How Calgary Floods Changed Canadian Insurance

Not having been affected by the rain storm that hit the Cape Breton Regional Municipality this past Thanksgiving, I had the luxury of learning about the difference between “overland flooding” and “sewer backup” weeks later, over a beer with a friend whose basement had flooded.

The woman sent by his insurance company to inspect the damage noted the water had come from the toilet (sewer backup) rather than through the doors and windows (overland flooding) and so settled his claim immediately, writing a check at his kitchen table.

As difficult as it is to imagine, having your sewer backup can count as “lucky” when your home is flooded in the CBRM – or anywhere else in Canada. As Brian Maltman, CEO of the General Insurance OmbudService told me:

…for the longest time, Canada has not had…overland flood insurance available to ordinary folks like you and me. They’re available sometimes for commercial or industrial policies but Canada has stood out as one of the few countries in the developed world where that cover has not been available.

This was true even when the overland flooding stemmed from the same root cause as the sewer backup, as was the case during the Thanksgiving storm.

I asked Glenn McGillivray, director of the Institute for Catastrophic Loss Reduction (ICLR) about overland flood insurance and he said it was not offered previously in Canada partly for what he called “really high-level technical” reasons and partly due to the “inability to get a measure of risk.”

We have very poor flood maps in Canada, many of them are very dated. The federal government kind of got out of the flood mapping and mitigation business…They used to cost-share with the provinces and they stopped that program a number of years ago and things just kind of fell by the wayside.

So, when you look at flood maps across the country, some of them are super updated, some of them are really old, some of them are still just paper maps and some of them use very old methodologies and technologies…It was really a big mess that nobody wanted to touch, and…when you combine that with the technical reasons for not offering it, it just wasn’t appealing to insurance companies.

But then, in June 2013, Calgary and southern Alberta experienced the region’s most severe floods since the early 1900s. A report by an Expert Management Panel convened after the disaster estimated provincial damages between $5 billion and $6 billion. Damage to City of Calgary infrastructure alone cost more than $445 million ($166 million of which was recoverable through insurance). In the wake of this disaster, McGillivray said insurers realized they had to do something about flood coverage:

…many insurances ended up paying, probably, for flooded basements that they shouldn’t have paid for because they were not sewer backup, they were overland flood. And I think some of the driver there was, ‘Let’s develop a product that will expand on water coverage because we’re probably going to end up paying for it in some way. So let’s come up with an expanded water coverage package.’ I’d say probably about a dozen companies or so have that right now.

Most of the companies that launched overland flood cover last year started out in Alberta and Ontario, with plans to expand eventually to other provinces. This is the case with Cooperators, which describes itself as “the first Canadian insurer to include overland flooding as part of our water damage insurance for Alberta homeowners.” (And, according to McGillivray, the only insurer that will cover homes on the floodplain or floodway.)

I didn’t do an exhaustive search, but I found a company right here on the island — Huestis Insurance Group, with an office in North Sydney  — that offers overland flood insurance. (I contacted them for more information and they directed me to the Aviva site.)

McGillivray said the ICLR, an independent, not-for profit research center established by Canada’s property and casualty (p&c) insurance industry, has no window into the pricing of overland flood insurance, but it was his understanding it was not “extremely expensive.”

Maltman, on the other hand, was not so sure. He pointed out that insurance companies are even now raising the price for sewer backup insurance, a phenomenon he had experienced personally: sewer-backup coverage for his Toronto home, purchased as an “endorsement” or add-on to his insurance policy, not only cost him more, it had its own deductible.

…in the last couple of years, my insurer has done what many insurers are doing, they’re re-underlining [sewer backup]. They’re looking at the risk and understanding it’s an increased risk since, owing to global warming, there are more natural weather-caused events, they’re both more frequent and…more severe.

(I asked Maltman if there were any climate change deniers in the insurance industry and he said, “Oh my god, no.”)

And for some people, of course, sewer backup coverage is not a possibility at any price. Said Maltman:

If you’re right down on the St. John river floodplain, forget it. The insurers know that that’s not a matter of if there’s going to be a flood but simply when. And basic underwriting is you don’t buy a certainty of a loss.

 

New Products

Overland flood insurance is not the insurance industry’s only climate-change inspired offering.

McGillivray pointed to an option called green insurance:

The idea behind the green building is you pay a slightly higher premium than anybody else and if you lose your home due to a covered peril, your home will be replaced with a greener home…it’s been done in the US for a little while…

We have here an interesting twist to that idea, which hasn’t been implemented yet, well it has to some degree, but if you lose your home it will be replaced with a more resilient home. So, we like that idea.

Dockside Green, Victoria housing development with solar panels, wind turbines (Photo by John Newcomb, CC BY 3.0, via Wikimedia Commons)

 

Another ICLR innovation, aimed at insurance companies, is the ‘Insurers Rebuild Better Homes’ program. Said McGillivray:

…the idea is if the home was lost to an event…the home that [is built] will be better than the one that was lost, that will address the perils that caused the home to be lost and other perils that are common to that particular area. So kind of a “better-than-code” type of thing.

And insurers are also beginning to offer products for people living completely off-grid:

…there are companies that are finally looking at those sorts of things as well. So whether it’s a wind turbine or green roof… geothermal. I think it’s imperative that insurers understand these risks and provide coverage for them because it’s the way things are going.

One option that doesn’t yet exist, anywhere in Canada, is coverage for coastal flooding:

Currently none of the overland flood products in Canada will cover coastal flood. They all, every single one of them, define flood as fresh water, and we advocate that flood insurance should be all water, no matter what it’s source. The feeling is that will come, one day, in Canada, but the flood product is so new, it’s going to take some time. Again, it comes down to the tools, tools that are needed to measure the risk. If insurers don’t have the tools, they’re not going to do it. That’s one of the things we have to work on is developing the tools, including mapping and risk-mapping, and that sort of thing.

 

Deadline

Of course none of this is helpful to those in the CBRM who lost their homes during the October floods.

But there is Maltman’s organization, the General Insurance OmbudService, which might be able to provide some assistance:

We haven’t had any calls yet arising from the Thanksgiving storm. We may in time, we tend to receive calls on major catastrophe losses farther down the road and closer to the year anniversary date when the few that are…having some difficult issues or coverage issues, getting close to the limitation period, they call us. That was the pattern, for example, with the Fort McMurray fire and the 2013 floods in south Alberta.

We are a non-profit, we are funded by the industry, because they must support by law, an organization that does what we do and we’re the one of choice. But they don’t control us, it’s an independent board of directors and that is how we are able to help.

We’re a neutral service provider…We don’t step on anyone’s rights, so we can’t legislate and tell a company what to do but we explain to consumers what all of their options are.

Maltman said they don’t advertise extensively, as that would be prohibitively expensive, but their goal is to be “easy to find when people need to find us.”

GIO can be reached through the website, or by calling, toll free: 1-877-225-0446.