No, Desjardins, our flood coverage is sustainable: The Co-operators
If flood insurance is cheap, will homeowners be less likely to mitigate their risks?
If you caught our last issue, you’ll know that our choice for our annual CEO profile was Sylvie Paquette of Desjardins. And yep, this meant controversy. We had emails from folks who didn’t like us putting a direct insurer on our cover. We thought this was a peculiar attitude, given that she and her company are still news, and the IBAO thought her worthy enough to have her on the CEO panel of their annual convention.
Nevertheless, she has interesting, controversial opinions. As we reported last issue: “Paquette questions whether insurers who have recently started offering overland flood insurance—the Co-operators in May, Aviva in June and RSA in November—will make the product available for those actually living in flood-prone areas. ‘I guess the answer is no, because it’s not sustainable. Or you will make an offer that will not be affordable.’” This got even us debating such issues in the newsroom. And it turns out we weren’t alone on this either. The nice people at The Co-operators wanted to weigh in, and so we spoke with Rob Wesseling, executive vice-president at The Co-operators responsible for P&RC operations and Sovereign General Insurance.
Wesseling points out that their coverage is “extremely broad” and “if our covered clients’ homes are damaged by water in a sudden and unintended way, they’ve got coverage,” whether that water is from a flooded river deluge or a backed-up sewer. “We offer it to everyone, from those who are at relatively low risk to those who are at the most severe risk… For a very small portion, less than one percent of our homeowner clients in Alberta, we do have a limitation in terms of the amount of coverage that we will provide, and that’s limited to $25,000.” Those folks are sitting within the 25-year floodplain “based on our modeling.”
But even with those terms, why offer the coverage at all? Wesseling argues the practice speaks to one of the most important societal benefits of the industry, “and we believe strongly that even if the news is difficult, a homeowner now has the knowledge that they’re at significant risk… So we’re having lots of challenging conversations with our clients who are at significant risk.” Those talks can take more than an hour, providing information, discussing exposure and “what can you do with your home to make it more resilient…”
Wesseling estimates that “more than 90 percent of our home insurance clients, when offered comprehensive water coverage, have added it,” and of the roughly five percent of their client base in more significant risk areas, more than 60 percent are adding the coverage, though not everyone purchases their policy limits.
In speaking with Top Broker, Sylvie Paquette suggested a major problem is that property owners who aren’t at risk of flood don’t want to pay the higher premiums insurers will charge to offset those who are. “That’s where the government needs to play a role, and say ‘OK, you don’t want to subsidize them, but overall we will.’”
Wesseling concedes that government at all levels has a huge role to play in terms of flood mapping, modeling, prioritization of infrastructure projects, zoning bylaws, etc. But “we have to be really careful” because “subsidization in insurance tends to become permanent. It’s very difficult to undo once you’ve done it, and there’s a very important unintended consequence that occurs… we send the wrong messages, we create the wrong incentives.
“So if I can insure my home in the 25-year floodplain against flood for $250 a year, and if that home will continue to get rebuilt, and I’ll continue to pay that $250 premium, I’m very unlikely to do the things that I should do to protect it. If I’m a builder or a developer, I’m less likely to shy away from wanting to build or develop in those areas, because there will be demand for my product… You end up distorting the behaviours that would actually help us make our communities more resilient, and that is the big challenge.”
So no consensus yet in the biz on such issues, but certainly interesting insights. As it happens, when Omega Insurance CEO Philip Cook spoke at Toronto’s National Club on industry trends in early January, he noted that overland flood coverage was “sorely needed” in Canada, but he “was a little disappointed that as an industry, we haven’t come up with a consistent way of doing it.”
Copyright © 2016 Transcontinental Media G.P. This article first appeared in the February 2016 edition of Canadian Insurance Top Broker magazine