A new report from Verisk highlights an increase in the cost of building claims, with some improvements observed for those relating to escape of water (EOW).
The Verisk Q4 2023 Property Report highlights an increase in the average cost of building insurance repairs, up by 5.4% from Q4 2022, as the UK faced a series of severe storms in the last quarter.
During this period, the UK experienced six notable storm events, with Storm Babet from October 18-21 bringing an unprecedented level of rainfall — the highest since 1891.
This increase in storm activity, accompanied by heavy rain and strong winds, marked a sharp contrast to the milder conditions of the same period in the previous year, though December 2022 did see a spell of freezing temperatures and snow, leading to numerous EOW claims.
Nevertheless, the report shed light on a positive development regarding escape of water (EOW) claims. Historically a high-cost issue for insurers, the average cost of EOW claims has seen a reduction of 5.1% in Q4 2023 compared to the previous year.
Ben Blain, head of property at Verisk, provided insights into the challenges faced by the insurance industry.
“The inflationary pressures on insurers hit the industry hard in the last quarter of 2023 at a time when the UK was experiencing a high volume of claims brought about by the sheer number of severe weather incidents throughout the UK,” Blain said. “It was a double whammy for the industry to deal with and it comes as no surprise that the widespread property damage during the quarter cost the industry £352 million to put right.”
Freezing weather conditions in Q4 2022 coincided with a surge in the price of wholesale energy, Blain said. Combined with the shortage of timber caused by macro-economic factors, this drove up the cost of producing materials used in a typical water damage repair.
“The situation was not helped by the prevalence of empty homes in December which meant delayed detection turned what could have been minor water damage into a much larger problem,” he said.
The last quarter of 2023 witnessed a decrease in the price of some repair materials, such as chipboard, which fell by 14.3%, and plywood, which saw an 11.0% reduction. This decrease, coupled with improved management of EOW claims through better collaboration between insurers and claims handlers, reportedly resulted in a more efficient service for customers.
Despite these improvements, Blain noted that it was “not across the board.”
The report also highlighted the normalisation of construction material supplies to pre-COVID levels, a factor likely to facilitate consistent resource flow for repairs and potentially lead to more efficient claims processing times.
“The ongoing easing of macro-economic pressures is a positive sign with many experts predicting that inflation will fall markedly in 2024,” Blain said. “This will be welcomed by insurers and ultimately by customers who have seen average buildings insurance premiums increase by 15% during last year.”
However, he cautioned that storm activity for the first quarter, specifically January, means that 2024 is not off to a good start for insurers.
“We are hoping the predictions that inflation will fall markedly are correct, but it remains to be seen to what extent it reduces and at what point in the year,” Blain added.
In other recent developments, Verisk has completed the acquisition of Rocket Enterprise Solutions GmbH, an insurtech company based in Germany that specialises in the property claims sector.
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