Canadian Underwriter

Where Canada sits with high-risk flood insurance pool

February 3, 2021   by Greg Meckbach

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Industry experts are trying to calculate how much it would cost to set up an insurance pool for homes at high risk of overland flood, an Insurance Bureau of Canada official suggests.

Canada’s Task Force on Flood Insurance and Relocation met last week, Craig Stewart, IBC’s vice president of federal affairs, said in an interview Tuesday.

IBC co-chairs one of the teams on that task force, initially announced this past November by Public Safety Canada.

Stewart predicts that in the spring of 2022, the task force will submit recommendations on a national flood insurance program to the federal government.

Canadian Underwriter asked Stewart Tuesday if there is any clear indication of whether the government might provide money to an insurance pool for homes at high risk of flood.

“That is something to be decided. All options are on the table,” replied Stewart.

The task force is broken down into three task teams.  One of those is an industry task team, which includes representatives of IBC, the Insurance Brokers Association of Canada, the Canadian Association of Mutual Insurance Companies, the Reinsurance Association of Canada and the Canadian Association of Direct Relationship Insurers (CADRI).

The full task force meets every three months while the individual task teams meet monthly.

“Our expectation is that recommendations will be submitted to the [federal] Minister of Public Safety in the spring of 2022,” said Stewart.

“Part of the process is to conduct an actuarial costing of what a flood insurance pool would look like. They would be looking at different iterations of that pool and how much it would cost to set it up. Then a decision will be made on the role the industry would be playing – the degree to which [the pool] will be funded through premiums, and the degree to which further public funds would be needed to keep insurance premiums affordable.”

In early 2014, the federal government announced (in a budget document) that it plans to consult with the insurance industry, provinces and territories to explore options for a national approach to residential flood insurance. That announcement came less than a year after flooding in southern Alberta caused about $6 billion in economic losses, with only about $1.7 billion insured.

As of 2013, overland flood was generally not available to Canadian residential properties. Then in 2015, Canadian insurers started to announce residential overland flood products.

But for high-risk properties, coverage is either not affordable or requires all insurance clients to subsidize those rates, IBC warns.

In a mandate letter from Prime Minister Justin Trudeau, Public Safety Minister Bill Blair was asked in November 2019 to work with Ahmed Hussen, federal minister of families, children and social development, to create a low-cost national flood insurance program to protect homeowners at high risk of flooding and without adequate insurance protection.

Also in 2019, IBC released its Options for Managing the Flood Costs of Canada’s Highest-risk Residential Properties paper. One option proposed by IBC is a pure market approach, meaning homeowners would decide whether to self-insure, relocate, or try to get insurance from the private market. Another option would have the private sector take on as much contingent liability for flood as its risk appetite allows, while leaving the highest-risk properties (where private-sector insurance would not be affordable at actuarially-sound rates) to be covered by government disaster assistance programs.

The third option proposed in the 2019 IBC paper is a public-private high-risk pool. The idea is that an insurance pool could get capital from ceded premiums, contributions by government, levies applied to homeowners, and levies applied to property taxes.

Canadian Underwriter asked Public Safety Canada in 2020 whether the industry can expect at some point to have a low-cost national flood insurance program in place for homeowners at high risk of flooding.

The federal government has yet to make a decision, but a Public Safety Canada spokesperson told Canadian Underwriter in 2020 that the government will give “full consideration” to the three proposals IBC made in its 2019 paper.

In addition to an industry task team, the Task Force on Flood Insurance and Relocation has a task team with federal government representatives, and a third task team with provincial government representatives, Stewart told Canadian Underwriter.

The government set up the task force to look at options to protect homeowners who are at high risk of flooding and don’t have adequate insurance protection, to examine the viability of a low-cost national flood insurance program, and to consider options for potential relocation for residents of areas at the highest risk of recurrent flooding.

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