Insurance offered by water company affiliate might be superfluous [Lexington Herald-Leader]

March 24--More bills began arriving in Lexington mailboxes last fall after Kentucky American Water stopped handling the billing for Lexington city services including landfill, sanitary sewers and water-quality management.

Residents at the time were perplexed over the switch. Now a mass mailing from a company affiliated with Kentucky American Water has some asking more questions.

American Water Resources, which is also owned by Kentucky American parent American Water, recently mailed promotional materials to 60,000 homes in Lexington. The mailings promote the company's insurance offerings that cover water and sewer line repair, as well as in-home plumbing emergencies.

The services are not required and are not offered in connection with Kentucky American. American Water Resources is a separate company that has sold insurance in Kentucky since 2004. The company has more than a million customer contracts across 34 states, said spokeswoman Denise Venuti Free.

The company's main product is water line insurance. Free said homeowners are often unaware that it's their responsibility to maintain water pipes running from the property line to their home. Similar confusion arose during the 2003 ice storm, when many homeowners learned they were responsible for maintaining the mastheads that connect power lines to residences.

"If something happens, the first thing people do is call the water company," Free said. "But as a homeowner, you're responsible for the lines that connect underneath the home."

Typical home insurance often does not cover issues with water or sewer lines, Free said.

Greg Kosse, spokesman for Kentucky Farm Bureau Insurance, confirmed a maintenance issue like a water pipe wearing down and breaking would not be covered in a typical homeowner's policy.

"Your typical homeowner insurance is not intended to be a maintenance contract," he said. "It's intended to cover those direct sudden and accidental losses.

"But it depends on the facts and circumstances of the individual claim. There are very unique ways that you can have problems."

American Water Resources' water line insurance, which costs $60 annually, covers up to $5,000 in repair costs but does not cover damage to property or excessive water usage because of the issue.

American Water Resources also offers coverage for sewer lines and in-home plumbing emergencies.

The company's offerings are not subject to the regulation of the state Public Service Commission, which regulates Kentucky American Water and other utilities.

PSC spokesman Andrew Melnykovych said the commission has received only a few complaints over the past couple of years about the company and its insurance products.

"The complaints stem from a couple of things, including people who did not read the fine print or fully comprehend the fine print in terms of what wasn't covered in terms of the cost of repair," he said. "Secondly, there was the fact that the insurance coverage does not cover excessive water consumption as a result of the leak."

Free noted the New Jersey-based company has an A+ rating from the Better Business Bureau nationally. There have been 29 complaints closed within the past three years, according to the BBB's website. The majority of them were classified as complaints about the product or service.

Kevin Brasler of consumer advocate Checkbook.org suggested consumers be wary of buying the insurance offerings.

"My advice on these things is to only buy insurance to cover what would be catastrophic to you," he said, listing home, auto, health and life insurance if you're the primary provider for your family. "Other things like a warranty on a TV or buying certain types of supplemental insurance are usually a waste of money.

"These things have a massive markup, and the companies usually pay out only 20 to 30 cents for every dollar they take in for premiums."

Brasler said he encourages interested consumers to check their homeowners' insurance policies to see whether they can purchase riders for additional coverage similar to what's offered by American Water Resources. By doing it that way, consumers deal with only one organization in the event of a problem.

Despite his advice, Brasler said that he himself actually has coverage for potential sewer problems.

"The only reason I buy it is my next-door neighbor growing up had a sewer backup, and their lives were never the same after that," he said. "But I'm wasting $40 to $60 a year because of that."

Scott Sloan: (859) 231-1447. Twitter: @HeraldLeaderBiz

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