Canadian Underwriter

Insurers need to tell clients about flood exclusions: EY

March 31, 2014   by

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Canadian property & casualty insurance carriers need to work with government to determine how areas at risk of flooding can be insured, and they also need to “draw policyholders’ attention to exclusions,” suggests a report on the Canadian p&c insurance industry from Ernst & Young LLP released in early April.

“Flood insurance received ample focus in 2013, and insurers need to continue to work with governments to define areas of higher risk and determine how these can be insured,” EY said in the report.

“Many insurers already use state-of-the-art technology to understand areas at risk of flooding and factor these into policy decisions. Insurers also need to draw policyholders’ attention to exclusions to make sure they understand their coverage.”

The June 2013 floods in southern Alberta “brought to light the difference between overland flooding and sewage backup,” EY stated. “Although this has been an issue in the past, it was magnified by the extent of the disaster and the number of affected customers. Claims were being denied because they were for damage caused by overland flooding, which is not a default coverage but can only be added at extra cost.”

EY added some carriers “ended up paying out these claims even though they were not covered just to avoid reputation damage.”

Meanwhile, with satellite mapping, EY added, “insurers could better use predictive modeling and maps to inform policyholders and to underwrite areas that have higher risks of flooding.”

“We’ve said it before, but especially after a tough 2013, insurers need to invest in people, processes, methodologies and technology to meet the new requirements for risk analysis, distribution oversight and information transparency,” stated Doug McPhie, partner and EY Canadian insurance leader, in a release.