The probability of a ruinous event happening may change behavior or cause you to insure to reduce the misery. The greater the financial misery, the more likely you are to insure yourself when it strikes. The greater the chance of the event happening, the more likely you will take measures to avoid the misery.
The American Association of Insurance Services recently published its Homeowners Cause of Loss Report. It details the cause of reported losses from 2005 through 2007 for property and liability payments on Homeowners policies. While the expanded version which lists the cause of loss by state is not available to the public, the property loss statistics are informative:
| Cause of loss | Percentage of incurred loss including catastrophes |
Percentage of incurred loss excluding catastrophes |
| Property peril | ||
| Fire |
33.1% |
42.2% |
| Lightning |
2.0% |
2.6% |
| Wind |
18.3% |
6.3% |
| Hail |
11.6% |
5.0% |
| Water damage |
14.3% |
18.3% |
| Freezing |
1.0% |
2.3% |
| Theft |
3.6% |
4.6% |
| Other property losses |
9.6% |
11.7% |
| Property total |
94.5% |
93.0% |
The large increase of catastrophe wind claims must be the result of Hurricane Katrina and Wilma which occurred in 2005. I can imagine that those wind claim loss figures may trend up because there are still numerous losses in litigation from those storms. Still, from an individual occurrence, fire is the most significant cause of loss.
As a member of the Citizens Mission Review Task Force, I heard testimony that water losses in older homes were a major cause of loss. The report supports this as a national cause of loss as well. Older homes in particular suffer more individual loss, as parts of the structure wear and tear. Old roofs, plumbing, and wiring need maintenance and replacement to avoid damage from fire, water, and wind.
These statistics are important to policyholders, insurers, adjusters, restoration vendors, building code officials, policymakers and even me. Policyholders need to insure for these calamities. For fire, wind, water damage and hail, policyholders should be encouraged, and possibly mandated, to mitigate against the frequency and severity of such perils. The best loss is the one that never happens. In the long term, we have to make our structures more resistant to the most common and costly perils to maintain affordable insurance.
Adjusters need to be experts regarding how these perils affect buildings. Unseen damage to structures, which commonly follow these perils, must be investigated and paid. Proper methods of repair must fully restore buildings to a new condition that often make the buildings better than before. This is the service and product paid for by the policyholder before the loss occurred.
Unfortunately, it is sometimes my experience that insurance company adjusters are experts in telling policyholders how little damage occurred following a loss, and they fail to describe how such perils often affect parts of structures which are not readily available for inspection. Indeed, HAAG, an engineering consultant company retained by insurance adjusters, even has courses for adjusters which demonstrate to the adjusters how HAAG can prove that the damage is less than what meets the eye or common sense may expect. The reason other engineering firms generally do not get insurance company business is because they typically lack an orientation to find ways to minimize claims or refuse to accept the low rates insurance engineering firms charge. Guess whether the low rates correspond to low quality work?
In our law firm, I often preach that we have to understand how insurance companies are supposed to do their job. For the same reason a doctor would not learn about how to practice medicine from reading medical malpractice cases, lawyers will never learn how an adjuster is supposed to work in good faith from reading insurance cases. Our library is full of insurance industry books, manuals, videotapes and instructional materials. We go to conferences regarding insurance adjustment and learn from contractors and engineers about the effects of nature on buildings and how they are supposed to be fixed, as well as the ramifications of improper repair. There is a true science to the field of insurance adjustment. Most professional adjusters know how difficult it is to fully become an expert in this very demanding and important vocation.
Everybody has an interest, albeit different, in the major property loss causes of fire, water, wind and hail.
