DIGGING DEEPER: Profiting From Protection

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Pumping 11 billion gallons of drinking water and treating nearly 17 billion gallons of wastewater every year, Fort Wayne City Utilities is the largest city-owned water and sewer provider in the state of Indiana.

And if you are one of its more than 315,000 customers, you might have noticed an interesting piece of mail lately.

That mailer had us doing a double-take.

Right there on the top is the logo for City Utilities. But open it up, and you’ll find an offer from a private company to sell you a warranty on your sewer and water pipes.

So who sent it? And who is profiting from protection?

Carl Bauer checks his mail every afternoon, and tosses most of it in the trash. But this fall, one mailer in particular caught his eye.

“This one I read,” says Bauer. “And I’m glad I did.”

Fort Wayne City Utilities sent out postcards and letters advertising a warranty program for your sewer and water pipes – a program not through City Utilities, but an out of state company called American Water Resources.

“It says,” reads Bauer. “‘As property owner you are responsible for the maintenance and repair of the water and sewer lines running through your property.'”

Bauer tried calling City Utilities to voice concerns about vague wording which he thinks is misleading.

“They blew me off,” said Bauer.

He’s convinced the mailers are a form of fear mongering.

“It does raise fear in your head,” says Bauer.

And Bauer’s not the only one asking questions.

“It’s kind of threatening,” says Linda Fagen. “In the fact that you know, ‘this could could you major, major dollars down the road.'”

Fagen – who already has to figure out how to pay for a rate hike on a fixed income – doesn’t like the idea of paying more.

“To pay a monthly fee to have coverage for something that I think is probably rarely going to happen,” says Fagen. “Is just not necessary.”

We sat down with Matthew Wirtz – deputy director of Fort Wayne City Utilities.

“A lot of customers don’t know that they actually own the piping that connect their home to our Fort Wayne Utilities,” says Wirtz.

He says the letters not only offered a protection plan, but also made folks aware that they are responsible for some repairs.

“It can be thousands of dollars to fix,” says Wirtz. “And several thousands of dollars sometimes for a sewer lateral.”

Here’s what the city didn’t tell you:

Alexis Shear: “Is the city getting a kickback or commission each time someone signs up for this?”

Matthew Wirtz: “The way we structured the agreement is we got a one-time, American Water partners I think they’re paying us $75,000 and then there is a percentage of each number of customers.”

So in addition to that $75,000 for letting AWR solicit its customers, the city cashes in on every homeowner who signs up, getting a 12.5 percent kickback on each enrollment.

Shear: “Is it the city’s place to endorse companies? Why not endorse grocery stores or department chains?”

Wirtz: “We’re in the water and sewer business, so we’re not going to get into grocery stores or something like that. But repairing piping is something that we feel we can add value to.”

City Utilities says they were already in the position of endorsing contractors when homeowners called about broken pipes and clogs.

“It was a way for us to vet a company that we would feel comfortable saying hey, ‘call these people,” says Wirtz.

We checked, and more customers need repairs than you might think.

Last year, 179 homeowners reported sewer clogs and 93 reported water leaks that they had to pay out-of-pocket to fix.

But before you sing up, local State Farm insurance agent Sam Till says you should know two things:

“Actually in the first paragraph it says explicitly this is not an insurance contract,” says Till.

AWR offers a “protection program” – not insurance – meaning their claim process is a lot less regulated.

“There’s a lot of exclusions in there,” adds Till. “There’s a lot of ‘not covered.’ So you gotta be careful when you’re looking at something like this.”

And make sure you read the find print. The plan only covers wear and tear. The list of what’s not covered is substantial.

We asked AWR about that in a Skype interview with their marketing director, Matt Lindner.

“American Water Resources has saved hundreds of millions of dollars for the customers that we have been protecting primarily in water line and sewer line coverage,” says Lindner.

But when we asked for specifics…

Alexis: “Any numbers of claims reported every year where people actually have to use these policies?”

Lindner: “Normally we do not disclose that information.”

When we told Bauer and Fagen about the city kickback, it only added to their frustrations.

“It doesn’t mention that on the card does it?!” exclaimed Bauer.

“Our utility bills are already high enough I think,” says Fagen. “And then to find out that they’re getting a kickback from something they say is going to protect us? And then to get a bonus on top of that of $75,000 for giving this company the right to come in here and send letters out to their customers? That, that is just not right.”

“I am passionate,” says Bauer. “Because to me it is absolutely wrong.”

They say the city should have told its customers it’s “Profiting From Protection.”

“If they’re indeed going to be the sales rep for the insurance company,” says Bauer. “Then absolutely they should have disclosed that.”

“I think it’s important that this is exposed,” says Fagen.

After our interview, City Utilities sent us a statement saying in part, the new cash flow from the third-party warranty program will go into a relief fund to assist low-income customers afford utility fees.

As for those fliers, we should note the postage and mailing costs were paid for by AWR, not Fort Wayne city customers.

Alexis Shear

Alexis Shear

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