Insurance companies don’t like water. In Canada, basic home insurance policies do not include floods, sewer backups, or water infiltration. For sewer backup and surface water infiltration caused by excessive rain and drainage blockages, it provides additional protection (called approval) while limiting the amount that can be claimed.
In the case of a flood, it’s something else. According to the Insurance Bureau of Canada, 19% of Canada’s population lives in flooded areas and 20% lives in Quebec. This is equivalent to 1.7 million cases (17.8% of the total) in the country, including 340,000 cases (15.7%) in Quebec. These properties were not insured because they are prone to flooding. However, improved knowledge of hydrology has enabled insurers to assess real threats. Therefore, starting in 2017, some or some of these properties will be insured, depending on the level of risk. However, there is still no flood insurance available for 5% of properties in high-risk areas (not only are likely to be flooded, but are certain for a period of 20 years or more).
Are these owners unjustified victims? Sure, floods can cause very serious damage, but unlike fires and tornadoes, this type of disaster is completely predictable. Hydrographers know exactly where, how often, what impacts, and how floods can occur. That is, from bottom to top, near the waterway.
Mathematically, nothing prevents insurers from covering this risk of 5% real estate with a high probability. Take, for example, a $ 300,000 home built in an area with a 20-year flood recurrence rate. Flood approval costs an exorbitant amount of $ 15,000 a year ($ 300,000 divided by 20).
Insurance companies get wet
Since 2017, 12 insurers have provided Quebecs with flood approvals. For example, in Dejardan, this approval is free for low-risk properties, that is, properties where floods can occur less than once every 100 years. However, if the risk is moderate, that is, “probable without certainty,” that is, if the recurrence index is 20 to 100 years, it will cost $ 15 to $ 120 per year. The price depends on the value of the property and the amount you want to cover.
The Quebec Government offers general compensation and financial support programs for 5% of properties in high-risk areas (with a recurrence index of 20 years or less). It also supplements the restrictions on approval from private insurance companies.In the first version of the program it was possible to claim the maximum value each flood. However, after the severe floods of 2017, the government has reformed the system to make homeowners accountable and encourage resettlement from floodplains.
As of 2019, single-family home bills are subject to a lifetime limit of $ 210,000, regardless of the value of the property. If the damage reaches 50% of the exchange value of the home or $ 100,000, whichever comes first, the government offers three options. Severance pay, housing relocation, or financial support for immunization (window pulling, electrical system removal basements, even building embankments under certain conditions). The owner who refuses these options is still entitled to compensation, but in that case his assets will be excluded from the program and will be difficult to resell.
Who “believed” her
According to the Insurance Bureau of Canada, total flood payments have quadrupled in 20 years, accounting for three-quarters of all disaster payments. Is it because of global warming? In fact, the urban sprawl phenomenon and the colonization of banks first began. This is why all government plans are now encouraging the migration of residents.
The federal government does not have a direct compensation program. Instead, it supports state programs through disaster financial assistance agreements. In 2020, he established the Flood Insurance and Resettlement Task Force. This task force brings together insurance companies, professionals, and state government officials to create affordable flood insurance that encourages travel from flood-prone areas.
The Working Group, which will submit a report at the end of April 2022, recommends that insurers form a “national pool” to pool this type of policyholder in order to diversify risk (it is devastating). The logic is that it is a typical flood, which rarely happens at the same time everywhere). Federal funds are primarily used to relocate real estate away from flood areas, but guarantee the “pool”‘s ability to pay if the total claims exceed the policyholder’s total premiums. Also used for.
The regulatory debate focuses on three main points. First of all, how much should the “affordable” premium be? If the price of this insurance is too low, the federal government often has to make up for the shortfall. But a more realistic amount of $ 1,000 or $ 2,000 a year will double or triple the cost of home insurance.
Which brings the second point: Should this insurance be applied to all owners of flooded homes? Unlike mandatory car insurance, home insurance is generally voluntary in Canada for both the lessor and the landlord (unless required by the mortgage lender or landlord). Compulsory flood insurance has the advantage of spreading risk more broadly and lowering premiums, while at the same time more clearly informing owners and tenants of the threat.
One solution is to build large-scale mitigation measures by building houses adapted to flood-prone areas or by performing civil engineering works such as embankments, flood diversions and regulating ponds. This raises a third question that is hotly debated. What mitigation measures are considered to be accepted by the insurer under what conditions and under what responsibility? As shown by the catastrophic overflow of Sainte-Mart-sur-le-Lac in 2019, 2,500 homes were swallowed 45 minutes after the levee broke down, but the levee remains!