Over and Above

Weather patterns vary from year to year, so it is difficult for anyone to perceive permanent change. Still, for those who get the sense that the current weather in Canada is different than it was before, they get full marks for their perception.

Here are the facts: Canada is wetter, warmer and stormier than it has ever been, and there is no “reverse course” in sight. Weather patterns are changing worldwide, a trend that is affecting Canada directly.

Over the past 60 years, consider the following developments:

• average temperatures have increased by 1.3 degrees Celsius;

• average rainfall has increased by 12%; and

• Canadians now experience an additional 20 days of rain each year.

The end result is staggering: Since 1970, the average number of events that qualify for federal financial assistance under Disaster Financial Assistance Arrangements (DFAA) programs has increased threefold – from three disasters per year in the early 1970s to nine disasters per year in the first four years of this decade.

In fact, the DFAA costs for flood have more than quadrupled in 40 years, from a cumulative $300 million in the 1970s to $1.2 billion in the 2000s and $3.7 billion in the last four years. Just shy of three-quarters (74%) of all DFAA payments since 1970 have been due to flood.

Insurers are feeling the effects, too. Before 2009, payouts to policyholders as a result of severe weather were not notable. Today, annual claims payouts of $1 billion or more is the new normal – and insured severe weather-related losses in 2013 alone totalled $2.3 billion in Canada and hit US$19 billion in North America, the highest of any region in the world.

Add that there is a lot more tough weather coming. Environment Canada reports severe weather events that used to happen every 40 years can now be expected to happen every six years.

WORST TIME FOR WEATHER – BEST TIME FOR PROTECTION

So why is it a good idea to introduce overland water protection now, when costs are rising rapidly? There are a number of reasons.

Meet the need

With the increase in severe weather events, the need has never been greater – and the catastrophic flooding that occurred in Alberta and Ontario in 2013 has brought awareness of this need to the forefront. Research conducted on Aviva Canada’s behalf in 2014 revealed that few brokers reported being very satisfied with the coverage in place for water loss in Canada. In fact, 40% of surveyed brokers said they are dissatisfied.

When asked if they would offer overland water protection to their customers, 90% of brokers responded they would likely or very likely offer it.

Close the knowledge gap

The research showed that 43% of polled Canadians do not know if their home insurance covers them for any type of overland water damage. And of those who claimed to know, 37% incorrectly stated that they were, indeed, covered.

The fact is that while many recent flood claims were actually paid based on sewer back-up coverage provisions, true overland water coverage has never been available to consumers.

The onus is on insurers to clarify this misinformation – and provide options for the coverage that many Canadians will increasingly need as the number of severe weather events rises.

Leverage new data

Aviva Canada now has improved mapping technology and data to model the severity and frequency of flood losses, providing a greater possibility of developing a sustainable product that is based on the risk transfer principles of insurance. Based on these factors, the company set out to prove it is possible to price and underwrite sustainable overland water coverage for a majority of Canadians, purely on a risk transfer basis.

Extensive research was conducted, collaborating with experts from all parts of the property and casualty industry. This included consultations with Insurance Bureau of Canada (IBC), the Institute for Catastrophic Loss Reduction and municipal, provincial and federal governments.

Sophisticated flood mapping technology was used and, partnering with a third-party flood modelling expert, modelling was developed that helps to predict the frequency and severity of flood losses. This model was used to develop national Overland Water Risk Zones now being used by Aviva Canada.

Fifteen zones were established – 1 represents the lowest risk and 15 the highest – and for simplicity, these were grouped as Low, Medium, High and Very High. Every postal code in Canada has a rating under this system.

From there, the overland water endorsement, the first of its kind in Canada, was developed. The endorsement provides coverage for loss or damage caused by overland water to the exterior of the insured property, as well as the interior when overland water has entered the property. It responds to losses that result from the accumulation or run-off of surface waters, including torrential rainfall and spring thaw.

ROLLING OUT THE COVERAGE

While the product will not be available in the highest risk zones – typically riverfront homes with risks that cannot be cost-effectively insured – it is estimated the coverage will be available to 94% of Aviva Canada’s customers. Work will continue with IBC and governments to explore solutions for the outstanding homes.

To address the greatest need first, the overland water coverage will be available beginning this May in the two provinces hardest hit by recent flooding: Alberta and Ontario. From there, the plan is to roll out coverage across Canada through 2015 and the early part of 2016.

The coverage – for owners or tenants of houses, condos, rental properties, seasonal properties or secondary properties – is available as an endorsement to personal property policies where sewer back-up protection is in place. The prerequisite that sewer back-up protection be in place is crucial, as these two coverages work together.

Sewer back-up and overland flood events are often concurrent, with loss assessment extremely difficult in terms of the order of events and how damage was caused. By requiring that sewer back-up be in place – something the commissioned research indicates more than 90% of home policies have – this avoids critical gaps in coverage.

THE ROAD AHEAD

The property and casualty industry in Canada currently does not have the capability to adequately assess and predict coastal flooding – which means a product and pricing cannot be developed for saltwater damage that occurs as a result of events such as tsunamis or tidal waves. It is believed, however, that overland water coverage is a key step forward in addressing a growing insurance need – and one that other insurers will soon add to their coverage options.