Water damage prompts home insurance premium hike in Ontario

Alex Vizer | November 13, 2009

Severe water damage claims have prompted a double- digit increase in home insurance premiums for Ontario residents over the past year.

Statistics Canada reports that the price of home insurance in the province rose an average of 13.1% --double the national average--during the 12 months ending in September 2009.

Loss ratios for the first half of 2009 are approximately 15% higher than the loss ratios for the first half of 2008, according to Robert Tremblay, director of research at the Insurance Bureau of Canada (IBC). Furthermore, more than 50% of all homeowner claims relate to water damage, the culmination of a gradual and almost decade long trend that has seen water damage overtake fire as the leading cause of losses.

 Climate change, and more

Though insurers just faced a storm and tornado-filled summer that saw them experience their worst season since the 1998 ice storms, Tremblay says that “water damage is not all necessarily related to climate change,” pointing out that mechanical failure such a burst dishwasher pipe or a faulty washing machine can cause water damage.

Aging infrastructure is also contributing to the increase in water damage claims. “Sewer and surface water infrastructure has not been as well maintained as it should have,” Tremblay says, “and therefore sometimes modest rain precipitation results in sewer backup and claims relating to that.”

Compounding the problem: water damage often manifests itself in basements, which are becoming more expensive to repair. “Basements nowadays are finished more than ever” says Tremblay. “Before that in a concrete floor in a basement that did not have much in it, the cost of repairing was not very high,” he continues, “but now when basements have hardwood flooring and high end electronics and high end sports equipment, The costs are increasing significantly and eventually that resolves itself in an increase in premiums.”

Minimizing losses

Tremblay says homeowners can minimize loss by replacing their washing machine pipes with stainless steel ones less likely to breakdown, and explore the possibility of installing a sewer back up valve inside their home.

 As for insurers, Tremblay says the IBC is currently working on a risk assessment tool for municipal waste water and surface water infrastructure that, when completed, would give municipalities a much better understanding of the level of risk that their infrastructure represents.

Though he is unable to say if losses and premiums will continue to rise in the future, Tremblay says aggressive jockeying for market share could help consumers worried about increasing rates. “Before cost increases have an impact on premium,” Tremblay says, “usually companies try everything they can to absorb it because of the competitive nature of the industry.”