Mapping flood zones, raising public awareness, and investing heavily in climate mitigation are necessary pre-conditions for making a proposed “high-risk” insurance pool (rather than the public purse) available to homeowners at risk of overland flooding.
In a report released last week, the Insurance Bureau of Canada (IBC) suggests the high-risk scheme as one of three options to help protect Canadian taxpayers from the rising costs of flood response and repair, National Observer reports.
According to report estimates, “about one-fifth of homes in Canada are considered to be at risk of overland flooding, but many don’t have coverage for the damage. For those that do, insurance payouts have surged to about C$1 billion per year over the past six years.”
At the same time, “federal payouts to help communities recover from flood damage have quadrupled over the last four decades, to about $3.7 billion during the first four years of this decade, compared with just $300 million during the 1970s.”
“Taxpayers cannot continue bailing out people who live on floodplains,” said IBC Vice President Craig Stewart, co-chair of the working group that produced the report.
“The advantage of the high-risk scheme,” whose premiums would be based on the risk of flooding, “is that it allows insurers to pass on risks to a larger pool of available money fed by premiums from homeowners,” Observer explains. “If a homeowner makes a claim, the insurance company would pay out to the customer and then seek reimbursement from the pool.” Advantages for homeowners include affordability, accessibility, and efficient payouts.
The other two options examined by the IBC are “a pure market approach where risk is solely borne by homeowners,” and another one with a degree of government involvement.
Adding to the appeal of the high-risk pool is the hope that the need for it will dry up over time, “as homeowners do more to protect their properties, decreasing the risk of damage and insurance payouts.” Such is projected to become the case in the UK, whose own high-risk pool, established in 2016, is expected to fall out of use beyond 2040—providing, Stewart cautioned, the government continues to invest heavily in climate change mitigation while the pool is being drawn upon.
Just how much money should be put to mitigation remains uncertain, with the IBC report noting only the need for “ongoing funding.”
With $2 billion in federal funds already promised for general disaster preparedness, the IBC and the Federation of Canadian Municipalities are working “to figure out the cost to make Canada resilient to flooding, as well as other natural disasters,” Observer states. Meanwhile, Stewart identified mapping flood risk zones and collecting other critical data as “the single greatest thing the federal government can do.”
Such mapping will help homeowners, many of whom “don’t even know they live in high-risk flood zones,” said Jason Thistlethwaite, associate director of Partners for Action, a research network committed to pro-actively reducing flood risk.
“It doesn’t matter what type of flood insurance model you have—unless you have the right conditions in place, it isn’t going to work,” he said. And to make that happen, ” it is the government that needs to do most of the heavy lifting.”