Introduction
In Part 1 we analysed our data to explain the reasons for the increase in EOW claims values over the last 5 years. Our findings challenge some of the assumptions made by the property insurance industry.
Our data tells us that reinstatement costs have generally increased in line with inflation and that the significant increases in EOW claims costs are occurring in bathrooms and kitchens. These cost increases are due to flooring and tiling in both rooms and plastering in bathrooms and joinery in kitchens because of:
By understanding the breakdown of the increasing costs, insurers can change their approach to claims management and underwriting to help reduce the overall claim cost. For example in many EOW claims specialist drying companies are not needed and the claim durations and values can be reduced through the use of a suitable remedial scheme. An understanding of how many bathrooms there are in a house and where they are positioned can help underwriters assess risk and price a policy more effectively.
We have data on over £200 million worth of EOW reinstatement claims, ranging from £1,000 to £150,000 in size. Our data is based on the work we have done for several of our clients across different commercial models and includes different schedules of rates and pre-scoped and BRN scoped claims. In this Part 2 of this series we have analysed our data from around 1,800 claims in 2017 to look at the cause and severity of EOW claims, identifying the reasons for the EOW claims in the first place and what makes some claims more severe than others.
Sources of leaks by room
Over the last 5 years most leaks (50%) have started in the bathroom and 20% started in the kitchen. 7% of EOW claims start in the loft and around 3% start in the lounge/living room and 3% start in the airing cupboard.
Severity of leaks by room
Interestingly, the claims costs tend to be reasonably modest for bathrooms – other rooms are more likely to see higher claim costs.
The table above shows the relative severity, and hence indemnity cost, of leaks originating in the different rooms of a house. Bathrooms are the benchmark at 100.
The most severe claims start in the living room, but the frequency is very low at just 0.26%. Typically EOW claims in the lounge are due to leaks from central heating systems that can go undetected for a while and can cause severe damage to flooring and contents. Reinstatement works in living rooms and lounges tend to cause more collateral damage as well, so the reinstatement costs increase.
Only 0.13% of leaks come from cloakrooms but as these usually involve contaminated water the severity is 40% higher than a general bathroom leak.
Kitchen leaks create more severe and costly claims than bathroom leaks – 11% more. As 20% of EOW leaks come from kitchens we have investigated the source and severity of these claims in more detail below.
Lofts are creating increasingly severe EOW claims as more boilers and hot water tanks are being located in the loft. 7% of all EOW claims originate in the loft and cause extensive damage to the floors below. This suggests that underwriting questions should be directed towards understanding where boilers and hot water tanks are held in the home.
Overall bathrooms and kitchens are clearly the main source of EOW claims indemnity spend due to their frequency and severity. So we have looked at these rooms in more detail and our findings are set out below.
Bathrooms
28% of leaks in the bathroom come from pipes and another 21% come from showers. These findings support the view that modern plumbing fittings are the cause of many EOW claims. The WC accounts for 16% and the bath 13%. Sinks cause 8% of bathroom claims and seals another 7%.
The table above shows the relative severity, and hence indemnity cost, of leaks originating in the bathroom. Pipes are the benchmark at 100.
The most severe leaks are caused by underfloor heating and hot water cylinders but their frequency is low at 0.77% and 0.26% respectively.
Leaks from the WC are 25% more severe than leaks from pipes, and as they account for 16% of EOW claims in the bathroom they have a significant impact on indemnity spend.
21% of leaks come from showers but their severity is low compared to pipes and WCs. So their impact on indemnity spend is not as significant as the frequency figures would suggest.
Pipes and WCs are the largest cause of indemnity spend on bathroom EOW claims as their frequency and severity are relatively high. As pipes run through the house and more bathrooms are on the first floor it is easy to understand why pipes are such an issue.
Indemnity spend on WCs is high due to the nature of the leak – contaminated water will always create a much larger claim cost as the clean up costs can be significant.
Kitchens
Pipes are the main source of leaks in the kitchen as well as the bathroom. 45% of leaks in the kitchen are caused by pipes and another 18% is caused by washing machines. The dishwasher accounts for another 13% and the sink 11%. These figures clearly highlight how modern appliances have contributed to the increase in EOW claims in the home.
The table above shows the relative severity, and hence indemnity cost, of leaks originating in the kitchen. Pipes are the benchmark at 100.
Fridge freezers cause the most severe leaks, being three times the severity of a leak from a pipe. This is closely followed by boilers and dryers. The frequency of these sources are low at 0.64% for each one.
Leaks from fridge freezers and boilers tend to be severe as they often happen whilst the home owner is away, so the damage builds up. For fridges, dishwashers and washing machines the damage is less severe as the leak is usually detected quickly.
Pipes are clearly the main cause of leaks in the kitchen, which is no surprise when you consider how many pipes are running throughout the kitchen linking up appliances, sinks taps and the drains. This is further evidence that modern plumbing techniques are causing many EOW claims.
Water leaking in the kitchen is more severe than water leaking in the bathroom. There are far more hidden pipes in a kitchen and accessing the pipes is more difficult when there are fitted kitchen units, tiling on the floors and walls and appliances.
Matching items
In Part 1 we explained that insurers’ willingness to make contributions toward matching items is one of the causes of increasing EOW claim values. We have looked at this further and analysed where the expenditure on matching items is arising.
Matching item costs arise in 6% of all claims in our data. 36% of matching items are tiles and 26% are kitchen units. Floor finishes account for 13% and decoration another 9%.
The table above shows the relative expense of matching items. Tiles are the benchmark at 100.
Tiles come near the top of the table as their severity compared to other matching items is relatively high. When we consider the high frequency of tiles matching items it is clear that contributions towards tiles for matching items is adding considerable expense to indemnity spend. It is worth noting that tiling is a labour intensive and time consuming trade, and so it is relatively expensive.
Unsurprisingly, worktops are the most expensive item, but their frequency is only 2%.
Decoration is expensive when compared to floor finishes and kitchen units. This seems surprising, but decoration is labour intensive whilst the supply and installation of new kitchen units and floor finishes is relatively cheap and quick in terms of labour needed.
Conclusions
As we explained in Part 1, most of the increase in indemnity spend arises in kitchens (30% from 2013 to 2017) and bathrooms (39% from 2013 to 2017). The cost for all other rooms has increased in line with inflation.
It is clear from our data that the main cause of leaks in both rooms is pipes because for both frequency and severity pipes rank high in our data. Pipes and WCs are the largest cause of indemnity spend on bathroom EOW claims and in the kitchen it is pipes and washing machines.
This raises some questions for underwriters. Should they be asking if a property has been recently renovated in order to identify the risk of modern plumbing failures? For older properties, corroding pipes are an issue and a lack of renovation could be creating a risk. Also, WCs and bathrooms on first floors carry a higher risk of causing severe damage than WCs and bathrooms on the ground floor. And older washing machines clearly carry an underwriting risk.
Underwriters should also consider asking the right questions to understand the lifestyles of home owners. Homeowners who are away from home a lot, either due to work or retirement for example, carry an increased risk of sever EOW damage as they may not be around to see the leak when it happens. This is particularly important in winter when water tanks in lofts can freeze and crack and cause extensive damage in an unoccupied home.
But one area that is under the control of claims departments is matching items. Agreeing to contributions for matching items such as tiles and kitchen units is making a significant contribution towards the rising EOW indemnity spends. Insurers need to decide whether to apply the terms of their policies or accept that EOW claim costs will continue to rise in order to keep customers happy.
In Part 3 we will look at the various commercial models that our clients use to see what impact they have on EOW indemnity spend and service performance.
If you are an insurer or boeker and would like to understand what your commercial model is doing to your EOW claim costs, please get in touch.
