How aging infrastructure causes water damage

Home insurance premiums are up as much as 30% in some places

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Recently, economists declared that Canada was in an official recession—a depressed market marked by two consecutive quarters that experienced negative economic growth. And then we slowly slid into election campaign season. Now, as every major (and minor) political party vies for your confidence and your vote, I’d like to discuss a federal, provincial and municipal matter that just doesn’t get enough attention: aging infrastructure.

Oh, brother, why should I care? Because it’s your money that pays for the water damage and other clean-up costs when a system fails and your tax-dollars that pay for the repairs for this antiquated infrastructure. And it’s not cheap.

According to the Federation of Canadian Municipalities it will cost close to $123 billion to fix all of Canada’s aging infrastructure (all figures in 2014 dollars)—and this cost grows by $2 billion each year. That’s a ‘b’ for billion.

While infrastructure might not be a sexy, you can’t argue that it’s not expensive.

Yet, we typically only hear about our nation’s aging infrastructure when a weather-catastrophe strikes: floods in Manitoba or Alberta, ice-storms in Quebec and massive snow storms on the East Coast. “Across Canada outdated storm and waste-water infrastructure has resulted in increased flood damage to homes,” explains Blair Feltmate, associate professor at the University of Waterloo’s Faculty of Environment. But weather isn’t the only culprit for the failure of our nation’s infrastructure.

Intense population is another contributing factor. According to Statistics Canada data, Toronto’s population peaked at 6,055,724 people as of July 1, 2014. The city’s population now accounts for 17% of Canada’s 35 million residents. But this increase in the number of Toronto residents has put a serious strain on the city’s hydro resources. The increase in demand—up 58% since 2009—combined by antiquated infrastructure has resulted in an increasing number of brownouts and blackouts, such as the 2013 ice storm/power outage that resulted 27 deaths, loss of power to over a million residents and over $200 million in damages.

The costs of all this aging infrastructure is initially felt by insurance companies and, as a result, Canadians have watched their home insurance premiums rise—sometimes quite dramatically—in the last few years. While some homeowners will report a reduction in their home insurance premiums, far more are reporting year-over-year increases of 10% to 30%. The reason? Insurance companies are spreading the burden of rising claim costs—claims due to bad weather and failing waste-water systems, hydro-electric systems, bridges, roads and other municipal, provincial and federal infrastructure—among the majority of policyholders. The many pay for the few. It’s the way insurance works.

But insurance companies aren’t just raising premiums. They are also limiting coverage, explains Adam Mitchell, president of Whitby, Ont.-based Mitchell & Whale Insurance Brokers. As the president of an independent brokerage Mitchell has seen it all, including: raising premiums, raising deductibles, making it mandatory for homeowners to spend on mitigation upgrades, introducing or lowering policy limits, or just simply choosing not to renew a homeowner’s insurance policy (forcing homeowners to find coverage elsewhere).

It’s a situation Ellie Posa found herself in last year. As a 15-year resident of Trinity Bellwoods, one of Toronto’s oldest downtown neighbourhoods, she was shocked to read the that her insurance company simply, and in her estimation “quietly announced” that they’d reduced her sewer back-up claim limit from $150,000 to $15,000 (we’ve changed her name to protect her privacy). “I’d been with the company for the better part of a decade,” recalls Posa, “and never had a claim.”  What troubles her is that $15,000 barely covers the clean up costs of a sewer back-up. Still, Posa feels she got off lucky. “My neighbour down the street got a letter telling him he’d have to replace his entire roof or his insurance policy wouldn’t cover water leaks. He had to pay $15,000 for a new roof just to keep his 10-year-old home insurance policy in place.” The reason for the insurance provider’s demand: weather-related claims in Posa’s neighbourhood had increased significantly over the last decade.

According to Intact Insurance weather related insurance claims increased 650% between 2006 and 2012. Intact passed their increased cost on to home insurance customers. They aren’t the only ones. Other insurance providers also passed on rising costs, while municipalities started to tack on upgrade costs to customer utility bills to pay for much-needed upgrades. For example, starting in 2012, Toronto residents noticed an extra $62 per year added to their water bill—an aggregated cost to help pay for a multi-year upgrade strategy for the city’s aging water pipes.

Why, then, should aging infrastructure be an issue during this federal election year? Because we, the electorate, the taxpayers, the homeowners and tenants with insurance and who pay taxes, we are the ones footing the bill. The 2013 Alberta flood, alone, resulted in $4.8 billion in economic losses, explains Barbara Turley-McIntyre, senior director at The Co-operators. “Just the clean-up bill came to $1.9 billion—the single most costly disaster in Canadian history,” says Turley-McIntyre. What makes this particularly costly is that 90% of this bill was piled onto the taxpayers’ tab—because, up until May 2015, Canadians couldn’t buy flood insurance protection.

“These extreme weather patterns, and the resulting damage, are likely to get worse in the near future,” explains Feltmate.

For immediate results, consider asking your insurance provider and your municipality about water mitigation rebates and incentives, suggests Dan Sandink, manager of resilient communities and research at the Institute of Catastrophic Loss Reduction. “Most cities now realize the importance of prevention and offer rebates to homeowners who are proactive.”

For longer term results, consult your the strategy documents for your municipality, province or federal government. Consider what each level of government is doing to mitigate the damage caused by aging infrastructure and talk to your representatives about the measures being taken to upgrade and replace antiquated systems.

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