Over the past few months, WaterPortal readers have raised concerns about reduced insurance coverage and increased rates related to flooding. We felt this presented the opportunity to revisit the impacts of flooding on insurance and take a look at broader climate change issues that could impact insurance coverage in the future.  

Background: 2013 Southern Alberta Flood

Flood insurance in Alberta typically covers residential and commercial damage, for example, impacts to vehicles or losses caused by sewer back up. Sewer backup is a result of municipal water systems becoming overwhelmed and instead of draining away from properties, water is forced back into homes through sinks, toilets and basement drains [1]. As is outlined in the Flood Mitigation section of the Alberta WaterPortal, overland flooding is another type of flooding that can impact property and personal belongings. Overland flooding occurs when water flows over dry land through doors or windows and damages the interior of homes, property and personal belongings. 

Canada is the only G8 country that does not have a federal flood insurance program [2]. In other G8 countries like the United States and the United Kingdom, flood programs are typically funded by federal governments.  Canada does not have a federally funded flood program and in the aftermath of the 2013 floods, Calgary MP Jason Kenney said there were no plans to implement this type of program [3].  

While overland flood insurance is available for businesses to purchase, this type of insurance is not widely available for purchase by individual homeowners to protect their homes and belongings in Canada [4] mainly due costs. Insurance functions by selling a large number of policies and using the revenue from the premiums to offset the cost of damages. However, with flooding there are only a small percentage of people who live in areas prone to flooding making flood insurance “prohibitively expensive for those who need it” [5]. In 2013 University of Waterloo climate specialist Blair Feltmate talked to insurance leaders across Canada and he found that there was no consensus on the decision to offer overland flood insurance [6]. While some within the insurance industry supported offering overland flood insurance, others felt that premiums would be far too costly for most homeowners [7].

No title by Andy van der Raadt (minimum) is licenced under CC BY 2.0.

Insurance and Extreme Weather

Insurance works by spreading risk among many people. A number of individuals buy insurance policies and if something happens to one property, the cost to compensate the impacted person or property is spread amongst all the people who purchased policies. The price charged by insurance companies for policies must be enough to cover the cost of potential insurance claims and provide the company offering the policy with a profit while remaining affordable enough so that a large number of people can afford to buy insurance [8].   

The price of the policies sold to homeowners has been traditionally calculated based on historical data. However, experts note that weather is becoming less predictable and more extreme. Insurer Lloyd’s of London indicates that weather-related losses have increased from $50 billion in the 1980s to close to $200 billion since 2004 [9]. In 2013, Canadian insurers paid $3.2 billion in insurance loss claims due to flooding in southern Alberta (there were $1.7 billion in insurance claims in Alberta alone [10], Toronto, and severe storms in Atlantic Canada.  

While some aspects of insurance pricing rely on factors like geographical location, the overall trend is that extreme weather is contributing to increased insurance rates.  One year after the flood in southern Alberta, the CBC reported that in light of climate change and increasing extreme weather events, policy holders could expect their “premiums to rise and their coverage to shrink as insurers try to limit their losses” [11]. 

Individual Actions to Minimize Flood Impacts on Insurance Policies 

Although the aforementioned facts may seem daunting, there are actions you can take to protect yourself, your belongings and your insurance policy in the event of a flood or other types of extreme weather. Here a few suggestions:

   1. Be Prepared: 

a. Install a backflow valve: One of the easiest ways to protect your home and belongings is to install a backflow valve. Backflow prevention devices, or backflow valves, allow water from household sinks and toilets to flow into the municipal sewer system but have a gate that prevents sewer water from flowing back into your home during a flood. Here is a short video that shows how backflow valves work and provides installation instructions:

b. Make an emergency preparedness kit: Be sure to include copies of important documents like wills, passports, insurance documents, birth and marriage certificates in your kit. You may even want to digitize important documents and store files in a safe place like a security deposit box. Do not store  original documents in the basement. 

2. Do Your Research:

Be sure to read your insurance policies carefully and expect coverage, deductibles and premiums to change periodically. One year after the 2013 floods, insurance experts advised Albertans that their 2014 coverage could change due to events of the previous year. Insurance professionals advised Albertan to read their policies closely noting that “coverage limits and deductibles could change, even for those who weren’t affected by last year’s floods” [12].

a. Read your policy every year: Although historical data helps to inform decisions about insurance policies, policies are generally sold one year at a time [13]. This means that your coverage, deductibles and premiums could change year to year. Make sure to read your policy carefully every year and take note of any changes. If you have questions about your coverage be sure to discuss them with your insurance provider.  

b. Read the fine print: You might also consider comparing different insurance companies and learning more about the types of coverage they offer. In 2013, The National Post reported that some insurance companies covered sewer backup damage while some residents in the same area were not covered for similar damage. Many residents were surprised that their claims were denied while a neighbour’s claim was approved [14]. Coverage can vary between companies so make sure you understand the details of your policies.   

[1] Institute for Catestrophic Loss Reduction. (n.d). Reduce the risk of basement flooding. Retrieved from http://www.basementfloodreduction.com/theproblem/sewerbackup.html 

[2] Kadowak, R. (October 31, 2014). Is climate change affecting my property insurance?. David Suzuki Foundation Blog. Retrieved from http://www.davidsuzuki.org/blogs/climate-blog/2014/10/is-climate-change-affecting-my-property-insurance/ 

[3] CTV News. (June 24, 2013). Why can’t Canadians get overland flood insurance? Retireved from http://www.ctvnews.ca/canada/why-can-t-canadians-get-overland-flood-insurance-1.1340172 

[4] In 2014, one Calgary-based insurance company began offering overland flood insurance policies. However, these overland flood insurance policies were purchased in addition to regular housing insurance. Premiums varied depending on how close your house is to a river and previous damage to your house. Retrieved from http://www.cbc.ca/news/canada/calgary/overland-flood-insurance-available-in-calgary-1.2666152        

[5] The Co-operators. (September 17, 2013). New study asks: is flood insurance viable in Canada? [Press release]. Retrieved from http://newsreleases.cooperators.ca/index.php?s=5651&item=137189 

[6] CBC News. (September 26, 2013). Flood insurance that isn’t there when you need it. Retrieved from http://www.cbc.ca/news/business/flood-insurance-that-isn-t-there-when-you-need-it-1.1869651 

[7] Ibid. 

[8] Kadowak, R. (October 31, 2014). Is climate change affecting my property insurance?. David Suzuki Foundation Blog. Retrieved from http://www.davidsuzuki.org/blogs/climate-blog/2014/10/is-climate-change-affecting-my-property-insurance/     

[9] The Guardian. (May 8, 2014). Lloyd’s calls on insurers to take into account climate-change risk. Retrieved from http://www.theguardian.com/business/2014/may/08/lloyds-insurer-account-climate-change-extreme-weather-losses 

[10]  Tait, C. (September 23, 2013). Alberta flood’s record costs will likely drive up insurance premiums. The Globe & Mail. http://www.theglobeandmail.com/news/national/alberta-flood-damage-set-canadian-record-insurance-group-says/article14461509/%20/ 

[11] CBC News. (June 17, 2014). Alberta insurance policies changing after $1.7B in flood payouts. Retrieved from http://www.cbc.ca/news/canada/calgary/alberta-insurance-policies-changing-after-1-7b-in-flood-payouts-1.2678333 

[12] Ibid. 

[13] Stromberg, J. (September 24, 2013). How the Insurance Industry Is Dealing With Climate Change. Smithsonian.com. Retrieved from http://www.smithsonianmag.com/science-nature/how-the-insurance-industry-is-dealing-with-climate-change-52218/?no-i&no-ist 

[14] Canadian Press. (July 2, 2013). Calgarians livid some insurance companies will cover sewer backup damage after floods but others won’t. National Post. Retrieved from http://news.nationalpost.com/2013/07/02/calgarians-livid-some-insurance-companies-will-cover-sewer-backup-damage-after-floods-but-others-wont/