Spotlight: Data - Why are insurers ignoring data for escape of water claims?

According to the property insurance research compiled by Post, three out of four insurers in the UK have seen increases in the frequency and cost of escape of water claims in the past two years. For some insurers, the increases have been significant.

These claims, often caused by burst pipes and leaks related to property maintenance, are becoming a major concern for insurers. According to the survey, insurers believe escape of water will have the greatest impact on pricing and underwriting property risks in the next two years. That’s above other perils such as subsidence, theft, flood, and storms.  

So, what’s behind the rising tide in escape of water claims?

One factor driving this is home extensions and DIY. Rising property prices and the costs associated with moving house have caused many homeowners to extend, instead of trying to relocate.

But the quality of some modern materials, such as plastic rather than copper piping, together with the extent of additional plumbing, such as new bathrooms, en-suites, and added wet rooms, have combined to increase the risk from leaks dramatically. The rise of do-it-yourself projects has also not helped, as plumbing jobs can become quite complex.

Second, there is property age and maintenance as homes are also getting older, along with their plumbing.

More than 50% of homes in the UK were built before 1960. And not everyone is aware of where potential leaks could occur and what may need to be replaced in their properties, such as water storage tanks in lofts reaching the end of their useful life. Even if some homeowners are aware what may need replacing to mitigate future leaks, many are not in a financial position to be proactive.

As claims from escape of water incidents continue to grow, so does the need for data to help underwrite the peril more accurately.

You might think that insurers would look to outside data models to help them make more informed underwriting decisions, but it doesn’t look like that’s happening.

According to the survey, only about 30% of insurers currently use some external measures to assess escape of water risk by postcode, and even fewer use address-level data.

Those numbers stand in stark contrast to flood data, where external data for pricing and underwriting risk is widely used, and virtually everyone uses external data to assess risk, according to the survey.

So, why aren’t more insurers using external data to help them underwrite this growing risk?

Part of the reason may be that insurers just don’t know that such data is available. Another issue is that often insurers aren’t capturing the specific reason for the escape of water claim, and they can’t differentiate random causes, such as ‘burst fish tanks’ and ‘broken washing machine’, from causes that external models can predict. In such cases, noisy data makes it difficult for some insurers to assess the value that external data sources can add.

Data is now the new oil and the key market advantage. As the leaks increase for some, the winners will be those able to evaluate, integrate rapidly, and fill their boots.

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