SPECIAL REPORT | PROPERTY DAMAGE
A Tale of Two Claims: The Hidden Value of Building Permits By Joe Emison
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his is a tale of two roof claims after a major hail storm in Decatur, Texas, that were handled the same way, but should have been handled differently. The carrier should have paid out less and could have avoided future losses, but didn’t. In total, the carrier believes its combined ratio could be improved up to one point through loss adjusting expense (LAE) savings if it had had the right information about these and similar claims. The first claim to come in — let’s call it the Alpha house claim — was the second roof claim in a five-year period for the property, both in response to significant wind and hail weather. The second claim — let’s call it the Beta house claim — was also the second roof claim in a five-year period due to confirmed weather. The severity on the prior claims was similar, although the severity of the current claim on the Alpha house was quite a bit less than that on the Beta house. There was one other big difference between Alpha and Beta: the homeowner in Alpha had repaired the roof properly after the first claim. In contrast, the homeowner in Beta had stapled some shingles to the roof to cover the initial damage, pocketed the rest of the claims check, and waited for the next weather event to worry about actually replacing what seemed like a still-functional roof. Unfortunately, the carrier did not know that the Beta house was any different from the Alpha house — it appeared to the adjuster that the storm hit Beta more strongly than Alpha, not that Beta’s roof had been improperly repaired. The carrier cut checks to Alpha and Beta and should have worried about the future shape of Beta’s roof … but didn’t. Building Permits There’s a great way to see if proper repairs were done after a significant claim: building permits. Major repair work — work that affects the soundness of a structure-almost always requires a permit, and most of the time, contractors and homeowners do pull permits for major repair work. That doesn’t mean that there aren’t parts of the country where repairs are usually done by Uncle Jim, a trip to the
12 Claims Journal | Spring 2013
lumber store, and bottle of Jack Daniels, but generally speaking, building permits are a great way to follow up on significant repairs. Take the following table, generated from analysis of building permits against carrier loss data:
Where the local building department enforces the roof code properly — meaning that the local authorities issue fines if unauthorized/unpermitted work is going on — an overwhelming number of wind and hail claims are followed by roof permits. Similar statistics Building permits provide a hold with other repairs great way to see if proper that are meaningful to the health and soundrepairs were done after a ness of the structure. significant claim. While specifics vary from state to state and jurisdiction to jurisdiction, in general, any type of construction work that could result in an unsound structure (from foundation issues to plumbing issues) requires a permit. Enforcement of building codes does vary by jurisdiction