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									General Insurance Spring Seminar
Friday 21 May 2004, Staple Inn Hall




                                      1
  Coping with
Domestic Problems

   Household Help

 Spring Seminar 2004


         Presented by
 Susan Ley and Graham Oswald



        With input from
  Uma Baska and Cheryl Russell
                                 2
What will this presentation cover?
•   Household insurance – what it covers
•   Detailed look into specific perils
•   Benchmarks
•   Current issues
•   Audience participation




                                           3
         Household insurance -
              what is it?
• The term ‘Property’ insurance refers to both commercial
  and domestic insurance.
• Household is domestic only.
• Household insurance provides coverage against loss to
  buildings and contents from certain perils and occupiers
  liability
• Coverage is to indemnify insured for the loss, subject to
  any limits or excesses
• Indemnity is either - Full Indemnity or New for Old


                                                        4
Perils - Fire




                5
Perils - Theft




                 6
Perils – Weather (Flood)




                           7
Perils – Weather (Storm)




                           8
Perils - Subsidence




    Photo courtesy of Cunningham Lindsey




                                           9
Perils – Escape of Water




                           10
Perils – Accidental Damage




                             11
Perils – Employer’s Liability




                                12
Perils – Public Liability




                            13
               Worrying perils
What trends do you think the claims cost will experience
over the next 3 years, compared to the last 3 years, for
the following perils?
a) Accidental damage
b) Escape water through Pitch Fibre pipes
c) Escape water excluding Pitch Fibre pipes
d) Floods
e) Subsidence
f) Fire
g) Public liability
h) Terrorism
i) Other

                                                      14
                     Worrying perils
   Survey Results - Prediction of perils which will display the
                    most worrying trends over the next 3 years
Least
Worrying
              Terrorism
                 Other
                      Fire
                             Accidental damage
                                   Escape of water through Pitch Fibre pipes
                                         Subsidence
                                                 Escape of water excluding Pitch Fibre Pipes

                                                        Public liability

                                                               Floods

                                                                                   Most
                                                                                   Worrying



                                                                                         15
Perils - Subsidence




    Photo courtesy of Cunningham Lindsey




                                           16
           Perils - Subsidence
• Movement of foundation due to changing ground
  conditions
• Principal cause is soil shrinkage around property
• Seasonal pattern
• Reporting of claims tends to move with housing
  market
• Average claim size is less than £6,000, but
  substantial repair work can top £30,000




                                                      17
            Perils - Subsidence
• ABI agreement
• If claim within first 8 weeks with a new insurer,
  old insurer pays 100% of the claim
• If claim after 8 weeks but within the first year with
  a new insurer, old insurer pays 50% and new
  insurer pays 50%
• If claim after a year with a new insurer, the new
  insurer pays 100% of the claim




                                                          18
            Perils - Subsidence
• Heat wave – summer 2003
• Times article 11th August
• Insurers are preparing for a fivefold increase in
  number of subsidence claims
• How to fund increase in claims?

• Insurance Times article 21st August
• Leading loss adjuster “There will be a blip, but it
  will not be a huge event
• This view is backed by the ABI

                                                        19
           Perils - Subsidence
Times article 8th April 2004

• Churchill reported a 300% year-on-year increase
  in subsidence claims last year, as did Direct Line.
  RSA also saw a 225% rise in claims.

• Although many insurers say the increased cost of
  subsidence claims will not be passed to
  policyholders, insurance brokers expect an 8%
  rise in the cost of household insurance policies
  this year.


                                                        20
Perils - Flood




                 21
       Perils – Weather: Floods
• Flooding is a growing problem in the UK

• ABI flood moratorium ended 31 Dec 02

• ABI issued a Statement of Principles on the
  provision of flood insurance.

• Implementation dependent on various action
  from Government, with an annual review of
  progress.

                                                22
Benchmark collection




                       23
                                                Benchmark collection
Non subsidence claims - Paid development patterns
                                   120.0%
 Paid to date as a % of Ultimate




                                   100.0%                                                                     1991
                                                                                                              1992
                                                                                                              1993
                                   80.0%
                                                                                                              1994
                                                                                                              1995
                                   60.0%                                                                      1996
                                                                                                              1997
                                                                                                              1998
                                   40.0%
                                                                                                              1999
                                                                                                              2000
                                   20.0%                                                                      2001



                                    0.0%
                                            1   2   3   4   5       6    7      8     9   10   11   12   13

                                                                Development Quarter

                                                            Source: PwC market data




                                                                                                                     24
         Benchmark collection
Subsidence claims - Paid development patterns




                   Source: PwC market data




                                                25
                                                     Benchmark collection
Non subsidence claims - Incurred development patterns
                                        120.0%
  Incurred to date as a % of Ultimate




                                        100.0%

                                                                                                      1994
                                        80.0%                                                         1995
                                                                                                      1996
                                                                                                      1997
                                        60.0%
                                                                                                      1998
                                                                                                      1999
                                        40.0%                                                         2000
                                                                                                      2001

                                        20.0%



                                         0.0%
                                                 1     2   3    4         5         6     7   8   9

                                                               Development Quarter

                                                                Source: PwC market data




                                                                                                         26
                                                       Benchmark collection
Subsidence claims – Incurred development patterns
                                      120.0%



                                      100.0%
Incurred to date as a % of Ultimate




                                                                                                                                           1994
                                      80.0%                                                                                                1995
                                                                                                                                           1996
                                                                                                                                           1997
                                      60.0%
                                                                                                                                           1998
                                                                                                                                           1999

                                      40.0%                                                                                                2000
                                                                                                                                           2001


                                      20.0%



                                       0.0%
                                               1   2   3   4   5   6   7   8   9   10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27
                                                                                         Developm ent Qtr

                                                                                      Source: PwC market data




                                                                                                                                             27
              Current issues


•   Reinsurance
•   Flood
•   Inflation




                               28
     Current issues - Reinsurance
This graph plots trends in the cost of catastrophe reinsurance cover for the UK
property market over recent calendar years. 2003 purchasing patterns are
used to calculate the price that would have been paid each year since 1992 for
the same cover. The price was then indexed to 1992 values.




                                 Source Benfield Greig




                                                                          29
         Current issues - Flood



•   Norwich Union digital flood mapping




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     Trends in average cost by peril




                                                                                                            Accidental Damage
                                                                                                          Thef t
                                                                                                        Escape of Water
                                                                                                   Weather
      1994
               1995
                        1996     1997
                                                                                                 Fire
                                          1998
                                                   1999                                        Subsidence
                                                             2000
                                                                          2001
                                                                                 2002
                                                                                        2003

Source : Norwich Union – based on sub-sections of the household account




                                                                                                                            37
            Current issues - Inflation
         Annual Precentage Change in RPI, ABI/BCIS Rebuilding Index and BCIS
                              Repair/M aintenance index

20.0%

15.0%

10.0%

5.0%

0.0%
   1999Q1         2000Q1         2001Q1                  2002Q1   2003Q1

        BCIS Repair/M aintenance Index         ABI/BCIS Rebuilding Cost Index   RPI

                                  Source : RICS / BCIS



                                                                                  38
Household insurance coverage quiz
The next few slides show some incidents.

Which are generally covered by Householder’s Building
and Contents policy?




                         ?
                                                   39
                    First claim
The owner’s dog escapes from the garden and causes
a car accident ?

What about if it is the owner’s horse ?




                           ?
                                                 40
              Second claim
The washing machine breaks down and floods the
kitchen, ruining the floor ?




                        ?
                                                 41
                   Third claim
A visitor trips over and injures themselves in your
house ?




                            ?
                                                      42
                 Fourth claim
You collide with a pedestrian while out riding your
bicycle ?




                           ?
                                                      43
                  Fifth claim
You accidentally reverse your car into the house and
damage the wall ?




                          ?
                                                       44
                  Sixth claim
You lose your wallet ?




                         ?
                                45
   Any
Questions?


         46

								
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