The home insurance exclusion your clients probably don’t know about

Knowing what their property insurance actually covers is a “big missing link” in teaching homeowners how to manage flood risk.

“Most people have no idea that you can’t get seepage coverage in most cases,” Cheryl Evans, director of the home flood protection program at the Intact Centre on Climate Adaptation, said in a recent interview. “A lot of them don’t understand what overland flooding is and what sewer backup is,” said Evans, commenting on Intact Centre’s observations from conducting assessments of about 450 homes.

Home insurance normally covers water damage arising from “sudden and accidental” bursts of pipes, Brokerlink notes. If rain penetrates the roof and walls of a building with no visible damage, this is not normally covered, notes TD Insurance. Other water damage normally excluded from home insurance is deterioration or corrosion of the roof or water that gets in because roof and vent flashings are not properly sealed.

Overland flood – which can happen when a river rises after heavy precipitation – was not generally available in Canada until 2015.

Sewer backup can be bought as optional coverage and could cover water damage when municipal infrastructure gets overwhelmed and water backs into a basement.

Home insurance policy wording is not regulated in Canada, the Canadian Council of Insurance Regulators noted in Findings Report & Position Paper: Natural Catastrophes and Personal Property Insurance, released in August, 2017.

The “abstract nature and the complexity of contracts and coverages create difficulties in terms of the consumer’s ability to understand insurance,” CCIR said in the paper. “This lack of knowledge naturally extends into property insurance coverages, policies, terms, endorsements, deductibles, limitations and exemptions related to natural catastrophes insurance.”

Helping clients understand policies is one aim of a training course that the Intact Centre is developing for brokers and agents, Evans said in an interview.

Intact Centre head Blair Feltmate told Canadian Underwriter earlier that the centre is working on a total of three courses: one for P&C agents and brokers placing home insurance; one for real estate agents; and a third for real estate mortgage brokers.

A pilot version – of the course for agents and brokers – was delivered in five cities. A combined total of about 400 brokers got 2.5 hours of training in Victoria, Vancouver, Edmonton, Calgary and Winnipeg, Evans said.

The Intact Centre, which is based at the University of Waterloo’s environment faculty, is also one partner in Home Flood Risk Assessment Training, a three-month course running Thursday evenings in Toronto starting Sept. 20. That course is meant for home inspectors and insurance professionals.

A “huge part” of that training is “to develop insurance literacy” among professionals assessing home flood risk, “so they can develop it in clients, because we see it as a big missing link,” Evans said.

Students can enrol in the course through Sir Sandford Fleming College, though the venue is Seneca College Newnham Campus near Toronto’s Peanut Plaza.