A distraught homeowner called their insurance company about major water damage in their recently completed sunroom. The adjuster arrived to find a beautiful new addition, now marred by extensive water damage. Soggy walls, warped flooring, and mold growth were the result of a failed water connection within a brand-new swim spa the insured had installed for year-round use.
As the details unfolded, a tangled story emerged –
- Unreported Addition: Excited about their project, the homeowner never informed their carrier about the substantial home addition and expensive spa installation. This lack of disclosure meant the homeowner was paying a premium that didn’t reflect the change in risk, leaving the carrier with an underpriced product.
- Questionable Actions: The homeowner was unaware of the potential repercussions of installing such a large addition and elaborate spa system without contacting their carrier to advise them of the risk changes. While unfamiliarity with insurance processes and being caught off-guard by common misconceptions is one thing, intentionally keeping quiet, hoping to maintain a lower premium for policy protection that is not in line with the reality of the risk is another matter entirely.
- Mounting Costs: The damage spread far beyond the sunroom, affecting adjoining rooms and even flowing into the finished basement. Repair costs would be astronomical – a consequence likely not considered by the homeowner at the time of installation.
The Adjuster’s Role
Mitigating the damage and ensuring the loss was accurately adjusted was the claim adjuster’s task. Balancing empathy for the customer’s situation with strictly managing an ever-expanding loss is always a delicate balance. A thorough investigation is needed to verify coverage and accurately assess damages, all while orchestrating actions to prevent further loss. This includes securing the appropriate details and evidence to potentially subrogate against the spa manufacturer and/or installer. Ongoing communication with the homeowner is key, explaining the steps involved in the claims process, potential coverage gaps, and the necessity of updating the policy once the addition is fixed.
All of this is absolutely needed and necessary, yet it is all reactive and cannot change the fact that the carrier was wholly unaware of this risk change. We point out in a previous article – Homeowners Carriers Have a Renovation Problem – that homeowners do not always disclose changes to their risk.
Action is needed to prevent these scenarios in the first place. A bound policy should not be left on its own; it is imperative that identified customer policy interactions along with renewal are paramount times to document the risk condition. A simple attestation that the home does not have any major changes or major ongoing projects/renovations can be validated and documented for future action – action to either adjust the premium and/or coverage as needed or to apply a documented dishonest attestation to a coverage determination after a claim is reported.
Lessons Learned
- The Importance of Disclosure: Homeowners must understand that significant changes to their property impact their insurance coverage. A Bankrate article discusses how changes to risk can both increase and decrease insurance rates and utilmately affects coverages. Not informing the insurance company could leave the homeowner financially vulnerable in the event of a loss, resulting in out-of-pocket expenses.
- Renewal = Time for Review: Insurance renewal is the ideal time to document major property changes or attest that there have been none. This honest assessment would have allowed the carrier to either adjust the policy to include the addition or address the homeowner’s failure to disclose the change.
- Customer Consequences: In this situation, the homeowner’s goal was likely saving money by not updating their policy. However, when shopping in the future insurers are likely to scrutinize previous claims, potentially leading to higher premiums or even denial of coverage altogether. This short-term cost-saving attempt could have long-term financial consequences.
- Proactive Carrier Response: Had the carrier been aware of the addition, they could have provided information to the insured, potentially preventing, or reducing the extent of the damage. Carriers can take advantage of proactive underwriting to identify potential risks and help guide their customers.
- User-friendly Tech Matters: Using technology to apply rules and detect changes, along with clear and streamlined documentation and validation tools at policy inception and renewal, can help flag issues like this. This promotes customer collaboration, ensuring policies accurately reflect the risks they insure.
This scenario highlights the ripple effects of seemingly small choices. A lapse in communication, and lack of ongoing underwriting created a costly situation for the insurance carrier. Carriers can work to mitigate these situations by investing in proactive underwriting technology that works to monitor existing policies based on finely tuned rules designed to detect these types of situations and then facilitate customer cooperation to validate the risk condition.
