In response to the latest barrage of flooding in the east coast of Canada, the federal government and the Insurance Bureau of Canada are working on a way to make insurance coverage for that type of damage possible. Currently, standard insurance policies generally do not cover storm surge and overland flooding because it is considered too high risk. However, given recent weather events, the Canadian government is hoping to implement Canada’s first National Flood Insurance program by 2025. First, let’s take a look at what types of coverage are currently available in a standard homeowner’s policy, including add-on endorsements. Then, we will examine what the flood insurance proposal coverage is for homeowners.

Most common home insurance claim in Canada

Water damage is now the most common type of home insurance claim in Canada. When a pipe bursts, a roof leaks or a basement floods, it’s a costly headache for everyone. Nationally, spending on flood-related damage accounts for 75% of all weather-related expenditures. What you may not know is that a standard home policy doesn’t always cover damage caused by water.

What is the potential for flooding?

The potential for flooding exists in many urban areas because Canadian cities exist along rivers, lakes and harbours due to the convenience of commerce and transportation. Federal, provincial and territorial governments designate a number of flood prone areas in Canada in order to:

  • Map out areas of high flood risk
  • Restrict development or redevelopment in these areas
  • Encourage local authorities to zone on the basis of flood risk

According to last year’s federal budget, the government proposed to provide $31.7 million over three years, starting in 2023-24, to start a “low-cost National Flood Insurance program. The program will protect households at high risk of flooding and without access to adequate insurance.”

In today’s world of extreme weather events, reports that nearly $2 billion dollars has become the new normal for yearly catastrophic losses – most of this is due to water-related damage.

Water damage insurance in Canada

The Canadian insurance industry places flood and water damage in four different categories:

  1. Overland water
  2. Ground water
  3. Sewer backup
  4. Standard water (caused by burst water pipes)

Let’s explore what is and isn’t covered in your policy:

What’s covered

The key to water damage coverage is “sudden and accidental” incidents that are not caused by freezing, such as the following:

  • Water damages due to indoor plumbing, heating, or air conditioning emergencies, although the cost of repairing the source of the problem is not covered.
  • Indoor or outdoor domestic appliances on your property (i.e., washing machines, dishwashers, etc.), although the cost to repair the appliance is usually not covered.
  • Broken water main.
  • Wind and hail damage to exterior and interior.

What’s not covered

  • Damage from freezing of indoor plumbing. If you’re away from your home for more than four consecutive days, you must drain the plumbing or have daily checks of your home to ensure that heat is maintained. If damages due to freezing do occur despite these precautions, it will be covered under most policies.
  • Damage from freezing outside the home (i.e. melting or moving snow).
  • Leaking roof.
  • There isn’t coverage for flood damage caused by saltwater – including damage from tidal wave flooding, tsunamis, and storm surges.

Overland water coverage or “Flood insurance”

Overland water coverage insures against losses such as:

  • Rain accumulation on the surface that enters through basement windows or a crack in an above-grade basement wall
  • Rain accumulation on the surface and entering through the garage door
  • Sewer back-up due to heavy rain and surface water also entering the home
  • Sewer back-up due to the overflow of a body of freshwater or lake

Sewer back-up vs. Overland water coverage

Sewer back-up is any water that is coming from an external fixture from the home. So, if you’re attached to the sewer system and that backs up, that’s considered sewer back-up. Overland water is anything that is coming from the outside water that shouldn’t be. You can purchase overland flooding coverage if you live in an area designated as a ‘flood zone’.

If you have an all-risk or comprehensive policy, there is coverage for all water damage, except those your insurer will specifically mention. Most Canadian homeowners can purchase overland flood 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. The price of coverage is based on the risk of overland water flooding in your area. If you’re in a low-risk area, it will cost less to add this coverage. Sometimes, you can add overland protection at no cost if you have sewer back-up protection. About 90 percent of the population is eligible for overland water coverage.

The benefit of working with an isure broker is that we have access to various markets. That means we can look and see which companies offer it. Just because one company doesn’t provide it, doesn’t mean all companies don’t.

So, what is National Flood Insurance coverage?

Eastern Canada continues to be hit with seasonal storms causing destructive flooding. The federal government and the Insurance Bureau of Canada (IBC) are currently working on a way to make insurance coverage for that type of damage possible. Currently, standard insurance policies generally do not cover storm surge. Additionally, overland flooding is not included on standard homeowners’ insurance policies. Flooding is considered too high risk.

Craig Stewart, the VP of Climate Change and Federal Issues with the Insurance Bureau of Canada, says that the goal is to have a National Flood Insurance Program available by April 1, 2025. Stewart explains, “(homeowners) You will continue to buy home insurance the way you do through your existing insurer, but you will have access to comprehensive flood insurance, which will protect you,” Stewart told CBC News last week. The genesis of the program began 2.5 years ago between the federal government and the IBC when the public safety minister called for a task force to look into how flood responses can be improved. Stewart estimates there are currently 1.5 million households in high-risk areas.

How will the National Flood Insurance program work?

According to last year’s federal budget, the government proposed to provide $31.7 million over three years, starting in 2023-24, to start a “low-cost flood insurance program, aimed at protecting households at high-risk of flooding and without access to adequate insurance.” While the exact details are still being worked out, coverage can be around $300,000, with an ‘affordable deductible.’ In addition, there are talks about capping the premiums so there’s an incentive to pay for the protection if you’re in a high-risk area. “You’re paying for the risk you face, but it’s not going to bankrupt you. So, the idea is to cap the coverage to keep the program affordable,” Stewart says.

It’s not clear how much more it will cost to include flood protection on an insurance policy. Stewart says it will depend on the contents of the home, how much repairs will cost and the level of risk. However, homeowners will be looking at hundreds of dollars a month with some sort of cap based on either the income of the family or the value of the house.

Disaster Financial Assistance will no longer cover flooding

In an email to CBC News on Tuesday, the Department of Public Safety says flood-related damages to residential properties will no longer be eligible for federal cost sharing under the disaster financial assistance arrangements once flood insurance is considered available and affordable to Canadians. However, the department did say that cost sharing for other types of government support, like evacuations, emergency response, psychosocial support and clearing transportation routes will remain eligible. Ultimately, “…the decision on whether to continue to deliver disaster financial assistance for insurable flood damages within a respective jurisdiction will lie with the provinces and territories,” the department says. Specific details on the cost of the flood insurance program have not yet been confirmed.

Note: The 2023 budget provides funding over three years to Public Safety Canada to develop the new approach to help Canadians access affordable insurance.

Many home insurance policies in Canada do not automatically include coverage for overland water flooding. Don’t assume you have flood or overland water coverage, especially if you live in an area at risk of flooding. Speak to one of our isure representatives about overland water coverage for your home. Keep checking back in to our blog for updates on the proposed National Flood Insurance Program coming in 2025.

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