Where Canada sits with national low-cost residential flood insurance 

Six possible flood insurance models for homes at high risk of flood are about to go through an actuarial review, a federal government official suggests.

The Task Force on Flood Insurance and Relocation is going to hand off those possible models to an actuarial sciences team that will study them this summer and fall, said Matthew Godsoe, director of the resilience and economics integration division at Public Safety Canada, during the CatIQ Connect webinar Thursday.

The Task Force on Flood Insurance and Relocation, announced this past November, includes representatives from the Insurance Brokers Association of Canada and Insurance Bureau of Canada.

The task force aims to have a “statement of fact report” that would spell out a common understanding of flood exposure across country in any given year. It would also look at different ways for Canada to create low-cost insurance for residents at the highest risk of flooding, Godsoe said during CatIQ Connect’s quarterly webinar.

The six possible insurance arrangements are based on a review of literature and on conversations that the task force has had with officials in Britain, France, the United States, Australia and New Zealand about their residential property flood programs.

Overland flood was generally not included in home insurance in Canada until 2015. Despite the fact that several P&C insurers are covering flood risk, many owners of high-risk homes are unable to get affordable flood insurance.

This prompted Prime Minister Justin Trudeau to task Public Safety Canada in 2019 with creating a new low-cost flood insurance program. It would also assist homeowners who might be interested in re-locating their homes if they are at the highest risk of a repeat flood, Godsoe noted during CatIQ Connect, hosted online by Catastrophe Indices and Quantification Inc.

“In many of the models, especially the pool-type models, it is fairly clear that there may be some extremely high-risk properties that flood so regularly, in a way that is so costly, that they would fundamentally undercut the viability of the arrangements,” said Godsoe. “So we are looking at different ways to incentivize strategic re-location (of homes),  and also different levers that may exist across different orders of government to do this in a way that is as comprehensive and useful for Canadians as possible. Because we know the issue of strategic relocation is both politically fraught with challenging decisions to be made; also, there are many considerations, which are not just economic considerations, that need to be baked into any model.”

One of the objectives of the Task Force on Flood Insurance and Relocation is to conduct an actuarial analysis to assess the cost of insurance and funding model across viable insurance arrangements, said Godsoe. Another is to assess viable flood insurance arrangement and measures to support potential re-location of those homes that are at the highest risk of repeat flooding.

In reply to a question from Canadian Underwriter, Godsoe said Thursday the six possible insurance arrangement options have not been published.

“Until the final report gets published, [the possible insurance arrangement options] are still kind of the notional ones that are going into the model,” said Godsoe. “They are going to continue to evolve as we learn more about the different approaches and we tweak the models. So we want to make sure that what we put out publicly is in fact what is being considered and not an early draft.”

The actuarial sciences team will move forward with those possible options in the summer and early fall, said Godsoe.

“We will have three iterative runs of those models so we can tweak the various parameters, tweak levels of affordability or assumptions of market penetration, to try to come up with an optimal model,” he said.

The aim is to publish those assessments in early 2022.

One CatIQ audience member asked Godsoe whether the task force has a definition of “affordable.” Another asked whether the task force has a definition of high-risk property. Godsoe said neither of those terms has an exact definition yet, so the task force is looking at both.

Other countries measure affordability of insurance through means-testing or a percentage of property values, he suggested. “We are looking to go beyond what we have seen internationally, to see if there are other considerations and not just economic considerations.”

As to determining whether or not a property is at “high risk,” one possibility is to use the probability that a property will be flooded in a given year (for example, one in 100-year or one in 125-year event). Another is to look at annual average losses. “We are not sure which way we will land.”

 

Feature image via iStock.com/Thylacine