insurance coverage challenges

“Property insurance coverage for water and wastewater utilities can present many challenges – for insurer and insured, alike. Accurate coverage begins with proper recording and valuation of the underlying exposures; however, property typically found in utility operations can be difficult for underwriters to comprehend and frequently large gaps exist between the level of understanding possessed by the insurer and the insured’s comprehension of policy language. Bridging that gap is essential for effectively insuring these assets.” 

Source: A Perspective on Public Water Sector Asset Valuation by Mark T. Hessel of HCA, appearing in Water Finance & Management

Some of the specific insurance coverage challenges you may face for water and wastewater utilities: 

Valuation Challenges

  • There are several options when it comes to property valuation techniques and tools 
  • There are no credible subscription-based resources in today’s property valuation world for water utilities and related structures
  • Professionals seeking to accurately estimate risks associated with water utilities have to rely on proprietary data in order to succeed 

Underwriting Challenges

  • It can be tough to determine how much of a total expansion is truly insurable 
  • It’s tough to determine what portion should be allocated to property designations such as Buildings or Contents/BPP
  • It’s tough to determine how much should be concluded
  • It’s not always easy to know if there are various construction classifications involved

“Insurance-to-value (“ITV”) is an issue all insurers face, and in the utility markets the challenges compound. Property underwriters routinely struggle to grasp exactly what it is they are being asked to insure.  Without proper documentation the process breaks down.”

Policy Exclusions

  • Policy exclusions become muddied in a utility environment. 
  • Interpreting the difference between covered and excluded property requires attention to detail and related experience

An example: “A relatively high percentage of construction costs will rest in below ground foundations, footings, piles, etc. – sometimes in the range of 15-20 percent. When seismic considerations are present, perhaps more.” It’s not always clear whether these should be included or excluded in a proper valuation. 

Now what? Knowing these challenges (and likely facing them yourself), what should your next step be? “Bridging the gap between insurer and insured and preparing an accurate property schedule with all the required property characteristics are commonly the missing links.”

Read the full article in Water Finance & Management here for an even more in-depth analysis of these issues as well as some solutions, then reach out to us for a more tailored approach to your specific needs.