Carriers ‘mitigating’ flood exposure after 2013 Alberta disaster: Western Financial CEO

In the aftermath of last year’s floods in southern Alberta, home and commercial insurance carriers are changing their policies, and a major reinsurer is calling on all stakeholders to come up with workable flood coverage.

Jeff Burke, president and chief executive officer of Western Financial Group Inc., talked about his company’s experience last June in High River, Alberta – where Western is based – during a session at the recent CIP Symposium in Toronto.

Last June, Western Financial, which has 162 brokerage offices in Western Canada, had to set up a claims centre north of High River, Burke noted, suggesting his brokers are seeing changes in both commercial and residential policies.

“Companies are mitigating their exposure,” said Burke. “Deductibles are going to $2,500 and $5,000,” he said of residential sewer backup coverage. “Rates increasing in the neighbourhood of 30% to 35%. Lots and lots of changes. One of the problems we face as a broker is, we are not sure that consumers know, even though we have told them and have outlined it. They have a new policy and dec sheets.”

But this does not necessarily mean consumers are actually aware of home coverage changes, he suggested.

One of Burke’s co-panelists – Robert Tremblay, director of research for the Insurance Bureau of Canada – agreed.

“Consumers need to be informed,” Tremblay said. “Nobody reads their insurance policies. You get it in the mail, you say, ‘Okay I have my contract,’ you put it in the drawer and you open it if something ever happens. That’s when you discover, if you read the small print, that you are not covered for flood, or what you think is a flood, is not a flood.”

Tremblay and Burke were two of three speakers at a session titled “Can we handle the risk? The future of insuring weather.” The symposium, organized by the Insurance Institute, was held April 10.

The third speaker was Christine Duffield, senior vice president for client markets at Swiss Reinsurance Company Ltd. She noted different people have different ideas as to what constitutes flood. In Europe, for example, people talk about floods from rivers.

“In Ontario you think of flash flood from heavy rain,” she added.” How can you develop a (flood coverage) solution when you are not talking about the same thing?”

During a recent round table, Duffield added, a broker said, “from a consumer’s perspective, flood is any time you have water in your basement.”

In southern Alberta last summer, Burke suggested, some people got paid on their sewer backup coverage.

“These people got sewer backup coverage, but I have never seen sewer backup of 10 or 11 feet in someone’s house before,” he said. “I know in talking with some of the folks at Lloyd’s with the reinsurers, they are really scratching their heads about what insurers did. I think it was the pressure, because people saw how devastated they were.”

In High River alone, the entire town of 13,000 was evacuated, and about 80% of the 550 businesses were “heavily impacted,” Burke noted.

“All of the commercial carriers that we have, have now changed what they are allowing us to write, and in most instances it is very limited,” he said of commercial flood coverage in High River.

Duffield suggested that in order for flood to be insurable, there needs to be “a common understanding of what you mean” by flood.

“We at Swiss Re believe it’s insurable, provided you have key elements of a successful solution.”

Those elements include an understanding that some areas are not insurable, meaning there is no premium a carrier could charge “that would be within a range of reason that would pay for the potential losses.”

There would also need to be flood maps and a large pool of policyholders, Duffield suggested.

“On this issue, leadership has to come from insurers because insurers have the most skin in the game,” she said. “All stakeholders, insurers, reinsurers, government and consumers – we have to work together to find an effective and economically feasible solution. Is this pie in the sky? I don’t think so. Canada is the only G8 nation that doesn’t have flood insurance for homeowners. All major economies have it.”