Watching the pictures of the severe flooding in Australia, and thinking about all the folks who are now displaced, has turned my thoughts to similar catastrophe events in Canada. Whether the Fraser River floods in British Columbia, the Red River floods in Manitoba, or the Saguenay region floods in Quebec , flooding happens regularly in Canada – leading to some innovative attempts to prevent and control it, such as Duff’s Ditch.
The Australian event will apparently cost insurers over $1 billion dollars in insured losses, much of which will be passed on to re-insurers – a staggering cost to be sure. Then I stopped and thought about that for a minute, as they were talking about both commercial and residential losses. Residential policies don’t have coverage for over-land flood in Canada, which got me thinking – why not? Why is this covered in the U.S. (admittedly through a curious mix Federal Government assistance and excess private-insurer coverage), in the U.K., and in Australia, where about 50% of homeowners have flood coverage.
When a flood strikes, the damages are much more than just the water that is washed through the home. In the case of the Australian floods, there will be large amounts of mud carried by the floodwaters, reaching every part of the homes it runs through. We saw this in the devastation of the storm surge from Hurricane Katrina which hit Mississippi and Louisiana, and it was part of the reason that people just abandoned their homes – it was too much work, and the under the U.S. model much of the insurance money would be used up by the clean-up efforts, long before any restoration could actually begin. The clean-up can be complicated by time – letting mud sit for a long period before the remediation work begins can yield a large clod of dirt that is almost impossible to remove except by very strenuous exertion. Mud carried by floodwaters is incredibly damaging, and can also be dangerous – it is possible that it can carry disease, and has to be very carefully removed as a result.
All of this can put incredible stress on property owners, even in cases where the flooding is not as extensive as what we are seeing right now – as has been the case in most flooding events in Canada. Given that they are somewhat rare in Canada, and that certain areas are known to be prone to flooding and can be restricted from coverage through good solid risk assessment and underwriting, why would insurers be so adverse to writing flood coverage in Canada? This is a question that the Institute for Catastrophic Loss Reduction (ICLR) and Swiss Re have looked at in some joint research they recently have undertaken. The research found that with appropriate assistance from various levels of government, the insurers should in fact start to offer over-land flood coverage. The full report is interesting as it looks at such insurance in various countries, the role that government has played in those countries, and what Canada can learn if they plan to go forward with offering such coverage.
It makes a pretty fascinating read – especially when you look at the images coming from Queensland right now. We have to ask ourselves if, as an industry, we want our policyholders to simply rely on government intervention during the next major flood event. I would like to think that the insurance industry is more about helping the policyholders, and Canadian citizens in general, in times of great need. If there is no insurance intervention during an event like Queensland, are we really fulfilling our role as an industry?
Hello Martin
very good article on the australian flooding. Would you have any objections if posted on our linkedIn page and put you as the author?
No problem at all, Simon, thank you. If you could link it to my LinkedIn profile, i would appreciate it!
As a follow up, the following article was posted by Canadian Insurance Top Broker
http://ow.ly/3O9g1