Canadian insurers split on viability of overland flood insurance

Canada’s major insurers are concerned about the lack of overland flood insurance in the country, but are split on whether such a product is viable, according to a new report commissioned by the Co-operators.

 The study is based on interviews with CEOs and other executives at insurance companies accounting for 57% of the property insurance business in Canada, conducted by  Dr. Jason Thistlethwaite and Dr. Blair Feltmate of the Faculty of Environment at the University of Waterloo in the winter of 2013.

Canada is currently the only G8 country without some form of overland flood coverage.

“The way things stand, property owners are not adequately protected under a system that places too much emphasis on recovery at the expense of mitigation,” said Kathy Bardswick, president and CEO of The Co-operators.

“There is no question that this is a complex issue that requires a multi-stakeholder solution involving insurers, governments, developers, banks and homeowners.”

While the insurers surveyed were divided on whether flood insurance is viable, there was a general consensus that the government’s Disaster Financial Assistance Arrangements (DFAA) program is possibly not sustainable.

“Too little is invested in flood risk mitigation and adaptation, while the DFAA helps homeowners recover after a storm without providing incentives for preventive measures beforehand,” the Co-operators noted.

The lack of reliable data for flood risk, including inadequate flood mapping, was also a concern for insurers.

Overall, for flood insurance to be viable, those insurers interviewed said that premiums should be affordable and sufficient to cover losses, associated risks and losses must be able to be predicted, and premiums must be “sufficient to incentivize investment in risk mitigation by policyholders.”

A key recommendation of the report is to “initiate a broad-base discussion on the actions necessary to improve flood and disaster risk management with key stakeholders.”

The report also recommends that the industry, or individual insurers, “conduct research on flood risk exposure levels across Canada.”

The full report is available on the Co-operators’ website.