Overland flood insurance is now available for the majority of residential properties in British Columbia. As of late 2019, there were 15 or more insurance companies offering coverage in BC for riverine-related flooding and at least one company offering coastal (storm surge) flood coverage in the Lower Mainland of BC.
Overland flood insurance was previously only available for commercial policies (included as part of all-peril policies). Some insurance companies add overland flood coverage automatically upon the renewal of a customer’s insurance policy, while others provide it separately.
All BC residents and businesses should review the status of their insurance policies and flood-related coverage.
Water-related claims have become the number one cause of residential insured losses across the country, exceeding fire-related claims. There remain some properties across Canada that are currently considered too high risk and therefore “uninsurable” for overland flood hazards. The federal government and insurance sector are currently working on a solution for these properties.
There are likely three options to address the long-term insurability of all private residences in Canada. The options were informed by an international review of lessons learned, as well as consultations between the federal, territorial and provincial governments. These are characterized as follows:
- Pure Market Solution: Risk borne by homeowners
- Evolved Status Quo: Risk borne by a blend of homeowners and governments
- Create a High-Risk Flood Insurance Pool: Creation of separate insurance that reflects the higher risk.
A Report of the National Working Group on Financial Risk of Flooding (IBC) was released January 2019. It measures the above three options against six principles and describes the main preconditions to establishing a flood insurance market that could be sustained over the long term.
During or following a disaster, the Government of BC may declare the disaster event eligible for Disaster Financial Assistance
(DFA). Once so declared, the DFA program may compensate individuals for essential uninsurable losses and may reimburse local governments for damaged infrastructure. DFA has specific eligibility requirements and limitations. A homeowner can claim only for a primary residence
and to a maximum residential claim of $300,000.
The purpose of DFA is to help individuals, small business owners and local governments recover from uninsurable disasters and, in some cases, to supplement insurance coverage. The DFA program operates under the Emergency Program Act (EPA) and the ensuing Compensation and Disaster Financial Assistance Regulation and is required to provide compensation in compliance with this legislation. The EPA is, however, undergoing a modernization process. A new Act is anticipated in 2020.
Currently, the Regulation defines “eligible costs” (with a local government exception) as “costs or expenses … recoverable at law … or for which insurance was reasonably and readily available.” Until recently, overland flood insurance was not available for residential properties, therefore residential overland flood losses were historically covered through DFA.
Emergency Management BC (EMBC) is monitoring the availability of overland flood insurance in BC. If a flood disaster occurs and DFA is authorized for the event, an applicant who could reasonably and readily have purchased overland flood insurance, and did not acquire this insurance, would NOT be eligible for DFA. As additional insurance options become available, EMBC will apply discretion in how it determines eligibility for DFA. For example, a homeowner or tenant would not be expected to amend an existing insurance policy immediately as overland flood insurance becomes available, but DFA may be denied if overland flood insurance was available on renewal and the claimant chose not to purchase it.
The previously limited insurability of flood risk in Canada has meant that historically, taxpayers have borne a significant burden for flood damages incurred across the country, as is evident by examining spending on the Disaster Financial Assistance Arrangements (DFAA) program. Since the 1970s, federal payments for flood assistance have totalled $6.2 billion — or 70% to 80% of total DFAA spending. These costs have more than quadrupled in 40 years, swelling from a cumulative $300 million in the 1970s, to $1.2 billion in the 2000s, to a staggering $3.7 billion from 2010–2014.
For background on these issues, see the report of the National Working Group on Financial Risk of Flooding (Insurance Bureau of Canada): Options for Managing Flood Costs of Canada’s Highest Risk Residential Properties.
While the recent restructuring of the DFAA has devolved more of these costs to provincial governments, taxpayers remain the primary funding source for flood loss compensation.