Rising household water damage claims have cost California insurers billions of dollars and are constricting the homeowners insurance market, according to a study done by the Insurance Information Network of California. The losses have increased dramatically in each of the past five years, the new study of the P/C industry found.
“Water represents a disproportionate share of the claims payments made on homeowners insurance policies,” Candysse Miller, executive director of the IINC, commented. “The cost of these claims is helping to fuel a homeowners insurance crunch as insurers struggle to keep these skyrocketing costs under control.”
Though the number of water-related claimsor insurance losses for damage caused by burst hoses and pipes or leaks from washing machines, icemaker connections, lavatories and other household water fittingshas varied from year-to-year, the cost of water damage has climbed in each of the past four yearsup by $47 million between 2000 and 2001 alone. Between 1999 and 2000, the cost of water claims increased by more than $97 million.
On average, individual water claims cost surveyed insurers $4,730 in 2001, nearly double the $2,537 average water claim at the beginning of the survey period.
The survey found that water-related claims comprised roughly one-third of all California homeowners insurance claims filed in 2001. For some insurers, annual water losses accounted for as much as 40 percent of homeowners insurance claims payments. Other common homeowners insurance claims include fire, theft, liability, wind, hail and lightning.
Insurers surveyed paid nearly $1.6 billion in water related claims between 1997 and 2001. The cost of these claims climbed by an average of more than $56 million annually during the survey period. The research, which polled companies representing 63 percent of the state’s homeowners insurance market, found that water claims represented 24 percent of all homeowners’ claims in 1997, but grew to 32 percent by 2001.
The claims volume leveled off somewhat in 2001, however, the severityor dollar valueof these claims continued to climb unabated. In fact, the cost of water damage claims in California exceeds that of many natural disasters.
In 1997, surveyed insurers paid $206 million for California water claimsor roughly 20 percent of all homeowners insurance claims payments. Last year, however, the surveyed group paid more than double that amount$430 million. The losses accounted for 32 percent of all California homeowners insurance claims payments last year.
Based on trends of the insurers surveyed, overall industry water losses between 1997 and 2001 could be as high as $2.5 billion.
“These figures are merely a snapshot of the problems that uncontrolled water losses are causing the homeowners insurance industry,” Miller said. “Hundreds of millions of dollars is lost each year to water damage in Californiaand the cost of water-related insurance claims is climbing rapidly.”
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