DisastersFlood insurance is not available to Canadian homeowners – should it be?

Canada is the only G8 country in which insurance against overland flooding is not available to homeowners — but does it have to remain that way? A study released Monday explores issues related to flooding and property insurance, aiming to advance informed discussion of the potential better to protect Canadian homeowners. It reveals that while insurance executives are concerned about the lack of flood insurance and agree on many of the associated issues, opinions remain mixed concerning its viability in Canada.

A PreventionWeb release reports that the study, entitled Assessing the Viability of Overland Flood Insurance: The Canadian Residential Property Market, was commissioned by The Co-operators and undertaken by Dr. Jason Thistlethwaite and Dr. Blair Feltmate of the Faculty of Environment at the University of Waterloo. The researchers interviewed CEOs and other executives at insurance companies accounting for 57 percent of the property insurance business in Canada, seeking to better understand their perceptions of the risks and opportunities related to insuring homes against overland flood damage. The interviews were conducted during the winter of 2013 — before this summer’s catastrophic floods in Alberta and the Greater Toronto Area.

Although coverage for some damage related to flooding, such as sewer back-up, is available, property insurance in Canada does not cover losses from overland flooding, which is by far the most common type of natural disaster in Canada. Those whose homes suffer uninsured damage from floods and other natural disasters may be eligible for some compensation from the federal government’s Disaster Financial Assistance Arrangements (DFAA).

The purpose of insurance is to spread risk among a large number of policyholders whose premiums are pooled to cover future claims. Flooding presents a challenge in this regard because it is a significant risk only for the small percentage of homeowners who live in areas prone to flooding, making insurance prohibitively expensive for those who need it.

“The way things stand, property owners are not adequately protected under a system that places too much emphasis on recovery at the expense of mitigation,” said Kathy Bardswick, president and CEO of The Co-operators. “There is no question that this is a complex issue that requires a multi-stakeholder solution involving insurers, governments, developers, banks and homeowners. This report identifies the key issues, challenges and opportunities and we’re eager to engage these stakeholders to build upon this research and work toward a solution that better protects our communities and our economy.”

The study revealed widespread concern among participants about governments’ approach to flooding. Too little is invested in flood risk mitigation and adaptation, while the DFAA helps homeowners recover after a storm without providing incentives for preventive measures beforehand.

The release notes that among the other key concerns participants agreed upon were the lack of reliable information, particularly inadequate flood mapping, and the need for additional investments in flood defenses. Those interviewed also “generally shared the same opinion on the major characteristics of flood insurance necessary to make it a viable product.”

A key recommendation of the report is to “initiate a broad-base discussion on the actions necessary to improve flood and disaster risk management with key stakeholders.” The Co-operators has committed to following through on this recommendation in the months ahead.