The ‘touchy topic’ in Canadian home insurance

Lack of flood coverage in high-risk areas raises the controversial question of whether owners of high-risk properties should have their insurance premiums subsidized.

Overland flood coverage was generally unavailable on home insurance policies in Canada until 2015. Now dozens of carriers offer this coverage.

But if overland flood “is priced properly, there may be many people who are going to get priced right out” of the market, said Raymond Thomson, associate director of A.M. Best Company Inc., on Wednesday during the 2018 insurance market briefing Canada.

The question of whether flood insurance should be subsidized is “going to be a touchy topic,” Thomson said at the briefing at the Sheraton Centre in Toronto.

There are hundreds of thousands of Canadian homeowners who cannot afford overland flood insurance because they are situated in areas considered by insurers to be at high risk of flooding, Craig Stewart, vice president of federal affairs for Insurance Bureau of Canada, told Canadian Underwriter earlier.

Unlike Britain and the United States – which have Flood Re and the National Flood Insurance Program respectively – Canada does not have a federally-administered program to subsidize homeowners’ flood insurance premiums.

IBC has recommended that government provide capital for flood insurance for homes at high risk of flood. IBC says such a program should be administered by insurers.

The federal government has not taken a position one way or the other, only saying that Public Safety Canada is working with stakeholders such as IBC “to explore options for a national approach” to flood insurance.

One Canadian insurer offering overland flood is Waterloo, Ont.-based Heartland Farm Mutual Inc. With Heartland customers, overland flood coverage “is actually pretty popular,” Heartland president and CEO Louis Durocher told Canadian Underwriter in August. “The key is to make sure that you rate for risk. There are some areas where it’s actually quite hard to provide the coverage because you know there is going to be flooding if there is a rain storm.”

Flood coverage was one emerging issue Thomson discussed during A.M. Best’s 2018 market briefing.

A.M. Best analysts also discussed a report of theirs released Aug. 28 showing that the Canadian P&C industry barely broke even last year. Canada saw a one-point improvement in the combined ratio from 98.1% in 2016 to 97.1% in 2017, the ratings firm reported. The industry-wide statistic excludes the Lloyd’s market and government auto insurer Insurance Corporation of British Columbia.

In 2017, there was “no single large Fort McMurray type event,” Gordon McLean, senior financial analyst for A.M. Best, said during the briefing. McLean was referring to the 2016 Alberta wildfire that cause industry wide losses in the neighbourhood of $4 billion.

But 2017 saw “an accumulation of large losses at an increased frequency relative to the prior year,” McLean said, noting the P&C industry “grapples with increased frequency and severity of losses due to weather.”