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The neighborhood of Elbow Park and its houses sit under water after the city of Calgary faces a city wide state of emergency after the river crested early in the morning of June 21, 2013 and as many as 100,000 people have been evacuated.

Chris Bolin/The Globe and Mail

Insurance providers who reversed their decision to deny Calgary residents flooding claims after last month's weather catastrophe may have found their brands were worth more than the water damage.

Several large property and casualty insurers faced a customer backlash in the weeks following the flooding that ravaged Southern Alberta, as neighbouring homes with various insurance providers received different levels of coverage for repairs. Some customers were flatly denied any insurance compensation.

That led to a public relations headache for some companies. Frustrated residents erected signs that attacked insurers who initially refused to pay claims. Signs "named and shamed" companies such as TD Insurance Inc., RBC Insurance Services Inc. and Alberta Motor Association (AMA) Insurance.

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The controversy stems from the type of water damage that homeowners experienced, since insurance policies cover some kinds of sewage back up but don't insure broader overland flooding, Insurance Bureau of Canada spokesman Steve Kee said.

During the province's most recent flooding disaster, the two types of damage occurred simultaneously in some areas, and now it is up to the insurer to assess and interpret both the evidence and the wording in each individual policy.

And that could get expensive. The flooding that struck Canada's most catastrophe-prone province last month is projected to have "much higher" costs for insurers than the $300-million in claims covered during Alberta's last instance of major flooding in 2005, Mr. Kee said.

But after the appearance of the angry signs on many affected streets, some insurers, including TD, began to reverse earlier denied claims and agreed to cover some of the flooding damage.

"Recognizing the extent of the devastation and the hardship that many of our customers are experiencing as a result of the flooding, TDI will pay for sewer back up losses within the limits of sewer backup endorsements. We'll be reaching out to customers in the coming days," said Susan Donlan, vice-president of corporate communications, in a statement. RBC Insurance declined to comment.

Branding is extremely important to property and casualty insurers because their industry is more fragmented than others such as banking or life insurance, said which operate as oligopolies in Canada, said National Bank Financial analyst Peter Routledge. That puts extra pricing pressure on the more than 200 home, auto and business insurance providers in the country.

Product pricing is determined in part by assessing the probability that the insurer may have to pay a claim, and the cost of that claim. Covering more damage is more expensive, and that risk could be spread to customers through higher premiums.

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"It's not just TD and RBC – if all the property and casualty insurers decided it's a lot more costly to deal with PR issues than just pay claims out when we have these extraordinary floods, at the end of the day, the probability of a bad event happening that they'd have to pay for goes up, and they'd have to increase their premiums," Mr. Routledge said.

And there could be broader implications for the industry, were that trend to continue.

"If the industry decides it must include a new catastrophe component in home insurance policies, customers will have to pay for that," Mr. Routledge said. And that would be costly because of the capital regulators would require them to hold against those policies. So far, there have been no indications that such an industry shift is imminent.

To a certain extent, insurance businesses have their hands tied when it comes to payouts. "Insurance companies pay insurance themselves, and if they were to choose to ignore policy wordings – to bow to public pressure and help customers out – they risk a reinsurer refusing a portion of their claim," said John Rigby, an insurance broker affiliated with the Insurance Brokers Association of Canada. That's not excuse to avoid paying claims, though, he said. All, or nearly all, of his claims have been paid.

In the meantime, insurance providers will keep working with individual customers to sort through the damage left behind by the floods. "We have been settling claims for automobile damage, mass evacuation and loss of freezer contents, as well as sewer backup that qualified for coverage," Ms. Donlan said.

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