Why IBAC foresees a national flood insurance program

The recently-released federal budget gives brokers reason to be optimistic that Canada will eventually have a national flood insurance program for homeowners, the head of the Insurance Brokers Association of Canada suggests.

“The commitment from the federal government is clear to develop a national flood insurance program,” IBAC CEO Peter Braid said in a recent interview.

Canadian Underwriter interviewed Braid a few days after Deputy Prime Minister Chrystia Freeland tabled the 2021-22 budget in the House of Commons.

The 2021-22 budget document, released April 19, does not specifically mention a program similar in concept to either Flood Re in Britain or the United States National Flood Insurance Program.

By contrast, in its 2014-15 budget, the federal government had said it “proposes to consult with the insurance industry, provinces and territories to explore options for a national approach to residential flood insurance.” The 2014-15 budget was released less than a year after flooding in southern Alberta caused about $6 billion in economic loss, most of which was not insured because overland flood was not generally available to Canadian homeowners at that time.

Since then, insurers have started writing overland flood but brokers are concerned because many homes in high-risk areas cannot get overland flood coverage at all or at an affordable premium.

The 2021-22 budget document does propose federal spending of $63.8 million, over three years, to work with provinces and territories to complete flood maps for higher-risk areas. That commitment “clearly supports the federal government’s plans to develop a national flood insurance program for high-risk properties,” Braid told Canadian Underwriter.

IBAC was looking for more money for flood mapping because flood maps currently available are “woefully out of date and inadequate,” said Braid.

He added that IBAC and the Insurance Bureau of Canada are participating in the Task Force on Flood Insurance and Relocation, which Public Safety Canada announced in November 2020.

“That work is taking place as we speak,” said Braid. “The government’s timeline is to have recommendations to ministers in 18 to 24 months.”

In 2019, IBC released a paper outlining three possible options for addressing the lack of affordable overland flood insurance coverage for some high-risk properties in Canada.

One potential option is a special pool for high-risk properties, whereby premiums would reflect actual risk but would either be capped or subsidized, IBC said in its 2019 paper, Options for Managing the Flood Costs of Canada’s Highest-risk Residential Properties. Another option in that paper is a “pure market” approach. This would mean homeowners are no longer eligible for flood disaster relief and instead they would be left to self-insure, purchase insurance from the private market or relocate. A third option would have the private sector takes on as much contingent liability for flood as its risk appetite allows, while leaving the highest-risk properties (where private-sector insurance would be unaffordable at actuarially sound rates) to be covered by government disaster assistance programs.

“The three possible options presented in the report are informative, and are examples of the range of possible solutions to addressing the financial cost of managing high-risk properties in Canada. It is important to note that other options could also be considered moving forward,” Public Safety Canada told Canadian Underwriter earlier.

At the time, the federal government said it would give “full consideration” to the proposals made in the IBC paper.

Meanwhile, the Task Force on Flood Insurance and Relocation is meeting on a regular basis, Craig Stewart, IBC’s vice president of federal affairs, said in an interview in February 2021 with Canadian Underwriter.

IBC co-chairs one of the teams on that task force, which is broken down into three task teams. One of those is an industry task team, which includes representatives of IBC, IBAC, the Canadian Association of Mutual Insurance Companies, the Reinsurance Association of Canada and the Canadian Association of Direct Relationship Insurers (CADRI).

The full task force meets every three months while the individual task teams meet monthly.

Feature image via iStock.com/Colin Temple