Canada’s most frequent natural hazard

The March 28 earthquake  in Myanmar (magnitude 6.8)  – hard on the heels of the earthquakes in Japan and New Zealand – again reminds us of the destructive power of nature.

But every spring another threat emerges across Canada – and it’s the most frequently occurring natural hazard in this country.

Flooding.

And this problem is particularly painful, because overland flood damage is not covered by Canadian homeowner’s insurance policies.

Coverage can be purchased for plumbing overflow and sewer backup; many policies extend to insure against water damage due to ice-damming on roofs.  Vehicles are often covered, and flood coverage is even available on commercial buildings (particularly larger property schedules).

But, when overland flooding occurs, the usual – and only – option available to homeowners incurring damage, is to rely on government aid.

A recent discussion paper* by Swiss Re and the Institute for Catastrophic Loss Reduction asks why flood insurance for homes cannot be available in Canada, when it is common in other developed countries.

Generally, insurers have been fearful about adverse risks selection: the only purchasers of the coverage being those in flood-prone areas.  Another issue: the introduction of coverage could incentivize risky behaviour, encouraging people to settle in areas with a history of flooding damage.

In reality, the coverage will increase risk to insurers and therefore increase the cost of insuring a home.  And to be cost-effective and achieve acceptable spread-of-risk, flood coverage would need to be included in a significant percentage of existing policies.

To insure Canadian homes against damage by flood will only result from a collaborative effort between the insurance industry, governments and insureds.  By publishing this detailed report, the industry has taken the first step.

*Making Flood Insurable for Canadian Homeowners (November 2010) by ICLR & Swiss Re

Tags: canada, flooding, homeowner, insurance, plumbing, sewer backup, swiss re