Lurking in your clients' homes lies a risk that can cause major stress as well as financial loss.
Perhaps surprisingly for people who live away from coastal lowlands and other flood-prone areas, the risk comes in the form of water damage. While smoke detection systems and burglar alarms are common, insurance claim statistics show that water damage is seven times more likely to occur than a fire and six times more likely than a burglary.
While the Insurance Information Institute has calculated that about $18.5 billion in homeowner losses in 2015 were due to water damage and freezing, most homeowners do nothing to address the threat. Most also don't realize that insurance typically doesn't cover the expense of living away from one's home for possibly several months while costly water damages are repaired.
Educating your insurance clients about protecting themselves from this underappreciated risk can help forge your bond with clients as a trusted advisor and potentially save your clients substantial sums of money.
|More than flooding
Data shows that water damage can be expensive to repair. After reviewing homeowners' insurance claims from several insurance companies around the country, the Insurance Institute for Business and Home Safety (IBHS) found that plumbing supply system failures from frozen or broken pipes were the leading source of residential water damage and cost an average of $5,092 per incident after the deductible was paid.
Toilet failures, the second-leading source, cost an average of $5,584 per incident after the deductible was paid. Rounding out water damage causes were washing machines ($5,308); water heaters ($4,444); and drain system failures due to sewer or septic tank backups or faulty equipment ($4,400).
Since many successful clients of financial advisors have second homes, they may be even more at risk since the IBHS found that failures in unoccupied homes were on average two-and-a-half times more severe than those in occupied homes. Problems related to mold can be particularly costly to remediate in homes left unattended for weeks or months.
Scott Pallais, whose Sentinel Hydrosolutions in San Diego manufactures the tech-based Leak Defense System, notes that financial advisors should view the potential risk from water damage in the way they look at portfolio allocation. “You diversify your clients' portfolios to reduce risk, so why not make sure your clients are not exposed to some of the biggest risks that homeowners face,” he says.
|Water damage action plan
The first step is to review clients' homeowners policies with their independent agent or broker. Better, more comprehensive policies from carriers attuned to the needs of successful clients — for whom water damage would wreak havoc on custom cabinetry, art and other valuables — can provide greater protection and may even offer discounts for the use of high-tech devices that detect leaks and shut off the water supply automatically. Since these devices offer the greatest potential for risk reduction, they should be the first line of defense for affluent homeowners.
Second, advisors can provide clients with a simple checklist of ways to reduce the risk of water damage:
(1) replace washing machine hoses every five years;
(2) check water heaters older than their five- to 10-year expected life for signs of rust, corrosion and moisture;
(3) in areas with cold winter weather, insulate hot and cold water pipes in unheated areas of the home;
(4) in the late fall, turn off and bleed water lines for sprinklers and outdoor hoses;
(5) inspect the roof and check gutters and downspouts, and make sure water is draining away from the home's foundation; and
(6) shut off water at second homes when unoccupied.
For more information on how to help protect your clients from water risks, see Chubb's Water Leak Survey Summary.
Fran O'Brien is division president, North America Personal Risk Services for Chubb. She can be reached at [email protected].
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