“Water is the new fire,” declared Pete Karageorgos, director of consumer and industry relations with the Insurance Bureau of Canada.
“Insurers are paying out more with regards to water damage claims than fire damage — even though home insurance really started out as a fire protection policy.”
Since 2009, Canadian insurers have been paying out an average of $400 million a year for severe weather events, most of which involve flooding. During the previous 25 years, weather events cost the industry an average of $100 million a year, according to insurance bureau data.
“It has gone up four-fold, and there’s no reason to believe it will go down,” Karageorgos said.
The federal government also pays for flood damage through the Disaster Financial Assistance Arrangements program, which reimburses the provinces after a natural disaster: the bigger the event, the more it pays. A 2016 report by the parliamentary budget officer concluded that the cost of disaster relief for severe weather (hurricanes, winter storms, thunderstorms and floods) has been rising steadily for 20 years: from an average of $54 million between 1995 and 2004 to an average of $410 million a year between 2005 and 2014.
The report estimates that the federal government can expect to pay $673 million annually for flood damage alone in each of the next five years.
The problem, Karageorgos said, is a function of the country’s aging water and sewer infrastructure combined with storms that are growing in severity and frequency due to climate change.
The Insurance Bureau of Canada has identified severe weather as a priority and has called on governments to work with the industry to build a national flood program to finance new infrastructure, improve flood defences, update floodplain maps and restrict construction in vulnerable areas.
“Canada’s aging sewer and storm water infrastructure simply cannot handle today’s precipitation,” concludes the IBC’s 2016 annual report on the state of the industry.
According to the IBC, about 10 per cent of Canadian homeowners live on a floodplain and require overland flood insurance, which protects against the kind of flooding experienced this week in the National Capital Region. But since the insurance pool is so small, and the relative risk so high, the cost of flood coverage is prohibitive.
For those in areas that are regularly inundated, flood coverage is simply unavailable since insurance is designed to protect against random events, not predictable ones, the bureau says.
University of Waterloo professor Blair Feltmate, leader of the Intact Centre on Climate Adaptation, called overland flooding “the elephant in the room in Canada.”
“Flooding, by a very large margin, is the greatest extreme weather event challenging Canada today — by far,” he said. “And flooding basements, specifically, is the greatest cost.”
Feltmate said the average homeowner shelled out $42,000 to repair basement damage after serious flooding hit Calgary and Toronto in 2013. Most of those homeowners, he said, had caps on their insured losses and had to finance the bulk of the repairs out of their own pockets.
“We now have, in Canada, a growing uninsurable housing market where people simply do not have insurance coverage for flooding,” he said. “It makes those homes a ticking time bomb because it means that when the next flood comes along, they’re going to find out they don’t have any coverage, and they’ll have to wait for disaster relief assistance if they do qualify.”
Some homeowners could default on mortgages, he said, while they await disaster assistance, which can take months to process. “The threat to the Canadian mortgage market right now is not a 25 basis point rise in interest rates,” he argued, “it’s the uninsurability of basements.”
The problem will only get worse as climate change advances, he added, since hotter temperatures increase evaporation into a warmer atmosphere that retains more moisture. It means more water comes down in storms that dissipate more energy, Feltmate said, with potentially disastrous consequences.