Bridge Over Troubled Waters

Aging infrastructure and the role it plays in basement flooding has been a thorn in the side of municipal governments and insurers for some time now. Torrential rains in the Ottawa and Hamilton regions on July 24-26, 2009, resulted in $196 million in insurance payouts. A short, intense rainfall in the GTA in 2005 lead to more than 13,000 sewer backup insurance claims, causing $247 million in insured losses. And the City of Edmonton suffered two severe rainfall events in 2004, leading to 9,500 sewer backup insurance claims, costing the insurance industry $143 million.

In response to these events, upgrading and bolstering city infrastructure is a high priority. But it is also exorbitantly expensive, especially during a time when funding sources are scarce. In the meantime, governments and insurers are encouraging homeowners to take steps to prevent damage arising from sewer backup and flooding. Of course, public buy-in is not always an easy thing to achieve.

As a result, some municipalities have developed creative approaches to the problem of mitigating water damage.
Dan Sandink, manager of resilient communities and research at the Institute for Catastrophic Loss Reduction, sees more opportunity for insurers to collaborate with municipalities on this issue. “There could be more coordination between what insurers are recommending to keep premiums low or ensure no caps on coverage, and what municipalities are instructing homeowners to do,” he says. “Especially since municipalities recommend different measures to different neighbourhoods, depending on flood history, the infrastructure and the age of the infrastructure. It would be great if, when insurers are recommending steps, they find out what municipalities are recommending in a specific neighbourhood.”

Creative approaches

Kitchener, Ontario approved Canada’s first “impervious area-based rate structure” in June 2010. Revenue generated by the program will go directly to the municipality’s stormwater management program.

Grant Murphy, Kitchener’s city engineer, says after some of the city’s stormwater ponds failed in 2004, the municipality struck a joint stormwater advisory committee with its sister city of Waterloo. After years of consultation with stakeholders, including representatives from the public, private, residential and commercial sectors, the city drafted a new rate structure. Property owners would pay a higher rate based on the percentage of their property that is covered with impervious material. “The more hard surface — roof area or pavement — they have on their property, the more they’re going to pay,” Murphy says.

Currently, the city’s stormwater management program is funded by a tax levy. “But because the cost of service is based upon property value, there is a disproportionate amount being paid by the residential sector over the non-residential sector,” Murphy says. By moving to a full rate-based approach, that portion of the levy will be shifted away from the tax base and onto the rate base, meaning people won’t have to pay twice.

The second component of the program, a credit program, will be implemented later in 2011, Murphy says. “The credit program focuses in on property owners that address the amount of run-off of their properties in terms of volume or the quality of the water that runs off their property.”

For larger property owners, credit will be given to those that have a storm water management pond, underground infiltration galleries, or oil grit separators that treat the water before it gets discharged into the city’s infrastructure. For smaller properties, simple measures like installing a rain barrel or disconnecting a downspout will earn property owners credit.
Saskatoon and Toronto offered their citizens a subsidy program reimbursing homeowners for work done to their properties — including installation of backwater valves, sump pumps and pipe severance and capping. Saskatoon has a limit of $3,000. Toronto offers up to 80% of the cost of each job, with limits ranging between $400 and $2,800, depending on the job.

The subsidy program is one small piece of an expansive program the City of Toronto has implemented. One city councillor proposed taking aim at homeowners with illegal parking pads. Howard Moscoe, city councillor for a ward in the city’s midtown area until he retired on Dec. 1, 2010, conducted a pilot project in a corner of his ward that was built in the 1920s, ’30s and ’40s — long before it was commonplace for households to have cars. Over time, homeowners in the area paved over their front lawns to create parking areas for their vehicles. The City of Toronto moved to regulate this activity, implementing a $300 application fee for a parking pad permit and a $125 annual fee to hold that permit. In issuing the permit, the city required a certain percentage of the property to be permeable. However, the bylaws over the years were not properly enforced, and the illegal pads persisted. When Moscoe surveyed a sample area, he discovered roughly 50% of the parking pads were illegal and did not meet the environmental code.

“We picked that as our pilot project area, with the intention of going to the homeowners and saying: ‘You have an illegal pad,’” Moscoe says. “‘You can apply to retain it and we won’t charge you the application fee to retain it. If you cannot meet the environmental standards to retain it, we will go in and tear out the pad at the city’s expense, re-sod the area, and give you an on-street parking permit for free for one year.’”

Moscoe’s term came to an end before the pilot project could get into full swing. He hopes his successor will carry on with it, but he admits it will be a tough sell to the public.

Homeowner buy-in

Getting homeowners to buy into making material changes to their properties or paying higher rates can be a tricky tightrope to walk. People get protective of their property. They seldom appreciate being taxed at a higher rate, or being told that the illegal parking pad that came with the house will be torn up — especially when pads add approximately $30,000 to the value of the house.

Here Sandink sees an opportunity for collaboration between insurers and municipalities. “Subsidy programs can get expensive, and it’s difficult to get homeowners to do these sorts of things,” he says. “If insurers are also requiring them or recommending them, it’s another means of helping the process along.”

Murphy says it is imperative to make sure people understand the details about the programs. “We talked about the rate structure quite a bit in the early days of this process, but we didn’t get into as much detail as we should have, or could have, related to the credit program,” Murphy says. One key challenge is to keep the expectations of property owners, particularly residential ones, in check. “I think sometimes they have an expectation that if they install a pervious pavement or a rain barrel, they should get 100% reduction on their stormwater rate,” he says. “The reality is, it’s just not that way. A rain barrel only captures a fraction of the amount of run-off on a property.”

At the end of the day, Moscoe believes implementing these measures are part of government’s role. “We tell people when they’re building a house, they have to build it to meet a code. Otherwise, we would have ramshackle shacks. So this is a variation on a theme: the theme is deeply ingrained in our society that the government sets the common standard. People won’t necessarily be happy about it at first, but we have to change the mindset so that taking these sorts of measures becomes a pattern.”