Insurers could end up applying exclusions in certain areas to better manage costs, says managing director

The cost of claims is increasing at a “pretty uncomfortable rate”, according to John Watson, Innovation Group UK’s managing director.

He told Insurance Times: “For the UK, the biggest part of our property business is dealing with subsidence claims. In property insurance most [policyholders] suffered from three quite significant events – storms at the start of the year, subsidence in the middle and a freeze event at the end.”

Subsidence is where the ground beneath a building sinks and pulls the property’s foundations down with it.

“Insurers are now looking at whether there is a link between climate change and the prevalence of subsidence claims because spells of hot dry weather exacerbate the number of claims,” he added.

Innovation Group is sponsoring Insurance Times’ Claims Excellence Awards 2023, taking place tonight (25 May 2023) at Kensington’s Royal Garden Hotel.

No overall solution 

He explained: “Trees will suck moisture out of the soil and cause it to dry out and exacerbate subsidence. It is very difficult to apply any preventive measures. Instead, you have got to look at cost effective measures to deal with the cause and that’s generally leaking drains.”

There are very few solutions in the market that currently exist to prevent subsidence claims, a reason why Watson believed supporting innovation in the claims sector was so vital.

This is why supporting the Claims Excellence Awards is so important, he said: “We have built a reputation of technical excellence dealing with claims. That’s what we are all about.”

Innovation Group is an insurtech which provides technology solutions for claims handling. It has offices in the UK, Australia, South Africa, North America, and Europe and also has a loss adjusting arm in the UK.

In the UK specifically, the insurtech provides services across both property and water damage and works with several top UK insurers across motor and property claims handling portfolios. 

Watson continued:“The cost of claims are increasing at a rate [insurers] are pretty uncomfortable with and there’s a whole host of reasons for that, but it’s slightly different for motor and property. Motor insurance has also got lots of supply chain and capacity issues, which is driving up the cost.”

These costs, alongside issues such as supply chain difficulties, inflation and capacity issues, are causing all insurers to examine their options for cost control over the next two years.

Working with local authorities 

If subsidence was to increase at the rate it has been, Watson said he believed that insurers could end up applying exclusions in certain areas to better manage costs. 

For example, the ABI’s March 2023 figures revealed that subsidence claims payouts surged in 2022 due to the heatwave in summer 2022, equating to 23,000 claims and  expected payouts of £219m. 

Watson said: “One thing we will look at within subsidence is that when you have an event that doesn’t just affect new claims moving forward, it also affects claims that have been with insurers for several years because it can cause real damage.

“We are looking at how many claims have been re-opened in prior years.”

Watson said he would like to see a more of a collaborative approach between insurers and local authorities, which might be needed to combat these rising costs. 

He added: ”We have difficulty removing the trees that area causing subsidence because trees have an immunity value and local authories are not concerned about removing [them].”