Flood of Options

“Be prepared,” is more than a Girl Guide motto. The best way for a consumer to be prepared is to be engaged with his or her broker in conversations regarding any change to insurable property.

These are challenging times with people living very busy lives, but the investment in time upfront will reap rewards in the event of a claim because the consumer will understand what is covered and what is not.

Whether buying a new car, conducting home renovations or making a significant purchase, dialogue is essential to ensuring the things that a person has worked hard for are properly covered. Without proper coverage, those losses could make a difference to that person’s financial future.

Prevention and risk management are areas where brokers can provide advice on how to prevent losses from occurring. These conversations should be ongoing as each individual’s circumstances change.

WATER WORRIES

One of the hottest topics in the insurance industry at the moment is water. There are many changes taking place at the insurance company level and the product is evolving. It is important for brokers to talk to their clients about these changes and for consumers to ask questions where there is uncertainty.

Sewer back-up endorsement

The sewer back-up endorsement was introduced in Nova Scotia about 25 years ago and, in some instances, covered losses resulting from flooding. Each individual company would make decisions based on its respective wordings.

During this period, brokers who had clients living along waterways or low-lying areas were quick to add this endorsement to their clients’ policies. Depending on the insurer, the coverage was included in the policy with a limit of $10,000 and for the full limit, the premium was $25. If the risk was to a business, insurers would include flood and quake for a nominal premium.

To coincide with the sewer back-up offering, brokers would advise customers to purchase the full limit available if a home had a below-grade family room. In addition, brokers would advise clients of the need to purchase a dehumidifier for the basement.

During the early stages of offering the coverage, there was not much discussion about sump pumps and back-water valves.

This changed, most notably in 2003, when the southwestern region of Nova Scotia experienced a significant water-related event. The Tusket River flooded its banks, requiring that the small village of Quinan be evacuated.

This occurred again in 2010, although it included other communities along the Tusket River system, resulting in the collapse of the Tusket Bridge.

Historically, consumers have been advised that if water came into their homes via drains, their loss would be covered; if the water came in through windows and doors, this would be flood and not covered. Brokers were pleasantly surprised when homeowners had most damages repaired under the sewer back-up coverage, despite the fact that consumers were receiving mixed messages. This is an example of competition in the industry paying dividends to the consumer.

Automatic coverage

As a result of the uncertainty surrounding whether or not water damage would be covered, many brokers requested that insurers add the coverage automatically to their property portfolios to ensure all homeowners and business owners were covered. Negative billing was still allowed in Nova Scotia and the cost to the consumer was manageable.

As with other endorsements, such as guaranteed replacement cost and the single-limit endorsement, brokers knew the importance of these coverages and would routinely have their entire portfolio endorsed at renewal.

Unfortunately for both insurers and consumers, water-related events are occurring in both frequency and severity, resulting in more claims and, inevitably, higher premiums. In Nova Scotia, the trends towards fancy living areas below ground continue and insurers have taken measures to limit or eliminate coverage.

PREPARATION ALL AROUND

Brokers are very focused on conversations with clients relating to these changes and how housing construction is affected, as well as the importance of installing sump pumps and back-water valves. As a result,

consumers should educate themselves and be prepared to speak with their contractors when constructing a new home or making renovations.

It is important that stakeholders also keep abreast of changes taking place in the industry based on climate change and severe weather events to ensure that consumers are protected.

To this end, the Insurance Brokers Association of Nova Scotia has partnered with the Clean Foundation in an effort to educate consumers on how best to mitigate water losses.

TIMES ARE CHANGING

Until recently, consumers in Nova Scotia have had the benefit of full-limit sewer and broad, far-reaching water losses paid under sewer back-up. But times are changing and the industry has to adapt to the severe weather that is also being experienced throughout the country.

In response to the increased water losses, one insurer has already reduced coverage and increased premiums significantly based on the postal codes of the consumer. These areas historically had a frequency issue and a predictive model suggested the area was “trending” to have a water-related event.

For Nova Scotia brokers, the first step in assisting clients with these changes was to identify customers who had completed basements and to determine an appropriate limit of coverage, since full limit was no longer available.

In these cases, insurance brokers looked to other insurers who had not restricted or eliminated coverage. However, this was not always the solution for a number of underwriting reasons, including that the premium was simply too high.

In other cases, the consumer is looking to his or her broker for assistance with determining an appropriate limit. This, however, is no easy task.

There are limited tools available to calculate appropriate limits and many variables must be considered.

One of the variables is being able to determine remediation costs that can be expensive and use a large portion of the available coverage. A second variable is premium, which grows more expensive as the limit of coverage increases, sometimes becoming a barrier for the consumer.

The most reliable option available to consumers to determine the cost of rebuilding is to contact a contractor and complete a replacement cost appraisal. That said, consumers generally do not choose this option based on the time and effort involved.

It is important to remember, though, that not all insurers in Nova Scotia have reduced sewer back-up availability. One company, for example, has recently announced it plans to introduce flood coverage that, depending on the province, could be available to consumers over the next year.

With the introduction of new products, brokers will be at the heart of the conversations with clients, educating them about the options that are available and providing consumers with good advice so that they can make informed decisions.