One way for insurers to reduce water losses

Insurance companies and other industry stakeholders can help reduce loss ratios by becoming more prevention-minded and proactive when it comes to water-related claims, suggests Jerry Fairborn, national sales manager at MOEN, a manufacturer of plumbing products.

“We’re starting to hear that P&C insurers are struggling with loss ratios because of climate change…,” he tells Canadian Underwriter during an interview at IBAOcon in Niagara Falls, Ont. in late October. “Their overall loss ratios are such that they have to work for every possible way to reduce any possibility of a loss occurring.”

One way to help reduce losses is through a smart water monitor and shutoff device, which can prevent damaging leaks and reduce water consumption. Some devices will send critical alerts through smartphones, and can be designed to promptly shut off water if the owner does not respond to these alerts.

A business case can be made for the ‘strong correlation’ between having a shutoff device and not having a claim, Fairborn says. And even if a claim doesn’t occur, Fairborn adds company data show 60% of homeowners, after installing the device, realize they have a leak somewhere in their plumbing system within 24 hours.

If insurers and brokers were to offer these devices proactively rather than paying a claim after the fact, more policyholders would be aware of the benefits and start using the devices, Fairborn argues. “Some insurance companies are now even offering premium reduction, because they know that the risk associated with water damage from indoor plumbing systems could be lower, or should be lower.”

Proven benefits

MOEN found installing these devices can greatly reduce water damage. In 2019, the company set up 2,300 homes in the southwestern United States with a shutoff device and found a “97% reduction in any water damage,” Fairborn reports. Those that did have a water escape saw severity reduced by 71%.

“We have technology now that can tell us when we may [have water damage] and can prevent those instances from happening,” Fairborn says. “So why not leverage that technology to the advantage of the homeowner, the broker?”

Although it hasn’t reached north of the border, in the U.S., some states require homeowners to install a water protection device to mitigate claims due to the creation of ‘insurance deserts,’ Fairborn says, referring to areas where insurers either heavily reduce or stop offering coverage altogether. “That’s the only way people can get insurance.”

Here in Canada, water shutoff devices can be useful in cases where older homes have piping systems of a certain age that have a higher propensity for leaks. “An underwriter may want to say, ‘Anything above a certain age, we want one of these devices in,’” Fairborn says as an example.

The devices may also be useful for seasonal homes or cottages, where people are often away. “A lot of times people who have claims are usually people who are travelling, and then they come [home] to a mess…[and] no one is checking on their homes under the provisions of their policies.”

Studies have shown that two in five Canadian home policyholders will have water damage claim at some point in their lifetime, which points to the need for water protection devices.

“How does the insurance company mitigate, or, for that matter, how does the homeowner mitigate the potential of having a water damage claim?” Fairborn asks. “…This is specifically focused around the insurance industry to address that.”