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General Insurance Spring SeminarFriday 21 May 2004, Staple Inn Hall

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Coping with Domestic Problems

Household Help

Spring Seminar 2004

Presented bySusan Ley and Graham Oswald

With input from Uma Baska and Cheryl Russell

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• Household insurance – what it covers• Detailed look into specific perils• Benchmarks• Current issues• Audience participation

What will this presentation cover?

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• The term ‘Property’ insurance refers to both commercial and domestic insurance.

• Household is domestic only.• Household insurance provides coverage against loss to

buildings and contents from certain perils and occupiers liability

• Coverage is to indemnify insured for the loss, subject to any limits or excesses

• Indemnity is either - Full Indemnity or New for Old

Household insurance - what is it?

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Perils - Fire

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Perils - Theft

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Perils – Weather (Flood)

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Perils – Weather (Storm)

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Perils - Subsidence

Photo courtesy of Cunningham Lindsey

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Perils – Escape of Water

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Perils – Accidental Damage

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Perils – Employer’s Liability

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Perils – Public Liability

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What trends do you think the claims cost will experience over the next 3 years, compared to the last 3 years, for the following perils?

Worrying perils

a) Accidental damageb) Escape water through Pitch Fibre pipesc) Escape water excluding Pitch Fibre pipesd) Floodse) Subsidencef) Fireg) Public liabilityh) Terrorismi) Other

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Worrying perils

Accidental damage

Escape of water through Pitch Fibre pipes

Escape of water excluding Pitch Fibre Pipes

Floods

Subsidence

Fire

Public liability

TerrorismOther

LeastWorrying

MostWorrying

Survey Results - Prediction of perils which will display the most worrying trends over the next 3 years

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Perils - Subsidence

Photo courtesy of Cunningham Lindsey

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Perils - Subsidence

• Movement of foundation due to changing ground conditions

• Principal cause is soil shrinkage around property• Seasonal pattern• Reporting of claims tends to move with housing

market• Average claim size is less than £6,000, but

substantial repair work can top £30,000

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Perils - Subsidence

• ABI agreement• If claim within first 8 weeks with a new insurer,

old insurer pays 100% of the claim• If claim after 8 weeks but within the first year with

a new insurer, old insurer pays 50% and new insurer pays 50%

• If claim after a year with a new insurer, the new insurer pays 100% of the claim

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Perils - Subsidence

• Heat wave – summer 2003• Times article 11th August• Insurers are preparing for a fivefold increase in

number of subsidence claims• How to fund increase in claims?

• Insurance Times article 21st August• Leading loss adjuster “There will be a blip, but it

will not be a huge event• This view is backed by the ABI

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Perils - Subsidence

Times article 8th April 2004

• Churchill reported a 300% year-on-year increase in subsidence claims last year, as did Direct Line. RSA also saw a 225% rise in claims.

• Although many insurers say the increased cost of subsidence claims will not be passed to policyholders, insurance brokers expect an 8% rise in the cost of household insurance policies this year.

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Perils - Flood

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Perils – Weather: Floods

• Flooding is a growing problem in the UK

• ABI flood moratorium ended 31 Dec 02

• ABI issued a Statement of Principles on the provision of flood insurance.

• Implementation dependent on various action from Government, with an annual review of progress.

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Benchmark collection

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Non subsidence claims - Paid development patterns

Benchmark collection

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

1 2 3 4 5 6 7 8 9 10 11 12 13

Development Quarter

Pa

id t

o d

ate

as

a %

of

Ult

ima

te

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

Source: PwC market data

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Subsidence claims - Paid development patterns

Benchmark collection

Source: PwC market data

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

Development Quarter

Paid

to

date

as a

% o

f U

ltim

ate

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

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Non subsidence claims - Incurred development patterns

Benchmark collection

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

1 2 3 4 5 6 7 8 9

Development Quarter

Inc

urr

ed

to

da

te a

s a

% o

f U

ltim

ate

1994

1995

1996

1997

1998

1999

2000

2001

Source: PwC market data

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Subsidence claims – Incurred development patterns

Benchmark collection

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27

Development Qtr

Incu

rred

to

date

as a

% o

f U

ltim

ate

1994

1995

1996

1997

1998

1999

2000

2001

Source: PwC market data

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• Reinsurance• Flood• Inflation

Current issues

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Current issues - ReinsuranceThis graph plots trends in the cost of catastrophe reinsurance cover for the UK property market over recent calendar years. 2003 purchasing patterns are used to calculate the price that would have been paid each year since 1992 for the same cover. The price was then indexed to 1992 values.

Source Benfield Greig

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• Norwich Union digital flood mapping

Current issues - Flood

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Trends in average cost by peril

Source : Norwich Union – based on sub-sections of the household account

1994 1995 1996 1997 1998 19992000 2001

2002 2003

Subsidence

Fire

Weather

Escape of Water

Theft

Accidental Damage

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Current issues - Inflation

Source : RICS / BCIS

Annual Precentage Change in RPI, ABI/BCIS Rebuilding Index and BCIS Repair/Maintenance index

0.0%

5.0%

10.0%

15.0%

20.0%

1999Q1 2000Q1 2001Q1 2002Q1 2003Q1

BCIS Repair/Maintenance Index ABI/BCIS Rebuilding Cost Index RPI

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The next few slides show some incidents.

Which are generally covered by Householder’s Building and Contents policy?

Household insurance coverage quiz

?

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The owner’s dog escapes from the garden and causes a car accident ?

What about if it is the owner’s horse ?

First claim

?

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The washing machine breaks down and floods the kitchen, ruining the floor ?

Second claim

?

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A visitor trips over and injures themselves in your house ?

Third claim

?

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You collide with a pedestrian while out riding your bicycle ?

Fourth claim

?

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You accidentally reverse your car into the house and damage the wall ?

Fifth claim

?

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You lose your wallet ?

Sixth claim

?

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Any Questions?