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In Part 1 of this series we discussed the issues that the property insurance industry and building repairs surveying faces with the plethora of Schedules of Rates (SoRs) it has created. The proliferation of SoRs in the property insurance industry is having a detrimental effect on insurers and their customers. After 19 years in the property insurance claims industry we can see that too many SoRs:
> Lead to inconsistent scopes of work.
> Over-reliance on provisional sums.
> Inaccurate reserving.
> Delays in the processing of claims creating customer dis-satisfaction.
> High numbers of variations.
> Poor cost and performance comparisons.
In Part 2 we turned our attention to the challenges that the claim validation scoping and building repairs surveying models are creating and what this means for the future of our industry. The combination of under-scoping, pressure to close claims as quickly as possible, and new consumer regulations are creating a potential ticking time bomb. We believe that the insurance industry is possibly heading towards a new financial scandal – the miss-selling of cash settlements in policyholder’s homes.
From 1st October 2015 businesses will have to comply with the new Consumer Rights Act. The new law will put real scrutiny on the information provided by businesses that the consumer relies on when making their decision or purchase. This has real implications for cash settlement, especially as a surveyor is essentially selling a service or solution to a policyholder in his or her home.
And in Part 3 we pull together a final analysis of the issues with feedback from Parts 1 and 2, more detail on the Consumer Rights challenges facing the industry and a vision for the future of Surveying and Scopes of Works.
Feedback from Parts 1 and 2
We have had some interesting and positive feedback on Parts 1 and 2 of the discussion series, particularly from suppliers:
> “..we ourselves have been involved in cases whereby a policyholder has cash settled works only for us to attend to rectify said works due to poor workmanship.”
> “Successful scoping is an integral part of the process, a considered approach towards scoping takes time and as many independent surveyors are paid per claim inspection this has impacted on the quality of scopes received?”
> “Long gone are the days that contractors can over scope, there are simply too many checks and balances in place (audits, leakage reports, cross verification) along with a high level of direct competition”.
> “I have also found that when a cash settlement is made to get a local builder to do some of the work, the rates are not compatible with the outside market prices.”
“One would hope that the drive to cash settle will diminish when the concern over future legal action for under-settlement of claims is taken on board.”
And here at MA Assist we have analysed our data for 2015 to try to establish the value of the under-scoping problem. On average each pre-scoped claim we receive is increased by £718 for variations these are variations that have been fully validated and confirmed as acceptable by the surveyor and the insurer. Building repairs surveying is clearly not as accurate as it should be.
According to the 2014 Key Note report on Home Insurance, there were 1.7 million home insurance claims in 2013. Our data suggests that around 5% of those claims would be buildings claims cash settled or scoped by an independent surveyor. As a result under-scoping by surveyors is around £60m per year.
If we consider just cash settlements by surveyors, the under-valuation of those cash settlements is around £60m per year too. Over the last 7 years, cash settlements will have been under-valued by almost £0.5 billion! If this becomes the next financial scandal and compensation is involved, the costs to the insurance industry will run into billions.
In addition, an analysis of our data tells us the Net Promoter Scores (NPS) for surveyor-led claims are 5 points lower than claims that do not involve an independent surveyor.
Consumer Rights Act
Business have until 1st October 2015 to implement the new Consumer Rights Act, which replaces 12 existing laws including the Sale of Goods Act 1979 and the Supply of Goods and Services Act 1982. There are some serious implications for the property insurance industry which need to be addressed through accurate scoping.
The new laws will put real scrutiny on the information provided by businesses that the consumer relies on in their decision/buying process. This has real implications for cash settlement, especially as a surveyor is essentially selling a service or solution to a policyholder in his or her home.
The new law will require the surveyor to carry out the service (i.e. the building repairs surveying) with reasonable care and skill. Also, information said or written to the consumer is binding where the consumer relies on it. This will include quotations and any promises about timescales and the results to be achieved. This applies if the consumer takes account of this information when deciding whether to buy the service, or to make any decision about the service subsequently.
With a cash settlement the policyholder is left with the job of repairing his or her home, whether or not he or she has any understanding of building repairs. They are usually given no advice on where to go to get a reliable builder, and often end up hiring someone who bodges the job and makes it worse. In this scenario who is to blame? The dodgy builder, or the insurer who provided the inadequate cash settlement and then left the policyholder to fend for themselves in the world of cowboy builders?
The Consumer Protection (Distance Selling) Regulations 2000 were replaced by The Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013.
By agreeing a cash settlement with a policyholder in the policyholder’s home, an insurer, through the surveyor, is making an “off-premises” contract with a consumer. So, in our opinion, cash settlements are covered by these regulations. To comply with these regulations, a customer must be given extensive information by the surveyor, in writing or any other durable medium, including:
> The main characteristics of the goods or service being offered.
> Surveyor’s identity, such as a trading name, and full contact details.
> Full details of the insurer on whose behalf the surveyor is acting.
> Full details of how to make a complaint and the complaint handling policy.
> The total price including VAT.
> The arrangements for payment and the amount of time it will take.
> The conditions, time limit and procedure for exercising a right to cancel.
> A cancellation form.
> Details of any “after-sales” consumer assistance, service or guarantees and any applicable conditions.
> The details of the contract the consumer is entering into and the rights available to extend or cancel the contract.
A copy of the contract must be given to the consumer, including the information above. Failure to provide the above information would allow a consumer to claim that the insurer has breached the contract and he or she can seek an appropriate remedy.
Consumers must be given at least 14 days to cancel the contract, or in the case of a cash settlement, accept the settlement figure. To insist that a customer must accept a cash settlement in their home, immediately after the survey has been carried out is, in our opinion, illegal.
The policyholder must be given adequate information on which to form an opinion and must be able to change his or her mind once the surveyor has left. That adequate information includes the scope of works prepared by the surveyor, which brings us back to the Consumer Rights Act and the need for “reasonable care and skill”.
The industry is seeing more and more complaints being upheld by the Financial Ombudsman where scopes of works have been under-valued in cash settlements. Where a policy holder can demonstrate that he or she is unable to get the repairs done for the value at which their claim was cash settled, the FOS is insisting that cash settlements are re-valued using market rates.
It is not unusual for the FOS to make statements similar to this one in a recent complaint:
“..we would expect [the insurer] to pay its policyholders sufficient funds for them to be able to commission a publicly available contractor to complete all of the necessary works. This approach recognises that costs to an insurer will often be lower than costs to consumers, given the preferential rates offered to insurance companies.”
If complaints are being upheld now by the FOS then the new Consumer Rights Act, coupled with The Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013, are going to make it much worse for the insurance industry, making the next financial scandal even more likely.
We have worked with the surveyor-led model for many years, and have listened to customers, clients and suppliers views on their experiences of this model and building repairs surveying. As a result we think we have the solution with Scoper.
Scoper is our new mobile surveying application. Scoper will be available as a service to all new and prospective clients from 1st July 2015.
The solution will work as follows. A suitably qualified and experienced surveyor will arrive at a customer’s home within an agreed time slot. The process will be explained to the customer in advance as well as his/her rights and options in relation to cash settlement, repudiation and repairs. These rights and options would cover the customer’s ability to cancel or change their mind and to refer back to the insurer should their chosen option not work out. The surveyor would also be given sufficient time to carry for his building repairs surveying to ensure that the scopes of works are complete and accurate, that customer service is maximised and that efficiencies are enhanced for everyone in the supply chain.
The surveyor will:
> Provide all the information to the consumer that is necessary to meet the insurer’s legal requirements. The process and the customer’s rights and options will already have been explained in the advance through clear communication from the back office.
> Use mobile technology (Scoper) to prepare scopes of works on site and transmit them back to the office. The surveyor would enter the details of the claim and the line items through a remote device that can transmit the information back to his office and/or to a mobile printer where the full details can be printed off for the customer.
> Use the MA Assist Price Book 2015. This is a simple and clear schedule of rates that is fit for purpose and appropriate for the type of work usually carried out. It is based on market rates and would speed up the preparation of the scopes of works, reduce provisional sums and enable accurate scoping.
> Collect all the information he needs to prepare an accurate and fully scoped schedule of works. The surveyor will take account of all costs that often get over-looked, (such as scaffolding and access equipment, asbestos testing and knock-on costs where damage occurs during strip outs), so avoiding variations later on.
> Explain the honest options available to the customer at the end of the survey regarding repudiation, cash settlements and repairs.
> Carry out repudiations on site explaining why the claim is repudiated. The surveyor would leave an outline scope of works, valued at market prices, with the customer to make the organisation of repairs as easy as possible for the customer. He would also leave details of TrustMark so the customer can find an accredited builder in the area.
> Agree cash settlements on site explaining the advantages and disadvantages of this option and the customer’s rights to go back to the insurer should the cash settlement option not work out. The surveyor would assess how the customer wishes to carry out the repairs and would provide the outline scope of works valued at market prices, but adjusted for the customer’s choice of repair solution (e.g. DIY, builder etc.). He would also leave details of TrustMark so the customer can find an accredited builder in the area.
> Set in motion the fulfilment route, again explaining the process and providing the schedule of works that will be carried out by the insurer’s appointed builder. The scope of works would be sent back to the office (from the remote device) for forwarding to the appropriate building repair network.
> Will be performance managed to identify possible fraud and refer it to the insurer (rather than just repudiating a claim as often happens now). At the moment approximately 40% of surveyor led claims end with a repudiation and yet fraud referral rates are typically less than 1% of total instructions.
> Will be performance managed to ensure that variations are minimised and that Net Promoter Scores are maximised.
Work with us!
Let’s all work together to avoid the next financial scandal. Please get in touch with to find out how your business can benefit from a new way of validating and surveying claims. We are introducing our new surveying model on 1st July, a model that ensures the best customer service and avoids future claims and compensation for thousands of disaffected policyholders.