Time to fine-tune residential flood cover, consider high-risk areas: Enders

Flood-related cover for residential policyholders is far advanced from what it was when the devastating floods hit southern Alberta in 2013, but it is now time to refine those offerings and address outstanding issues, says Gord Enders, president of Direct-Line Insurance.

Canada’s p&c insurance industry has “come a long way” on the issue since 2013, Enders told Canadian Underwriter in advance of the National Insurance Conference of Canada (NICC), where he will be taking part in a panel discussion on flood risk.

In “a short four years,” he says, insurers generally have “responded quite well” and there is considerable availability of flood cover for residential homes. “Sometimes in the world of business, these types of things, and especially a contentious issue such as flood, can take a long time to implement,” he points out.

With a good number of p&c companies now offering products – mostly for low- and medium-risk areas – the former president of the Insurance Brokers Association of Alberta suggests it is time to move forward and clear the next hurdles.

“We’re at that point where, okay, we’ve got coverages out there; now we need to start fine-tuning those coverages,” Enders says.

“In fact, some companies have to step up to the plate and start providing those coverages. I think those who choose not to provide those types of coverages, at some point, will be left behind,” he cautions.

What does Enders mean by finetuning?

A lot of this will “do with rates, with zones, with the actual wordings,” he explains.

With all the different wordings out there right now, he suggests that consumers have plenty of choice. That is positive, but less positive is that this diversity also makes it more difficult to pinpoint what product best suits individual needs.

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“It means consumers need to be doing their homework and insurance brokers need to be doing their homework” to ensure the cover is appropriate, Enders emphasizes.

Most residential flood products are currently available for low- and medium-risk zones. “As flood mapping is more relevant and more consistent, then I think we’ll start to see some of those zones being changed and higher limits being available for offer in certain zones,” he suggests.

As it stands, “certainly, some pricing is very expensive.”

While most insurance companies report 90% to 95% of risks are going to be able to get some sort of flood cover, Enders points out that leaves 5% to 10% to whom cover cannot be provided “because of where the home is located and because of the types of losses that have been there before.” That being the case, “what are the government back-stops that need to be in place to help those people?”

There needs to be more conversation – involving insurance companies and different levels of government – around those high-risk areas, Enders (pictured right) emphasizes. Everyone needs to be involved “to figure out who’s going to be responsible for what,” he says.

That will likely demand taking a look at things like building codes and enforcement, where homes can be built, and what type of mitigation processes are in place.

Having insurance available could influence homeowner access to federal disaster funding. “At some point, we know that the insurance companies and the government are going to have to look at those things together,” Enders says.

“There’s going to have to be some sort of meeting of the minds in terms of what’s the back-stop there that the federal government can provide, or the provincial government, versus what the insurers provide,” he contends.

“At what point do we see that insurance is providing a large enough solution that the coverage is readily available that governments pull back on that type of disaster funding for flood?” he asks.

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Beyond response after an event, though, is having in place measures to prevent or mitigate losses. “Infrastructure is a big one for pluvial flooding and that’s really our largest risk for the most part,” Enders comments.

With regard to storms and rainfall, 10 to 12 years ago “you probably wouldn’t have predicted these types of scenarios in a lot of areas,” he says. “The types of storms that we’re receiving now are substantially different, so infrastructure needs to be upgraded,” he adds.

“I think decisions are going to have to be made in terms of what the federal government is willing to spend, not only on disaster programs, but on mitigation programs and how do they get those down to the municipal level,” Enders told Canadian Underwriter.

“Provincial governments have to have that conversation as well, too, because, generally, they’re responsible for providing the mitigation as well as administering those disaster programs,” he adds.

Take-up of residential flood insurance seems to be improving, but, again, there is plenty more work to be done.

“The interest is always going to be where there’s the most risk, and people who have suffered those losses are going to have the most interest in it,” says Enders.

That said, “if you’re in a really high-risk and you’ve got to spend $1,000 to get $10,000 worth of coverage, how available is it?” he asks. “Is it enough there that disaster funding could pull back?” says Enders.

“If we were get to the point where the government has a back-stop program in place and disaster funding is no longer available because of the availability of the product through insurance, then I think you would see a lot more take-up,” he expects.

Other than the role of governments and insurers, though, is the policyholder. Enders suggests education of the residential policyholder role in reducing flood-related losses – through insurance and mitigation measures – “is a work in progress.”

As with any new product or any new type of coverage, “it takes a while for the consumer to understand how it works and at what point do they need to be involved so that they’re making sure their home is as flood-proof as possible,” Enders says.

He believes, however, that is happening and residential policyholders are increasingly aware that flood mitigation is something they may need to become involved in.

It used to be that “if your deductible was lower than the damage, you claimed it. But insurance has really changed so much to actually managing the risk and making sure that long-term your large losses are going to be covered,” Enders says.

With regard to flood-related risk, “we’re certainly in better shape now for these types of things than we were four years ago. But is the work done on it? Not by any stretch of the imagination,” he adds.

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Gord Enders will be part of the panel discussion, Where Water Meets Underinsurance: Canadian Flood Risk – A Public Policy Imperative, at the NICC in Quebec City from October 1-3. Enders will be joined by moderator Blair Feltmate of the Intact Centre on Climate Adaptation, Lee Spencer of the Government of Manitoba, Craig Stewart of Insurance Bureau of Canada, and industry expert Alain Thibault.