Marketplace should set minimum standards for flood cover: CEO

Minimum standards should be established for overland flood coverage offered by Canadian property and casualty insurers, an industry executive told Canadian Underwriter.

Offering his personal perspective, Alain Thibault, chairman, president and CEO of the Canadian Association of Direct Relationship Insurers (CADRI), said he would like to see much more cohesion in Canada’s overland flood market.

“I’m glad to see that companies are starting to offer [overland flood] coverage, because three or four years ago, that was not even in the plan,” said Thibault, who will speak about overland flooding as a panelist at CatIQ’s Canadian Catastrophe Conference (C4), scheduled to be held near Ottawa from Jan. 31 to Feb. 2, 2018.

“Perhaps the weakness of such a competitive market is that if a company wants to bring flood to market, they can do it relatively quickly, but then everybody does their own thing,” Thibault told Canadian Underwriter in an interview. “It’s certainly confusing to brokers, and it’s confusing, I can imagine, to a client that does not know insurance. I’m torn, because it’s good that it’s moving, but are we [as an industry] where we should be? Probably not. Do we need more cohesion? I, for one — and this may not be shared by everyone — believe that we do.”

Thibault was responding to current conditions in the overland flood market, in which the Insurance Bureau of Canada (IBC) has cautioned brokers to be aware of the many available options on the market. On the distribution side, frustrated brokers have been rumoured to be on the verge of dropping insurers who do not offer overland flood coverage, because they don’t want to have to explain to their clients why overland flood is not covered under their homeowner policies.

Thibault made it clear that he was not inviting government intervention to establish the standards.

“I’m hoping that the market will be such that it will impose minimum standards,” Thibault said. One example is the pressure brokers exert on their markets to offer overland flood coverage to their clients. Brokers could even opt to decline to work with markets that do not offer minimum standards of flood coverage.

“Companies will react to competitive pressures and will adjust accordingly,” said Thibault. “It’s not necessarily a fast process, but it will happen over time.”

Thibault pointed out two different ways in which overland flood policies vary widely between carriers. One is in the definitions of ‘flood’ in the policies, and another is in the limits of coverage.

Consumers see very little advantage in the varying definitions of the term “flood” that underwriters are using in personal property homeowner policies, Thibault.

“Individual clients don’t make a decision on whether to buy insurance based on the definition of flood peril,” he said. “They don’t have the understanding [of the differences between definitions] or the time to understand it, so there shouldn’t be any competitive advantage to having definitions that vary. I think, in due course, I am hoping for homeowners that the definitions will become more standard.”

Also, he sees widely varying approaches to coverage limits for overland flood in homeowners’ policies. Some companies offer generous policy limits, while others are more cautious and conservative in what they offer. Hypothetically, having $45,000 for flood coverage is better than nothing, but it won’t help a client who has lost the home, he said.

“I’d like to think that when companies get more comfortable with the coverage, when their understanding of the risk improves, that they will not shy away from offering the amounts that are required to protect people,” said Thibault. “That will take some time, better risk mapping, and better experience at pricing the risk.”