As sewers age, Canada insurers see a mess of claims

Fri Aug 15, 2008 2:15pm EDT
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By Lynne Olver

TORONTO (Reuters) - The Canadian insurance industry is seeking ways to stem a rising tide of claims for water damage to homes that it says results partly from aging sewer systems that badly need replacement.

Some of its response involves raising the rates paid by customers who live in riskier areas. But insurers also want towns and cities to upgrade sewer and surface-water systems to better deal with freak storms.

Higher claims for messy sewer back-up problems have made water-related damage the No. 1 type of home insurance claim, above fire, theft or vandalism.

"The average age of a sewer system in Canada is about 60 to 65 years, and the useful life of that type of system is about 75 years," said Robert Tremblay, a director at the Insurance Bureau of Canada, the home- and auto-insurance industry group.

Sewer systems are even older in some big-city neighborhoods, Tremblay said, and were not designed to handle flash floods like those that occurred in parts of Toronto in August 2005. Damage from those storms cost the industry nearly C$500 million ($472 million).

This week, home and auto insurer ING Canada IIC.TO said its second-quarter profit fell 42 percent, partly due to a barrage of hail and rain storms. An underwriting loss in its personal property business came from C$40.9 million in "catastrophe claims" from various storms. Catastrophe claims are those for severe damage from a single incident or related incidents.

"Historically, fire represented more than half our losses," ING Canada President and Chief Executive Charles Brindamour told Reuters in an interview.

"This has reversed in the last few years and the bulk of losses are now water-related losses, primarily sewer backup," he said.   Continued...