New IBC flood model shows 1.8 million Canadian households at ‘very high risk’

Insurance Bureau of Canada now has flood maps that lets the bureau “assess flood risk right down to the residential level for both fluvial and pluvial flooding,” an IBC official told insurance professionals Monday.

RELX Group plc’s LexisNexis Risk Solutions unit announced Nov. 26 it was selected by IBC as a lead partner to develop flood hazard maps and property-level exposure data for Canada.

“We have just received the results of that work now,” said Craig Stewart, IBC’s vice president of federal affairs, during Canadian Catastrophe Conference, produced by Catastrophe Indices and Quantification Inc. (CatIQ), a sister company to MSA Research Inc.

“It’s available to insurance companies now so that they can underwrite risk,” Stewart said of the project led by LexisNexis, which Stewart says creates a “brand new flood model in Canada.”

Stewart was part of a panel Monday titled Floods: Where do we Stand and What’s Next?

“Somehow we need to be able to use it carefully with municipalities and ideally with Canadians in order to make them more aware of what the risk is, not only so they can buy insurance if need be, but also so they can take it upon themselves to change the local drainage on their property or as an incentive to replace those cracks in their basements,” Stewart said of the project led by LexisNexis.

“Essentially what it does is the company took river gauge and rainfall data to measure flood extent and depth, flood defence information, historical flood records, snowmelt and terrain data,” Stewart said. “Then we partnered with LexisNexis, DMTI Spatial and Brookfield to incorporate address data, residential replacements costs and peril information.”

The resulting data shows that “20% of Canadian [households] could be qualified as high risk, based on our metrics and about 10% of those would be considered very high risk and that’s about 1.8 million households,” Stewart said. “Most people think, ‘Well, the people that are at high risk are those who live on the river front and are higher income, they’ve got the best views, they can afford those expensive houses so they should be able to afford higher premiums.'”

But research shows there is actually no correlation between income and high flood risk, he suggested.

“It’s actually pretty evenly spread through different income levels and that’s partly because you are looking at pluvial risk as well as fluvial risk,” Stewart said. “So you need to have a solution that is going to encourage uptake by Canadians regardless of income level and that may mean some sort of private-public partnership at the end of the day, some sort of national flood program, maybe akin to what the UK has developed with Flood Re.”

Flood Re is a British special purpose vehicle and a not-for-profit monoline reinsurer scheduled to launch this April. Flood Re entails a cross-subsidy from about 98% of the U.K. population to the approximately 2% of high-risk property owners, Flood Re CEO Brendan McCafferty said Oct. 2, 2015 at the National Insurance Conference of Canada.

At NICC, IBC CEO Don Forgeron said new residential flood products in Canadian market “will likely not deal with all of the high-risk properties” and suggested “government involvement” is likely needed to cover those high-risk properties.

How government involvement in flood insurance would work in Canada is “one of the key public-private discussions that we are going to need to engage in the immediate future,” Stewart suggested Monday at the Canadian Catastrophe Conference.

Also speaking on the panel was Rob Wesseling, executive vice president and chief operating officer for property and casualty operations at The Co-operators Group Ltd., which launched its Comprehensive Water Endorsement last May in Alberta.

One way of increasing awareness of flood risk is to “monetize” it, Wesseling suggested.

“If we can build into our budgets and our household, that a certain type of disaster is going to happen – and typically the way we do it is by buying insurance – and that’s the monetization,” he said. “The insurance premium tells us that I’m in a high-risk zone from a flood perspective if I pay a high premium for it or that I’m in a high risk zone from an earthquake perspective if I pay a high premium for it. That’s actually very powerful because it drives behaviour and decision-making.”

Both The Co-operators and Aviva Canada have been offering residential flood coverage since the spring of 2015, while RSA launched Nov. 17.

“We expect it’s going to be rolled out across the country probably over the next five years there will be a variety of products available,” Stewart said. “We will be watching the takeup very carefully.”

Referring to calculations from Environment Canada, Stewart said heavy storms that used to take place once every 40 years are going to take place about every six years.

“You are going to have these mega events, so there will be those who find themselves in homes that are flooded over and over and over again and they are going to be the ones that will have difficulty getting insurance,” he said. “So a robust solution that’s going to work for all Canadians – when will that be available? That will depend on societal decisions with governments on how we are going to roll out to make sure that those Canadians aren’t left behind.”

Some models used to forecast future weather patterns give a “range of possible outcomes,” said the panel’s third speaker, Kurt Kornelsen, network manager for FloodNet, a network of academics, government scientists and flood forecasters funded by Natural Sciences and Engineering Research Council of Canada.

One of the problems is municipal engineers need to “make a single decision” when planning for future flood frequency, Kornelsen said.

“In Southern Ontario, we are seeing increases in the number of wet days per year, we are seeing increases in the intensity of the rainfall, the total amount of rainfall and the frequency of damaging rains,” Kornelsen said. “Our models are under-predicting what rainfall patterns we can expect to see, in southern Ontario in particular but also globally, so as we use that information to predict forward to the future, we need to be able to communicate the fact that we are dealing with an imperfect set of knowledge.”

Canadian Catastrophe Conference, which wraps up Tuesday, was held at the Toronto Region Board of Trade at First Canadian Place.

Associate Editor’s Note: In the 2012 report Telling the Weather Story, commissioned to the Institute for Catastrophic Loss Reduction by the Insurance Bureau of Canada, Professor Gordon McBean writes: “Weather events that used to happen once every 40 years are now happening once every six years in some regions in the country.” A footnote cites “Environment Canada: Intensity-Duration-Frequency Tables and Graphs.” However, a spokesperson for Environment and Climate Change Canada told Canadian Underwriter that ECCC’s studies “have not shown evidence to support” this statement. 

More coverage of the Canadian Catastrophe Conference

Five of Canada’s six weather catastrophes in 2015 were out west: CatIQ