In 2022, Hurricane Fiona ushered in a new awareness of the damaging effects of climate change for Canadians. With nearly $4 billion in damages, many Canadians began to wonder how safe they are with their insurance coverage. Currently, more than 1.5 million households across the country remain highly vulnerable to flooding and lack access to flood insurance. And unfortunately, it’s only going to get worse. Each year, the frequency and severity of flooding in Canada continue to rise. This begs the question: Is flooding making homes uninsurable? Let’s take a deeper dive into this below.
Which areas are most vulnerable to flooding?
Unfortunately, climate risks are not contained in specific areas of the country. This is according to Rob De Pruis, a National Director with the Insurance Bureau of Canada (IBC). They have been tracking severe weather trends across the country since 1983. “It’s coast to coast to coast,” says De Pruis. “When we think about specifically the wildfire and the flood risk, no province or territory is spared.”
Multi-Hazard Exposure Index
In response to the increase in disaster-related damages, The Bank of Canada has developed a multi-hazard exposure index to identify areas most vulnerable.
This ‘vulnerability’ considers two factors:
- Depreciation of assets: When homes that are not fully insured are destroyed, their value depreciates significantly.
- Loss of income: If employees can’t reach their workplace or businesses face disruptions due to natural disasters, it affects household income.
While many regions face high exposure to at least one type of disaster, postal codes with elevated risk across multiple categories are concentrated in:
- British Columbia
- The Prairies
- The Atlantic provinces
- Northern Quebec
- The Northwest Territories, and
- Parts of Southern Ontario (including Toronto)
Homeowners are becoming more vulnerable to climate change
As more and more homeowners find themselves living in areas vulnerable to climate damage, finding a sufficient home insurance policy is becoming increasingly important — if not always straightforward. Climate-related perils that are unequivocally not covered by any home insurance provider are landslides and tsunamis. Other types of perils, like flooding, are simply trickier to get coverage for.
Flooding insurance coverage
A 2019 global analysis by Kulp and Strauss estimates that 320,000 to 600,000 people in Canada currently reside in areas susceptible to sea level rise and coastal flooding. Much of Atlantic Canada, particularly New Brunswick, Nova Scotia, and Prince Edward Island, will face the highest rates of sea level rise in the country by 2100. Although many insurance companies offer this type of coverage as an optional add-on, a homeowner can become ineligible for flood insurance if their home is in a high-risk flood zone. About 10% of Canadian households are highly vulnerable to flooding but cannot access flood insurance, according to the IBC.
Rising sea levels are expanding flood risk zones, making numerous homes more prone to flooding.
Aviva Canada CEO, Jason Storah, tells Canadian Underwriter that many Canadian homes are being built in areas at high risk of water damage. “And logically, if nothing changes, that number is only going to go up.” He later went on to say, “In the last few years, NatCat weather-related losses were around $2 billion. Last year, they were $3.1 billion. So, this [climate change risk] is very real, and it’s very much here and now. Whether it’s flooding, hurricanes, wildfires, ice storms, and more — it’s very, very real.”
Water Damage Insurance in Canada
The Canadian insurance industry places flood and water damage in four different categories:
Many insurers do not provide sewer backup coverage as a standalone add-on, requiring homeowners to buy it bundled with their overland flooding coverage instead. Therefore, homeowners who do not qualify for overland flooding coverage also won’t have access to sewer backup coverage by default. This is the case, at least, with insurance companies that bundle the two add-ons. So again, does this mean that flooding is making homes uninsurable?
Over 2/3 more people added water endorsements to their home insurance since 2016.
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 per 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 backup protection. About 90 percent of the population is eligible for overland water coverage.
Flooding making homes uninsurable: National Flood Insurance Program
In response to the latest barrage of flooding on 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 surges 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.
Nationally, spending on flood-related damage accounts for 75% of all weather-related expenditures.
Some standard homeowner’s and tenant’s insurance policies may also have the option to add coverage for earthquakes and floods. Insurance companies, wary of substantial payouts due to frequent and severe floods, rarely offer affordable flood policies in high-risk areas. And when they do, premiums soar. The program aims to provide reliable coverage to homeowners while also easing the pressure on taxpayer-funded, disaster financial aid programs. This is one of the only existing avenues for uninsured homeowners to get relief when their homes see flood damage.
Home Insurance endorsements to consider adding to your policy
A homeowner’s insurance policy protects your home and property from lots of different types of damage. This can include perils, such as fire, lightning, theft, or vandalism. But there are some things your insurance won’t cover. This can be water damage from a plumbing backup. Fortunately, most major insurers offer optional coverage add-ons, called endorsements. They can supplement the coverage in your policy to fully protect your home and its contents. Below are some of the more popular home insurance endorsements that’ll add an extra layer of coverage to your policy:
- Sewer back-up
- Inland flooding
- Earthquakes
- Guaranteed Replacement Cost
As climate change triggers an increase in natural disasters across Canada’s diverse landscapes, insurance claim payouts are on the rise. This is making coverage for some properties no longer affordable for the homeowner or profitable for the insurer. With worsening climate events, more and more homes are becoming uninsurable.
But if insurers won’t insure your home, where does that leave you as a homeowner? Is flooding making homes uninsurable? As the threat of extreme weather grows and few reliable means of making sure you’re completely covered, it’s never been more important to contact an isure broker to cover the bases. We are happy to suggest the best coverage options tailored to your home’s specific needs. Contact us today or get a quote.
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