Facing the Flood

The volume of water flowing through the Assiniboine River in Brandon, M.B. reached record levels this spring, causing further pressure in a province where the water tables were already filled to capacity last fall. News reports across the country focused on an incredible amount of water rushing through the waterways in the province. At times, when aerial shots pan over the province, it seems no dry land is left.

Social media is rife with tales of evacuations – both as a precautionary measure and due to actual flooding. One rural community sandbagged their homes and evacuated because they were living in an area intended to be flooded. Flooding their community was seen to be a means to save another larger, more densely populated community – sacrificial lambs, as it were.

Despite this alarming level of water, insurance claims in the area remain (as of press time) nearly non-existent. The inability to purchase overland flood insurance for residential properties plays some part in the infrequency of claims. However, just as important are the preventive measures the province and the residents have taken to mitigate damage. This is a prepared province; there are no rookies here when it comes to flooding and flood prevention.

Bird’s eye view

As of press time, adjusters, insurers and residents continue to wait with bated breath. One heavy rainstorm could take the province from a situation in which it gets through the spring relatively unscathed, to a position in which it helps rebuild basements for quite some time. “With the combination of saturated ground and high snow levels, we expect to see flooding again this spring,” said Gord Mansfield, vice president of claims with the Western division of Intact Insurance.

The flooding is more pronounced this year in the Assiniboine River Watershed, with the flooding heaviest in  the western parts of the province and in the central interlake area as well. Many seasonal residences have been destroyed by the high flood waters and the related wave action from early season storms on Lake Manitoba. In the Interlake, most of the farms are pasturelands; many are now under water. The livestock have been moved to other parts of the province. But how the pastures will fare remains to be seen, said Miles Barber, principal of Network Adjusters.

The City of Winnipeg itself isn’t at a terrible risk of overland flooding, although preventing sewer backup is a trickier issue. But when you leave the city, water covers a swath roughly 50 miles wide, said Larry French, president of J.P. Hamilton Adjusters. Highway 75, the principle link to the United States, was closed due to water overrunning the highway. The issue there lies with the cost of re-routing the trucks. “Winnipeg is a major destination and centre for trucks,” he said. “We’ve got huge truck fleets operating out of Winnipeg, most of which flow south. And the truckers, as a consequence, have to take different routes.”

Rivers normally 100 metres wide are now a kilometer wide, said Russ Malkoske owner of QA Adjusting Company. And although the water seemingly runs on forever, it is thankfully not very deep.

The biggest issue this year is the increased water levels in the Assiniboine River and its tributaries. The watershed is a huge area and it runs right into Winnipeg. There is a diversion west of the city, around Portage la Prairie, but that has reached capacity this year. “If anywhere is going to cause issues in the city, that’s going to be it this year,” said Grant Rerie, Manitoba regional manager for Kernaghan Adjusters.

(As of press time, flows were being released into the La Salle River watershed in a controlled release through the Assiniboine River dikes. The controlled release was an effort to minimize the potential for an uncontrolled breach that might affect 850 homes. The controlled release, on the other hand, could potentially affect 150 homes.)

The threat of sewer backup

For now, the industry sits and waits. “If the water goes over the banks, if we had a rainfall, it would be a horrendous problem, because the surplus water in almost all of the urban sewer systems is dumped into the rivers, which are at capacity,” Malkoske said. “When we’ve had the sewer backup issues, it’s been this type of condition.”

When it comes to flooding, sewer backup would be the main insured risk under a personal property homeowner policy. “While flood damage is covered for some commercial properties, in residential properties flood is not insured,” said Lindsay Olson, vice president for the regions of British Columbia, Saskatchewan and Manitoba at the Insurance Bureau of Canada (IBC). “However, sewer backup is, so it is going to be interesting to wait and see what kind damage occurs.”

As noted above, commercial – including farming – policies have flood coverage. This is in addition to the potential for business interruption claims if the water does not recede. For example, in Brandon, if the dike breaks and the water spills over, a large business section – filled with big box stores – might be catastrophically affected, said Paul Balabanski, principal of Westman Claims Adjusters Ltd. (As of press time, the dike had not yet broken. However, a civil evacuation order for homes and businesses in an area around the river created a few business interruption losses).

But when it comes to Manitoba’s flood waters, all eyes in the industry are on sewer backup losses. If the heavy rains come, there will be sewer backups, sump pump failures and sump pit overflows, Barber said. “Most of the infrastructure in the older part of Winnipeg operates with a combined sewer system,” he said. “If we get a heavy rain, the question is going to be: ‘Can the sewer system handle the run off?'” Newer areas have separate systems for live sewers and storm sewers, which means those areas will likely fare better, he adds.

Typically saturated conditions mean a higher probability of having sewer backup occurrences. This not only affects live sewer lines, but also septic fields and septic tanks. A higher probability of sump pit failure exists because high water tables lend to the risk of sump pump burnout and float failure. All sorts of combinations can occur. When sump pump failure occurs, there is an overflow from the sump pit – which is included within  sewer backup-style coverage, Barber said.

It might seem Manitoba is at a high risk for water-related claims, but this is not necessarily true.   “What’s happened is, of course, flood is not covered in any Canadian policy for personal lines. So even though there is a lot of publicity out there about these rising rivers and the floods, there is no coverage for it,” said Wayne Ross, vice president of national property claims with Aviva Canada. “As a consequence, they are having to go to the government for relief.”

It can be tricky to link the frequency of sewer backup claims directly to the flooding. But in the event of a huge influx of claims, most insurers will set up a major event record on their system. Last May, Winnipeg saw 100 mm of rainfall over two days at the end of the month, overwhelming the drainage system and resulting in high river levels.  The Co-operators received 231 sewer-backup claims as a result, totaling $3.6 million. This was the highest total of sewer backup claims related to a single claim event The Co-operators faced last year.

Throughout Canada, water-related claims account for 40 per cent of all claims in the country. In Winnipeg, they only account for 19 per cent, Ross points out.

Last year, significant rain compounded problems caused by high river levels, resulting in a lot of sewer backups, Ross said. Areas identifiable as high risk lack the infrastructure to satisfy the accumulation of water and inevitably sewer backups occur.

However, many carriers will not offer sewer backup coverage without limits. And they often require the provision of having a backwater valve. This combination results in fewer
claims in the area, Ross said. This is a change from when French and his office were tasked with adjusting 1,200 sewer backup claims in 1993 – a time  when there was no limitation on sewer backup. “It was hell on wheels,” French said.

Are we prepared?

Preparedness also helps to keep the claims numbers down. Manitoba is extremely well-prepared for spring thaws and the seemingly constant threat of flooding. After sustaining millions of dollars in damage due to a flood in 1950, the province began construction on the Red River Floodway. This was completed in 1968 and has, according to the Manitoba Floodway Authority, saved the province more than $30 billion in flood losses. Following the 1997 flood, better known as the ‘Flood of the Century’ – which came close to reaching the capacity of the floodway, thereby leaving Winnipeg at risk – the province further reviewed its flood exposure. If the area experienced another flood similar to the one in 1997, the flood protection infrastructure around Winnipeg was likely to fail, according to the Manitoba Floodway Authority. At that time, it was recommended immediate action be taken to protect Winnipeg. This resulted in what is now known as the Red River Floodway Expansion Project. The project is intended to increase flood protection to more than 450,000 Manitobans, 140,000 homes and 8,000 businesses. Ultimately, it is expected to prevent more than $12 billion in damages to the provincial economy in the event of a 1-in-700-year flood. The project is scheduled for completion this year, but the 1-in-700-year flood protection was achieved by 2009.

The province has also built dikes, which are elevated as needed, and piled sandbags to add further protection throughout the province. “The rural individuals, farmers and acreage owners are fairly proactive in moving snow or protecting their properties from a fast flood,” James Barnett, principal at Westman Claims Adjusters Ltd. said. “In a lot of cases, we don’t see [any claims] because they are fairly proactive and have the equipment or the ability to move snow as necessary or dike it.”

But no matter how prepared, the possibility for damage still exists.

In the event of a flood, adjusters and insurers are ready to get to work. The degree of predictability of such an event has afforded the adjusters the opportunity to clear off their desks in anticipation of a claims influx. “If an insured event happens, you want to make sure you’ve got your resources in place, that everything is set to go,” Barber said. “So when the claims start coming in, you are able to hit the ground running with your rubber boots on.”

A few years back, The Co-operators set up a Western storm team. Members of the team were asked to traveling the Western provinces to handle the influx of storm claims that seem to hit every summer, said Glen Oxford, national property claims manager with The Co-operators.

They are not the only ones.

“We have a dedicated catastrophe team we are able to mobilize and dispatch immediately to help customers get back on track,” Mansfield said. “Once calls come in, the catastrophe team works together with our standard claims team to quickly begin supporting brokers and customers through the claims process.”

Crawford & Company (Canada) Inc. also has a catastrophe team at the ready, and can call in additional adjusters not only from across the country, but North America.

In addition, Crawford has an “office in a box.” It includes wireless capability and everything required to set up in a hotel, office building or wherever they can find a place to sit. The company has on-the-ground logistics pre-arranged with hotels, facilities and rental companies so in the event of a disaster, there is no need to scramble.

The presence of social media also adds to preparedness. With the increased prevalence of social media, there is no need to sit around blind and wait for someone to report back on a situation. The networks are filled with up-to-date personal accounts and constant alerts.

This information pipeline can be a double-edged sword. Although it provides the industry a continuous flow of information and a medium through which to communicate, it can create mounting public pressure on adjusters, depending on the way policyholders use the sites. For example, if one policyholder has received a favourable response from his or her insurer, and others on the street have not yet heard from their company, this is now a viral issue that an insurer must face. In the past, a perceived lack of responsiveness might have been more of a contained, local issue, said Pat Van Bakel, senior vice president of operations with Crawford & Company (Canada) Inc.

Handling claims

If the homeowner has sewer backup coverage on the policy, which is available in various increments of coverage value in Manitoba, the next task is to determine how much of the damage, if any, is caused by sewer backup or, alternatively, how much of it is attributable to foundation seepage or leakage or overland flooding. The majority of homes in the province carry only $5,000 in coverage, Barber said. This is sufficient to have the damage stabilized, cleaned, properly disinfected and dried. There is usually a small balance left over for the homeowner to put towards a minor degree of reconstruction.

Working with Government

Members of the Canadian Independent Adjusters’ Association (CIAA) are always poised to help the government in times of need. The CIAA has formed a partnership with the Government of Manitoba’s Emergency Measures Organization (EMO) department, making adjusters available to help solve certain issues on behalf of the government. The partnership started back in the spring of 1997 after Manitoba was inundated with the flood of the century. “CIAA identified that there was going to be a need for the province in addressing the disaster financial assistance claims,” Barber said. “We contacted EMO and started discussions and established a mechanism. We provided 99 adjusters for a couple of weeks once the flood had subsided  to assist in administering the claims. Once things got under control, then we dwindled that number down. Ever since, when EMO needed outside resources to supplement their staff, we’ve been the go-to organization.”

The idea is that CIAA will supplement existing EMO staff to work on specific programs so that the core staff is not being too divested.

Senior adjusters will go out in the field to investigate and adjust a program, for example. They might also work backup by assuming an office position. This would mean  handling the paperwork while internal staff is out in the field or meeting with applicants.

“We’ve used them specifically in relation to flood compensation,” said Lee Spencer, director of recovery with the Manitoba Emergency Measures Organization. This covers instances in which the province is forced to store water on resident land. Other situations may include the operation of the floodway, when artificial flooding occurs. The CIAA is used in these types of circumstances because of their experience in determining eligibility and compensation, he said. “They understand how to calculate loss of income and revenue and other types of approaches that we are not normally engaged in here,” Spencer said.

Flood claims may not be numerous, but they are usually very complex and sensitive – something adjusters are accustomed to handling. “They fill a nice role for us,” Spencer said.

Independent adjusters are tasked with determining an appropriate settlement for the damages incurred and settling with the client. The EMO will tell the adjusters where it believes the affected residents are, what type of effects they believe have occurred and then the adjuster will head out to work with the client to determine the impact on livelihoods and property. The adjuster would then provide EMO with a recommendation on the amount of compensation necessary based on general insurance adjuster
practices, Spencer said.

“This particular organization provides very professional service that focuses both on the client’s needs and on the public’s needs,” Spencer said. “Everything that they have done for us has been done to a very high standard and certainly with everybody’s best interest at heart.”

A subsection in The Red River Floodway Act, registered in 2009, now dictates: “Whenever possible, the Emergency Measures Organization must use independent licensed insurance adjusters to evaluate compensation claims.”

Looking overland

Canada is the only G8 country that currently does not have some form of overland flooding insurance – be it government-funded, industry-funded or a partnership between those two entities. The suggestion to bring some form of overland coverage to Canada has been met with reservation, in part because of a principle called ‘anti-selection.’ Basically, the concern is that only those at risk would buy the coverage, and therefore the risk wouldn’t be spread widely enough to keep the premiums from being prohibitively expensive.

However, the Institute for Catastrophic Loss Reduction (ICLR), after extensive research into overland flood insurance programs, has come to the conclusion that bundling overland flooding with the standard policy would be an appealing option, said Glenn McGillivray, managing director of the ICLR. Swiss Re supported the ICLR research, culminating in a report presented in November 2010, Making flood insurable for Canadian homeowners.

McGillivray is quick to add that while many attribute flooding to living beside a body of water, this is not the only situation in which flooding poses a problem. “Flooding from rainstorm is a huge problem now and it’s only going to get worse with climate change and the condition of our infrastructure,” he said. “Water claims have surpassed fire claims as proportion of claims. There isn’t a city in this country that isn’t getting whacked by basement flooding from rainstorms.”

Quebec is the only province in the country to offer coverage for infiltration of water, where seepage that comes through the cracks in the foundation is a covered peril, McGillivray said. The insurers in Quebec seem to be interested in pursuing the idea of flood coverage, he added, noting that the province is more advanced with respect to flood mapping than other areas of the country. This puts them in a good position to implement this additional peril.

The ICLR researched flood insurance regimes in other countries. After looking at historical floods in Canada, and the loss costs associated with another flood, the ICLR concluded a modification of the current flood program in the United Kingdom would be the best suited for Canada. In the U.K., the insurance industry, through the Association of British Insurers, has a formal written agreement with the government that says each will be responsible for certain tasks. If the government performs tasks A, B, C and D – which includes keeping flood mapping  up to date, working on flood defense and prohibiting new construction in floodplains – the insurance industry will offer a product at a fair price with a low deductible. Additionally, the product is bundled in the U.K.

When it comes to bringing the model to Canada, the ICLR uses the U.K. example as a launching pad. But instead of just two parties to an agreement, the ICLR recommends adding homeowners to the equation. Under this model, homeowners would be required to defend against flood on their own property through means such as landscaping, ensuring a solid foundation, watertight windows, backwater valves, sump pumps, sump pits, etc. As in the U.K., the government would be responsible for flood mapping, flood defense construction, etc.

Canada has a Flood Damage Reduction Program in place. However, McGillivray said the program hasn’t received funding in quite some time, and it’s effectively become an empty shell.

And so when can Canadian homeowners expect to see overland flood insurance? “This wouldn’t happen tomorrow,” McGillivray said. “It wouldn’t probably happen in a couple of years. We can’t just have one of those three groups do their thing. All three have to do it together.” The ICLR is suggesting that all water damage be covered, no matter the source. But the IBC says insurers would then face the challenge of how to provide coverage to homeowners at a reasonable price. “For the folks who would need it, who are in those areas who would want it, it would be prohibitively expensive,” said Mark Klein, manager of media relations at IBC. “For folks who don’t want it, such as myself, we wouldn’t pay for it at all.” Currently, the insurance industry in Canada is looking into the possibility, and the IBC recognizes other jurisdictions do offer overland flood insurance. But at this time, an underwriting challenge still exists, Klein said. “We are looking into this and, given the increase in extreme weather situations, it is something we look at and will be continuing to look at,” Klein said. “We understand the seriousness and complexity of the issue. It is something on our radar that we will continue to look into, as a way to help consumers.”