Water Leaks and Insurance
I woke up the other day in my cold Northern California home and discovered an inch of water on my hardwood kitchen floors. We recently purchased a new refrigerator (the old one conked out after 25 years) and hooked up the automatic water dispenser and ice maker. The hose that connected the refrigerator to the water sprung a leak and water poured out of my maple cabinets onto the oak wood floor. Everything in the cabinet under the sink was water logged. What a mess! Fortunately, we were home, quickly cleaned up the leak, and no permanent damage was done.
All I could think of was thank goodness it was that week and not the next. We were planning a week’s long vacation over the Christmas holiday. A leak of that size could have potentially flooded my entire home, and might have sat there for a full week.
Again, I am reminded of how damaging an unreported leak can be, especially in one’s home. I recently read through a report written for the Canadian insurance industry entitled, “Water Damage Risk and Canadian Property Insurance Pricing”. The objective of the study, performed by KPMG, was to determine if historical claims for water damage would be predictive of likely future claims. The conclusion was that they likely would not be adequate to cover the extent of water damage in the future and that premiums would need to be increased. I was particularly interested in the discussion of leaks in multi-family residential structures.
The report noted that in Canada, issues with water leaks are particularly significant for multi-family residences. More people than ever are moving to condominiums, especially in the greater Toronto area, and more are spending extensive time away. (Think of the Baby Boomer “Snowbirds” going off to warmer climates during the freezing winters.) What happens if the refrigerator hose springs a leak in a 10th floor apartment when the residents are in Florida? The report identifies possible reasons for the likely increase in the number and severity of claims in the future.
“A rupture in the pipe in one unit can have repercussions for many neighboring units. Similarly, dishwashers are now a common feature in most condominium units, and a burst pipe, water seepage, or malfunction in the machinery that leads to water damage in one unit frequently damages other units as well.” The report continues, ”The reasons for increasing severities include, but are not limited to, the costs in addressing mold remediation as well as the costs required to address any concerns about the presence of asbestos in old drywall…Extended periods of time away from a residence allow more time for seeping and bursting pipes resulting in damage that is not mitigated close to the time of occurrence.” It also notes that attention to loss prevention is not seen as a high priority for many people. The 2013 Canadian Water Attitudes Study reported that “internet outage and burned-out light bulbs are fixed more immediately than a leaky faucet or broken pipe.”
Survey respondents noted water damage claims are both a high priority and a large proportion of claims. “For some insurers, water damage claims range from 60% to 70% for Ontario and western regions. Condominium water claims comprise a much larger percentage of total claims relative to homeowners and commercial multi-peril policies; many of the respondents indicated claims from 60% to 90%.”
The report continued, “When asked what the industry could do to reduce the amount in claims, the respondents noted, the companies could…offer premium discounts for prevention devices; and inform policyholders of financial incentives for prevention where they exist in certain provinces and/or municipalities."
My conclusion after my refrigerator experience is that you might want to check your homeowner’s and HOA policies and ask your insurance broker if they offer discounts to owners that install leak detection systems; and if they don’t, ask them why not.
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