Month: April 2017

2016 Property Claim Trends – Regionality of Claims

Analyzing property claim trends presents a significant opportunity for insurance executives and adjusters alike to improve and plan for the future. Our Annual Claims Report provides many property claim trends that are valuable to property and casualty insurance claim professionals. One set of compelling statistics is the regionality of claims.

How claims are distributed by region provides powerful insights for everything from staffing requirements to expense reserve planning. This trend also has a significant impact on customer satisfaction rates. In the J.D. Power 2017 US Property Claims Satisfaction Study, those regions with less claim activity (particularly less complex claim activity) had much higher claim satisfaction ratings than the regions with more volatile weather.

Distribution of Claims by Region

For the purposes of addressing claims by region, we segment the 50 states into the following regions:

• Northeast: Connecticut, Maine, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island, Vermont
• Mid Atlantic: Delaware, Maryland, Pennsylvania, Virginia, Washington DC, West Virginia
• Southeast: Alabama, Georgia, Florida, Mississippi, North Carolina, South Carolina, Tennessee
• Southwest: Arizona, Arkansas, Louisiana, New Mexico, Oklahoma, Texas
• West: Alaska, California, Hawaii, Nevada, Oregon, Washington
• Central West: Colorado, Idaho, Kansas, Montana, Nebraska, North Dakota, South Dakota, Utah, Wyoming
• North Central: Illinois, Indiana, Iowa, Ohio, Kentucky, Michigan, Minnesota, Missouri, Wisconsin

As seen in the map below, in 2016, the Southwest and Southeast accounted for the majority of the HVAC claims. These regions have the highest frequency of weather patterns accompanied by Hail, Lightning, and Flooding, which are all particularly damaging to HVAC systems.

The Annual Severe Weather Summary by NOAA illustrates the number of reported tornado, hail, and wind events for each state. Broken out into our regions, Central West had the highest frequency of severe weather. However, the combined population only represents a little over 5% of the nation. In opposition, the West represents close to one fifth of the US population, but less than 1% of severe weather occurred in the combined states during 2016.

As you can see, the distribution of claims is influenced by a combination of severe weather and population. Accordingly, the Southeast and Southwest combined represent approximately 35% of the population and 35% of severe weather reports.

Theft Claims by Region

Theft and vandalism can occur anywhere, but as illustrated by the graph below, the frequency of theft claims in the West is much greater than in other regions of the country. This calculation is based on theft as a percentage of total claims for the region. As mentioned previously, the states that make up the West Region (Alaska, California, Hawaii, Oregon, Nevada, and Washington) accounted for less than 1% of the nation’s severe weather in 2016. Most of the claims in the West are thus less likely to be caused by severe weather and natural catastrophe events and instead are disproportionately impacted by other causes of loss, like theft and vandalism.

According to Travelers Insurance, Theft accounted for 6% of their homeowner’s claims between 2009 and 2015. This puts the West region at more than twice the national average for Theft claims. Whereas areas that are more often impacted by severe weather, such as the Central West, Southwest, and Southeast, have much lower Theft claims frequencies than the national average.

Wear & Tear Claims By Region

In 2016, the Northeast, Mid Atlantic, and Southeast all displayed high frequencies of systems damaged by age-related Wear & Tear. Wear & Tear claims are commonly misreported, owing to (among other things) a lack of formal education on the part of local contractors for Lightning diagnosis. For instance, several symptoms that are actually indicative of Wear & Tear (such as burned / charred wires and acidic refrigerant) are commonly mistaken for Lightning damage.

Additionally, in the Northeast, we see a high frequency of claims for damages to boilers. As boilers can have a longer life than typical HVAC equipment, many boilers fail due to age-related Wear & Tear. In fact, the average age of a boiler that we assess is 23.4 years, despite the fact that the average life expectancy of a boiler is closer to 15 years (Do It Yourself).  Certain regions, like the Southwest, Central West, and North Central, show a high frequency of Hail claims, leading to a much lower relative frequency of Wear & Tear related damages.

Spring Storm Claims Toolkit for Adjusters

Spring storm season started with a bang across much of the United States, and weather events are only expected to increase in frequency throughout the season. According to Aon Benfield’s catastrophe model development team, severe weather in the U.S., this March, cost insurers more than $2 billion.

March typically signifies the start of many destructive spring weather patterns, such as hail, tornadoes, wind, and lightning. This March included an above average amount of spring storm activity. According to NOAA, March 2017 had more than twice the severe weather reports than March 2016.

Tornadoes, hail, wind, and lightning have caused a significant amount of property damage so far this year. The beginning of March included dozens of tornado touchdowns and baseball-sized hail across the Midwest and Great Plains. Severe weather in late March increased exponentially with thunderstorms, hail, and high winds leaving a path of destruction through the Midwest and Southeast. This was followed by extensive hailstorms with up to softball-sized stones damaging the Plains, Southeast, and Midwest.

Residential condensing unit damaged by wind blown debris

In addition to the typical spring storm, wildfires and late winter weather wreaked havoc on the agriculture industry. Wildfires ran rampant through cattle country in parts of Oklahoma, Texas, Kansas, and Colorado in early March. These fires were caused by a combination of long-term drought, hot air, and gusty winds, and estimated damages totaled over $10 million in Texas alone (NOAA). A late freeze in the Southeast is estimated to cost South Carolina and Georgia $1 billion in crop damage (Associated Press).

With all the severe weather that has taken place already this spring, it is important that, as adjusters, you have all the tools necessary to handle any severe weather HVAC claims that come across your desk.

Spring Storm Claims: Hail Damage

In March, there were 851 reported hailstorms across the United States (NOAA), and we typically see even higher frequencies in April and May. Based on the past 5 years of hailstorm data and the number of hailstorms so far this year, we are on pace to suffer the highest number of hailstorms for this period, with a 65% increase over the 5-year average. Additionally, 2017 saw the highest number of storms in January and February in 5 years, both numbers at more than twice the 5-year average.

Commercial rooftop package unit with major hail damage to the condenser coil

As you can see, hail is poised to be incredibly prevalent this spring, particularly throughout the Southeast, Midwest, Southwest, and Plains, all of which have seen a large number of hailstorms already this year. One important factor to keep in mind when adjusting HVAC hail claims is that repair is often a viable option for returning the insured to pre-loss condition. In fact, an average of 95% of HVAC systems that we assess for hail damage can be returned to pre-loss condition without requiring a full system replacement. Our HVAC Hail Damage Repair Hierarchy is designed specifically for adjusters to make settling HVAC hail damage claims easier.

Spring Storm Claims: Water Damage

Across the United States, precipitation is typically high during the spring and summer months. April through August are usually the highest average precipitation months across the country, with the greatest amounts occurring in May and June for the past 5 years (NOAA).

This frequent precipitation, combined with snowmelt, leads to an increase in water claims in the spring. According to Farmers Insurance, 17% of U.S. claims in the spring are a result of water damage. Some regions have a much higher frequency of water claims in the spring, such as the Southwest with 41% of claims due to water.

Residential furnace with water line indicating height of basement flooding

While water damage can be expensive, averaging close to $8,000 per residential water claim (III), over 85% of HVAC systems assessed by HVACi with water damage result in a repair recommendation. Our water damage education illustrates types of damage to three common HVAC systems based on the level that the water reached.

Spring Storm Claims: Lightning Damage

A third prevalent peril in both spring and summer is lightning damage. While thunderstorms and lightning can occur year round, The National Severe Storms Laboratory emphasizes that the weather pattern is most common in the spring and summer months. Lightning thrives in warm air and high moisture conditions, which leads to frequent thunderstorms in the Southeast during this time of the year.

Residential condensing unit with lightning damage to electrical compartment

With approximately 100,000 thunderstorms occurring each year in the United States, it is no wonder that 31% of the residential claims assigned to HVACi in 2016 were reported as lightning. However, actual direct lightning damage to HVAC systems is very rare.  Only 3% of residential systems assessed last year were actually damaged by a direct lightning strike. Many were ultimately recategorized as wear & tear or high voltage surge. Our Lightning Damage Overview outlines the differences in the symptoms of lightning, high voltage surge, and wear & tear damages, to help adjusters like you settle your claims accurately.

With an increase in severe weather patterns and natural disasters, we want to make sure you have all the tools you need. For more information, take a look at our other Adjuster Resources and sign up for our claim education newsletter.

Hail Damage to HVAC Condenser Coils

The following article on “Hail Damage to HVAC Condenser Coils”, written by Matt Livingston of HVAC Investigators, originally appeared in the Technical Notebook Column of Claims Magazine and was also published on Property Casualty 360. 

Now that we’ve made it through another winter, it’s time to turn our focus to spring weather patterns and the claims that often result from this change of season. One of the most prevalent causes of loss this time of year is damage due to hailstorms. Hail causes billions of dollars of damage each year, and can have a significant impact on HVAC systems. Whether on the roof or on the ground, portions of both residential and commercial HVAC systems are located outside, and are therefore in the direct “line of fire” during a hailstorm event.

Get your free copy of our adjuster’s guide to hail claims

Hail can be especially troublesome when it comes to large commercial properties, which often include dozens (if not hundreds) of rooftop units. According to HVACi’s 2017 Annual Claims Report, 84 percent of large loss claims (those with claimed HVAC damage totaling over $100,000) were submitted for hail damage and resulted in an average claimed amount of $343,243 per claim. The financial significance of these claims (whether commercial or residential) underscores the importance of knowing what to look for when handling hail claims.

Traditional condenser coil construction

The HVAC component most susceptible to hail damage is the condenser coil, which facilitates the transfer of heat from the refrigerant to the outside air. Traditional tube and fin coils (the most common variety) comprise two material layers. The inner layer consists of a tube, typically constructed of copper (but occasionally made of aluminum). The outer layer of the coil is covered with soft aluminum “fins,” commonly layered in vertical strips, which are exposed to the outer walls of a condensing/packaged unit, and thus, vulnerable to a potential hail event.

The condenser coil plays a critical role in the HVAC/refrigeration cycle. The compressor pumps hot gas refrigerant through the condenser coil, as a fan at the top of the unit pulls ambient air through the fins of the coil. As this air passes through the aluminum fins, the heat is transferred from the refrigerant to the passing air, and is ejected out of the top of the system.

The coil’s fins are constructed out of thin aluminum to provide a large surface area to conduct the heat transfer in an efficient manner. However, this thin aluminum is easily malleable, allowing it to be bent and dented when impacted by objects such as hail. If the fins are flattened by hail (or by some other foreign object), airflow through the condenser coil can be reduced, and may affect the ability of the coil to transfer heat.

Without sufficient protection, these traditional tube and fin coils are highly susceptible to hail damage, but not every hail event requires full system replacement. If the soft fins are merely dented and not torn, it is likely that careful use of a fin-combing tool can rectify the damage and restore the system to pre-loss condition. If the fins are torn by the damage, however, the condenser coil cannot likely be restored through combing, and the coil (if available) would require replacement.

Micro Channel Condenser Coils 

An increasingly popular alternative to the tube and fin coil is the microchannel condenser coil. This newer, more efficient design is constructed entirely out of aluminum, and uses a single layer construction. With this type of coil, refrigerant flows through flat tubes containing small refrigerant channels, while angled and louvered fins between the tubes (rather than around) facilitate heat transfer.

The rigid construction of these coils makes them less susceptible to minor hail damage, but also makes them more difficult to repair, should the damage be severe enough to bend the fins. And unlike traditional coils, microchannel coils cannot be combed, and would generally require replacement under comparable damage scenarios.

What to look for when assessing hail damage claims

Determining the scope of repairs required to return an insured to pre-loss condition is just one part of the hail claim equation. The critical question (particularly for large loss hail claims) is this: Are all of the systems in fact damaged? In 2016, 19 percent of systems with claimed hail damage were found to be non-damaged after an independent onsite assessment.

Once system damage has been confirmed, adjusters must also determine whether the condenser coil was in fact damaged by hail, and if so, what repair action is required to return the system back to pre-loss condition.

Other causes of loss disguised as hail

Although hail is a commonly reported cause of loss, field investigations often reveal other sources of damage to condenser coils. Statistics show that nearly three out of 10 systems with claimed hail damage in 2016 were actually damaged by some other cause, and in many cases by another foreign object.

One common cause of loss for ground-mounted HVAC systems is impact from landscaping equipment, such as lawn mowers and weed eaters. This type of damage is typically located near the bottom of the condenser coil and occurs in a linear, horizontal pattern. Another common type of foreign object distinguishable from hail is damage from pressure washing the condenser coils (improper maintenance). In this loss scenario, a significant portion of the surface area of the coil is flattened, usually in a wide-streaked, vertical pattern. Another common source of damage comes from direct human contact due to system installation, roof maintenance or vandalism.

System damage prevention 

Hail damage to an HVAC system’s condenser coil can be prevented. Hail guards, which can be factory-configured or installed via aftermarket distributors, provide a protective layer over the easily-damaged aluminum fins, with minimal impact to the system’s efficiency. And while hail guards certainly increase the overall cost of an HVAC system, the return is usually well worth the avoidance of thousands of dollars in settlement expense that accompany hail (or other foreign object) damage.

Hail poses a real and ever-present threat to insureds’ HVAC systems. Insurance professionals would be wise to educate themselves on the trademark signs of hail damage, and learn how to distinguish hail from other causes of loss. It’s a wise investment.

Need more information on hail damage? Check out some of our other resources: HVAC Hail Repair Hierarchy, Hail Damage Overview, 4 Options To Consider When Adjusting Hail Claims

4 Options to Consider When Adjusting Hail Claims

The following article on “4 Options to Consider When Adjusting Hail Claims”, written by Matt Livingston of HVAC Investigators, was originally published on Property Casualty 360.

The first few months of 2016 ushered in severe weather storms of historical proportions.

According to the Property Claims Service unit of Jersey City, N.J.-based Verisk Solutions, first-quarter losses added up to an estimated $3.8 billion, 27% higher than the 10-year first quarter average.

This is in large part because of hailstorms that ripped across much of the country.

Download our adjuster guide to hail claims

Two devastating storms, separated by a week, hammered the Dallas-Fort Worth area in March. In April, San Antonio was hit with the costliest hail event in Texas history, according to the Independent Insurance Agents of San Antonio, which included hail up to 4½ inches in diameter, the National Weather Service said. Less than a month later, major hailstorms stretched from Kansas and Oklahoma, all the way to the Atlantic coast.

As a result of these catastrophic losses (and several other minor hail storms), many adjusters have found themselves in uncharted territory, tasked with handling heating, ventilation and air-conditioning (HVAC) losses they’re not accustomed to settling.

When encountering hail claims, it’s important to understand what HVAC parts are truly susceptible to damage, and what repair methods are readily available to return the insured to pre-loss condition.

Exposed and delicate

Aside from roofing and siding, HVAC systems account for the most commonly claimed residential property loss because of hail damage. The outdoor condensing unit, and more specifically, the condenser coil, is the most susceptible component of an HVAC system to sustain damage from hail. The condenser coil contains tightly spaced aluminum “fins” that surround the perimeter of the condensing unit. And because of they are made of thin, malleable aluminum, they can easily be damaged by any foreign object, including hailstones.

Because of their susceptibility to hail damage, some residential and commercial condenser coils are protected by hail guards (rigid metal casing with vents to allow airflow). However, most HVAC systems are not equipped with hail guards, resulting in dented, bent, and even torn fins, in rough proportion to the size of the hailstones during these events.

When it comes to returning HVAC systems to their pre-loss condition (regardless of whether they’re rooftop-based units or traditional split systems), the overwhelming majority of systems with confirmed hail damage can be restored with minor to moderate repairs.

In fact (much to the dismay of some local contractors), a “hierarchy” of repair options exists for hail-damaged HVAC systems, and should be considered when faced with this type of claim:

Option 1: Comb the fins

The first (and statistically most likely) repair option in the hail repair hierarchy is to straighten or “comb” damaged condenser coil fins with a specialty tool designed for this specific purpose.

In fact, nearly 50% of all residential HVAC systems with hail-related damages assessed in 2015 could be restored to pre-loss condition using this repair method, according to the HVACi 2016 Annual Claims Report.

If an HVAC professional invests adequate time and care into the work, combing the fins of a condenser coil is often a simple and inexpensive way to rectify minor hail damage.

Option 2: Replace the coil

If the hail damage proves too extensive to comb the condenser coil fins, the second step in the repair hierarchy is to repair the HVAC system by replacing the condenser coil itself.

Thirty percent of the hail claims assessed in 2015 resulted in this repair recommendation following an onsite investigation of the system damage. Many condenser coils are stocked at local HVAC distribution centers or manufacturer warehouses, and in other cases, can be produced by the manufacturer “on demand” if needed.

Option 3: Replace the condensing unit

If the condenser coil is no longer available, or the lead-time for the coil production is too long, adjusters may opt to replace the outdoor condensing unit or packaged unit.

As the third step in the hail repair hierarchy, this repair option is required less often than a combing (step 1) or replacing the condenser coils (step 2). That said, condensing unit replacements were required roughly 17% of the time for residential hail claims last year, and remain a viable repair action of last resort.

Option 4: Replace the system

If replacing the condenser coil isn’t a viable repair option, and the condensing unit replacement results in a significant mismatch with the remaining internal equipment, adjusters may be compelled to authorize a full system replacement. However, it’s important to note that this scenario is highly unlikely and very infrequent. In fact, only 5% of residential hail claims in 2015 required a full-system replacement (meaning 95% of hail-damaged HVAC systems can be repaired and returned to pre-loss condition).

HVAC systems damaged by hail very rarely require replacement. When handling hail losses, adjusters who receive a local contractor’s estimate stating that full system replacement is required should view to do some additional digging. Data suggests that other options are not only available, but are likely to be the prudent path to system restoration.