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No public-private flood coverage model a ‘lift and shift directly to Canada:’ Aviva Canada reinsurance VP


April 28, 2017   by Greg Meckbach, Associate Editor


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Britain’s Flood Re program provides an “analogy for Canada” in insuring high-risk flood zones, while more research is needed to fully understand the economic impact of climate change, speakers suggested at Insurance Bureau of Canada’s recent Financial Affairs Symposium.

Balz Grollimund, Swiss Reinsurance Company Ltd.’s head of treaty underwriting for Canada and English Caribbean, spoke on a Financial Affairs Symposium panel titled Natural Catastrophes and Climate Change Implications.

Moderator Steve Lee, a partner with Ernst and Young LLP, asked the panelists for examples of things other nations are doing that could serve as a model for the Canadian insurance industry.

“I think one very good example is Flood Re in the U.K. ,where in the high risk areas which are not insurable by the insurance industry itself, the government and insurance together create a pool,” Grollimund said told attendees of the Financial Affairs Symposium, held April 25 at the Design Exchange, the former Toronto Stock Exchange trading floor.

Launched in April, 2016, Flood Re is a special purpose vehicle and a not-for-profit monoline reinsurer that is subsidized by a tax levied on all carriers writing home insurance in the United Kingdom. This creates a cross-subsidy from about 98% of the British population to high-risk property owners, suggested Brendan McCafferty, then Flood Re’s chief executive officer, on Oct. 2, 2015 at the National Insurance Conference of Canada in Montreal. At the time, McCafferty was participating in a panel discussion titled titled Flood Insurance Programs – Trials, Tribulations and Success Stories.

With Flood Re, the pool ensures “that where government allows to build in these areas, insurance is possible,” Grollimund said April 25, 2017 at the Financial Affairs Symposium. “I think there is an analogy for Canada to be drawn as flood insurance has taken up a lot in the last couple of years.”

Until 2015, overland flood insurance was generally not available for residential properties in Canada. In the spring of that year, Aviva and The Co-operators announced flood coverage. Other home insurers have since followed suit.

“Products are available from most insurance companies these days, excluding though the high risk flood zones, so I think that is a very specific area where insurance and government can partner up to design something to address the issue,” Grollimund said at the symposium.

IBC did “good work” examining models outside Canada of flood insurance, said Mazdak Moini, Aviva Canada’s vice president of commercial lines and reinsurance.

“No model is perfect, wherever in the world you look,” said Moini, another panelist on the Natural Catastrophes and Climate Change Implications panel. “There isn’t something that is a lift and shift directly to Canada.”

In the federal government’s 2014-15 budget, Ottawa said at the time it “proposes to consult with the insurance industry, provinces and territories to explore options for a national approach to residential flood insurance.”

But in the general election in October, 2015 the ruling Conservatives were replaced with a majority Liberal government.

“Public Safety Canada continues to work with key stakeholders, including provinces and territories and the Insurance Bureau of Canada (IBC) to explore options for a national approach to facilitate the entry of the insurance industry into the residential flood insurance market,” a federal government spokesperson wrote in late 2016 in an e-mail to Canadian Underwriter.

At the 2017 IBC Financial Affairs Symposium, Lee asked panelists how they expect climate change to affect the Canadian economy.

“A plausible scenario is that under significant changes to the global climate, the different bio regions could be affected in terms of agricultural impact,” said Sanjay Khanna, senior consultant, strategy for Ontario for IBC. “In this scenario, there is a plausible outcome of the quadrupling of commodity prices for food. If you look at what that could do to Canadians … it may mean that homeowners will be focussing more on buying food than on buying insurance coverage. At what point do people not buy insurance cover that they should, to protect their assets?”

Meanwhile, there needs to be more research on the long-term effects of natural catastrophes, Moini suggested.

“What happens after that initial shock, from an economic impact perspective once the rebuilding starts and what are the economic opportunities for us as a society?” Moini said. “I haven’t seen a lot of research into that, which is the net economic impact on a jurisdiction that is catastrophe-impacted. But I think if we can start to measure those things, and measure them in the context of the resilience that we need to build against climate change, we can probably start to have more substantive conversations with different levels of government about things like subsidies for more resilient buildings, or subsidies for retrofits of individual property owners to their properties to make their buildings more resilient.”