A Flood of Losses: How Water Damage Affects the Insurance Industry

December 13, 2019

To start off, what is an umbrella insurance policy?  Simply put, it is a policy that (offers higher limits of liability than your primary homeowner, auto, boat or other personal insurance policy.)  An umbrella policy covers unexpected and tragic events, such as you being held responsible for bodily injuries in an auto accident.  Your basic insurance would pay the expenses in these situations (but if the loss is greater than your primary policy limits, the umbrella policy offers more coverage so that your personal assets are not attached.) In deciding whether to get an umbrella policy, ask yourself these questions to be sure you make the right decision.)

How much risk do I face in my daily life?  Everybody faces some risk every day, e.g. catching a cold or getting into a car accident on the way to work.  But you may face more or less risk than others depending on your circumstances.  Do you have any new drivers in your family, who will naturally have less experience on the road than others?  Does your property have any attractive nuisances, objects that could cause injury, such as a pool, large trees or some loose rocks?  If you have a dog, is he aggressive to other people’s pets?  These are just some examples, but if you answered yes to any of these questions, you will want to strongly consider an umbrella policy because there would be damages involved in these circumstances that your basic policies would not cover entirely.

How many assets do I need to protect?  Am I a target? If you have more assets than the average person that you need to protect, do I have a high profile as a business owner or baseball coach, Lawsuits may go for higher because of who you are.   

How many people do I serve with my job?  Umbrellas are sold to business and individuals. Businesses are almost always held to higher degree of responsibility and so are targets for large lawsuits. Do we have clients’ personal data, will our food make someone sick, what happens if my machines catches on fire and burns down a building. Other examples are if you are a landlord you are responsible for the well being of all the tenants in your building.  Due to the large number of people for whom you are responsible, you are at a greater risk of being held liable for something that goes wrong, such as a tenant slipping on ice that you forgot to salt.  If you are a CEO you have a greater risk of former employees coming after you for wrongful termination or other issues. Therefore, it is necessary to consider the responsibilities of your occupation when deciding whether to get umbrella coverage.

Would my family benefit from this policy? The umbrella policy covers not just the named insured but also everyone in the household. If one of them was held liable for an unfortunate event, you could be affected as well (like losing assets that you shared). Therefore, you should discuss with your family whether they feel their basic coverage is adequate or if they would like the extra protection of an umbrella policy.

The process of selecting insurance policies to best fit your needs is a tough process for anyone. Do not forget to also talk to your insurance agent and other experts to figure out what is the best fit for you and your family.

One might think that the leading cause of losses in the insurance industry would be from storm damage, fires or something equally violent. But the fact of the matter is that water damage is the real concern.  According to a study conducted by Verisk Analytics’ ISO unit, one in 50 homeowners filed a water damage claim each year from 2013 to 2017, a 0.61% increase in frequency from a decade earlier.  Additionally, the total cost of water damage to the insurance industry in 2017 was $13 billion.

The reasons for increased water damage claims mainly have to do with the fact that as homes get older, so do plumbing systems and appliances.  Pipes are more liable to burst as they age, washing machines and dishwashers are more prone to leaking, etc.  Homeowners get busy and focus on other responsibilities, such as cooking and cleaning, and do not check their pipes and appliances as often as they should.  There is also a large proportion of Americans living in flood zones: 41 million to be exact, according to recent research.  With such a large number of customers already at risk for flooding, when you factor in potential system failures, these are some alarming statistics.

What does this mean for the insurance industry, and how can providers prevent water damage claims from running them dry? The first step is to clear up with customers what is covered under their policy and what is not, in order to avoid making unnecessary payments that do not fall under initial policy terms.  To put it simply, homeowner’s insurance covers what is determined to be “sudden” and “accidental” damage.  This would include flood damage, storm damage, sewer backups or anything else that could not have been foreseen and prevented.  Gradual water damage, which starts out as minor, is visible to the homeowner and can be fixed before major damage occurs, is not covered under most policies.  Providers can avoid unnecessary losses by clearly going over these details when setting up policies and making sure the customer completely understands before signing.  Customers can make things easier for their providers by taking the proper precautions to prevent water damage before it happens, such as having their appliances serviced regularly and shutting off their water if they are going to be away for a few days or more.

Water damage is costing insurance providers more than it ever has, but with the proper precautions and effective communication with customers, these costs can go down.  Of course, customers should not hesitate to contact David Sayles Insurance Services in the event of water damage that is covered under their policy, or to inquire about any other services offered.

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