It is claimed stripping out properties after water damage should be the exception rather than the norm, Sam Barrett looks at why the reverse seems to be true
At Post's Property Claims conference last month, Jonathan Davison, strategic development director of the British Damage Management Association, highlighted a costly problem for household insurers. "Stripping out properties after water damage is becoming the norm when it should be the exception," he explains. "This is driving up claims costs for insurers."
As an example, Darren Francis, regional manager for Munters says that less than 10% of water damaged properties actually need to be stripped out. "It is part of the process but it's very much a last resort. There's nothing to gain from an unnecessary strip-out and, where it is carried out, it will form a large part of the claims cost," he explains.
It is not just unnecessary strip out that is adding to the cost. Richard Ayton-Robinson, business development director for Oriel, Cunningham Lindsey's repair network, says he is aware of other practices that are pushing up claims costs. "We see cases of properties that are dried to a greater extent than is required. If someone then goes in to replaster, this puts a lot of moisture back into the air," he explains.
As well as scope creep, additional costs can come into play due to inefficiencies in the process. For example, if more than one contractor is employed to repair a property there can be duplicated set-up costs.
Additionally, where unnecessary work is carried out on properties, this can lead to a longer claim cycle, which will have implications for alternative accommodation costs.
So, why has the problem arisen? Some of the blame for the situation is levelled at the insurers. As they have attempted to commoditise the services required to bring down costs, they have inadvertently pushed them up. "Strip out has become the norm because of the insurers," says Matthew Cooper, director of marketing and sales at The Revival Group. "In the bulk markets, contracts are based on room and unit rates, which means contractors are fixed on what they can charge."
Likewise, if a fee is dependent on using drying equipment, there is little incentive to recommend a simple procedure, such as opening a window or turning on the heating to dry the property.
Speed is another factor that has made strip out more common than it should be. Jamie Wilkin, supply chain manager at Norwich Union, says that a property that has been stripped out will dry faster, although this might not be beneficial. He explains: "In many cases strip out has become a normal practice to speed up drying. However, we're all in agreement that this can be drastically reduced, meaning less disruption time for the customer as well as potential cost savings."
Driving up costs
He adds that by reducing the amount of strip-out, properties can still be dried properly, but there will be less to replace and the policyholder's home will remain as close to how it was prior to the damage.
Mr Ayton-Robinson also believes the approach to water damage used by many of the insurers is driving up costs. "You often get one person going out to do the drying, followed by another to strip out and a third to restore," he explains. "As well as tripling set-up costs, there's often no connection between the three contractors. This can cause problems such as the contractor carrying out the restoration not knowing what the property was like originally."
Breaking the process down into these stages, or even where one contractor has overall responsibility for the repair, has meant that the insurers' ability to control costs is reduced. Simon Berry, managing director for Continuity, says that more control is essential. "If a mistake has been made, then surely it is on the part of those larger insurers that have sidestepped adjusters and now have panels of directly-contracted builders, to whom they give some delegated authority and over whom they have little or no real control. Their adjusters are great at project management but they've ended up with much less control than they need to improve outcomes and minimise repair costs," he says.
Mr Davison is also prepared to put his hand up and take some of the blame for the situation. While he is not happy that it has arisen, he admits that the damage management sector has not done as much as it could to avoid it. "For many years, the specific technical expertise of damage management practitioners has not always been fully recognised. Pressure to reduce costs has resulted in the sector's contribution being undervalued, with a perception that it is indistinguishable from general building activity. This has been due, to some extent, to the lack of transparency on the part of the damage management sector itself," he explains.
Understanding the nature of water damage is essential for the insurance industry to manage claims correctly. Mike Cooper, business development manager at Richfords Fire and Flood, says it is important to appreciate that, when it comes to water damage, every claim is different. "Attempts to commoditise repairs don't work," he says. "There was a lot of talk about producing Thatcham style guidelines for water damage claims but these would be too rigid. A wing for a BMW is a wing for a BMW but you can find yourself using completely different repair techniques on two properties, even where they have suffered the same damage."
As an example he says you could be working on two houses in a terrace. Both have suffered the same water damage but because one has the original lathe and plaster while the neighbouring property has been modernised and has plaster board throughout, you would need to adopt different approaches to repair.
All manner of other variants will also come into play, as Gareth Bowers, UK surge manager for Crawfords, explains: "As well as different constructions, you might have to deal with different types of water, contaminants, the depth of the water and the length of time it has been in the property. Understanding these factors, and more, will ensure you have the right people, doing the right thing, at the right time."
A prime example of where there can be huge variance is in the drying techniques that can be used. For example, hydrothermic dryers can be used to dry properties much faster than conventional dryers, providing the construction of the property and the nature of the water damage is appropriate.
The cost of using this form of drying is around 20% higher than more conventional drying methods but the speed in which it dries can result in significant savings. Unlike conventional methods, which can take around six weeks, hydrothermic drying can be completed within three to five days.
As an example, Mr Cooper says The Revival Group had around 130 properties to dry for a housing association following last September's floods in Morpeth. By using eight hydrothermic drying systems it was able to speed up the drying process, drying sixteen houses every four to five days. This meant that those people whose properties were seriously affected were able to return to their homes by Christmas, while for those less affected it was not even necessary to move out. "As well as speeding up the drying process, by using hydrothermic drying it wasn't necessary to rip out and replace floors and ceilings," adds Mr Cooper. "The projected figure for the whole refurbishment was estimated at approximately £6m but the estimated actual cost was in the region of £3m."
Many of the insurers will admit that mistakes have been made in the way they have run these claims in the past. "We were receiving a lot of complaints, especially on the more complex claims where there had been significant water damage," says Jon Cawley, UK property claims operations manager at Zurich General Insurance. Indeed, while these complex claims make up only around 6% of all claims, they were accounting for 25% of complaints.
To address this, Zurich and many of the other insurers have invested in training for their claims staff so they are able to assess claims more accurately rather than simply push them out through the supply chain. For instance, Groupama has worked with the National Flood School to train staff in dealing with water damage. "We want our staff to understand the nature of the call when they're notified of a claim. Having a greater knowledge of what's involved will mean they can have an informed conversation with the customer about their claim and explain what will happen," explains Phil Bird, director of claims at Groupama.
After this initial contact, triage systems can often come into play. This is the case at RSA, which has been focusing on the way it handles water damage claims over the last couple of years. "During the initial telephone conversation we'll find out whether they need repair and restoration. If they do then we will send someone out to inspect the property, bringing in the repair and restoration people at the same time if it sounds like a major claim," explains Paul Emptage, head of loss adjusting services at RSA.
He adds that by managing claims in this way it is possible to save money and reduce the length of the claim. Further, since introducing inspections for all claims requiring repair and restoration last year, it has saved several million pounds on average claims costs.
Having greater control over the repair process is also advocated by Mr Ayton-Robinson, who launched a service to provide someone to oversee the whole repair process earlier this year. "These repairs need a project manager to ensure a co-ordinated approach and that the right work is carried out," he explains. "We have had a lot of interest from insurers in our service."
The role of the BDMA
The BDMA is also keen to help the insurance industry manage its water damage claims more efficiently. As well as the training schemes it runs for damage management professionals, it has also set up a training scheme aimed specifically at insurance professionals.
The course, which is split into eight different modules looking at specific hazards such as fire, escape of water and flood, provides information on the procedures that can be used in different circumstances. "This means the claims handler has a greater awareness of what's involved but also gives them the ability to challenge a contractor if they don't feel the work they recommend is appropriate," says Mr Davison.
So far, three large insurers have put their staff through the training. One of these three is Royal Bank of Scotland Insurance, which has found the training very beneficial. In particular it liked the insight the training gave its staff and the way it enabled them to benchmark the technical ability of its field teams and tailor ongoing training.
As well as providing insurance company employees with a greater understanding of the work involved in dealing with water damage, the BDMA is also involved in setting standards and protocols for dealing with water damage. "Our members are required to prove their competence through examination and continuous professional development. We don't have a direct involvement in the commercial aspects of their activities but we do have a responsibility to promote best practice and raise industry standards," says Mr Davison.
However, while the role of the BDMA in raising and setting standards is welcomed by the insurance industry, there are fears that, as it is principally an accreditation body, it has no power to push best practice through its members. Further, although the majority of the damage management companies are members, there are still some outside the association.
Mr Cooper admits the situation is not ideal but believes the insurers could help move the situation forward. "It's a chicken and egg situation," he explains. "If insurers said they would only use BDMA companies then this would give it the power to be stricter with its members. The insurers have already endorsed the BDMA by buying its training for employees; the next step is to recommend its members."
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