12 Reasons Why Water Damage Is A Major Risk for Insurance Carriers

12 Reasons Why Water Damage Is A Major Risk for Insurance Carriers

Every day, policyholders across the U.S. file for water damage in what could amount to one-fourth of all homeowners' property insurance claims. Insurance carriers understand the scale of these losses and should be on the lookout for ways to control their exposure and reduce these claims. This has led many insurers to adopt smart home programs that leverage the power of smart home technology to alert property owners to potential threats.

If you haven't yet adopted smart home tech, it pays to understand the size of the problem. Here are 12 water damage statistics that put the risk into clear perspective.

The Scale of the Problem

As one of the biggest issues In front of the industry, it's important to grasp the scale of the challenge.

1. Impact on the Industry

According to the Insurance Information Institute (III), In 2019, 28.4% of all insurance losses in 2020 were linked to freezing water damage costs. 

2. Individual Claims

During the five years between 2016 and 2020, the home water damage statistics were even grimmer. 1.6% of all insured homeowners submitted a claim for water damage house repair costs, according to the III. The average amount of each claim was $11,650. 

Why is water damage so expensive? As water can flow from one spot to the next so easily, it will invariably affect a large area, and this inevitably affects how much it costs to fix. Contractors will need to extract the water and then dry everything out before repair or restoration, adding to the time and eventual cost.

Water Damage Affects Homeowners Everywhere

While some homeowners may think they are largely safe from flood damage, home water damage statistics say otherwise.

3. Most Homeowners Are at Risk From Flooding Damage

The Federal Emergency Management Agency (FEMA) reckons that a flooding event impacted 99% of all U.S. counties during the period from 1996 to 2019. 2009 was the toughest year, with 273 flooding events in total.

4. Risks Range From Moderate to High Depending on the Location

Average annual losses from flood events now total more than $40 billion per year globally. According to the Organisation for Economic Co-operation and Development (OECD), experts believe the United States is at a “moderate” risk of inland floods and a “high” risk of coastal flooding events.

How the Insurance Industry Is Affected by Water Damage Statistics

The problem affects the insurance industry in many ways. While homeowners may maintain their own policies, government programs also step in.

5. Water Damage Insurance Claim Statistics

According to a report compiled by the Verisk Analytics ISO unit, water damage cost the insurance industry more than $13 billion in 2017. One of the country’s biggest insurance companies, Chubb, reports that annual water claims amounting to more than $500,000 have doubled since 2015, and those amounting to more than $1 million have tripled.

Flooding Is Often Triggered in or Around the Home

While natural disasters and disaster declarations may hog the headlines, and weather-related events certainly contribute to the problem, individual pipe leaks and other “smaller” issues may represent the most common water damage claims.

6. The Problem of Everyday Leaks

The Environmental Protection Agency (EPA) reports that an average household leak may waste more than 10,000 gallons of water each year. The agency estimates that one in 10 homes may have a leak that wastes 90 gallons or more daily. Often, these leaks relate to dripping faucets, leaking valves or worn toilet flappers and go undetected for long periods.

7. Waste in the Bathroom

Did you know that a leaking shower head, dripping no more than 10 times per minute, will waste more than 500 gallons of water annually? The EPA estimates that a homeowner could use that water to wash 60 loads of dishes in their dishwasher but may be blissfully unaware of the scale of the loss.

8. Dripping Faucets That Are More Than a Nuisance

Faucets will leak occasionally, but most homeowners consider this an inconvenience or something they will “get around to.” Yet a leaking faucet, dripping once per second, will waste more than 3,000 gallons per year, according to EPA statistics.

9. Wasted Water Outdoors

An inground irrigation system can be vulnerable to shifting soils or damage due to a freeze-thaw cycle. If a pipe has a leak that’s just 1/32 inch in diameter, this can waste about 6,300 gallons of water per month, according to the EPA.

10. How a Typical Family of Four Wastes Money

The average U.S. family of four people pays around $73 per month for water, according to Statista. The EPA estimates that should such a homeowner fix some of those leaks, they could save around 10% of that water bill in the future.

How the Situation Is Beginning to Change

As the “Internet of Things” (IoT) begins to impact everyday life, technology in the form of sensors and other assets is coming to the rescue.

11. Reduced claims and lower premiums

One major insurance company spent $12,000 per year, or about $600–700 per building to fit leak-detecting sensors on a college campus. These 180 leak sensors were part of an attempt to combine IoT with loss reduction. As people detected these leaks more quickly, this reduced claims and generated a credit against annual insurance premiums.

12. A widespread shift ahead?

According to consulting firm Bain and Company, the insurance industry is likely to adopt these tools as part of a collective shift in its central purpose. As it moves from loss reimbursement to loss control, the industry can rely on technology that could create tremendous value. This shift could increase the size of the global insurance market to more than $10 trillion by 2030.

Take Action to Improve These Water Damage Statistics

If policyholders become aware of a new water leak, this could make the difference between a costly damage claim and a short-term headache. When the policyholder fits a range of sensors, they can mitigate the risk of water damage, fire and theft.

Companies like Notion offer 24/7 monitoring solutions that will send alerts when any issues arise. The homeowner can then act before something bigger develops, in turn helping insurance providers improve their bottom lines.

This new alert system should also help to improve resolution time, lowering the severity of claims and associated losses. It should position the insurance company as a thought leader and an organization willing to go the extra mile to help the customer.

If you’re interested in finding out more, get in touch with Notion. We offer an integrated solution for insurance carriers and will tailor-make a program to fit your needs.