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Options for managing the flood costs of Canada's highest risk residential properties



June 18, 2019 (OTTAWA) – Today, Insurance Bureau of Canada (IBC) publicly released a paper, Options for Managing the Flood Costs of Canada’s Highest-risk Residential Properties. The paper focuses primarily on ways to better manage the costs of flooding for high risk residential properties in Canada. The paper was developed through national consultations with the Working Group on the Financial Management of Flood Risk, co-chaired by Public Safety Canada and the IBC, and highlights of the work were presented to Federal/Provincial/Territorial Ministers Responsible for Emergency Management at their annual meeting in Edmonton on January 25, 2019.

Every year, thousands of Canadians experience financial loss due to severe weather. Costs to insurers and their policyholders and costs to governments and, by extension, taxpayers are escalating due to climate change. In 2018, the damage covered by insurance from extreme weather reached $2 billion in value.

Wildfires, floods, hailstorms and windstorms are occurring with greater frequency and intensity. In Canada, flooding is the threat responsible for the greatest amount of financial losses and damage as well as being the threat for which we are least prepared. Recognizing this emerging trend, the Honourable Ralph Goodale, Minister of Public Safety and Emergency Preparedness, convened the National Roundtable on Flood Risk at the end of 2017, and created an Advisory Council on Flooding in early 2018 with the purpose of advancing the national discussion  on flood risk management. The Advisory Council formed a public-private sector Working Group on the Financial Management of Flood Risk, co-chaired by Public Safety Canada and IBC.

In May 2018, Federal/Provincial/Territorial Ministers Responsible for Emergency Management asked this Working Group to refine options for managing the financial costs of high-risk residential properties while drawing upon international models. IBC was asked to report on these options, which had been developed through Working Group consultations, to Ministers through the Advisory Council. The paper released today, authored by IBC with input from members of the working group, is the result.

The paper explores three potential options, including a pure market approach like that used in Germany and Australia, where private insurance is the primary means of protection and governments scale back disaster assistance, an approach where insurance and government disaster assistance exist together and are better coordinated, and one where a high-risk insurance pool is introduced for properties that would not otherwise be able to access private insurance, similar to Flood Re in the United Kingdom.

The three possible options examined in the report are as follows:

  • Option I – Pure Market Solution (Risk is borne by homeowners):
    In this option, the flooding of private residences is no longer covered by government disaster assistance programs and homeowners can self-insure, purchase insurance from the private insurance market or relocate. 
  • Option II – Evolved Status Quo (Risk is borne by blend of homeowners and governments):
    In this option, the private sector takes on as much contingent liability for flood as its risk appetite allows, while leaving the highest-risk properties, where premiums would be unaffordable, to be covered by government disaster assistance programs. 
  • Option III – Create a High-Risk Flood Insurance Pool:
    This solution involves building a special flood insurance pool for high-risk properties that would otherwise not be able to access affordable flood insurance to cover their losses.  Property owners would pay premiums that reflect their level of risk, but to ensure the coverage is affordable and that people actually buy it, the premiums could be capped and/or subsidized.

As directed by the Federal/Provincial/Territorial Ministers Responsible for Emergency Management in January 2019, IBC and the Working Group continue to work on the costing of these options and in particular, various approaches for deploying an insurance pool for those at high risk of flooding. Once this work is complete, the findings will be presented to the Federal/Provincial/Territorial Ministers Responsible for Emergency Management through the Advisory Council on Flooding.

“IBC commends Minister Ralph Goodale for his leadership on flood risk management. Public Safety Canada enabled key stakeholders to collaborate in tackling this critical financial issue that many Canadians are currently facing. With the recent spring flooding across Ontario, Quebec and New Brunswick, affected communities were better prepared than in previous years. However, Canadians will face increasing financial losses unless we find better ways to protect them.”

— Don Forgeron, President and CEO, Insurance Bureau of Canada

“Flooding is the most common and most damaging type of natural disaster faced by Canadians. This report is part of a broad range of efforts undertaken by the Government of Canada and partners – including the insurance industry, Indigenous organizations, other levels of government and non-governmental organizations – to better inform Canadians of their flood risk, improve flood mapping, and reduce the impact of these disasters. This whole-of-society approach, highlighted through the Emergency Management Strategy, will help build safer and more resilient communities for all Canadians, in part by determining how best to raise awareness of flood zone risks, invest in mitigation, and increase Canadians’ resilience to floods.”

— the Honourable Ralph Goodale, Minister of Public Safety and Emergency Preparedness


About Insurance Bureau of Canada

Insurance Bureau of Canada (IBC) is the national industry association representing Canada's private home, auto and business insurers. Its member companies make up 90% of the property and casualty (P&C) insurance market in Canada. For more than 50 years, IBC has worked with governments across the country to help make affordable home, auto and business insurance available for all Canadians. IBC supports the vision of consumers and governments trusting, valuing and supporting the private P&C insurance industry. It champions key issues and helps educate consumers on how best to protect their homes, cars, businesses and properties.

P&C insurance touches the lives of nearly every Canadian and plays a critical rolein keeping businesses safe and the Canadian economy strong. It employs more than 126,000 Canadians, pays $9 billion in taxes and has a total premium base of $54.7 billion.

For media releases and more information, visit IBC's Media Centre at www.ibc.ca. Follow us on Twitter @InsuranceBureau or like us on Facebook. If you have a question about home, auto or business insurance, contact IBC's Consumer Information Centre at 1-844-2ask-IBC.