The gathering storm

In 2007 the reality of climate change became all too clear when the UK suffered not only Wind Storm Kyrill and the summer floods, but also periods of sustained bad weather before and after these, resulting in a vast amount of storm and flood damage. The average cost of weather loss 2004 to 2006 was approximately £544m. Figures supplied by the Association of British Insurers for the 2007 weather events estimate the final costs will be in the region of £3bn - an increase of slightly more than 550%.

What is obvious is that climate change is going to result in more damage to buildings - both those in good and poor states of repair. This means more repair costs, more leakage, more claims administration staff and more validation/adjusting experts to handle these increases. Given this, the market must look at how best to prepare for the future and it should start by addressing how best to use the supplier chain available.

Alongside the floods of 2007 was the additional ingress damage caused by increased rainfall surpassing the capacity of usually fit-for-purpose guttering systems, highlighting both wear and tear and workmanship defects that otherwise would not have shown. There was also physical damage to roof coverings from the accompanying winds.

What can be done?

First, a full understanding of the marketplace is needed because, without it, one cannot choose a future course with confidence. Insurers need to examine the potential benefits of specialist independent building claims validation experts as it seems many do not truly understand the benefits these can deliver to themselves and their customers.

Massive improvements in the average settlement costs can be secured where one of these experts is instructed - in my experience this results in average settlement figures of £140, £450 and £500 for roofing, building and consequential internal damage claims respectively, an average life cycle of 5.5 days and a complaints ratio of 0.1%. If insurers were to look at their current figures could they beat these? The question has to be, therefore, why is the take-up so slow?

Surely the time has come for insurers to investigate the logic and rationale behind their current processes and if the reluctance to move forward is the fear of the unknown then it must be time to confront these fears and step into the 'unknown'.

By adopting a policy of proactive claims management it is possible to educate customers in the signs and symptoms of property fatigue and ways they can reduce the risk of building loss/damage through inspection and maintenance; this advice could be issued as a supplement to the policy. Insurers can also build on this by using an expert for inspections who can provide risk improvement advice to both the insurer and the customer.

Time to strategise

For claims where relocation, business interruption or contents loss are factors, a loss adjuster or in-house handler is possibly more appropriate.

However, where suppliers were overwhelmed with flood claims last year, more of the claims that did not need this managing expertise went to specialist building claims validation experts that were able to cash settlement claims, where cover existed, at realistic market rates.

Though there are times when a solution led by a repair network may be a valid choice, but as they are a much more costly option and suffer with failing service standards and rising costs as labour becomes a premium during surge periods, it will nearly always be best to first instruct a specialist building claims validation expert. They are able to validate the claim and assess the best course of action; if the damage is found to be minimal, appointing a repair network that may be overwhelmed with work and cannot carry out repairs for several months, is not the best option.

There seems to be some nervousness in the industry surrounding cash settlements, however, society is far more financially savvy than it used to be. Property improvements and the growth of companies such as B&Q have brought DIY into all of our lives and the vast majority of homeowners will have had at least one major refurbishment project carried out to a property they have owned.

Therefore, it would be very naive to believe that the average customer would not be able to instruct a builder to carry out what amounts to small repairs; although it should be understood that cash settlements are not suitable for everyone.

What a customer wants

Customer choice is only really possible when the customer knows what they are being offered. Merely offering the option of a cheque or an approved contractor without fully explaining how a sum has been reached does not allow the customer to make an informed decision. They may also feel forced into accepting the approved contractor as only then will they be certain that the work will be completed.

Real customer choice can only be offered by an expert who, where cover exists, can establish a specification to return the building to its pre-loss condition. The expert must then be able to calculate a realistic market rate for those works and relay all of the findings to the customer's full understanding - detailing the hire, material and labour costs (including guidance on trade mark-ups and regional variations), to instill confidence in the figure.

Although this means additional time in the process, it can result in a huge net benefit as there is minimal follow up work, a reduced life of claim, increased customer satisfaction and, therefore, customer retention while achieving realistic settlements.

Predictions are for more floods and storms in the future, so the market should also prepare for an increase in low-value buildings claims where the flexibility of alternate solutions can be a powerful tool.

In the words of Winston Churchill: "However beautiful the strategy, you should occasionally look at the results."