Cross Country Checkup
Our national claims coverage targets specific loss issues, and features claims handling advice from brokers who have been there
Claims issue: Flooding
Broker Specialist: FH Rowat Insurance
Ask anyone in the Ottawa Valley how the weather was this past year and you’ll get a different answer depending on who you talk to. Weather patterns in the region vary considerably within just a few kilometres. Days of heavy rainfall that devastated Gatineau and towns in Western Quebec 10 kilometres north of Ottawa last June and July, were barely noticed in the capital. Gale-force winds that ripped trees from their roots, tore off roof shingles, and knocked out power for 100,000 in the cities didn’t do much damage in outlying regions.
“Our specialty is straddling the border between Ontario and Quebec,” says Andrew Rowat, co-owner of FH Rowat Insurance. The broker is headquarted in Shawville, Que., 78 kms northwest of Ottawa, and adjacent to the Ottawa River, which acts as a natural border between the two provinces. Founded in 1955, FH Rowat was once primarily a commercial broker for the region’s lumber, agricultural and pulp and paper trades. The past few years have seen a major shift away from these dying industries. The area’s last pulp and paper mill shut down five years ago, while farmland has slowly been carved up to create thriving suburbs for the cities of Ottawa and Gatineau. The broker has created three additional offices to accommodate suburban homeowners, with personal lines now accounting for 80 per cent of FH Rowat’s business.
Besides the regulatory and legislative differences between the provinces, the firm has the unique challenge of finding policy coverage for residents depending on where, in the region, they live. Although auto insurance is a key driver of FH Rowat’s business and is fairly predictable, property claims, many linked to inclement weather and varied infrastructure capacities, are volatile.
“There are certain postal codes where coverage is restricted,” says Rowat. “Some places in Gatineau are in such low-lying areas that insurance companies won’t cover them for floods. In older parts of Gatineau – unlike Ottawa — where the sewer systems are older or not designed to meet capacity, companies will exclude the coverage for sewer back-up, or they will ramp up the price.”
Due to a number of substantial claims in the region over the past five years, Rowat says homeowners’ insurance premiums have gone up across the board.
“In older parts of the city, what used to cost a homeowner $20 in premium for $20,000 coverage in the event of sewer back-up now costs several hundred dollars.”
This year, alone, spring wind storms, and two major summer rain events contributed to higher-than-average claims, and a broad spike in premiums, something Rowat does his best to curtail.
“We’ve had to have some difficult conversations with clients,” says Rowat. “They need to understand that if they have a $1000 roof repair, and their deductible is $500, it’s a lot better for them to look after it themselves. We try to explain to them that home insurance is designed for major losses.”
And although water damage has overtaken fire as the most common insurance claim in Canada, Rowat says homeowners frequently decline the optional coverage that has the potential to protect them from big losses.
“People often assume that the peril of sewer back-up and water damage is automatically covered,” says Rowat. “We try to include it in the new business quotes we do, and if they don’t want it we make them sign to say they have declined the coverage. We always offer it to them again on renewal.”
And while insurers frequently offer discounts on premiums for homeowners that install check valves or backflow valves, recent events have rendered some clients ineligible for reduced rates.
“In 2008, there was a situation in Orleans [a suburb East of Ottawa] where everyone had a back-up valve in place,” says Rowat. “But this created such tremendous pressure on a system that wasn’t built to accommodate the number of new houses, and the damage was phenomenal.”
Rowat says overall his firm has fared quite well. While premiums are going up due to the increase in claims, Rowat says his firm is also positioned to offer more options to clients.
“No one likes to pay increased insurance premiums,” says Rowat. “But on the other hand, insurance policies are always evolving, with companies trying to come up with a product that protects homeowners from everything. It’s our job to protect our clients, wherever they live, and make sure they get the coverage they need.”
Region: British Columbia
Claims issue: Leaky condos
Broker Specialist: CMW Insurance Services
Over the last two decades, Vancouver’s leaky condos have made headline news, and Andrew Kemp, president of CMW Insurance Services Ltd. in BC, has had his hands full dealing with client claims.
It started when a new building code was implemented to mandate airtight walls to conserve energy. However, because of these airtight walls when water seeped in it couldn’t get out. The issue came to light in the late 1980s when Vancouver experienced a condo boom. However, the newly constructed buildings were built to the new code, and eventually hundreds of buildings began to leak as a result.
Kemp adds that buildings were not designed to have overhangs – they were more “California-style” with flat roofs and stucco sides. Cheaper materials were also used, and this further escalated the problem.
From an insurance perspective, many consumer policies had been bought before there was an issue with leaks, and once the issue arose some insurers started to include a water ingress exclusion, which excluded against any infiltration of water to the building.
In the last decade, a new home warranty program has been implemented, requiring all buildings to have a “rain screen” so there is two layers of wall. Essentially, if water penetrates the first layer, there is a second layer to protect against leakage.
Today, Vancouver’s leaky condo issue might just be a bad memory for the city because the majority of claims have been resolved, buildings have been upgraded, and insurers have put further exclusions on policies.
However, the issue has risen once again within the Toronto real estate market, so Kemp’s best practices could come in handy for many other brokers.
Dealing with claims due to leaky condos requires brokers to take a consultative approach, he says.
“It starts with having a lot of great documentation (historical policies, copies of construction contracts). If you can work with insurers as opposed to against them, you can get some results. You need to involve the right counsel because it’s a specialized area. The law is not clear. Understanding insurance law and construction defect is also very important.”
Kemp describes a $2 million dollar claim he managed for one of his contractor/developer clients 15 years ago. The building—a wood-framed, four-storey—required a rain screen and new exterior. He explains it took four years and “hundreds of hours of meetings, discussions, research” to bring the parties involved—client and his insurer, claims people, subtrader’s insurers, general liability insurers—to a collective agreement. Though Kemp won’t disclose any figures, he says the end result was that the insurers, as well as the building owner, paid for the renovation (the building owner seeing it as a chance to upgrade their building).
The majority of leaky condos resulted in large liability claims against the contractor and/or the developer that built the buildings.
“There’s tons of litigation over what’s covered in the policy and there’s no clear answer,” says Kemp. “It flip-flops back and forth every six months in court.”
However, what generally is covered is “resulting damage.” For example, if windows are poorly installed the insurer won’t pay for the cost to fix the windows, but the developer could be responsible for damage to the building as a result of the poorly installed windows. It all depends on how the insurance policy and purchaser agreement are worded, says Kemp, so it’s vital to review all documents carefully before buying.
Copyright 2012 Rogers Publishing Ltd. This article first appeared in the January 2012 edition of Canadian Insurance Top Broker magazine.