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Do You Need Insurance For Water And Sewer Lines?

Millions of U.S. homeowners regularly receive official-looking notices on letterhead in envelopes bearing the logos of their utility companies. They contain ominous warnings that you, the homeowner, are responsible for repairs to water and sewer lines on your property. The clincher: If there are problems, “you could spend thousands of dollars to fix them, as most standard homeowners insurance policies do not cover these repairs,” warned one “Repair Responsibility Notice.”

These notices often convince homeowners that there are hidden defects on their properties that need to be addressed. Why else would their utility companies issue such dramatic warnings?

Although these mailings seem to come from utility companies, they’re really pitches from third-party companies that have struck partnership agreements with utility providers, allowing them use of their names and logos to sell their warranty plans.

More than 7 million U.S. homeowners have so far purchased these plans, pulling in $900 million a year, according to information disclosed in annual reports from the largest warranty companies.

In the Washington area, Dominion Energy, NOVEC (a cooperative that serves large portions of Fairfax, Fauquier, Loudoun, Prince William and Stafford counties), and the municipal governments of District Heights, Forest Heights, Laytonsville and Poolesville partner with private warranty companies to help market these plans.

The Washington Suburban Sanitary Commission (WSSC) used to help sell these plans, but in 2019, it let the agreement expire after its warranty company partner bought CroppMetcalfe, a large plumbing outfit operating in the Washington area. (WSSC issues plumbing licenses and permits and could no longer continue such a deal with a company it also regulates.)

Nationally, these deals are also widespread. The water utilities serving Baltimore, Cleveland, Louisville, Memphis, Nashville, Newark, New York City, Philadelphia, Orlando, Salt Lake City, San Diego and San Francisco have signed on to help private companies sell warranty plans.

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Marketing materials received by homeowners often warn of dramatic potential costs if they don’t protect themselves with offered coverage. One company’s website warns of an average $2,585 cost to replace a water line, and a $3,389 cost for a sewer line. Another pegs the “typical” cost of repairs higher still: $3,500 for water, $8,500 for sewer. And a video presentation used by one company to recruit utility companies features a horror story where a couple’s burst water and sewer lines caused $20,000 in damage.

But Checkbook’s research finds that few homeowners ever have to deal with expensive water or sewer line repairs or replacements. Our researchers examined permit records and dug up similar data from several large cities and found scant evidence that this is a common job at all:

●Claims data from a WSSC interoffice memo obtained by Checkbook indicated that only 4,450 exterior water and sewer claims were made from the 126,207 plans purchased during the program’s first 2½ years, an annualized incidence rate of 1.4 percent.

●Checkbook’s review of San Francisco’s permits in 2019 found that it issued only 369 water and/or sewer line restorations or replacements — out of the 112,115 single-family homes served by the city’s utility company. The chance of needing a restoration or replacement there was only 0.3 percent.

●Minneapolis approved only 667 work permits involving home sewer laterals in 2019. That works out to a rate of 0.7 percent of the city’s approximately 100,000 sewer lines serving homes there — and because the city didn’t exclude permits for new construction from its counts, 0.7 percent is overstating the chance of trouble.

●The Philadelphia Water Department issued 2,459 “Notices of Defect” in 2019 for residential sewer laterals that the department discovered were in need of repair. That was 0.5 percent of its 481,728 customers.

Other research shows that water lines can be trouble-free for years. Juneseok Lee, associate professor of civil and environmental engineering at Manhattan College, looked at data supplied by a warranty company that had paid for more than 47,000 water line replacements or repairs over 10 years. Lee concluded that “it is not a question of if the piping will fail but rather when.”

However, that report’s findings indicate that “when” is probably a long, long time away. It found that lines made of copper, the most common material used for water lines, typically last 30 to 80 years. Galvanized steel pipes — also common — usually last even longer: 40 to 100 years. Even comparably weak plastic pipes (such as PVC and polyethylene) last 20 to 40 years. And because the study looked only at pipes that failed, your pipes may last a lot longer than these estimates.

Bottom line: Even if you own a house for decades, your odds of having a catastrophic water or sewer line failure are quite low.

Even if you need a repair or replacement, costs will probably fall well short of the thousands of dollars cited by the warranty companies.

One warranty company told Checkbook that over the past three years, it had paid for “more than 400,000 water-related repairs, saving residents $232 million in out-of-pocket repair costs.”

But the company’s own numbers reveal a key issue: Divide that $232 million in repair bills by the 400,000 claimants, and the average payout was just $580.

The WSSC reported during its agreement with a warranty company that claims for sewer line repairs also averaged just $580; the average for water line claims was $1,565.

These average costs of repairs reveal that although warranty companies rely on worst-case scenarios to sell their plans, “most often, the claim you put in is for a clogged line, and the first thing they try to do is unclog it,” said Alon Abramson, program manager for the Philadelphia Energy Authority (PEA). “More often than not, that fixes the problem.”

In other words, when repairs are needed, they rarely cost thousands of dollars, but are usually done by a plumber using a snake.

In exchange for lending their names and logos, the utilities that sign on to help sell these warranties get a share of the premiums.

For example, for 2020, the warranty company working with the San Francisco Public Utilities Commission (SFPUC) paid it $3.61 every month for each enrolled policy, according to a public document posted online by SFPUC. The plans were sold for $12.99 a month. That means 28 percent of premiums it collected went to the SFPUC.

That document shows that the SFPUC receives the same $3.61 from the warranty company’s $8.99/month sewer-only warranties and its $4.49/month water-only plans. So, for those, commissions equal about 40 and 80 percent, respectively. SFPUC expects to make more than $1 million from this deal over its first four-year term.

The deal signed by the PEA also funnels a portion of the premiums back to it. The plans cost $7.98 a month for water-sewer warranties purchased in 2020; the PEA got 20 percent of that, plus up to $500,000 in annual fees, according to information supplied to Washington Consumers’ Checkbook in response to a public records request. In 2019, the first full year of its contract, Philadelphia’s share was $1.3 million.

Many utilities that partner with warranty companies say they direct their shares of sales to a good cause.

Yvonne Kingman, a spokesperson for Washington (State) Water Service, told Checkbook it recycles the warranty fees it gets back to its customers: “We’re regulated. The money we collect is all used for company-related projects. We don’t pocket the money. We charge customers for the actual cost of providing the water service.”

But, of course, even if it gets directed toward a charitable fund, all the revenue collected by these warranty companies is derived from utilities’ cooperation in enrolling their customers or constituents in these plans.

Douglas Heller with the Consumer Federation of America noted that “these deals are so clearly problematic that even those willing to take them require some veneer of justification that it is a public benefit.”

Checkbook often warns about these types of “peace of mind” policies, which are typically overpriced. Although you should buy insurance to protect against risks that could be financially catastrophic — house fires, liability claims, auto accidents, medical care — you shouldn’t pay to cover the risk of paying for unlikely repairs you can afford.