City-endorsed warranty business: smart solution?

Service Line Warranties of America Letter (redacted)
SLWA Letter

ALBUQUERQUE (KRQE) – The letters look official.

They arrive in envelopes with a city seal, on city letterhead, signed by the city, with bold lettering saying they are “endorsed by the Santa Fe City Council.”

They are not sent by the City of Santa Fe.

The letters are a marketing tool used by Service Line Warranties of America to sell what amounts to an insurance plan for residential sewer and water pipes.

And while it’s not the city selling the policies, Santa Fe is completely on board with the company offering them.

“In my opinion, there’s a lot of value in having the insurance,” said Nick Schiavo, the city’s Public Utilities Director. Schiavo points to the fact that the city is old. And, he says, many homes have the pipes to match.

The policies cover pipes that run across private property from municipal connections near the street to homes. They’re often referred to as “yard lines”. Many homeowner’s insurance plans don’t cover breaks or backups in yard lines.

City-Approved

Endorsing a private company’s solicitations, though, is an unusual move for the city.

Schiavo said the SLWA policies come recommended by the National League of Cities, a group that lobbies the federal government on behalf of municipalities.

Brian Davis, the Southwestern Regional Account Manager for Utility Service Partners, Inc., which operates as Sewer Line Warranties of America, handles Santa Fe’s account. Davis said that, because of the gap in coverage for yard lines, many cities see the policies as a way to avoid unpleasant surprises for residents.

Schiavo explained the problem for homeowners who find themselves with a break or backup that happens on their side of the city line: “Not only do you have to pay for the repair of the line, but also for the water that got used when the line was broken.”

Like most water in the West, the spilled water is relatively cheap. The cost of making sure it doesn’t happen again can range into the thousands. So, after endorsing the program and signing on with SLWA, the city’s 31,000 residential water customers got the solicitation letters this spring.

The program is optional, noted Schiavo. The solicitation letters imply that fact, but don’t state it explicitly. The city’s contract with SLWA allows it to review the letters before they are mailed out.

So far, Schiavo said, city residents who signed up for the policy have cost the company $45,000 in 85 separate claims. That’s a bit more than $500 per repair call.

A Dissenting Voice

In the cavernous garage at CaitCo Drainworks, a Santa Fe plumbing company, owner Chris Wilson laughed: “You know, I’d love to put the city seal on my business. They wouldn’t like that.”

When Santa Fe initially announced the agreement with SLWA, Wilson raised a stink, arguing the endorsement hurt local providers.

SLWA countered that its policy is to use only local plumbing companies to handle any calls for service. Homeowners who buy the policies call a toll-free number to ask for service.

But Wilson said he refused to become one of the local contractors for SLWA because he feared the program will work the opposite of the way he runs his plumbing business.

“We want to go fix the problem,” he explained, “And leave the decision-making up to the customer.”

The Service Line Warranty of America policy says decisions on how to fix an issue are “entirely within the discretion of the company”.

Wilson said, “They’re using this as a ‘keep the lines flowing’ program.”

Considering the mess of a sewer line backup – “it comes up in the bathtub, comes up in the shower, sometimes goes over the bathtub or the shower pan out onto the floor” – Wilson said a quick clean-out to restore flow to a sewer line clogged by an obstruction such as tree roots may work initially but it could have disgusting consequences if it happens again.

City Contract

The SLWA sewer contract says that the focus is on restoring flow to any clogged lines. But Brian Davis insists that is not an excuse to comes out and auger a line time after time instead of fixing it.

He pointed to the company’s A+ rating with the Better Business Bureau in its Western Pennsylvania headquarters and said having the the city seal on the initial sales pitch serves to protect homeowners. If a policy holder is ticked off by lousy service, Davis said, the city of Santa Fe is likely to hear about it.

SLWA has partnered with more than 200 cities across the U.S. and Davis said the company’s research indicates the vast majority would recommend the program to other cities.

About half the cities with an SLWA take advantage of a kick-back on each policy sold. That money is often placed into a fund designated for such things as payment assistance programs or repairs to city water or sewer lines. Alternatively, the company said it will offer a rate reduction to customers.

Santa Fe chose the reduction. The city says the current rates – $4.50 per month for water line coverage and $6.50 per month to cover sewer lines – reflect that discount. Davis maintained the rates SLWA quoted to Santa Fe were $5.75 and $7.75, respectively. That would mean a discount far greater than the 10 percent reduction promised by SLWA. Verifying those numbers, though, is difficult due to the fact that SLWA is the company setting the rates for the market.

A rate comparison done by KRQE News 13 showed the quoted rates Davis referenced would be among the country’s highest rates for cities covered by SLWA. The rates being offered to Santa Fe residents appear to be roughly average.

Service Line Warranty Rates
City Water (per month) Sewer (per month)
Santa Fe (quoted) $5.75 $7.75
Santa Fe (actual) $4.50 $6.50
Farmington $5.25 $7.25
Tucson $4.75 $6.75
Abilene, TX $3.75 $4.75
North Little Rock, AR $6.00 $8.25
Phoenix $4.50 $6.00
San Diego $6.75 $9.00
Atlanta $5.00 $5.75
Ft. Lauderdale $5.00 $6.50

SOURCE: slwofa.com

Buyer Beware

Wilson wouldn’t go so far as to call the policies a rip-off. “I just think the homeowner needs to pay attention to what they’re really buying into.”

The policy doesn’t cover damage to floors or other parts of a home’s interior that is caused by a sewer line backup or water line break. Coverage is capped at $4,000 repair.

But the policy doesn’t require homeowners to pay a deductible. And if it’s necessary to cut into a street, an extra $4,000 is available. SLWA kicks in $500 for a cut in a public sidewalk. The policy also doesn’t have a yearly cap.

At the city’s water and sewer offices, Nick Schiavo said the policy made sense for older homes, where the cost of replacing a line could be significant. If he had a new home, with new yard lines? “I probably would not opt into this program.”

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