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What homeowners need to know about flood insurance

Flooding has surpassed forest fires as the top cause of property damage in Canada in the past several years, costing property owners more than $1 billion annually in losses. Despite the threat, a recent study has revealed that an overwhelming majority of Canadians living in high-risk regions are not only unprepared to deal with the impact of floods, but they are also unaware of the potential danger.

A 2020 survey found that out of the 2,500 respondents living in designated flood-prone areas, 94% did not know they were living in such an area and more than half, or 57%, did not have flood insurance. For the remaining 6% who were aware of the flood-risk in their communities, only about 30% had taken action to protect their homes.

The researchers did the same study in 2016 and they were concerned that even after four years had passed, the results remained largely unchanged. It shows us a concerning lack of awareness of Canadians of the risk for flooding, though the lack of awareness could also be a result of the respondents’ lack of personal experience with a flood event.

You may live in a high-risk zone, but nothing’s ever actually happened to you personally. People might not just be aware. It may not be on their radar.

According to the survey, the average cost of claims for flood damage to a property is around $43,000, but this could go much higher, especially with the pandemic pushing more people to work and study at home as this also means an increase in the number of high-end electronic equipment and office furniture in their residences, which could worsen the financial impact of floods.

The report also shares tips on how homeowners can protect their properties from flooding, but strongly advises is that people talk to their insurance providers to determine their exposure and get the coverage they need.

What does flood insurance cover?

A comprehensive home insurance policy typically provides coverage for water damage caused by a burst pipe or leaking appliances, according to the Insurance Bureau of Canada (IBC). However, the association noted that water damage to a property can result from several other incidents beyond the ones standard insurance covers.

Contrary to what most consumers may think, flood is not a “catch-all term” for all forms of water damage when it comes to home insurance.

People often use the term ‘flood’ to refer to water that is somewhere they don’t want it to be – no matter where it came from. Usually, the [insurance] industry will use terms like ‘overland flood’ to refer to widespread flooding events that are specifically caused by rain, melting snow, or the overflow or breaking out of water from a dam, river or lake. This is what those in the insurance industry mean by ‘flood’, and it is generally not included by default in a home insurance package.

According to the IBC, there are two types of add-ons that policyholders can purchase to protect their homes from flooding:

  • Sewer backup coverage: This covers for water damage resulting from a blockage in the main sewage line causing wastewater to reverse direction and flow up into the home. A few insurers include this type of coverage in their standard comprehensive home insurance policy, but most offer it as an add-on.
  • Overland flood coverage: This provides protection against damage caused by overflowing bodies of water – including lakes, rivers, and ponds – heavy rainfall, and melting snow. Insurance companies do not typically offer coverage for floods caused by storm surges, tsunamis, or tidal waves, according to IBC’s website.

How much does flood insurance cost?

Most Canadian homeowners can purchase overland flooding insurance for between $100 and $300 annually, according to the IBC. Policyholders living in flood-risk areas can expect to pay $500 to $1,000 a year. But with climate change causing extreme weather conditions to increase in frequency and magnitude, the bureau is concerned that the situation could push premiums to higher levels.

“We’ve been tracking insurance payouts for severe weather events – things like storms, fires, floods – going back to the 80s,” Aaron Sutherland, vice-president of Western and Pacific at IBC, told The Globe and Mail. “It’s important to treat those weather events as a trend, rather than a fluke.”

“Where the industry used to just pay out a few hundred million dollars annually for those claims, more recently that number has ballooned to more than $2 billion each and every year just for claims associated with a changing climate,” he added.

April showers might bring May flowers, but they also brought flooding to Ontario, as did snow melt and high temperatures. When comparing April 2019 to April 2016, Aviva Canada reported that the number of flood and overland water claims in the province was six times higher than three years ago, though many provinces were also subject to intense flood conditions this spring.

“We’ve seen a significant increase in the number of catastrophic weather events. That translates into claims and this is especially so during the spring season, whether it’s flooding or other types of events – we’ve seen some fast thaws that led to a lot of losses, pipes bursting, and things like that,” said Bryant Vernon (pictured), Aviva Canada’s chief claims officer. “It’s a problem that seems to be getting worse rather than easing up.”

The city of Ottawa and cottage country in Ontario as well as parts of New Brunswick and Quebec were hotbeds of flooding activity this year, thanks in part to a rise in severe weather.

“It’s hard to determine whether or not this is due to population moves, so people moving into areas and then realizing it’s an issue, versus it being a significant increase in weather-related events, but generally speaking, we’ve seen more severe storms,” explained Vernon. “These are storms that have strong winds – strong enough to do damage, but not necessarily to be classified as a tornado or a hurricane – [as well as] heavy rainfall.”

Other factors, such as construction in Toronto, has also hampered the ability of water to flow out to Lake Ontario, which hasn’t helped the flooding situation.

“There’s been a significant amount of construction, so it’s changing the way water can recede,” said Vernon. “It’s definitely something that adds to the discussion of whether or not some of the activities that we’re doing are affecting the ability of water to drain out in ways that it typically would.”

Since launching its overland flood coverage in 2015, Aviva Canada notes more than 50% of homeowners in Ontario now have the endorsement, demonstrating the demand from policyholders to protect their homes from flooding, even if they’re located inland and away from rivers or large bodies of water.

“That’s something that we’re quite proud of because it provides coverage that historically wasn’t there, so that’s one of the ways that we’ve responded. I think the industry as a whole has begun to adopt that endorsement. We are always actively looking at, are there additional coverages or endorsements that make sense to help our customers, but I think that’s one that directly addresses the need in the market for that coverage,” said Vernon.

As for the work of brokers, they can both pass along risk mitigation techniques that will save homeowners from heartache, such as using flood shields on basement windows or moving valuable items to higher ground if flooding is in the forecast, as well as help their clients understand the value of a flood endorsement.

“It’s about getting customers to feel comfortable that it’s a valuable product, and we don’t want them to be in a situation where they learn its valuable because they experienced a loss without coverage,” said Vernon.

Source: Mark Rosanes for Insurance Business Canada

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