Escape of water - a summer time risk?
Posted on: 17 August 2018
Escape of water - a summer time risk?
Adrian Ewington ACII, Home & Legacy, Underwriting & Markets Director
"With escape of water claims costs rising rapidly - up to £483m for the first nine months of 2017 - it's no surprise that tackling this issue is the number one priority for the domestic property insurance sector and it's no different in the high net worth market.
But while factors such as additional plumbing and expensive fixtures and fittings are behind the increased costs, the insurance industry, utility companies and the government need to take a more proactive and concerted approach to reducing these claims.
Claims analysis - a surprising discovery
Understanding when and why these claims occur is essential. The cold snaps of the winter months causing freezing, and burst pipes are traditionally seen as one of the main reasons behind these claims, but our own analysis resulted in a discovery that challenges this assumption.
By reviewing more than 1,000 of the escape of water claims Home & Legacy received from 2015 to 2017, it was found that, one of the UK's hottest months, August, is by far the most expensive for escape of water claims. As well as more claims being reported than in January, the actual cost of claims for August was, staggeringly, over 90% higher.
A matter of occupancy
Drilling into the data, we found that occupancy, or rather a lack of occupancy, was the key reason for this spike in claims costs. With August a prime time for holidays, a water leak can go undetected for days, if not weeks. As the equivalent of 48 bathtubs of water can escape each day, someone can return to utter devastation after a few weeks away.
Indeed, across the period reviewed, occupancy is the single biggest driver of increased claims costs. For instance, our data shows that average escape of water claims costs increased by 42% when properties were unoccupied at the time of loss.
Preventing these claims and protecting customers from the devastating experience of a serious escape of water claims is a must. As well as the financial impact, reinstating a property after a major water loss is a lengthy and traumatic process.
Treasured possessions could be damaged beyond repair and, depending on the nature of the loss, the homeowners could find themselves having to move out of their home into alternative accommodation for months while the property is dried out and returned to its original state.
Thankfully there are many ways to reduce the damage that can be caused while the property is unoccupied. Since discovering these trends, Home & Legacy will be looking at ways we can work with our broker and insurer partners to raise awareness of the risk management steps customers can take.
Risk management support
The insurance industry has an important role to play in changing homeowner behaviour when it comes to escape of water. Brokers can provide their clients with risk management advice such as turning off the water supply at the stopcock if the property is going to be unattended. This is a simple and effective way to limit the amount of water that can enter the property.
It can also be worth discussing some of the smart home technology devices with clients. These can include flow sensors, leak detection systems and devices that can be wired into the alarm or building management system that will shut down the water supply automatically whenever the property is unoccupied.
These devices are relatively inexpensive and simple to install, especially when compared to the cost and destruction that can result when a leak goes undetected. It's not the easiest sell though: unless someone has already experienced this type of loss, there's little appetite from homeowners to install these devices.
Insurers can help to change this mind set. Some of the reluctance to install smart home technology invariably comes down to the fact these devices are relatively new. By rolling out pilot initiatives of this technology, insurers can encourage greater take-up by demonstrating how effective they are. This will also help to raise awareness and make this technology as commonplace as smoke alarms.
Take-up could be incentivised too. Excesses for escape of water claims are increasing rapidly to counter the rising costs. Reducing or waiving the excess altogether could encourage policyholders to fit appropriate technology to their homes.
And, while it may be more of an afterthought, there is also an opportunity for insurers to promote this technology in the event of a claim. By subsidising the cost of installing these smart home and leak detection devices, more homes will have protection.
Other parties should also support the take-up of this technology. It's in utility companies' interests. Presently, when a water leak occurs, a homeowner can claim back leakage allowance on a metered bill.
The government could also help to drive take-up. Building regulation changes to make smoke detectors mandatory in new builds resulted in a step change in take-up in all properties. This could be replicated for leak detection and prevention systems.
No client wants to return home to find their home is under several inches of water. By working together with other stakeholders, brokers and insurers can help their clients wipe-out - rather than wipe up - many of the catastrophic escape of water losses."