Canadian Underwriter

Overland Overhaul

August 1, 2013   by Angela Stelmakowich, Editor

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It used to be that Manitoba served as Canada’s poster child for flooding. The image of sandbag upon sandbag lining provincial rivers, hopefully to positive effect, was a reliable marker of the coming of spring.

But events such as the devastating floods in southern Alberta – followed just weeks later by a jaw-dropping downpour in the Greater Toronto Area (GTA) – could help shed Manitoba of that dubious distinction.

Manitoba was never alone in its need to defend against the potential wreckage delivered by flooding, but recent (and not so recent) severe weather events have made it disconcertingly clear that the province now has more company, with more parts of the country experiencing the same brand and severity of potential damage at the hands of the new normal.

But it is not simply about severe weather. It is also about the location of homes and businesses in floodplains and floodways (oftentimes constructed there before the prudence of doing was given as much consideration as today); the urban environment (featuring plenty of hard surfaces and little chance for water to gradually return to the earth); aging infrastructure that may be overwhelmed, and perhaps weakened, with each severe weather event; and, of course, the lack of overland flood insurance in this country (making Canada a have-not compared with some other G8 countries, including the United States, the United Kingdom, Japan, Germany and France).

The recent events here at home have produced some justified concerns and concrete responses that may foreshadow a fuller approach to risk management and response that, it is hoped, will pave the way for improved preparation and less loss in future – whether in Friendly Manitoba or elsewhere in the country.


It has been less than two months since severe weather started with a “blocked” jet stream trapping an area of low pressure over southern Alberta and ended in a drenched and costly mess. Still, there are already loss estimates, albeit some preliminary, of the damage done.

• Intact Financial Corporation reported that its 2013 Q2 financial results reflect a $143 million loss, after tax, net of reinsurance, following the Alberta storms and flooding;

• TD Bank Group announced claims costs from the storm and flood damage in Alberta and the GTA will have a pre-tax impact of approximately $170 million after reinsurance;

• Chubb Corp. noted that, outside of the United States, it expects losses of about $65 million before tax, mainly from storms and flooding in southern Alberta, which will be reflected in its 2013 Q2 financial results;

• XL Group’s preliminary estimate is a $135 million loss, before tax and net of reinsurance and reinstatement premiums, relating to natural catastrophes, including flooding in Canada;

• preliminary estimates from RSA Canada are that gross claims from the Alberta flooding will be in excess of reinsurance retentions of $75 million;

• SCOR Global P&C reported for 2013 Q2 alone, it expects a loss of 42 million euros from the Alberta floods;

• Economical Insurance noted losses, gross of any reinsurance recovery, for the Alberta and GTA flooding will each likely fall within a range of $45 million to $50 million;

• The Co-operators General Insurance Company estimated a $77 million loss resulting from the events in Alberta;

• PartnerRe is expecting $67 million in losses related to the Alberta and European floods, pre-tax and net of retrocession reinstatement premiums; and • Allianz Group reported that together with floods in France and Canada, and hailstorms in Germany and Switzerland, the total impact from natural catastrophes on the loss ratio for 2013 Q2 was 5.3 percentage points.

So soon after these events, the full picture of insurable loss has not been revealed. That said, losses are likely to be high – perhaps ranking second only to Canada’s largest catastrophe loss to date, the 1998 ice storm, with insured losses of about $1.5 billion in inflation-adjusted dollars, notes A.M Best.

“There is little doubt that [the Alberta floods] will rank as the most expensive insured loss event in the history of the Canadian industry,” the Insurance Bureau of Canada (IBC) notes in an e-mail.

It is expected that business interruption will drive insured losses resulting from the severe flooding in Alberta.

“History has shown that current loss estimates also have the potential to increase, particularly with the Alberta floods where more significant damage was done to large commercial risks (claims involving business interruption losses can take time to become clear and ultimately settle),” says Jamie Lyons, senior vice president of Guy Carpenter & Company, LLC, based in New York City.

Overland flooding usually occurs when bodies of water overflow onto dry land and cause damage. That damage is not covered by home insurance policies anywhere in Canada, although some damage from sewer back-up may be covered depending on the add-ons purchased.

Beyond insured costs are monies allocated for disaster assistance and recovery. Within days of the incident, the Alberta government approved $1 billion as part of the first phase of emergency recovery and reconstruction funding for affected families and communities. There has since been more assistance announced, including for small businesses, agricultural operations and non-profits to cover uninsured losses.

Even without covering overland flooding, water-related claims are on the rise.

“Many cities have already seen an uptick in the number of basement flooding events as a result in the change of climate. It’s important to note that storm sewer systems just weren’t built to handle the really big, rare events. They were built to handle the day-to-day, run-of-the-mill rainfalls,” says Glenn McGillivray, managing director of the Institute for Catastrophic Loss Reduction (ICLR) in Toronto.

“As one expert recently noted, in order to put in a storm sewer system to handle such events as the July storm in Toronto, it would take the entire GDP of Canada just for one city. Sewers are part of the solution, but they aren’t the whole solution,” McGillivray says.

In a recent report, Munich Re noted that natural catastrophe statistics for the first half of 2013 have been dominated by severe flooding events. Roughly 47% of the overall losses and 45% of the insured losses for the first six months of the year were from inland flooding in Europe, Canada, Asia and Australia.

Rivers need room so flood waves can disperse without causing serious damage. And the flood risk needs to be considered in the designation of land for industrial or residential areas, it adds.

The idea is to have extensive contingency plans to prepare for events and be able to quickly react, suggests Andrew McAllan, senior vice president and managing director for Real Estate Management at Oxford Properties Group in Toronto. Citing the events in Calgary, “we didn’t just have an eye on minimizing damage in the moment – and that was very real – but we were also working in real time to be able to get everybody back up and in business as soon as possible,” McAllan says.

Oxford Properties carries out an annual risk assessment on each property because risks and threats can change. Things like weather and infrastructure changes – say, a new road or culvert – are among the many things that must be taken into account. “We undertake threat assessments, we look at evolving risks, we try and mitigate those.”

A managed, multi-storey office tower in Calgary, which has several levels of indoor parking, has been designed so that equipment usually put on the lower parking level has, in fact, been put on a higher level, McAllan reports. During the flooding, he notes that a level and half of the tower was flooded. “If we had followed the norms, we would have been in serious trouble.”

Also at the design stage, pumps were available to allow time “to get even bigger
pumps in because the rate of water coming in through drains backing up was significant,” McAllan says. “I think the event at Fukushima has made people realize that water, among other things, can knock out mission-critical pieces of equipment all too easily,” he adds.


“The infrastructure and terrain that we have promoted for decades, both in rural and urban areas, has made much of Canada more vulnerable to major precipitation events,” says John Rislahti, director of Manitoba Finance’s Insurance and Risk Management Branch.

Rislahti cites larger areas of pavement in the cities, and less natural ground that can absorb water; elimination in rural areas of wetlands and marshes, which retain water, in favour of agricultural land, and ditches that drain quickly and push the water into streams and rivers; and building residences closer to rivers and lakes. “Because of these patterns, more of Canada is vulnerable to costly storm damage today,” he argues.

“A lot of rain over a long period of time may be a non-event from an urban flood standpoint, whereas a lot of rain in a short period of time, as happened in southern Alberta and Toronto, can spell disaster. Exceptional rainfall events always have the potential to overwhelm even well-prepared areas, but that doesn’t mean we shouldn’t do our best to prepare,” McGillivray says.

Among other things, Rislahti offers the following suggestions on what stakeholders can do:

• homeowners can install back-up valves on drains and sump pumps, slope land away from the house, lead discharge from eavestroughs away from the foundation, and check into the flood history of the area where they are thinking of buying property;

• businesses should review the risks with their own business locations, as well as critical suppliers and even customers, and have business continuity plans for the business and critical suppliers; and

• governments and insurers can encourage the building of more damage-resistant structures through financial incentives and regulations, and influence the location of where people and businesses choose to build.

In that vein, the Alberta government has announced proposed changes, including helping residents pay for improvements to protect their homes against any future flooding and helping them relocate to areas outside of flood-fringe zones, as well as preventing future development approvals on floodways. Legislative changes requiring municipalities to no longer approve future development in floodways are expected to be made this fall.

Should homeowners in flood-fringe zones opt not to implement protective measures, they will not be eligible for reimbursement from the Disaster Recovery Program (DRP) should a future flood occur.

Among the ways to help weather-harden infrastructure is through the introduction of bioswales. Describing this option as a cement ditch a couple of metres wide and 10 to 20 metres long, the structure is open on the bottom, filled with things like gravel and plants, and as water from downpours flows into the system, it slowly discharges downwards versus overland, explains Blair Feltmate, associate professor and director, sustainability practice at the University of Waterloo and chair of Climate Change Adaptation Project (Canada).

The adaptation project is currently involved in a pilot project in which various forms of infrastructure, including bioswales, are being constructed at strategic locations in six Canadian cities – Halifax, Montreal, Toronto, Calgary, Edmonton and Vancouver – over the next two years. The idea is to determine their return on investment (compared to avoided losses) so municipalities will incorporate more of these risk management aids within their communities.

“The question our society needs to ask is how much are we willing to spend to mitigate the risks that we face,” says Rob Wesseling, executive vice president, national p&c product for The Co-operators, and chief operating officer of The Sovereign General Insurance Company, The Co-operators’ commercial insurer.

Pointing to Winnipeg, Wesseling says the city has been spending money and implementing measures since the 1950s to protect the city from flood. The city and province “have decided that that is a good use of money and I would concur because it has significantly reduced damage within the City of Winnipeg due to flooding,” he notes.

“What goes along with that is what are we willing to forego in order to avoid these types of damages,” Wesseling says. “We can choose to build in areas that are adjacent to floodways or we can choose not to.”


Recent events in Canada, which follow the devastation of Hurricane Sandy, have put the spotlight on the need to revisit overland flooding and manage related risk. At the heart of the management strategy may be concerted efforts through partnerships.

“The devastating events of recent weeks serve as a stark reminder that weather events are becoming more extreme and frequent. An open and transparent dialogue will need to occur between governments, the industry and other stakeholders to ensure that the home insurance product is adapted to today’s climate reality and remains available and affordable for consumers,” Charles Brindamour, CEO of Intact Financial Corporation, says in a statement.

“In view of the visible human and economic consequences, we expect the flooding in Alberta and Toronto to further encourage engagement between the insurance industry and the various levels of government in Canada responsible for flood management, in order to find solutions to the limited flood coverage currently available to Canadians,” Victor Peignet, CEO of SCOR Global P&C, says in a statement.

“Given that we are one of the only G8 countries that does not have an overland flood program, we should seriously consider what that looks like for the Canadian market,” says Sharon Ludlow, president and CEO of Swiss Re Canada.

A study by ICLR and Swiss Re, released in 2010, concluded that overland flood is insurable for Canadian homeowners. At its core, governments provide mapping, flood defence and restricted development in flood zones; and the insurance industry includes flood coverage for all property owners (cannot be located in no-development zones).

“I believe flood insurance for residences in Canada is a matter of time,” Rislahti says. “The risk of overland flooding and flash floods is not restricted to a few geographical areas in Canada. This gives the necessary spread of risk and large numbers required for a viable insurance product,” he comments.

Asked if insurance for overland flooding should be made available, Lyons says “it is certainly fair to suggest that coverage should be explicitly offered as opposed to ambiguously or poorly defined in an insurance policy, and appropriately reflected in the premium charged. However, in practice, this may be a difficult concept to sort out in terms of who should be required to buy it and, if it is not made obligatory (especially in high-risk areas), whether it lends itself to anti-selection.”

Adds Desmond Carroll, assistant vice president of Guy Carpenter & Company, “There inevitably will be areas for which the premium for flood insurance will be so unpalatable that the home or business becomes effectively uninsurable. For this small fraction of the total number of structures in Canada, flood mitigation measures are likely to be required for the premium to be reduced to an affordable level.”

Ludlow says that “it’s clear in my mind that, in all jurisdictions, there will be certain pockets that are going to be uninsurable simply because of where they are. The point of having the flood mapping and a full transparency – to consumers, insurers and governments – is that it’s acknowledged there may be a very small percentage of the population or availability where it’s uninsurable and the rest should be insurable.”

Wesseling says “some subsidization is required” if there is to be a sustainable flood ins
urance program for high-risk areas. There needs to be a pool of funds “either through the insurance industry through premiums that are collected or set aside by government so that when these significant events happens, there are funds available to get these people back on their feet,” he adds.

Feltmate reports that more than a dozen high-level executives with some of Canada’s largest property and casualty companies have recently taken part in a 25-question survey, supported by The Co-operators, to gather their views on overland insurance. “Should we offer it? Should we not offer it? If we were to offer it, how would it be established? What are the risks of providing overland flood insurance going forward? How do we address this whole topic effectively?” he says. Survey results are currently being tabulated.

To his mind, a large factor that will determine the provision of overland flood insurance, if it is to be offered at all, will be a well-informed risk/return analysis.


Being well-informed starts with having access to accurate flood maps. Across much of the country, “there are no flood maps and there are virtually no restrictions to floodplain development – meaning that communities keep being built, and rebuilt, in high-risk flood zones,” notes the IBC e-mail.

“There is some flood mapping available, but it’s certainly not at the granular level necessary for insurance purposes. We need to take that to the next level, and I think that’s a collaborative effort between the industry, various levels of government and other stakeholders to commit the resources to have that happen and to have an appropriate set of flood maps for Canada,” Ludlow says.

Asked if there are concerns around sharing of information, she responds “there’s a way for information to be aggregated and shared in a way that doesn’t disrupt a natural competitive environment for the insurers or reinsurers.”

“It’s important to keep maps up to date, as the floodplain will change under climate change scenarios (the 1 in 100 year plain of today will not be the 1 in 100 plain 50 years from now),” McGillivray says. “Also, increased development on the floodplain and fringe changes the hazard. It is imperative that governments keep up on these changes,” he says.

“We have seen a number of events that have tested the limits of the 1 in 100, so I think it’s a healthy thing to revisit that,” Ludlow says. “We need to be careful and cautious, though, because clearly there’s a cost benefit and we shouldn’t be trying to address the other end of the spectrum, which would be a one in 10,000 year event.”

Still, challenges remain. “Precipitation is a highly localized phenomenon and is not explicitly modelled by the catastrophe model vendors,” explains Karen Clark, president and CEO of Karen Clark & Company. “It’s very difficult to develop a fully probabilistic approach for severe precipitation and inland flooding because flash flooding can occur almost anywhere, and there are no robust databases of historical events to use for modelling purposes. Even for mapped flood zones where the risk to an individual location can be assessed, there are no credible tools for estimating portfolio losses for future events,” Clark suggests.

“After an actual event, the flood ‘footprint’ can be defined using satellite imagery and aerial photographs, and an assessment of the overall damage and loss can be calculated,” she adds.

Going forward, “one thing is clear in Canada on the extreme weather file: we cannot cheat nature. We must develop up-to-date floodplain maps, and weather-harden infrastructure – and we should do so rapidly – if we are going to limit management by disaster,” Feltmate argues.

“Given a backdrop of what seems to be a pattern of increasingly severe weather, we should expect these events to continue to happen and, unfortunately, I think we will see worse events than the one that hit southern Alberta,” says Wesseling. “This isn’t an insurance issue. This is an issue for Canadian society,” he adds.

Consensus on how to go forward is key, Rislahti says. “There should be agreement that risk mitigation is a better investment than paying for damages.”