Flooding in Canada is getting worse. The Insurance Bureau of Canada (IBC) estimates the industry pays out $1.7 billion per year in claims due to water damage, and that doesn’t include bills from massive flooding in Southern Alberta and Toronto in the summer of 2013.
Floods are the most frequently occurring natural hazard in Canada, according to a white paper called Making Flood Insurable for Canadian Homeowners, which was produced in 2010 by Swiss Reinsurance Company and the Institute for Catastrophic Loss Reduction (ICLR). The recent floods and the lack of flood insurance have put the white paper back in the news.
Many Canadian homeowners don’t realize that their home insurance policies don’t cover overland flooding. Even if they want to buy such coverage, it’s not available to them. If you get water damage in your home due to sewer backup, it’s only covered if you have specifically purchased sewer backup coverage.
The only water damage that is covered in typical policies is for sudden and accidental bursting of pipes and appliances, says the IBC.
“Canada is the only G8 country where flood insurance is not available to homeowners,” says Paul Kovacs, executive director of the ICLR. “The coverage void tends to confuse – even anger – homeowners when they discover that they are not covered after a flood event.”
The paper says that flood insurance should be bundled into homeowner insurance policies with other perils such as fire or theft, an approach it says has been in place in the U.K. for 50 years and “is the best suited model for Canada.”
But not everyone agrees that’s the best approach. Critics say that approach penalizes those who live in low-risk flood areas, making them pay for those who choose to live in high-risk areas. Although those in high-risk regions would pay a higher premium, it wouldn’t be enough to cover the inevitable claims, critics say. It could also encourage more development in flood plains because the homes would be insured.
The paper acknowledges that “it may be necessary to exclude certain very high-risk homeowners from the program. Government policies, not insurance, are the best approach to address the risk of flood damage for homes that have been allowed to locate in areas of very high risk. For example, governments may wish to enhance flood protection measures or acquire flood-prone properties to bring flood risk levels down to an acceptable level.”
The paper says flood insurance “must not incentivize building in flood-prone areas, or encourage risky behaviour on the part of insured homeowners. Rather, flood insurance should complement existing flood management approaches applied by governments across Canada.”
Two educators with the Faculty of Environment at the University of Waterloo, Ont. say that extreme weather has the “potential to render large sectors of the Canadian housing market uninsurable, which in turn could impact the mortgage market (without home insurance, you cannot qualify for a mortgage).”
In a story published in the Globe & Mail, associate professor Blair Feltmate and assistant professor Jason Thistlethwaite say that from 2003 to 2012, insurance company losses due to flooded basements exceeded premiums for seven of the nine years, costing the industry $11-billion.
The industry is likely to increase insurance premiums, but at some point insurance will “become cost prohibitive for homeowners, which in turn will impact home sales and the mortgage market,” say Feltmate and Thistlethwaite.
The authors say four courses of action need to be taken:
- Towns and cities should produce up-to-date maps of floodplains, which should be used “to provide guidance” on where not to build homes;
- Infrastructure must be made more permeable, cutting down on concrete surfaces;
- Building codes should be modified so, for example, new homes include backwater valves installed in basement drains to prevent sewer back-up; and
- Homeowners must do a better job preparing their homes for extreme weather, by making sure water is directed away from foundations and keeping eavestroughs and downspouts are clear.
The IBC also recommends landscaping with native plants and vegetation that resist soil erosion; using a rain barrel to catch water runoff; and clearing snow away from the house foundation.
The ICLR says a “mainline, full-port, normally open backwater value, when properly installed and maintained, in tandem with the severance of backwater drains from the sanitary sewer, is one of the best measures a homeowner can take to reduce the risk of stormwater and/or sewage backing up into a basement.”
But the organization says that building code and local bylaw requirements to install such valves are “spotty across the country, largely owing to code interpretation.”
It says installing a valve in a new home costs about $250.
Written by Jim Adair