Flooding is a real problem in Canada. The insurance industry reacted to this problem in the past by making it impossible for Canadian homeowners to purchase overland flood insurance for their properties. Instead they have to rely on government assistance programs after flood events.
That’s not good enough and in these days of advanced risk transfer and risk modelling Swiss Re and the Institute for Catastrophic Loss Reduction (ICLR) have teamed up to create a study looking into the issue of Canadian flooding and trying to propose solutions.
Obviously, private insurance has many advantages over government assistance programs, given the industries claims paying ability. “Canada is the only G8 country where flood insurance is not available to homeowners. With other forms of water-damage being covered, such as sewer backup and burst pipes, and with commercial entities being able to purchase flood insurance, the coverage void tends to confuse – even anger – homeowners when they discover that they are not covered after a flood event,” said Paul Kovacs, executive director of the Institute for Catastrophic Loss Reduction. Kovacs added: “The provision of flood insurance for Canadian homeowners will put Canada in line with most other industrialized countries, and end any confusion that exists with regard to water-damage claims.”
The paper advocates a partnership approach between the private sector, government and homeowners and suggests that bundling flood insurance into the homeowners policy is the way to go (similar to the UK’s approach).
It’s an interesting problem and one that we could foresee the alternative risk markets solving in the future. It must be possible to predict flooding based on river levels and rainfall, meaning that an index could be created that would trigger payouts to insurers enabling them to pay claims to homeowners. Surely having a predictable, model/trigger or index-based approach from top down is the best way to ensure realistic coverage and that’s where the alternative risk transfer markets can help.
Read the full paper from Swiss Re here.