World under water
Communities in every corner of the globe are struggling to keep their heads above water as floods strike hard, and with increasing regularity.
In China, the worst flooding in a generation along the Yangtze River basin this summer made an estimated US$20billion dent in the economy, while Louisiana’s recent historic floods killed 13 people and displaced thousands more. On top of that, disasters in central Europe, Pakistan and northern Africa have helped make 2016 a banner year for flooding, even with a few weeks left to run.
So far this year, flooding events have dominated Aon Benfield’s monthly Global Catastrophe Recap reports, accounting for more than half of the disasters that cost insurers worldwide more than US$500 million in the first half of the year.
Closer to home, thousands of households in the Windsor, Ont. area suffered damage of more than $25 million this September after a storm dumped 200 millimeters of rain in just 15 hours, overwhelming the city’s drainage infrastructure. Meanwhile, memories of Alberta’s devastating 2013 floods are still fresh for residents, given the huge cost of the cleanup effort, which the provincial government estimated at around $6 billion.
2016 was also a landmark year for flood insurance in Canada, as companies such as RSA and Ontario-based Unica joined early adopters Aviva and the Co-operators to take overland flood offerings into the mainstream. Canada was the last of the G8 nations to make overland flood insurance, which covers damage caused by freshwater seeping into a property, available to homeowners. Craig Stewart, vice-president of federal affairs for the Insurance Bureau of Canada (IBC), says the development was timely.
“Flooding is rapidly becoming the number one property threat in Canada,” he says. “In the business, we say flood is the new fire. Insured losses have risen exponentially in the past two decades, so it is a big challenge.”
Flood mapping & risk modeling vacuum
Inadequate floodplain mapping and disagreements over coverage for high-risk areas had traditionally held back the development of an overland flood insurance market in Canada, according to Gord Enders, the former president of the Insurance Brokers Association of Alberta. However, he says the 2013 flooding in his province spurred the industry into action by highlighting deficiencies in existing insurance for water damage.
Although some insureds were able to make claims based on sewer back-up policies, and the federal and provincial governments chipped in for some repair costs, many flood victims in Calgary and elsewhere were left out of pocket.
“That was the tipping point,” Enders says. “We wanted to see a private sector solution, as opposed to being told by government what we have to do.”
In February 2015, Aviva started the ball rolling with an overland water endorsement made available to customers who already had sewer back-up protection in place for their property.
Earlier this year, RSA followed suit with Waterproof Coverage, which adds coverage for losses relating to downspouts, drains, and freshwater flooding on top of its existing sump, septic and sewer back-up endorsement.
Amy Graham, the company’s national property leader, says insurers and third party players such as Aon Benfield have filled the mapping and risk modeling vacuum in the flooding realm.
“Better data has made it easier to analyze and price exposure, and things have improved a lot in a short time,” Graham says. “There have been some minor adjustments to the product over the year, but it has mostly stayed static. As time passes, and catastrophic events happen, we’ll be continuously monitoring it, and looking to improve it.”
However, Blair Feltmate, an environmental professor at the University of Waterloo, says insurers will find themselves hampered when it comes to pricing risk without centralized investment in floodplain mapping. A 2014 study commissioned by Public Safety Canada found about half of its existing maps were decades old, and that waterway mapping was incomplete.
“Most of the maps in Canada are out of date, both in terms of identifying where the water will go right now in a high intensity rainfall event, but also when it comes to predicting where the water will go 25 to 50 years down the road when even bigger storms are going to hit,” Feltmate says.
According to Feltmate, town planners need to know where areas at high risk of flooding will be in the future to avoid building housing and other infrastructure that looks safe now, but will be in harm’s way in a few decades.
“It’s highly problematic,” he says. “Insurers don’t want to hold that file. In my opinion, it should be coming from government and broadly disseminated to all interested bodies, but they’re basically dropping the ball across the country.”
While uncertainty reigns when it comes to the location of future flooding, Feltmate says he can “guarantee” the incidence and intensity of events will increase as a result of global warming. According to the IBC, average rainfall has already increased by 12 per cent compared with the 1950s, while extreme events that used to take place every 40 years are now occurring once every six.
Varying pricing & coverage
At RSA, the company prices policies by dividing the country into risk zones from one to nine. At the lower end of the scale, Graham says about 70 per cent of RSA’s book falls into zones one and two. At the opposite extreme, the company will not insure the four or five per cent of homes that fall into zone nine, where risk is highest.
The Co-operators have taken a different approach, offering insurance to anyone who wants it, regardless of the risk in their location, with premiums varying depending on flexible coverage limits and deductibles.
Stewart says the lack of options and potentially prohibitive cost of flood insurance for those in high-risk areas has prompted the IBC to look at alternatives, including government subsidies for areas that most companies find uninsurable, or a national reinsurance scheme based on the U.K.’s Flood Re, which uses an industry levy with the aim of keeping premiums affordable for all. In the meantime, he says, consumer awareness about the availability of flood insurance is growing.
“We have seven or eight companies offering it. I’m not sure consumers are generally aware yet, but that will change at renewal time, and we believe takeup is going to gradually rise over the coming years,” Stewart says.
Increasing awareness & advice
According to Michelle Tremblay, the managing director at Windsor-based St. Clair Insurance Brokers Inc., the most effective awareness generator is a prominent flood event. Following the September floods there, Tremblay says her office was inundated with calls, and not all of them were coming from the more than 200 claimants whose properties suffered water damage.
“A lot of people who didn’t have any damage are calling around to see where they can get overland coverage,” Tremblay says. “When people in Windsor and Essex discuss it with their brokers right now, there won’t be many who say no to it.”
Tremblay says that, until the recent local flood, she had found customers were more willing to gamble on declining flood insurance, particularly if it added more than $500 to their annual bill. She says the recent spike in the number of insurers offering flood insurance in Ontario has challenged her and her broker colleagues because of individual differences in coverage options that must be explained to consumers. Some insurers have maintained the distinction between different types of water coverage, while others have gone with a more comprehensive offering.
“It can be a little confusing for brokers and, when you’re explaining it to clients, you can see they feel a little overwhelmed sometimes,” Tremblay says.
At Unica Insurance, Dave Smiley, the company’s vice-president of operations, says broker feedback was pivotal in its decision to go the comprehensive route with its WATERtight offering, which covers overland flooding, ground water, surface water and sewer back-up. That approach reduces the risk of coverage disputes and sidesteps concerns about anti-concurrent causation clauses, according to Tremblay.
“Early releases of overland and water coverage were very much a la carte, with customers picking the coverage they want,” Smiley says. “This is simple to administer, with broad coverage, so it makes brokers’ lives very easy.”
Enders welcomes the variety of options in the market: “It’s good for the consumer to have choice, even if it makes things a little more complex for brokers. It only enhances the broker proposition, because the average lay-person can’t be expected to wade through 11 different types of water coverage out there without any guidance,” he says.
Copyright © 2016 Transcontinental Media G.P. This article first appeared in the November 2016 edition of Canadian Insurance Top Broker magazine