How the Hard Market is Impacting Water Agencies

In today’s hard insurance market, underwriters are viewing their exposure and determining how to write this line of business, with carriers more focused on the quality of the risk over collecting premium dollars.

Challenges Faced by Water and Sewer Agencies
Water and sewer agencies are not immune from the hard market conditions, like other governmental entities. While treatment plants are generally considered a good class of business to write, many are now generating power for use at the plant and/or selling it back to the grid, which can pose challenges in the market today. As with other classes of business, valuation – or accurate valuation - is a key component of what carriers are focusing on when underwriting these risks. The cost of construction has increased and with it, values are increasing significantly.

What many don't realize is that we are flushing our toilets with quality drinking water. Unless you work for a water facility, you likely don’t know the amount of work that goes ensuring that clean water is being delivered to our homes and businesses. Water and wastewater districts are very independent from the cities and municipalities where they are located, and they have their own budgets. They tend not to defer maintenance and they do what's right from a safety and operational perspective; and that makes them unique from the public sector.

Insurance Implications
They are being impacted by the current market conditions on both the liability and property side of coverage. From a liability perspective, the single largest exposure they deal with is what we call SSO, or sanitary sewer overflows, generally into homes and/or businesses. This represents unique exposure to public agencies that operate sewer systems.  From a water operations perspective, when a water main breaks, there's some significant force behind that water that is coming out of the broken main and it can cause a lot of destruction and significant damage from a property perspective. Oftentimes these are located in more rural areas, such as pump stations in treatment facilities. In particular, on the West Coast and in California, wildfire is a major concern with many water and sewer agencies having significant exposure to wildfires on the West Coast.

When looking at the property side of the risk, we are dealing with a lot of aging infrastructure. Pipes are designed and put into the ground with a 30-year lifespan. In many cases, these pipes have been in the ground for 60 to 70 years and they've exceeded their lifespan while still being used. In order to replace them, it would entail a significant capital improvement project for which budgeting is needed years ahead of the intended work. From a carrier’s perspective, they must determine whether a loss will occur before the work is performed and then decide how much to charge for it.

In general, water and wastewater operations should be prepared to provide more data and information about their operations than ever before. This could mean the difference between securing coverage or receiving declinations. It’s not just about how much anymore; the current market environment has become a matter of whether the risk is good enough to include into a carrier’s book of business. So, when entering your renewal, beyond rate increases, the quality of your data will truly make a difference.

For more information, visit Alliant.com/publicentity