The Real Deal Miami

Insurance claims for water damages surge as older homes spring leaks

Research shows that one in five American homeowners filed a for water damage unrelated to weather from 2013 to 2015
March 09, 2019 12:08PM

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American homeowners increasingly file Insurance claims for water damage from interior leaks.

Aging valves and pipes and other culprits of interior flooding have caused a surge of property insurance claims, while claims due to fire and other hazards have become less frequent.

One in five American homeowners filed a claim for water damage from 2013 to 2017, which translates to a 2.05 percent frequency rate, up from 1.44 percent from 2005 to 2009, according to the ISO insurance analytics unit of Verisk Analytics.

Analysis by ISO shows that the average claim for water damage is about $10,000. Chubb Ltd., one of the largest insurers of luxury homes, reports that the annual number of water-damage claims in excess of $500,000 has more than doubled since 2015 while claims topping $1 million have tripled.

Water damage from interior flooding is the biggest risk that the typical homeowner faces, exceeding the likelihood of damage from such headline-grabbing catastrophes as wildfires, tornadoes and hurricanes, says Jon-Michael Kowal, an executive of USAA, a leading U.S. insurer of homes.

Texas-based USAA is conducting a pilot project to detect an imminent risk of interior water damage due to plumbing failures. USAA has 6,000 policyholders testing water-detection sensors.

One of the USAA policyholders participating in the pilot project, Mark Fredriksen, has avoided two potential claims for water damage to his 20-year-old house in Smithtown, New York. One sensor in his home detected water dripping from an old bathroom valve; another detected leakage from a hose in a dishwasher.

Insurance industry executives blame an aging stock of U.S. housing and a proliferation of water-using appliances – and potential leaks – in newer homes. A typical luxury home has 40 points of connection to plumbing that can include wet bars, extra bathrooms and water-filtration systems, according to American International Group Inc. (AIG) senior executive Stephen Poux.

AIG and some other insurers offer premium credits on homeowner’s insurance policies if homeowner has installed effective water-detection devices in their homes.

Standard homeowner’s insurance policies have excluded coverage of water damages due to storm surge and river flooding since the 1960s.

Homeowner’s insurance policies generally cover “sudden and accidental” damage. Policyholders who fail to fix a slow leak that ultimately causes major water damage can face a dispute with their insurer over coverage. [Wall Street Journal]Mike Seemuth