Severe weather requires advice from brokers, restrictions from government: CEOs

IBAO Convention 2013 – As Canada gets more extreme weather events, insurance brokers will have an even greater opportunity to give advice to residential customers about coverage for water damage, suggest the chief executive officers of some major Canadian carriers who sell through brokers.

“I think that the issue of water damage becomes an opportunity for brokers,” said Maurice Tulloch, former president and CEO of Aviva Canada.  “You have a real opportunity to provide great advice, advice that they are not going to get in other channels.”

Tulloch, who was recently appointed as CEO of Aviva UK & Ireland General Insurance, made his comments Thursday during the CEO panel at the 93rd annual convention of the Insurance Brokers Association of Ontario (IBAO).

The main topic of discussion was actually Ontario auto, but moderator Evan Solomon (anchor for CBC’s Power and Politics program) also asked the five panelists to address the issue of water damage coverage.

Jean-Francois Blais, president of Intact Insurance, noted that the average temperature in Canada “has risen twice as much as in other countries” over the past 100 years.

“In our industry we had four years in a row of cat losses over $1 billion,” Blais added.

On July 8, Toronto got 126mm of rain in one day, according to published reports, while Environment Canada records indicate the normal rainfall for the city for the entire month of July is 74.4 mm. PCS Canada’s preliminary estimate of insured property losses in the Greater Toronto Area, from the July 8 rainstorm, was $850 million. That storm happened within weeks of record floods in Alberta. Insured losses from the Alberta floods were last estimated at $1.7 billion.

Meanwhile, a report submitted last year to Toronto City Council suggested that by 2040, the maximum amount of rainfall in summer storms per hour would increase to 166 mm, up from 66 mm in the 2000 to 2009 time frame.

It “is not uncommon” now to get more than 75 mm of rain in an hour, Tulloch said during Thursday’s panel discussion, held at the Fairmont Royal York hotel in Toronto. “That becomes a challenge, but everyone in this room is best to take on that challenge. It’s about working with your markets, ensuring that you absolutely understand their coverage, ensuring that their coverage is appropriate.”

“If this severe whether is really staying … then that product has to evolve,” said Brigid Murphy, president and CEO of The Dominion of Canada General Insurance Company. “I know one of the issues brokers have is whether you can offer enough water coverage.”

Blais noted that in Florida, many policyholders do not buy hurricane coverage because it costs more.

“We are here in Canada with water,” Blais said. “This is certainly the major peril that we have to underwrite and historically we had underwitten by risk, but today we have to underwrite the weather, and that is very difficult.”

Solomon asked the panelists whether citizens will start to demand a “basic level of coverage” for natural events. His question was initially met with dead silence.

“I feel like I’m in a monastery,” Solomon quipped.

But Alister Campbell, CEO of The Guarantee Company of North America, said the “curve ball” for the insurance industry will be water damage occurring in places where it did not normally occur in the past.

“If you start getting water not just in the normal places, but in the places you didn’t expect it, then the people who discovered they didn’t have coverage – that’s where it gets really ugly.”

Campbell suggested a lack of coverage — or higher premiums — will become a political issue.

“We are all going to get better at risk selection and we are all going to get better at rating by peril and so some consumers are suddenly going to have a home insurance policy that is costing more than the car insurance policy that has gotten politicians upset,” Campbell said, alluding to private passenger auto premiums in Ontario.

“Suddenly we are going to have a real dynamic around the politics of residential. As an industry, this issue of working with the government, federal, provincial and municipal, is so urgent. We have to be very proactive on it.”

One government policy cited at Thursday’s panel was Alberta’s new flood program announced in July. At the time, the province stated that homeowners in flood fringe zones who do not implement measures designed to protect against a one-in-100-year event “will not be eligible” for reimbursement from the disaster recovery program in future floods.

The province also plans to require municipalities to stop approving future development in floodways, and to require that properties in floodways — as well as properties whose owners got provincial disaster recovery funds — have a notation on their land title in order to inform future owners of the same property.

“I applaud what Premier (Alison) Redford is doing in Alberta,” Tulloch said. “All jurisdictions can learn from Alberta.”

Municipalities also have a role to play, suggested Karen Gavan, president and CEO of The Economical Insurance Group

“Pressure has to be put on municipalities to respond because they are not investing in infrastructure but they are also the ones who are permitting all the building on the floodplain,” Gavan said. “If you put it on the floodplain and you have been flooded out repeatedly, you probably shouldn’t rebuild it.”

The IBAO convention wrapped up Friday.