Insurers warn federal government Canada can’t wait a decade to update flood maps

DYK: Most maps are, on average, 20 to 25 years out of date

CBC News 

Canada plans to focus its next budget on tackling climate change and its effects, but the insurance industry, amid skyrocketing costs, is concerned the government will move too slowly on the key first step of mapping flood risks.

Flood mapping is used to underwrite flood insurance, assess bank exposure across mortgage portfolios, inform home buyers, and plan new infrastructure. Prime Minister Justin Trudeau pledged sweeping climate action during his re-election campaign last year, including $150 million  for flood mapping. The federal budget is expected at the end of March.

“Flooding is by far the single greatest peril facing Canadians as a result of climate change,” Craig Stewart, vice president of federal affairs for the Insurance Bureau of Canada, told Reuters.

Stewart said the natural resources ministry is proposing doing the mapping itself with the focus only on fluvial — river and lake — flooding, in a process that would take 10 years.

The natural resources and finance ministries both declined to say whether such a measure would be in the budget.

“We can’t take a decade to complete flood maps for this country, and we need to make sure we’re mapping urban and coastal flooding as well,” Stewart said. He estimates it could be done within three years if the government collaborates with the private sector.

Out of date

A government source said the approach it will take on mapping has yet to be decided.

Current mapping is on average 20 to 25 years out of date, said Blair Feltmate, head of the University of Waterloo’s Intact Centre on Climate Adaptation Faculty of Environment.

Insurers spent $1.9 billion annually, on average, between 2009 and 2019 on catastrophic flooding claims, compared with an average of $422 million per year in the 1983–2008 period, according to Insurance Bureau data. The four-fold increase was driven mostly by flood loss and the majority of claims were residential.

Last year, a government-commissioned panel on sustainable finance also recommended a public-private partnership for the mapping.

A member of the expert panel, Tiff Macklem, the dean of Toronto’s Rotman School of Management and a former Bank of Canada senior deputy governor, said flood mapping is “an immediate priority.”

“The Expert Panel envisaged a model where the private sector would pay a membership fee,” Macklem said. “This type of model … would be both less expensive and provide higher-quality data.”

Source: CBC News

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Who should bear the financial risk of flooding?

OTTAWA — Federal, provincial and municipal governments can do a better job of protecting homeowners from the escalating financial risks of flooding, says a new report released Tuesday by the Insurance Bureau of Canada.

The report, the product of work by a national working group co-chaired by the bureau and the federal Public Safety Department, says the worsening threat means the country has to change how it covers the resulting cost of such disasters.

“Taxpayers cannot continue bailing out people who live on floodplains,” said Craig Stewart, a vice president at IBC and co-chair of the working group.

“We need an alternative, and this report presents three viable options drawing upon international experience.”

About one-fifth of homes in Canada are at risk of overland flooding, while insurance payouts have surged to about $1 billion per year over the past six years, the report estimates. Federal government transfer payments for all forms of flood damage, meanwhile, have quadrupled over the last four decades, reaching about $3.7 billion during the first four years of this decade, compared with just $300 million during the 1970s.

The three options laid out in the report include a pure market approach where risk is borne by homeowners; one in which government is more involved, and finally the creation of a high-risk pool of funds to help manage the financial risk.

All three options are viable, the report says, though its analysis suggests the high-risk scheme fares better than others at meeting certain core principles like affordability, efficiency and financial sustainability. But the report stops short of making a firm recommendation on any of the options.

The advantage of the high-risk scheme is that it allows insurers to pass on some risks to a larger pool of available money. Homeowners would pay premiums for flood insurance, which insurers would then feed into the pool. If a homeowner makes a claim, the insurance company would pay out to the customer and then claim their own reimbursement from the pool.

Homeowners might not even know they’re in the high-risk pool, Stewart said, but it allows insurance companies to avoid some of the risk involved with insuring people whose homes may be flooded.

The cost of the premiums feeding into the pool should be based on the risk of flooding, Stewart said, and if subsidies are capped, the pool will need a source of money to make up the loss.

As for the source of money to get the pool off the ground and keep it sustainable, “It could be anything,” he said, including property taxes or insurance premium levies.

Ideally, Steward said, the scheme would help lower the risk enough so the high-risk pool wouldn’t be necessary. A similar model was implemented in 2016 in the United Kingdom, and has a projected lifespan of 25 years.

“For that to happen,” Stewart cautioned, “you need to have significant government investment in mitigation over those 25 years.”

While the federal government has promised $2 billion for disaster preparedness, the report notes “ongoing funding” is needed.

Stewart said the IBC is currently working with the Federation of Canadian Municipalities to figure out how much money it will cost to make Canada resilient to flooding, as well as other natural disasters.

More money from government is one of several key factors that the report says are needed to address flood risk in addition to an insurance system.

Another is making sure individuals have an incentive to take action on their own, Stewart said. That means increasing public awareness of risks so homeowners will make their properties more resilient and react to the price of insurance premiums.

Meanwhile, improving the quality of data, like mapping flood risk zones, is “the single greatest thing the federal government can do in the near term,” Stewart said.

Moving people away from high-risk flood zones should be a part of the government’s response as well, he added. Paying people to relocate might be the best way to do that, the report suggests.

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Highrise condo buyer denied insurance due to flood emergency

Aviva Canada turned down Inna Nei, citing state of emergency declared in April

Laurie Fagan · CBC News 

When Pat St. George and Inna Nei separated recently, they decided to sell the family home and move into their own condos in different areas of Ottawa.

St. George was able to transfer their home protection policy to his new residence, but when Nei tried to take out a policy for her new place on Richmond Road, the company they’d been dealing with for about six years, Aviva Canada, said no.

I can understand why they wouldn’t want to sign policies on flood-affected properties, but to paint the whole city or whole region as non-insurable is ludicrous.- Pat St. George, Aviva Canada customer
According to St. George, the company cited Ottawa’s state of emergency, declared on April 25 as floodwaters threatened parts of the city.

St. George said that makes no sense, especially since Nei’s condo is in a highrise and didn’t flood.

“I can understand why they wouldn’t want to sign policies on flood-affected properties, but to paint the whole city or whole region as non-insurable is ludicrous,” St. George said.

Common practice

In a written statement to CBC, the company explained: “Like most insurers, Aviva Canada does not sell new home or automobile policies located in an area that is under a flood alert or flood evacuation order.”

Aviva said once the state of emergency ends, it will resume offering policies to homebuyers in Ottawa.

Aviva also cancelled St. George’s added water protection for his condo, which covers sewer backup and overland flooding, until the emergency is lifted.

“I find it peculiar because we can’t be the only ones in Ottawa who are buying property, and the state of emergency has been in effect since April,” St. George said. “I can only imagine how many people are being affected by this.”

According to the Ottawa Real Estate Board, 2,032 residential properties were sold in Ottawa in April. Each one of those buyers would need home insurance to acquire a mortgage.

‘Conflicting interests’

Pete Karageorgos, director of consumer and industry relations with the Insurance Bureau of Canada, said insurance companies are forced to make tough decisions during emergencies such as the this spring’s flooding or the destructive wildfire in Fort McMurray, Alta, in May 2016.

“Insurance companies are not in the position to expand during states of emergencies and take on more risk,”  Karageorgos said.

“Regardless if you are right by the water’s edge or you are well inland or in a highrise, the insurance companies, not all, but many, are saying, ‘We’re holding off taking on more risk until the situation is normalized.'”

Pat St. George was shocked when insurance companies told him Ottawa’s state of emergency was the reason why they weren’t willing to insure his wife’s new condo. 7:37
Insurance companies must consider their current policy holders, Karageorgos said.

“It does seem unfair [but] you’ve got conflicting interests, and that’s where the challenge is taking on new policies.”

Karageorgos said there are some insurance companies that will offer policies during states of emergency.

Nei said she called six companies seeking a policy for her condo. Four said no, and only two said yes.

“You are kind of at the whim of getting any [company] you can find to give you a policy,” St. George said. “Who’s to say [Nei is] getting a fair rate?”

Almost 3,800 businesses in three regions at risk from flooding

OTTAWA _ Statistics Canada says almost 3,800 business locations were at risk of being affected by spring flooding in three of the hardest hit regions of the country.

About 1,500 were potentially affected as of the end of April in the Sainte-Marthe-sur-le-Lac region about 40 kilometres northwest of Montreal, 1,500 in the Ottawa-Gatineau region (1,086 in Gatineau and 400 in Ottawa), and 800 in the Fredericton_Saint John region in New Brunswick.

The agency made the assessment after using flood extent maps produced by Natural Resources Canada from satellite data acquired by the Canadian Space Agency from April 17 to 30.

Statistics Canada says small businesses, including those operating from a home, are most affected by flooding with about 85 per cent having no employees and nine per cent having one to four employees.

One-quarter of the affected businesses are in real estate, rental and leasing, 12 per cent offering professional, scientific and technical services and 10 per cent in construction.

Nearly 100 larger business locations with five or more employees were in the Ottawa-Gatineau region, 47 in the Montreal area region and 82 in New Brunswick. The most common industry sectors were retail and construction at 21 and 19 per cent respectively.

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