Ottawa’s latest response to calls for government flood insurance

It’s been three years since brokers called for a government backstop for residential flood losses, but Ottawa is not specifically committing to any particular model of government-run insurance for homes at high risk of flood.

At the moment it is “premature to speculate on a flood insurance program,” a spokesperson for the federal government’s public safety department told Canadian Underwriter last Wednesday. This is because Public Safety Minister Bill Blair’s mandate letter was only recently released.

Blair became public safety minister this past November in a federal cabinet shuffle. In a mandate letter from Prime Minister Justin Trudeau, Blair was asked to work with Ahmed Hussen, minister of families, children and social development, to create a new low-cost national flood insurance program to protect homeowners at high risk of flooding and without adequate insurance protection.

Canada does not have a system like Flood Re in Britain or the United States National Flood Insurance Program.

But personal flood insurance should be “available to Canadians who need insurance,” and “must be affordable,” the Insurance Brokers Association of Canada said in a flood principles document it provided in 2016 to Canadian Underwriter. “There must be a partnership of the public and private sectors that is clearly understood by all.”

Canadian home insurers started covering overland flood in 2015. Since then, the Insurance Bureau of Canada has been expressing concern that hundreds of thousands of clients cannot get overland flood at affordable rates because they are situated in areas considered by insurers to be at high risk of flooding.

A high-risk insurance pool is one of three possible scenarios suggested by IBC in Options for Managing the Flood Costs of Canada’s Highest-risk Residential Properties, a paper released June 18, 2019.

The other two options were a pure market solution and one in which the risk of borne by a blend of homeowners and government.

Has the federal government taken a position on the options presented in the IBC report? If so, what is the position? And if not, when the federal government will make a decision?

Canadian Underwriter put these questions to Public Safety Canada’s media relations department and received a reply on Jan. 22.

The three options outlined this past June by IBC “are informative, and are examples of the range of possible solutions to addressing the financial cost of managing high-risk properties in Canada,” the spokesperson wrote Wednesday in an e-mail.

The spokesperson did not say when the federal government will make a decision.

“It is important to note that other options could also be considered moving forward,” the Public Safety Canada spokesperson wrote.

In its paper released this past June, IBC said its three approaches it described were potential options.

In the first option, the pure market system, the flooding of private residences would no longer be covered by government disaster assistance programs and homeowners could self-insure, purchase insurance from the private insurance market, or relocate.

Option 2, dubbed “evolved status quo,” is one in which both homeowners and government bear risks. “The private sector takes on as much contingent liability for flood as its risk appetite allows, while leaving the highest-risk properties, where premiums would be unaffordable, to be covered by government disaster assistance programs.”

The third option is a flood insurance pool for high-risk properties that would otherwise not be able to access affordable flood insurance to cover their losses.  “Property owners would pay premiums that reflect their level of risk, but to ensure the coverage is affordable and that people actually buy it, the premiums could be capped and/or subsidized.”

In 2016, the British government launched Flood Re, a reinsurer subsidized by a tax imposed on all carriers writing home insurance in Britain.

The U.S. government created NFIP in 1968. In order to qualify for flood insurance under NFIP, a property must be in a community that has joined the NFIP and agrees to enforce sound floodplain management standards. In some cases, NFIP premiums are subsidized.