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Uninsurable homes in Canada’s future: insurance, climate change expert predicts

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OTTAWA – Millions of Canadians living in many parts of the country could find their homes declared uninsurable, as the insurance industry grapples with skyrocketing water damage claims.

That's the grim future predicted by Blair Feltmate, chair of the Climate Change Adaptation Project at the University of Waterloo.

"That's going to be the harsh reality," Feltmate said in an interview Tuesday.

"In the absence of weather-hardening infrastructure, under the new extremes of climate change and extreme weather events, we are categorically heading towards an uninsurable housing market in Canada in many, many regions."

Feltmate's project, jointly funded by the university and Intact Insurance, is aimed at finding practical, affordable solutions to the challenges presented by climate change.

Over the past 15 years, Feltmate said studies have indisputably shown that the frequency and severity of extreme weather events across the planet have increased. In Canada, that's meant water damage has vaulted ahead of fire as the leading cause of property insurance claims.

Indeed, Feltmate said insurance companies are now losing money on water damage insurance — even though it covers only water that backs up into basements. And they're under mounting pressure to expand coverage to include the even more costly damage caused by "overland flooding" as well.

While most Canadians believe they're insured for flood damage, in reality Feltmate said Canada is the only G8 country in which property insurance does not include damage caused when water pours in through windows and doors — as was largely the case in southern Alberta over the past week.

Insurance companies are between a rock and a hard place. The potential cost of overland flood insurance is enormous but, at the same time, Feltmate said companies are aware there are repercussions for the industry's already dismal image in continuing to allow victims of devastating floods to "go apoplectic" when they discover they're not covered.

Moreover, if the industry doesn't deal with the issue itself, he said the government could impose a solution that is less palatable.

Immigration Minister Jason Kenney, the minister responsible for southern Alberta, strongly encouraged insurance companies on Monday to pay the claims of people whose homes were damaged by both backed up water and overland flooding, without being overly nit-picky about the exact cause of the damage.

In a survey last month of presidents and CEOs of the country's biggest property and casualty insurance companies, Feltmate and a colleague found agreement that overland flood insurance is an issue that must be addressed.

Insurance executives "know we have a problem and business as usual is not acceptable," he said, although there is no agreement as yet on how to address the issue.

As a first, urgent step, Feltmate said either the industry or governments must pay to develop up-to-date maps of flood plains in Canada.

After that, he said "we can start to say, okay, in these extreme regions of high potential for flooding, these will be designated as uninsurable markets, do not build there."

In areas with a lesser degree of vulnerability to flooding, insurance could be conditional on the infrastructure being "weather hardened" to reduce the risk of flood damage.

"We're talking about large sectors of Canada that could be potentially uninsurable," Feltmate said. "So we're talking millions (of Canadians effected), we're not talking 10,000 people in a city somewhere."

"In my opinion, this is one of the key problems facing the country today."

Source: Macleans

Editors comment: The fundamental nature of the insurance business is to spread the losses of the few among the many. For example, out of every 1000 homeowners only a few will have major losses and that expense is spread among the other 1000. If insurers could identify only those that were going to have the fire and only charged them you can see that there premiums would be unaffordable. Whereas virtually every home has a risk of such things as fire, lightning, wind, vandalism and many other hazards only a small percentage have an exposure to flood. Would it be fair to increase the premiums for everyone to expand home insurance to cover flood (the very few)? If the premium was increased to allow for this only to those who lived in flood prone areas, the premium would be prohibitive - "Sorry, you live in a flood prone area your home insurance premium will be $25,000 annually".

What is the solution?

Ryan Guthrie
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