Charted Course

Coast to coast, 2012 was a devastating year for flooding in Canada. In June, weeks of rapid snowmelt and wet weather caused flooding in British Columbia, resulting in 700 people being forced from their homes; in May, 300 residents of Manitoba had to evacuate their homes following a breach in the dike along the Assiniboine River; and in late March, when the St. John River spilled its banks, the fast-rising water pushed 500 residents out of their homes to higher ground.

Referring to the flooding in New Brunswick’s Perth-Andover area, Premier David Alward noted in early April that recovery efforts were continuing. The province reported that almost 200 applications for disaster financial assistance had been received, with residential property owners possibly eligible for as much as $80,000 for repairs to structural damage, while small businesses could be eligible for more, depending on the scale of the damage.

Already this spring, dozens of communities in central Ontario, Manitoba, Saskatchewan and New Brunswick, among others, have been hit by flooding. Some communities have applied to their respective provinces for disaster relief assistance, including a number in Ontario, where assistance is provided “when damages are so extensive that they exceed the financial resources of the affected individuals, the municipality and community at large.”

Although overland flooding is not covered by home insurance policies, it can contribute to sewer back-up, coverage for which is usually available and can be purchased as an add-on to home insurance policies.

Flood damage, whether resulting in insurance claims or government assistance, continues to rise every year. Floods are the most frequently occurring natural hazard in Canada.

Public Safety Canada’s Canadian Disaster Database from 2007 indicated 241 flood disasters occurred in Canada between 1900 and 2005, representing almost five times as many as the next most common disaster, wildfire.

Flooding incidents can happen anywhere, although the majority, 62%, happen in four particularly flood-prone provinces: Ontario, New Brunswick, Quebec and Manitoba. In April, the Manitoba government announced a planned 1% increase to the provincial sales tax in its 2013 budget, as part of a strategy to fund critical infrastructure and flood mitigation projects. The measure would expire in 10 years. 

CONTRIBUTING FACTORS

Managing flood risk is a particular challenge to insurers and flood managers because so many diverse and uncontrollable factors contribute, everything from forest fires to sudden snowmelt. Below are some of the most common ways that flooding can occur globally:

• Hurricanes and tropical storms, with a devastating combination of rain, flying debris, high winds and tidal surges, can cause serious damage in coastal areas, bringing floods inland and threatening millions of people.

• Flash flooding – rapid flooding in low-lying area caused by thunderstorms – can roll boulders, tear out trees and destroy buildings, bridges and dams in a matter of hours.

• Mudflows, or rivers of flowing mud on the surface of normally dry land, are generally caused by brush loss followed by heavy rains. This thick downward-flowing liquid can lead to a unique form of flood damage.

• Wildfires sharply increase flood risk, as the burnt ground where vegetation has been destroyed cannot easily absorb rainwater, increasing the risk of flooding and mudflows over a number of years.

ASSESSING RISK

While very little can be done to prevent flooding altogether, it is possible to make calculated evaluations of flood risk to pre-empt disaster. Technological advancements have vastly improved the ability to assess risk. Until recently, flood data was only available in hard copy format, but legacy records about flooding have now been digitized.

By collating historical data from government agencies and insurers, it is now possible to perform more robust analysis that includes known factors that contribute to flood risk. Data about risk factors can then be integrated into mapping and location intelligence software to produce very precise assessments about specific areas and properties that are at risk.

For instance, very detailed elevations can be accessed, thereby allowing users to determine if a particular parcel is above or below the flood zone. This offers a 3D understanding of risk, providing a quick way to evaluate the true flood risk of a particular business or a home.

These innovations in flood risk assessment have major implications for the insurance community. Having highly accurate risk assessments allows insurers to better manage costs and stay ahead of their competitors. Without such a high degree of accuracy, underwriters often must overestimate risk to ensure they are not subject to big losses.

With precise risk assessments, underwriters can price products accurately. These savings should not be underestimated. One of the most important factors for both consumers and businesses when choosing insurance providers is price.

Products are currently available that allow both insurers and underwriters to integrate this intelligence and analysis into their existing systems. Apart from building their own software and databases, it is also possible to integrate third-party software into existing systems to create customized flood risk scores that, in turn, can be used to develop region-specific flood risk indication systems.

Of use would be cities and towns along Canada’s major rivers that have had a significant historical flood risk.

This geolocation information is integrated with the Canadian Digital Elevation Data, which is produced by Natural Resources Canada (NRC). Said data consists of an ordered array of ground elevations at regularly spaced intervals, extracted from the hypsographic and hydrographic elements of NRC’s National Topographic Data Base.

Sophisticated elevation and proximity data improves the determination and management of potential flood risk, allowing insurers to underwrite and rate properties with greater accuracy. Some currently available software is updated in real time, which means it is possible to assess risk immediately, improving risk awareness and exposure monitoring.

Flood risk data can also be combined with information about other insurance risks, such as fire, ground sinking, hurricane and severe weather. These various disasters are often related, so being able to see the big picture is crucial to managing risk.

ENHANCING CUSTOMER SERVICE

While it is valuable to offer customers affordable pricing, it is also important not to underestimate the value of customer service. Customers value swift and efficient interactions with companies. They are likely to be loyal to insurance companies that respond to their needs in a time-sensitive manner.

Risk assessment software not only reduces cost, but also expedites underwriting decisions, thereby allowing insurers to offer customers a quicker turnaround time. Software can also be integrated into customer service systems to allow front-end staff to resolve issues effectively.

In addition, it allows insurers to initiate contact with customers to inform them of changes in policy or new developments in their risk assessment profile.

Canadian insurers have a range of challenges ahead. The industry is growing slowly and price competition is driving down rates. All of this is compounded by the swiftly changing needs of policyholders and distributors.

The key for insurers is to differentiate their businesses by having the quickest and the most accurate means of underwriting. To successfully compete and thrive in this competitive industry, it is necessary to be prepared and implement technological solutions to these issues.