Flooding is the most frequent natural disaster in Canada, yet millions of Canadian homeowners find themselves unprotected from flood damage.
Incredibly, most Canadian homeowners are not even aware they are not covered in the event of such a deluge. Homeowner policies in Canada cover only flood waters from sewage backups, broken pipes, or other minor flood damage, in most cases. “Overland flooding”, defined as water flowing over land and seeping in through windows, doors and cracks, is not included.
As the population and development in Canada increases, more areas become susceptible to massive storms and other natural disasters causing flood waters. Concrete banks along waterways cannot absorb water, leaving less tolerance for overflow during heavy rains. After disastrous flooding in the last twenty years have resulted in massive evacuations and substantial home and property damage, Canadians have good reason to be concerned. Floods are an especially common occurrence during springtime in Canada.
In a recent Calgary storm, thousands of families were evacuated, resulting in $1 billion recovery efforts from the Alberta government.
The Canadian government has long contemplated what to do to better protect homeowners in these cases. Officials have spent the last several years researching other countries’ solutions, including the U.S. and Europe, to determine what existing approaches could benefit Canadians. According to some, it is not the government’s responsibility, and should be provided by private insurers competing for customers' business. Still others believe there should be a joint solution to the increasing problem, whether through government insurance options or through regulation.
Why not include it in homeowners' and landlords' rental dwelling insurance policies, that every real estate owner with a mortgage must purchase anyway? Insurance companies could simply price the risk into premiums in high-risk areas, right?
The Insurance Bureau of Canada (IBC) maintains the reason overland flood insurance is not included in Canadian homeowners insurance and landlords insurance policies is because the high risk of a few would be so heavily subsidized by everyone else. The following statement was issued by the IBC on their website: “Since most homeowners are not exposed to the risk, and should not share in the cost, providing flood insurance would be unaffordable for the homeowners who might need it.”
In other words, pricing the insurance properly for the few in high-risk areas would be so expensive that it would be crippling to the owners, so companies would respond by spreading the expense around to low-risk policyholders. But Canadians with low-risk homes have already been subsidizing those with high-risk homes, as the Canadian government has provided financial relief in nearly every flooding disaster in recent decades.
And even with today's minimal coverage of flood damage, insurance companies are still losing money. Professors Blair Feltmate and Jason Thistlethwaite at the University of Waterloo, Ontario have demonstrated that from 2003 to 2012, insurance company losses due to flooded basements exceeded premiums for seven of the nine years, costing the industry $11 billion. Insurance companies cannot possibly continue these losses, and will inevitably raise premiums which will eventually "become cost prohibitive for homeowners, which in turn will impact home sales and the mortgage market." Read: high-risk homes will drop in value if owners have to pay $10,000/year for insurance.
Something will have to give, because right now no one is winning. Property owners in high-risk areas cannot obtain proper insurance coverage for floods, insurance companies have been losing too much money in recent years on what little flood coverage they do offer, and low-risk Canadian taxpayers have been subsidizing flooding losses in the form of disaster relief.
Feltmate and Thistlethwaite recommend Canadian provinces and municipalities consider the following:
- Towns and cities should produce up-to-date maps of floodplains, which should be used "to provide guidance" on where developers should avoid building new homes
- Infrastructure should be made more permeable, cutting down on concrete surfaces
- Building codes should be modified to require flood failsafes in flood-prone areas (for example, new homes could include backwater valves installed in basement drains to prevent sewer back-up)
- Homeowners must do a better job preparing their homes for extreme weather, by making sure water is directed away from foundations and keeping eavestroughs and downspouts clear.
Canadian landlords and property managers interested in protecting real estate assets should also consider proactive measures against destructive flood waters, such as installing flood failsafes as described above.