Canadian Underwriter

Where the federal government sits with its national flood insurance review

May 20, 2020   by Greg Meckbach

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Six years after the federal government promised to explore options for a national approach to home flood insurance, the feds are still thinking about it.

About 13,000 were recently evacuated from Fort McMurray, Alta., because of flooding on the Athabasca and Clearwater rivers, the Canadian Press reports, adding many of those homeowners are either uninsured or under-insured for overland flood.

While 13 insurers offer overland flood coverage in Alberta, coverage for those in high-risk areas is either not affordable or requires all insurance rate payers to subsidize those rates, the Insurance Bureau of Canada said May 7.

“This is why the insurance industry believes Canada needs a national action plan on flooding,” IBC said May 7 in a release.

The issue has been on the federal government’s radar screen since at least 2013, when floods in southern Alberta caused nearly $2 billion in insured losses and about $6 billion in economic losses. One reason for the difference was that until 2015, overland flood was generally not available with Canadian home insurance policies.

Nearly a year after the massive Alberta floods, the federal government said in its 2014-15 budget that it “proposes to consult with the insurance industry, provinces and territories to explore options for a national approach to residential flood insurance.”

So, how are these consultations going now?

Canadian Underwriter asked Public Safety Canada earlier this month if at some point the industry can expect to have a low-cost national flood insurance program in place for homeowners at high risk of flooding. And if so, when.

A May 15 reply from Public Safety Canada did not answer the question directly. But a government spokesperson did say the government will give “full consideration” to proposals made in an IBC paper released nearly a year ago.

One option proposed by IBC is a special pool for high-risk properties, whereby premiums would reflect actual risk but would either be capped or subsidized. The IBC paper, Options for Managing the Flood Costs of Canada’s Highest-risk Residential Properties, was released June 18, 2019. Another option in that paper is a “pure market” approach. This would mean homeowners are no longer eligible for flood disaster relief, and instead they would be left to self-insure, purchase insurance from the private market, or relocate.

A third option would have the private sector take on as much contingent liability for flood as its risk appetite allows, while leaving the highest-risk properties (where private-sector insurance would not be affordable at actuarially-sound rates) to be covered by government disaster assistance programs.

“The three possible options presented in the report are informative, and are examples of the range of possible solutions to addressing the financial cost of managing high-risk properties in Canada,” the Public Safety Canada spokesperson told Canadian Underwriter May 15. “It is important to note that other options could also be considered moving forward. We must go beyond disaster response and recovery and focus on proactive prevention and mitigation measures that will result in risk-based, cost-effective solutions to protect our communities.”

In a mandate letter from Prime Minister Justin Trudeau, Public Safety Minister Bill Blair was asked this past November to work with Ahmed Hussen, minister of families, children and social development, to create a new low-cost national flood insurance program to protect homeowners at high risk of flooding and without adequate insurance protection.

In 2015, Canadian property insurers started writing overland flood insurance. This, IBC says, would cover damage caused by the overflow of lakes, ponds or rivers; surface water from heavy rainfall or melting snow; and ground water or the rising of the water table, causing water to enter a home at the ground level or by seeping through windows, doors and walls.

But brokers remain concerned that overland flood is not available to high-risk homeowners at affordable rates. This is one reason the Insurance Brokers Association of Canada (IBAC) completed a flood principles document in 2016. At the time, IBAC called for flood insurance to be available and affordable to all homeowners who need it.

“There must be a partnership of the public and private sectors that is clearly understood by all,” IBAC says in its flood principles document. While government “should not be an insurer of first resort,” government should be available to provide a “backstop to catastrophes,” says IBAC.

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