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The Premium of Overland Flood

I grew up in the insurance industry on the claims side. One of the most frustrating customer service challenges was trying to explain the coverage provided by the Sewer Back-up Endorsement, and why ground water infiltration into the home was not covered.

It is one of many examples of “the fine print” with insurance companies that consumers rightfully complain about. The consumer has an understandable expectation of coverage when catastrophic flooding occurs, whether from overflow of bodies of water, or overwhelming of infrastructure.

As I write this it is the days following the catastrophic flooding in eastern Ontario and Quebec; Gatineau particularly, and at the same time in western Canada; Kelowna.

A quote I read recently in a Globe & Mail article from the Insurance Bureau of Canada suggested that only some 15%-20% of Canadians have some form of overland flood insurance.

As a result of the catastrophic floods in Calgary and Toronto in 2013, the Canadian Insurance Industry began offering overland flood coverage in 2015.

Our company, Trillium Mutual Insurance of Listowel, Ontario, began offering overland flood coverage on July 1, 2016. We offered it by removing the availability of our sewer back up coverage offering, and replacing it with an enhanced Water Protection Endorsement, combining sewer back up coverage and overland flood in one broad simple package.

We began charging a premium for the new coverage as of January 1, 2017 for new business and renewals. From July to December 2016 all of our policyholders with sewer back up coverage received the benefit of the Water Protection Endorsement at no additional cost, and will continue to receive this benefit until their policy is renewed in 2017.

I understand the additional premium in 2017 represents some “sticker shock” for our Members, insurance premiums are quite price sensitive, however “water is the new fire” in the insurance industry and the severity of weather events, along with the severity of the resultant property damages, makes the small increase in premium pale by comparison.

Most of the insurers in Canada who have an overland flood product offering combined with a sewer back up coverage have priced it in the area of $100 to $200 for low risk locations.

Our data indicates the average claim for building damages due to sewer back for our Company is $17,500. I don’t have any data for the industry as a whole in front of me, but I suspect it exists and is likely a far higher average.

We obviously have no data as to what the future claims payment costs for overland flood will be.

If you look at the severity of damages caused by the recent events in Quebec and B.C., it is in the $10’s of thousands, in some cases $100’s of thousands for individual property owners.

The purchase of insurance is a begrudging purchase, generally forced upon the consumer because of legal requirements (automobile insurance) or financing requirements (loans and mortgages) and for peace of mind.

It is one of the few products that consumers do not test drive, or research the features of, because it is purchased with no intention of using it. There is very much an “it will never happen to me” attitude when it comes to things like a devastating fire or flood.

If and when it does happen, wouldn’t you be grateful that an extra $100 or $200 in insurance premiums was paid, or the $1000 homeowner premium was paid, because the return on investment when one suffers a severe loss is immeasurable. Even a $10,000 loss would be hard to recover personally, when you know that for an extra $100 or $200 you wouldn’t have to. Annual insurance premiums are not an investment, but do the math, how many years does it take for that annual $200 to add up to $10,000?

I encourage everyone to contact their insurance broker or advisor and specifically discuss the benefits and features available to them as it relates to sewer back up and overland flood coverage. If you cannot get such coverage with your present insurance carrier, ask your broker or advisor to place you with a carrier who does offer this coverage.

Do not begrudge the additional premium, and do not have an “it will never happen to me” mindset, flash groundwater pooling, lack of infrastructure capacity and overflow of bodies of water during periods of heavy rainfall are becoming more and more the norm than the anomaly. You are not immune if your home is not close to a body of water, or is at a high elevation; sewers back up, a septic system clogs and backs up, ground water pools and enters basements, water tables rise. All of these possible incidents are also captured with overland flood insurance; however again check with your broker or insurance advisor as each insurer now offering the coverage has slight variations as to what is covered.

Few of us would think twice about paying a little extra for a desired feature on a new television, or option on a new car. The purchase of insurance should be viewed in the same light, because the failure to purchase that feature could prove far more financially devastating to you than wishing you had gotten the sun roof option with your new car.

 

Mike Virley

VP Member Services

Trillium Mutual Insurance


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