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July 28, 2017   by Robert Lajdziak, Insurance Business Consultant, Insurance Practice; and Valerie Monet Senior Director, Insurance Practice, J.D. Power

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The recent flooding in Quebec, coupled with the gap between homeowners’ perceptions related to their insurance coverage and what is actually covered under their policies, poses a unique threat for Canadian insurers in terms of customer satisfaction, loyalty and, perhaps most important, their reputations.

While it is too early to assess the impact that the most recent flooding events are likely to have on customer satisfaction, insurers must be mindful of brand reputation in their responses to consumers. This includes their responses to both those who were affected and potential prospects on the sidelines waiting to see how that response unfolds, as one in five customers (21%) taking part in the 2017 J.D. Power Canadian Home Satisfaction Study say they select their insurance provider based on the insurer’s overall reputation.

Valerie Monet, Senior Director, Insurance Practice, J.D. Power

Released in June, responses from the 7,422 homeowner insurance customers polled indicate there is a notable disconnect between people’s perceived coverage and their actual coverage when it comes to overland flood insurance — the particular coverage that applies to the flooding that recently occurred in Quebec and other parts of the country.

Robert Lajdziak, Insurance Business Consultant, Insurance Practice, J.D. Power

Nearly half (48%) of respondents in Quebec say they have overland flood coverage; however, Insurance Bureau of Canada has reported that only 10% to 15% of Canadian homeowners actually have such coverage. That disconnect in perceived versus actual coverage is likely to have a profound impact on customer satisfaction as homeowners contact their insurance carriers attempting to make claims, only to find their policies do not include such coverage.

Overland flood coverage is relatively new to the Canadian market. However, the southern Alberta floods in 2013 forced more than 100,000 people from their homes as a result of flooding following catastrophic wind and thunderstorms. Insured losses are reported to have totalled $1.827 billion, making it the second most costly disaster for Canadian insurers after the Fort McMurray wildfires.

Since insurers varied widely in their responses to the flood in terms of what they would cover with current homeowners’ policies, that led to massive confusion and frustration among customers. As a result, insurers began offering additional overland flood coverage in policies for homeowners.

In the aftermath, the study shows that customer satisfaction declined in the Western Region, particularly in Alberta, for two consecutive years as homeowners rebuilt their homes and others not directly impacted witnessed the frustration of affected customers via media coverage and social media channels.

The sentiment that something should be covered, but is not, certainly contributes to customer satisfaction when a loss is experienced. Intuitively, satisfaction is highest when customers have a loss that is fully covered by their insurers. From there, satisfaction declines if the damage was less than the deductible, the customer dropped the claim and if the claim was completely denied.

What is interesting is that customer satisfaction is actually lowest among customers who say that only part of the claim was denied. The finding highlights the frustrations customers experience when they believe something is covered only to find out that their policies are not going to cover the full amount of their losses.

Even customers who had to negotiate with an insurer or a repair company over what was covered were 33 points less satisfied than those who did not.


While overland flood coverage is now widely available, the disconnect between the percentage of customers who believe they have coverage and those that actually do may mean that customers in Quebec are next to experience the same frustration as those in Alberta. However, the real threat to insurers may be to their reputations since the majority of customers will not personally experience a loss, but may, as was the case in Alberta, hear the worst experiences in the media and online.

Insurers have an opportunity to get ahead of these situations by taking steps

to mitigate the potential negative halo effect on customer satisfaction by further helping educate customers on their policies. The key is to make sure that customers completely understand their policies, know exactly what is covered and ensure they are fully aware of additional products, services and policy offerings that are available.

Only 31% of customers surveyed say an agent or representative contacted them in the past 12 months to inform them of additional products or services available — a figure that has remained stable for the past three years — both regionally and nationally. Policy reviews are a great opportunity to not only help customers understand what is covered, but to inform them about potential gaps in coverage that they should consider.

Study results further reveal just over one-third of customers (37%) who had a policy review in the past 12 months and 33% of customers informed about new products/services report that they made changes to their home insurance policies as a result of that interaction compared with only 10% of customers who made a change independently.

Another step insurers can take to help improve customer understanding of what is covered in their policies is continuing to advance online access to policy information.

Many Ontario insurers are building customer-facing websites and mobile apps to access policy information online in response to the provincial government’s 2017 budget announcing “discounts to policyholders who choose to receive documents electronically.”

Polled customers who report that they have online access to policy information are 61% more likely to say they “completely” understand what is covered than those who do not have online access (53% versus 33%, respectively).

Perhaps a greater understanding of exactly what customers’ home policies cover will insulate insurers from the negative backlash following events like that in Alberta and now in Quebec.

At the end of the day, most customers just want to trust their home insurers and believe that in the event of a disaster, their insurers will cover the loss in a fair and transparent manner — neither more nor less, but simply what is fair.

Catastrophic events affect all customers and oftentimes the best way for insurers to avoid the negative impact on customer satisfaction has less to do with the claims experience and more to do with improving the overall customer experience ahead of a major loss. This is relevant particularly in events such as flooding where there is enormous confusion among Canadian customers about what is actually covered between sewage back-up and overland flooding.

Insurers that can close the gap between perceived coverage and what is actually covered can avoid dissatisfaction when a loss occurs, reduce the potential for a negative impact on their reputations and, in the meantime, win new customers by increasing customer advocacy through transparency.

Robert Lajdziak, Insurance Business Consultant, Insurance Practice; and Valerie Monet Senior Director, Insurance Practice, J.D. Power

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