Carla McDonald, product director, claims, LexisNexis Risk Solutions, Insurance
The UK home insurance market has enjoyed relatively healthy levels of growth and competition in recent years. However, the pandemic has materially changed the risk for insurance providers, perhaps permanently, with more home working[i], an increase in property values[ii], a rise in repair costs[iii] and fraud[iv].
Insurance providers also have extreme weather conditions to contend with. Three-quarters of homeowners who’ve made a weather-related claim on their home insurance have done so within the last five years.[v] In fact, ABI data shows the number of home insurance claims from weather losses increased 89% in 2020 vs 2019 and 2020 saw £266m in gross flood claims, the highest figure since 2015.[vi] This has led to property premiums being at their highest since 2013.[vii]
Faced with these different dynamics, insurance providers need to look closer at the risks over which they can exert more control. Fraud being a case in point. The ABI recently reported that the domestic property market saw £57,153,000 of opportunistic claims fraud last year, which made up 96% of all claims fraud across the home market in 2020.[viii] This is where access to comprehensive, cross-industry claims data would give providers a much greater understanding of a customer’s likelihood to commit fraud at the point of quote and can help verify the validity of a new claim at first notification of loss.
To help demonstrate the fraud challenge that home insurance providers face, LexisNexis® Risk Solutions conducted a study into consumer perceptions of the home insurance market. We found that two-thirds of consumers think it is somewhat or completely acceptable to manipulate the information they provide to price comparison websites in order to keep the price down when looking for a home insurance quote.
About half of consumers who have recently filed a claim are more likely to consider adjusting or exaggerating a future claim to get a larger payout, and nearly 9 in 10 of this group think home insurance providers seek to avoid paying out on claims at least some of the time.[ix] This attitude poses a risk to the insurance market, leaving insurance providers open to opportunistic fraud. Of course, consumers who deliberately or inadvertently omit details about previous claims could see their policy being made void at the point they need it most – when they make a new claim.
This general cynical perception of home insurance providers also explains why more than one in three individuals who have recently filed a home insurance claim think providers try to avoid paying out claims all the time.[x] Additionally, from our research, there is widespread expectation that insurance providers will increase premiums for consumers who file a claim, when in reality, over a third of homeowners saw their premiums remain the same after submission.[xi]
Tackling these perception challenges and protecting home insurance providers and their customers from the risks of fraud comes down to highly granular prior claims data gathered from across the market for an historic view from several years’ data.
Knowing upfront that a new customer has only had one prior claim settled for an escape of water loss in 2016 or that they were one of many claimants as a result of Storm Dennis in February 2020 or Storm Arwen in November 2021 can provide a greater understanding of their risk at the point of quote and help insurance providers ensure they have appropriate cover for their needs. By the same token, if the data reveals that a claimant has had a series of accidental damage claims that follow a similar pattern at the point of first notification of loss, then this might be a flag to investigate further. This insight could also be revealed at the application stage, before the policy is incepted, allowing insurance providers to take a much more informed decision about the risk. This historical claims data would also look at claims related to the property – revealing past claims that have occurred prior to a new homeowner’s tenure to support accurate pricing.
The insurance market is already benefiting from shared policy history, the history of No Claims Discount through contributory data and shopping behaviour data. Granular claims data adds to the picture of insurance risk across point of quote, renewal and claim.
There is little doubt that access to accurate claims data gathered from across the market helps home insurance providers improve the efficacy of pricing, underwriting and claims processing. Moreover, it is a key tool in reducing the home insurance market’s exposure to fraud and helps stem rising premiums for the vast majority of customers who are honest.
[i] LV= said in Jan this year, acc. damage represented 48% of all new claims.
Halifax said it saw an 11% increase in claims for acc. damage in 2020 versus 2019
[ii] https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/housepriceindex/october2021
[iii] https://www.rics.org/uk/news-insight/latest-news/news-opinion/construction-materials-cost-increases-reach-40-year-high/
[iv] Source: Synectics-Solution
[v] https://www.which.co.uk/news/2022/02/storms-ahead-how-the-weather-impacts-home-insurance-premiums/ – Which?
[vi] Association of British insurers, abi.org.uk/Insurance-and-savings/Industry-data
[vii] Association of British insurers, abi.org.uk/Insurance-and-savings/Industry-data
[viii] https://www.abi.org.uk/news/news-articles/2021/10/detected-fraud-2020/
[ix]LexisNexis Risk Solutions was not identified as the sponsor of this research, which was based on an online survey of 3,083 residential homeowners and renters (including 1,576 homeowners and 1,507 renters). The research was completed during 2019
[x] LexisNexis Risk Solutions was not identified as the sponsor of this research, which was based on an online survey of 3,083 residential homeowners and renters (including 1,576 homeowners and 1,507 renters). The research was completed during 2019
[xi] As above
