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The average house is built by hand, with approximately 26,000 individual pieces by a largely semi-skilled workforce, in a muddy field. So no wonder it occasionally goes wrong. And even if that hand-made house is built perfectly, if it’s left with no maintenance for just a few years it goes wrong as well.
There are 22.4 million homes in England, of which 83% are privately owned*. So that means that there are about 18.6 million private home owners who need to maintain their homes but millions of home owners have little idea how to keep their homes structurally sound and are not aware of the warning signs that suggest problems are arising.
So what can the insurance industry and house building industry do to help home owners maintain their property? It’s in their interests to ensure that home owners maintain their properties well, or at least are able to spot the warning signs, so that warranty costs and insurance claims are kept to a minimum.
The state of the housing stock in England
According to the English Housing Survey Headline Report 2010-11, there are some shocking statistics for the state of the UK housing stock:
> 25% of all private housing was built prior to 1919. In the private rented sector 40% of homes were built pre 1919.
> Only 37% of all private housing has cavity wall insulation and only 27% has adequate loft insulation.
> 7% of all private housing has damp problems, rising to 13% for the private rented sector.
> 26% of all homes fail the decent homes standard**., and in the private rented sector 37% fail the standard.
The UK has the oldest housing stock in Europe, and the challenge of repairing, maintaining and improving these homes only gets greater every year. It is a ticking time bomb for insurers, and the insurance industry needs some innovative solutions urgently.
The rate of house building continues to increase, and the pressure to build affordable housing increases too, there are concerns about the quality of the new housing stock coming onto the market. A rushed or cheaply built house will create repair and maintenance problems for the future. And as not all house builders are members of reputable warranty schemes such as NHBC or Premier Guarantee, the route to warranty claims is sometimes not there for new house buyers, creating on-going issues for the house and its owner – and ultimately the insurer.
According to the NHBC’s Technical Extra July 2015 there were 7,100 warranty claims within the first 3 -10 years of a home being built. The vast majority of these claims related to roofs and superstructure, such as flashings and roof mortar issues, and water penetration from badly designed and/or built balconies, as well as failed cavity trays and damp proof courses.
So there is a real need for warranty providers and house builders to identify issues in new homes as quickly as possible, for the same reasons as insurers.
Often, an insurance claim would have been unnecessary if the customer had been aware of the issues in his or her property before the event occurred. Simple information to home owners could help:
> Providing information for the customer about how to maintain their home, including warning signs (e.g. missing tiles), regular checks they should be carrying out and prompts to carry out seasonal checks and repairs (e.g. servicing the boiler and cleaning out the gutters in autumn).
> Providing information on reputable local builders and handymen who could help with repairs and maintenance. The TrustMark scheme has a wide range of reputable tradesmen on its website from electricians to glaziers, from roofers to general builders. Insurers could simply give out the TrustMark web address!
Engaging with customers more often in a helpful and constructive way, rather than just at renewal time or when there is a claim, should make a customer more “sticky”. The banking industry has been good at developing apps and giving advice and support services that have helped to increase customer retention.
Often a customer’s behaviour can reduce risk, e.g. always switching on the alarm before going out, not leaving the washing machine and dishwasher running when the home is empty or clearing out the guttering every spring. The insurer has no idea how a customer behaves or looks after his or her home, so underwriting a policy and pricing premiums is an imprecise science based on postcodes and the number of rooms in the home.
In addition, if the customer has not declared the correct information when entering into an insurance policy contract they often find themselves with no insurance cover in the event if an incident. This means the damage doesn’t get repaired well (if at all) and the next insurer’s risks are increased further.
But things are changing: new technology means that insurers, house builders and warranty providers can get a much better understanding of what is going on in a house and what the risks of a claim are. Ultimately this means they can prevent significant incidents from taking place.
One innovative solution is telematics. Telematics are devices that monitor real life behaviour in real time. The motor insurance industry is already making use of telematics and there are already about 0.5 million telematics live policies in the UK.
By monitoring behaviour telematics are already giving motor insurers more and better information on the risks associated with any particular driver, and drivers are modifying their behaviour. According to RSA, there is a 40% reduction in crash risk when a telematics box is fitted to a customer’s car and careful drivers save up to 25% on their premiums. The benefits to insurer and customer are clear.
And the same benefits can be found with telematics in the “smart home”. Smart homes can tell insurers whether the customer actually uses the alarm that they declared when setting up their policy. The technology can monitor moisture levels and water flow to identify damp and leaks, even switching off the mains water when a leak is detected. Escape of water claims are the biggest threat to the profitability of the home insurance industry, with the ABI estimating that the average cost from a burst pipe is £6,500 to £7,500. So installing leak detection devices, such as MA Assist’s Aquaguard, can save the home insurance industry millions.
All of this helps the insurer to underwrite a policy more accurately, resulting in fairer premiums for the home owner. And the home owner’s behaviour can reduce the premium that he or she pays for home insurance.
Telematics can also monitor weather conditions such as heavy snowfall, cyclones and blizzards, thus restricting the opportunity for fraud as well as predicting claim volumes and managing home insurance claims more effectively. Insurers could use this technology to send out advice and warnings to customers, so helping to avoid damage in the home and the stress it brings.
Technology will benefit everyone as it helps to prevent or minimise the impact of claim events – generally both the home owner and the insurer want to avoid the stress and expense of an insurance claim, and telematics can help to do this.
According to research company, ABI Research, global insurance telematics subscriptions could exceed 107 million in 2018, up from 5.5 million at the end of 2013. Home owners are already making their homes “smart” and privacy issues don’t seem to concern the majority of people when they know they will get a reduction in their premium (according to a recent Deloitte survey). According to research by GfK around half of consumers expect smart homes to have an impact on their lives in the near future, so there is clearly an appetite for smarter homes.
A recent research report by Innovation Group (The Future Now Report – UK Property) suggests that smart technology such as leak, fire and theft detectors in the home could reduce insurers’ combined operating ratios (CORs) by 21%. The report says “Home insurance in the UK is going the way of motor and becoming ever more commoditised, so to defend their brands and continue to deliver value for shareholders, insurers must utilise a combination of technology and new models of service provision (such as risk mitigation) to offset price competition.”
Major house builders are not installing smart technology into new homes, and surely it will only be a matter of time before they are compelled to do so. The benefits to home owners and insurers are clear, but there are real benefits to house builders as well.
Things are changing for house builders in the provision of warranties. The government is changing the way warranties are provided and managed with more responsibilities being pushed back to the house builders to rectify problems in new builds. At the moment organisations such as NHBC and Premier Guarantee take on the responsibilities for rectifying issues in new properties and managing complaints against house builders. When the house builders have to start taking on more of the work historically done by the warranty providers the benefits of smart homes will become crystal clear. For example, simply being able to detect excess moisture in a house before completion would help reduce claims linked to plumbing and water ingress.
So the insurer, house builder and customer can use technology to minimise claims and premiums, but what can the supply chain do to help?
At the moment, most surveying propositions are limited in the risk and loss mitigation services that they can provide to insurers. With the escalating costs of escape of water (EOW) claims, we believe that a simple scoping of the repairs is insufficient: an enhanced surveying service can help an insurer to minimise losses and further damage, and accurately underwrite and price insurance policies in the future:
A surveyor’s report following an EOW claim could map the start, spread and stop of the leak and could clearly show the extent of the damage and demonstrate any inconsistencies with the facts reported by the customer.
This would act as a fraud deterrent and would provide the data needed to develop the most appropriate drying regime, making the claims process more efficient.
The technology to do this is still in its infancy but at the very least, better use of thermal cameras would enable the provision of better information for drying organisations and the insurer.
Flat roof information
Every insurer asks what percentage of the customer’s roof is a flat roof for underwriting purposes. But the home owner is often unsure of the correct answer and there is no mechanism for checking the accuracy of the information collected at the start of the policy.
Software such as DaftLogic could be used to calculate the area of the roof. Such software is used by Google maps and would aid accurate underwriting at the start of a policy. But once a claim has occurred, the surveyor on site should be able to report on the percentage of the roof area that is flat so that the information can be fed back into the underwriting team in relation to that risk address.
By moisture mapping during the survey, the surveyor could use software called FLIR to determine the most appropriate drying regime for the individual property and the circumstances. The surveyor could then appoint the right insurer-approved drying supplier immediately.
In EOW claims it is important to start drying as quickly as possible as the damage and costs increase if drying is delayed. Such technology would reduce the length of time it takes to get drying started, reducing indemnity spend and customer frustration.
Integrated technology can create a valuable surveying service that not only delivers a better customer experience, but saves money for insurers and helps underwriters set fair premiums for customers.
There are other technologies that can assist the industry in the future, by predicting the likelihood of claims arising on a regional and individual property basis.
Weather predictive software
Technology such as Weathernet is used for verifying storm claims, but it can be used in a much more powerful way. It is also a predictive tool that can forecast rain and snow fall, wind peak gusts and temperatures. This tool can help insurers and their supply chains predict where the claims are going to happen enabling advance deployment planning, sourcing of materials and equipment (such as drying equipment) and enable better reserve guides through applying known average claim values.
The effective use of such technology would make surge planning much more effective and enable a world class disaster response for customers.
“Enhanced, enhanced surveying”
If this weather predictive technology was combined with more detailed information on the state of properties, insurers could make their underwriting process incredibly accurate and could predict claims with even more certainty. An “enhanced, enhanced surveying” service could feed back information to insurers on the property types and ages, construction materials, room numbers, state of repair etc. When over-laid with knowledge on things such as how different roof materials cope with storm gusts, whether detached homes are more prone to freezing pipes and the correlation between the number of bathrooms and the risk of an EOW, truly sophisticated underwriting could be carried out by the insurer.
Insurers would also end up with more accurate advance reserving, better historical benchmarking of costs and outcomes and exception reporting as a fraud risk.
Technology already exists for 3D mapping of a property. Google Tango is an affordable mapping system that uses sensors, GPS and motion tracking to create a 3D map of a property with precise measurements. The idea of a surveyor walking around a property creating a perfect scanned image with exact measurements for 3D modelling is not far-fetched; it is possible to create a database of room dimensions and damage at survey stage. Smart software could even recognise contents and validate accordingly.
Other software such as Trimble can also map out hidden objects such as pipes and wiring which, when combined with leak detection services, can provide a full 3D image of the property which would create benefits for the customers, insurer and the suppliers arriving on site.
Peril led contractor model
There is one key piece of innovation that will make the most of the benefits of these technologies – the peril led contractor model.
At the moment insurers buy by commodity not by peril. Such a purchasing system fails to understand the customer journey in the event of a claim and creates inefficiencies; cost efficiencies achieved by tendering by commodity are lost in operational efficiencies as the supply chains become too long and complicated and frictions and touch points are excessive. Involvement by the insurer escalates as different parties have to be coordinated during the claim, creating hidden costs within the insurer.
Integrated technology along with processes driven by the customer and a peril-led contractor model would create a seamless and efficient service for the customer and savings for the insurer. Combined with an enhanced surveying model, a world class customer service could be provided to customers where they are provided with help and information to avoid a claim in the first place and to reduce their premiums, but are also given a seamless service should the worst happen.
We can see a bright future for the insurance industry if it adapts its procurement models and makes the most of technological advances.
New entrants into the market will take advantage of new technology and develop customer focused services that will keep customers through the renewal process. It’s only a matter of time – a few in the industry are keeping an eye on Google and Amazon with some trepidation.
Here at MA Assist we are keen to work with clients to develop better, customer responsive services. Please do get in touch if you are interested in innovating with us.
* English Housing Survey Headline Report 2010-11
** A decent home is defined as one in a reasonable state of repair, with reasonably modern facilities and a reasonable degree of thermal comfort that does not fail any of the Housing Health & Safety Ratings System (HHSRS) criterion for decent homes. The HHSRS is a risk assessment tool to assess potential risks to the Health & Safety of occupants in residential properties. It assesses the physiological risks (e.g. damp, asbestos, cold), psychological risks (e.g. crowding, noise), infection risks (e.g. sanitation, water supply) and accident risk.