He says that there is a tendency, because computing and IT systems are so valuable and crucial to most businesses, for commercial adjusters to agree to cash settlement in an effort to close the claim quickly and get the insured back on line as soon as possible. This is a mistake, he believes.
"At The Source we can have claims resolved within 48 hours of notification and, more often than not, fully repaired goods will be back with their owner within days, and there will be a full warranty given with every machine supplied, together with hardware and software support for the first 30 days afterwards," he says.
Settlement of computer claims is complicated, he admits, unless you have a great deal of experience and can offer a speedy solution. In most cases, that solution is repair and restoration.
"Often, instead of the insured value cash settlement that insureds would receive from other insurers, we are able to offer a far more valuable deal to the claimant. We can give equipment owners the opportunity to trade up to a better system. While that betterment is at their own cost, we can provide the service at a lower cost than other suppliers," he says.
A policy of repair rather than cash payout holds another reward, says Mitchell. "Because of our ability to repair, one in ten claims is dropped. When the claimant sees that neither cash nor a shop voucher is coming his way, he withdraws."
One thing is clear. The cost of property damage claims is soaring and although part of that rise can be offset by increased premiums, there comes a point beyond which policyholders will not go. It seems that repair and replacement offers a most sensible way forward.