SoCal Gas, third-party insurer should disclose their sweetheart deal

Did you get a mailer from Sempra Energy about Home Emergency Insurance Solutions? @Davidlaz breaks it down

Southern California Gas wants its customers to pay extra for insurance on gas lines in their homes and it wants them to buy coverage from a Connecticut company called Home Emergency Insurance Solutions.

At least that's the impression many people could get from a recent mailer to area households from Sempra Energy, SoCal Gas' parent company, or, at least, on the company's letterhead.

The packet includes a notice stating that customers can pay for "home protection policies from Home Emergency Insurance Solutions" on their monthly bills.

This billing service is offered for no other insurance provider, suggesting that Home Emergency Insurance Solutions is preferred by SoCal Gas because of its superior performance and pricing.

The reality is that Home Emergency Insurance Solutions, a.k.a. HomeServe USA, a subsidiary of Britain's HomeServe, cuts in the utility for a piece of its action as part of an exclusive marketing arrangement.

Neither SoCal Gas nor the insurer discloses that relationship.

HomeServe has similar marketing deals with gas, electricity and water utilities nationwide, including about a dozen in California.

Neither SoCal Gas nor HomeServe was willing to tell me how much money is changing hands. However, a November filing by the utility with the California Public Utilities Commission placed the 2013 total at about $1.2 million.

The British parent company boasted in its annual report last year that "our partners benefit by offering their customers a valuable home-related product while earning a risk-free income."

The company also told shareholders that "in the U.S.A., we have been proactively working with local attorneys general and media commentators ... to minimize the risk of any negative media commentary."

I first wrote about Home Emergency Insurance Solutions in 2011 after the company sent official-looking letters to Southern California homeowners warning that problems with their water pipes could cost thousands of dollars.

The company said a policy costing just $4.95 a month could protect you from such hassles. As I pointed out at the time, the coverage offered by Home Emergency had so many exclusions, it hardly seemed worth $60 a year.

The recent packet received by SoCal Gas customers includes a letter from the insurer warning that "the interior gas line that runs inside your house and delivers natural gas to power your appliances, water heater and heating system could fail without warning, leaving you responsible for the cost of repair."

It said Home Emergency Insurance Solutions offers up to $3,000 worth of coverage for $4.99 a month.

The terms and conditions of the policy aren't included with the packet, and a service rep for the insurer was unable to show me where I could find them on the company's website. But he emailed a copy to me.

Anyone who's ever read the fine print of a home insurance policy knows that exclusions seem to outnumber covered items. Home Emergency's policy is no different.

The terms state that the insurer will not cover "problems caused by willful damage, abuse or vandalism."

You're also on your own for "damage caused by Acts of God, natural disasters, acts of nature, fire, explosion, theft, war, riot, military unrest, nuclear accident, flooding, hurricane, windstorm, hail, wind, lightning, earthquakes, earth movement or landslide."

I'm thinking that if a nuclear accident is your problem, a hot shower isn't the solution.

Also not covered are "service problems that existed on or prior to" the start of coverage, although how they'd determine this is a mystery.

Myles Meehan, senior vice president of HomeServe USA, said that even though the terms and conditions indicate that many repairs are excluded from coverage, "if a customer has a problem with their gas line, we'll take care of it."

Yeah, but how much will it cost?

Meehan said only that "our No. 1 priority is to take care of customers."

He said HomeServe has about 1.8 million customers nationwide, making it one of the leading providers of utility-related home repairs.

Meehan said the company handles at least one repair job for SoCal Gas customers daily, and the average value of parts and labor is $1,200.

SoCal Gas says on its website that even though the utility has a business relationship with Home Emergency Insurance Solutions, "we do not endorse or accept liability for HEIS' specific warranty products, services and terms."

Anne Silva, a SoCal Gas spokeswoman, said the utility receives a monthly transaction fee from the insurer to cover "bill presentment, printing and remittance processing services," along with "escalated customer issues or complaints that SoCal Gas helps to handle related to the billing service."

In its annual report, HomeServe says its marketing expenses "include payments made to affinity partners" — utilities — "in recognition of their support for the group's selling and policy renewal activities."

"Commissions are payable to affinity partners when the group has collected the premium due ... from the policyholder," it says.

This financial relationship should be disclosed to consumers. In fact, any sweetheart deal between a utility and a third party should be made clear to consumers, and the California Public Utilities Commission should make sure such marketing affiliations are completely transparent.

Better still, utilities should be barred from peddling third-party services to customers. If they see value in repair insurance, they should simply educate customers about the possible risks to homes and provide the names of all available insurers.

Otherwise, it's hard not to think that this is all a big racket, with consumers paying the tab.

David Lazarus' column runs Tuesdays and Fridays. He also can be seen daily on KTLA-TV Channel 5 and followed on Twitter @Davidlaz. Send your tips or feedback to david.lazarus@latimes.com.

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