Almost all property damage insurance policies on buildings give the Insurer the option to effect reinstatement. “We will pay the full cost of repair or reinstatement as new, or at our option we will arange for the works to be carried out” or some such wording.
Traditionally insurers “adjust” a claim on the basis of costs or estimates submitted. They agree to pay the policyholder the cost of repairs, and hold a retention of 25-30% of the repair costs pending completion of repairs and submission of VAT invoices. They rarely choose the option to reinstate. But it was sometimes implimented as an option where they had an unreasonable policyholder or they felt there was a potential fraud but couldn’t prove it, and didn’t want to pay cash. Insurers simply didn’t want to get involved in effecting reinstatement, as the duties and responsibilities that come with effecting repairs can result in more costly repairs in the end. They can result in endless efforts to satisfy some policyholders who can be very difficult to satisfy, particularly if the option to reinstate is effected against their will. There can also be difficulties with builders doing shoddy work, resulting in endless complaints to the Insurer/contractor and potential liability for the cost of re-doing work which can escalate the cost of repairs.
During the recession some Insurers decided they wanted to effect reinstatement in order to try and control costs and use the fact that there were surplus tradesmen and contractors looking for less work due to the recession. AXA send out tradesmen to claimants property with AXA logos on their jackets. They were able to drive down the scope of repairs and rates to effect savings. RSA also tried their hand at appointing their own network builders. However, Irish people being who they are, generally know a builder or are related to a builder, and do not trust Insurance companies and therefore do not trust the insurance company’s builder. Some Insurers and adjusters persisted with Managed Repair Networks and squeezed the rates they were paying them. However, cruicially they did not insist on the policyholder using their builder, but insisted on settlement offers being no more than their builder was prepared to do the work for. Sometimes their bluff had to be called, particularly towards the end of the recession when building costs were increasing, but the insurers rates were not.
Many of the network builders on the Insurers panels found Insurer and adjusters too tight-fisted and difficult to work for. Many found it was costing them money and they couldn’t make a profit on insurance work, so they opted out.
Other problems arose; in 2014 FBD was fined €490,000 for breaches of the Consumer Protection Code, including among other things, for not ensuring that contractors hired to do outsourced work were compliant with the CPC. They also had to re-do many chimney repairs that were not done properly over a number of years. We believe that this debacle cost FBD in the region of €10m to rectify the repairs.
In the USA, the UK and elsewhere, there are swathes of litigation cases against Insurers for work carried out by repairers for defective workmanship. It will be no different here.
Why then would Aviva choose in 2017 to effect repairs? Do they want to exercise control over the process with a view to saving costs? Is what they are doing compliant with the Consumer Protection Code?
The Central Bank requires Insurers under Section 4.38 of the CPC to explain to policyholders before they take out or renew a policy that in the event of a claim they may appoint their own builder to carry out the restitution work. Does a hidden reference in the small print of a 60 page policy booklet to the ‘option’ of doing so, as mentioned in the first paragraph of this article, constitute an ‘explaination’? Secondly, Section 7.14 of the CPC states that the policyholder shall not be asked to certify any work carried out by a third party appointed by an Insurer. Yet, on enquiry, Aviva have advised us that their contractor will ‘self-certify’ the works on completion. Now, where have we heard of problems that this has caused in the past?
If Insurers wish to opt to effect reinstatement they need to be willing to doing two things: 1. they need to sign a standard building contract between them and the homeowner and 2. they need to pay their policyholder to have independent representation and supervision of the repairs. Refusing to do so is anti-consumer. Nobody likes to have “solutions” forced on them. We all like to have certainty and some control over the solution.
We believe Insurers should stick to their core business and not get involved in repairs. If they get their underwriting and customer service in order, they will make a profit. If they try and control the whole process from policy purchase to fulfillment, are they moving beyond their area of expertise? By opting to reinstate Insurers are trying to deprive the policyholder of their right to independent represeatation and expertise. Where is the consumer protection when it comes to ensuring that the policyholder is being treated fairly? There is only one answer to the situation; consumers need to vote with their feet and move to an insurer who will treat them as a customer and not as a claimant.
Insurance Brokers who are advising clients on their insurance needs and issuing ‘suitabilty statements’ about particular products would want to warn clients if they are placing a property policy with an Insurer who is opting to effect reinstatement directly, as this may not be what the client wants if they have a claim.