A city-endorsed private company appears to be racking up substantial profits from homeowners worried about water and sewer problems. Hamilton is the first Canadian city to partner on a controversial pipe warranty program that originated in the United States.
The city struck a deal last year to promote Service Line Warranties of Canada (SLWC) and is now reporting that nearly 10,000 Hamilton homeowners are paying premiums to the company “to cover repair costs” if problems occur with their water or sewer lines. Program promotion includes personalized letters signed by the city’s general manager of finance and bearing the city’s logo but which claim that “the City of Hamilton did not, and does not, sell or otherwise provide any resident names or address information as part of this program.”
The water line warranty cost is $55 a year while coverage for sewer line problems is $64. An “in-home plumbing repair” warranty can be obtained for an additional $73 a year. Taxes are extra.
Even if the 10,000 subscribers have taken out only the cheapest warranty, they are paying over half a million dollars a year to SLWC in premiums. And the total approaches two million if they have subscribed to all three warranty plans. But the actual payouts in the first year of operations were less than $150,000 and averaged less than $325 per home – a calculation which suggests that residents only financially benefit if they need repairs every 4-6 years.
“Over the past year, SLWC has addressed over 450 warranty claims allowing Hamilton residents to avoid the high cost of these unexpected repairs,” says the city’s media release. “Approximately, $145,000 in repair work was completed by SLWC’s network of local, licensed contractors, providing significant economic benefits to Hamilton.”
The rapid take up of the program may be partly related to the enthusiastic endorsement of the city which features it on their website and whose official correspondence includes a postage-paid envelope and sales pitches like “save with an annual payment”, “approved by Hamilton City Council” and assurances that SLWC “is an accredited Better Business Bureau organization that has an A+ rating.” The city has also produced a cable television video on SWLC that is featured on the front page of their website.
Another factor may be the appearance that SWLC is offering an insurance program that would also cover damages resulting from frozen or damaged pipes, something hinted at in the video. The fact that isn’t the case is only explained near the bottom of the second page of the city’s promotional letter.
“The plans are a warranty service plan offered by SLWC as an independent private provider,” the letter notes. “Although the plans use terms like ‘deductible’, ‘coverage’ and ‘exclusions’, the plans are not insurance, but a contract pledge to arrange a contractor to repair your service lines.”
The city negotiated a commission of five percent of SLWC sales plus a half percent of what the company obtains if other municipalities adopt the program and expects to collect $200,000 if 30,000 homes buy into the plan. Hamilton is the first Canadian city to cut a deal, but the US parent company operates in over 200 cities where premiums appear to vary widely according to a review done by an Albuquerque radio station.
In some places like Kansas City, opposition from local plumbers kept the company out, and there was also controversy in Denver because the city got no money for its endorsement. A Baltimore arrangement with a competing company also provided no revenue to the city, but set up a $150,000 fund to help low-income residents facing water and sewer repairs and generated objections from warranty competitors.
Because the warranty plan isn’t insurance an additional concern in the latter city was that legislation protecting consumers didn’t apply. Hamilton’s plan was launched just before the first of two exceptionally cold winters that froze hundreds of water pipes. The city spent an extra $2.8 million this year on the problems and recently set aside an extra $2 million for the winter ahead.