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