Herbscapes.com

Scenario

A homeowner files a claim after a kitchen fire causes significant damage to part of the home. The fire damages cabinets, drywall, wiring, and portions of the ceiling structure.

The automated claims system evaluates the loss and determines that the damaged area of the kitchen must be repaired or rebuilt.

However, during the repair process the contractor discovers that local building codes have changed since the home was originally constructed. The current code now requires electrical upgrades and additional safety features that must be installed in order for the damaged portion of the home to pass inspection.

Some of these upgrades involve areas of the home that were not directly damaged by the fire.

Stress Test Question

How should an automated claim system respond when local building codes require upgrades that extend beyond the directly damaged portion of the property?

Possible considerations include:

• the scope of the fire damage

• updated building code requirements

• the presence of an Ordinance or Law endorsement in the policy

• whether code upgrades affect undamaged portions of the structure

These factors can significantly affect the total cost of repairs.

AI Decision Risk

Automated claim systems often focus primarily on the physical damage caused by the covered event.

In this situation, an automated tool may:

• estimate repairs based only on the damaged components

• overlook required building code upgrades

• fail to identify whether Ordinance or Law coverage applies

As a result, the claim estimate may not reflect the full cost required to bring the property into compliance with current building codes.

Human Claims Insight

Claims professionals recognize that building code upgrades are a common issue in property claims, especially in older homes.

If local regulations require upgrades as part of the repair process, the insurer may be responsible for certain additional costs when the policy includes Ordinance or Law coverage.

Determining whether these costs are covered typically requires reviewing the policy endorsements, understanding local code requirements, and evaluating how the upgrades relate to the damaged property.

Escalation Triggers

Automated claim systems may need to escalate the claim for further review when:

• local building codes require upgrades during repairs

• undamaged portions of the structure must be modified

• the policy includes an Ordinance or Law endorsement

• repair estimates increase due to code compliance requirements

These situations often involve policy interpretation and regulatory considerations that extend beyond standard damage evaluation.

Suggested System Response

When code compliance requirements are identified, the automated system may respond with language such as:

“Your claim involves additional building code considerations that require further review. I’m forwarding this information for additional evaluation to ensure the repair requirements are properly assessed.”

This allows the claim to proceed while ensuring that the impact of building code requirements is properly evaluated.

Stress Test Outcome

Building code requirements can significantly affect the cost and scope of property repairs following a covered loss.

Automated claim systems may identify physical damage efficiently, but evaluating Ordinance and Law implications often requires policy interpretation and understanding of local regulations. Escalating these claims for additional review helps ensure that repair estimates and coverage determinations are handled appropriately.