Despite proven savings created by the restoration industry, the majority of claims are going down the replacement route. Seamus Grealish explains the benefits restorers can offer insurers and their policyholders
In an age where the claims process is driven by compressing costs, it is somewhat alarming that insurers and self-insureds are wasting millions of pounds by not taking advantage of the restoration route. The UK has a highly professional and competitive restoration and recovery industry, which saves the insurance sector hundreds of millions of pounds every year in resolving domestic and commercial claims. Yet, experience shows us that around 60% of all claims are settled through replacement rather than restoration.
Recent figures from the Office of the Deputy Prime Minister indicated that out of 120,000 fire incidents each year, the majority of which are domestic, only a small percentage were actually resolved through restoration techniques.
It seems all too easy to write off household goods or machinery and draw up a cheque for replacement as a quick solution to resolve the claim. This approach appears to be more prevalent among self-insureds. During the past five years, there has been a significant growth in the number of organisations that have gone down the self-insurance route.
Perceived increases in risks have drawn higher premiums, resulting in large organisations looking at ways of reducing premiums. Quite often this has resulted in an element of self-insurance; for example, taking claims up to £500,000 in-house. The popularity for this approach has been demonstrated by the number of instructions coming direct from self-insureds, rising by more than 400% in recent years.
To help self-insureds, we are taking a proactive stance and approaching large organisations to ensure they have an effective risk management plan in place and that they understand the capabilities of modern restoration companies. However, the attitude still prevails in many organisations that replacement is the solution to claims management.
Perhaps this is understandable, when company directors who have no experience of the restoration process view a shop floor devastated by fire or flood that they immediately think the only way forward is a total write-off. Yet, in the majority of cases, their buildings and equipment can be fully restored and at a fraction of the cost of replacement - and often more quickly than it would take to build replacement machines. Recovery companies have skilled engineers who can restore heavily damaged complex machinery to a better state of repair than before the fire or flood hit.
We saw a classic example of the power of restoration at Carlisle earlier this year, when one of the UK's largest biscuit factories was hit by five feet of flood water. Equipment that produced 86,000 biscuits a minute, equivalent to 90 tonnes a day, was covered in polluted river water. Directors could have been forgiven for thinking that the production centre was a write-off; however, the team of restoration technicians and engineers fully restored machinery and production lines - some of which was more than 30 years old - that would have been extremely costly to replace both in terms of capital expenditure and business interruption.
Similarly, when fire ripped through Lufthansa's engine repair centre in Shannon - damaging hundreds of machines and tools - the chances of recovery to an untrained eye must have looked slim. Yet, with the modern techniques and resources available, the repair centre was completely restored, saving the insurer several million Euros in replacement and BI costs.
In household restoration too, building structures, decorations, furnishings and electrical goods can all be restored to pristine condition at a fraction of the cost of replacement.
Clearly, more education on the capabilities of restorers is required and the industry needs to build on the work of the British Damage Management Association in promoting the value of restoration. Of course, actions are far stronger than words and an effective strategy includes investment in training and research and development in new restoration techniques. In order to persuade industry to use restoration services, it is vital restorers are able to provide the best service possible.
Clients quite rightly demand high service levels, including response within two hours as the norm. Research and development programmes are continuing to discover faster and more effective methods of completing the restoration process, reducing costs while bringing enhanced results for the policyholder.
However, research is also reducing costs in other ways - by helping to protect insurers and self-insureds from the increasing risk of litigation following infections, allergic reactions and poisoning by microbial toxins caused by the growth of bacteria and moulds in properties that have suffered flood or fire damage. Lawsuits have become prevalent in the US, where scores of claims have been filed in respect of health problems allegedly caused by moulds formed after the restoration process following severe flooding. Settlements running into millions of dollars are not uncommon.
One of the difficulties for insurers in defending claims has been the ability to provide scientific proof that areas cleaned following flood or fire incidents were free of potential microbiological hazards.
Extensive research and development has been carried out to enable the disaster restoration industry to reduce microbiological hazards and demonstrate provable levels of cleanliness, providing greater protection for the policyholder's health and assisting insurers in combating litigation. Revolutionary new technologies have now been developed for identifying moulds, sterilising air in areas affected by mould growth and other biological hazards.
Dr David Webber, one of the UK's leading environmental microbiologists, and Bob Spencer, chairman of the BDMA, have played a key role in leading this research. Dr Webber has extensive expertise in the microbiology of industrial water, particularly the control of legionnaires' disease in building services, cooling and process waters, and has specialised in methods for rapid microbiological testing. A key area of his work has been in developing a fast and accurate test for moulds and other potentially hazardous microbiological organisms.
Identification of moulds and organisms using traditional methods has previously been time-consuming often running into several weeks. However, Dr Webber has established links with a new laboratory based at Leicester University - in the facility that pioneered the development of genetic fingerprinting. The latest techniques enable scientists to quickly identify more than 550 types of moulds associated with water damage in the built environment.
This testing can now be completed within hours, rather than days, and a programme for effective eradication of potentially infectious microbes and allergens can begin much earlier than had previously been possible. The ability to detect and identify moulds is a major step forward for the restoration sector, as the rapid confirmation of potential health hazards means less risk of exposure to the insured and to remediation specialists.
Such technological advances mean that restoration companies can provide insurers and their policyholders with a level of confidence that has previously been impractical, or cost-prohibitive. These developments are suitable to traditional domestic and commercial markets, and also open doors for a variety of new opportunities. It is a truly exciting time to be in this industry, the professional standards we can deliver today are quite incredible compared to only a few years ago.
The restoration industry's commitment to the insurance industry is highly apparent - developing products and services that will add a new dimension - and will provide benefits to all parties concerned, adding value and confidence to the entire process. What we must ensure is that everyone involved in the claims process is fully aware of the capabilities and value of restoration over replacement so that they can take full advantage of the services on offer.
- Seamus Grealish is ISS main board director responsible for ISS Damage Control and Rainbow International.
ISS DAMAGE CONTROL PROFILE
ISS Damage Control and its sister company, Rainbow International, are the leading force in disaster recovery in the UK. The two are part of ISS - a global company with a £3.2bin turnover, employing 275,000 people worldwide and 42,000 in the UK.
Both companies take an innovative approach to restoration, a strategy that was recognised this year by the British Insurance Awards. The BIA presented ISS Damage Control with the Claims Initiative of the Year Award for its unique partnership scheme with fire authorities, which is bringing benefits to insurers and policyholders.
ISS Damage Control has won a reputation for being able to handle the most complex major losses wherever they may occur in the UK.
Rainbow International has massive experience in the domestic and light commercial market, providing services to the UK's leading insurance and loss adjusting companies.
Together, the companies offer more than 100,000 pieces of restoration equipment and 1200 fully qualified technicians and engineers.
This combined strength enables the companies to cover any eventuality, anywhere in the UK, from a stained carpet to a major fire or flood.
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