Fire and flood: Why underinsurance remains a concern

Coverage for damage from natural disasters is not always standard in home and auto insurance policies, cautions online insurance brokerage Surex.

Insurers continue to closely monitor this year’s fire and flood season, which contributed to a record-breaking $9 billion in insured losses last year.

“As is often the case after these severe events, Canadians may find that they do not have the proper insurance coverage to protect themselves,” Surex says in a press release. “Surex is reminding Canadians to check their insurance coverage to avoid such a situation.”

For example, if your car is damaged in a fire or flood, you need comprehensive insurance to be covered. Similarly, if your house is damaged by a flood due to outside water, you’ll need overland flooding insurance. Both of these are additional coverages beyond a basic policy.

“The worst time to find out you don’t have the right insurance is after the damage has already happened,” says Matt Dillon, executive vice president of national operations at Surex. “Sometimes people assume if they have insurance, they will be covered in the event of a loss.

“But you won’t be covered if you don’t have the right coverage.” 

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Even when clients have the proper coverage, they need to understand their limits. Dillon points out many overland flood policies default to sub-$30,000 limits when it comes to standard coverage. But data from the Insurance Bureau of Canada (IBC) shows the average basement claim from water damage is $43,000. 

Underinsurance concerns

The topic of underinsurance in the wildfire context came up during an executive insurer panel at the recent Insurance Brokers Association of B.C. Leaders’ Conference earlier this month. One broker asked insurer executives if guaranteed replacement cost (GRC) home insurance policies (which promise to insure to the full value of a property loss) are in jeopardy because of the rise in NatCats in Canada.

While the executives on the panel reassured brokers the GRC offering is not in danger, recent wildfires have shone the spotlight on properties that are not properly insured to value.

“The challenge…we’ve seen still too many times [is] gross underinsurance,” says Darren Godfrey, senior vice president of Western Canada at Intact Insurance. He also pointed to a high level of underinsurance in Jasper, which was devastated by wildfire last year.

2024 saw $9 billion in claims across the country. Four major summer events — flooding in Toronto, flooding following the remnants of Hurricane Debby in Quebec, the Jasper wildfire and the Calgary hailstorm — constituted the bulk of the insured damage.

“We are seeing major home insurance claims at a level we haven’t seen in the past,” Dillon says. “This is why we’re encouraging all Canadians to check in with their brokers to ensure they understand their coverage and have the right protection.” 

In particular, Dillon encourages Canadians to review the following to fully understand what’s covered in an extreme weather event:

• Deductibles —Understand what you have to pay out-of-pocket before the insurance company covers your claim. Some insurers can have high deductibles for flooding or wind and hail coverage, depending on your location, leaving you to pay thousands out of your own pocket upfront. 
• Jewellery and valuables —Insurance companies typically ‘cap’ the amount they will pay for certain valuable items such as jewellery, art, collectibles and bicycles in certain situations, such as theft. “Don’t assume they are insured to full value,” Surex advises. If you own expensive belongings, speak to your broker about scheduling those items on your policy. Scheduled items can be insured to full replacement value, with as little as a $0 deductible in the event of a claim. 
• Additional living expenses (ALE)— With floods becoming more frequent, Dillon suggests even those living in high-rises should consider overland flooding insurance. “While someone living on a higher floor might assume they don’t need such coverage, a building caught in a flood may require weeks of ground floor remediation, or may be inaccessible due to road closures, which could require residents to live elsewhere.” Flood coverage comes with ALE coverage in the event a building is uninhabitable or inaccessible for a period of time and helps with some of the expenses of alternate accommodations, such as hotel stays, meals, and essentials. 

Insureds have a contractual duty to minimize damage after an insured peril strikes their home — what is reasonable in the circumstances, IBC adds in a press release Monday. And if you incur expenses to reduce further damage, your insurer will reimburse you for those reasonable costs.

Editor’s Note: The following story has been corrected to change the defaults for overland flood to sub-$30,000. The original story said $300,000. Canadian Underwriter apologizes for the error.

Jason Contant

Jason has been an award-winning journalist with Canadian Underwriter for more than a decade, including the past three years as associate editor and, before that, as digital editor for seven years.