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Water: The new fire

In April of this year, the Ottawa-Gatineau region was hit with nearly 30 millimetres of rain over the Easter weekend. Another 120 millimetres fell from May 1 to May 8.

Then it was Windsor’s turn. Over Aug. 28 and 29, Environment Canada estimated the city accumulated 170 millimetres of rain. That was the second major storm for Windsor and its surrounding area within a year.

“It was 11 months to the day,” says Michelle Tremblay, managing director with St. Clair Insurance Brokers/Jamieson-Hilts. “It was Sept. 29 [2016] and Aug. 29, and this one was worse than the last one. Windsor had more than 6,000 homes affected this time. We had a lot of street flooding, too, so there were quite a few auto claims.”

For insurers and brokers, water has become the new fire, with payouts for water damage now surpassing fire claims. The latest August rainstorms in Windsor alone caused more than $124 million in insured damage, according to Catastrophe Indices and Quantification Inc.

$600 million

The amount Canadians bear personally in flood-related losses each year

Source: Canadian Voices on Changing Flood Risk 2017 study

And while insurers are paying, so is the government. Last year, 583 people applied for relief in Windsor. Only 122 received assistance; 226 claimants were denied immediately, and 235 applicants were denied after their homes were inspected.

In a 2016 report, the Office of the Parliamentary Budget Officer estimated that the federal government will pay $673 million for flood damage in each of the next five years.

Over those 11 months in Windsor and its surrounding area, St. Clair Insurance Brokers/Jamieson-Hilts did get a higher uptake of consumers purchasing overland water insurance. “We got approximately 300 claims in our office,” says Tremblay, “and I would say 90% of them had the coverage.”

Currey Insurance in Ottawa has been selling overland insurance now for about three years. “The first year we did this, we had very little take-up,” says Brian Erwin, account executive with Currey and president of the Ottawa Insurance Brokers Association. “Now it’s close to 50%.”

Still, there are consumers who opt out of the coverage, and brokers hear the same excuses: “I pay too much for insurance already,” “I don’t have a basement,” and “I have never ever had water in my basement.”

Lessons learned

But with these recent bouts of extreme precipitation, have brokers learned anything? Pete Karageorgos, director, consumer and industry relations, with the Insurance Board of Canada (IBC), says it’s not necessarily about lessons learned. In his view, it’s about promoting insurance products that are available to consumers and having regular conversations with them to review coverages and offerings.

“What we’ve really learned is that if a client does decline overland or sewer backup, we need to talk with them more and not just say ‘OK’ and accept it.”

“The broker, the agent, the representative [all] want to make sure their customers are properly protected,” says Karageorgos. “And the way customers are properly protected is by presenting to them all their options and then letting customers decide what risks they want to manage through an insurance policy.”

Erwin agrees. “Our job is to educate people,” he says. “The more education we give clients to make the purchase, the better choices they can make. When new coverages come out, like overland, brokers have a duty to inform the client this coverage is available.”

Karageorgos says IBC receives thousands of inquiries into its office each year through its consumer information centre. “Consistently, consumers are surprised that, following a loss, they may not be covered, their coverage may be limited, or they may have different sub-limits,” he says. “So, before the water rises, we need to do a better job educating consumers about the risks—and about what products are or aren’t available for them.”

It’s not only a duty to educate, but also a duty not to relent so quickly. “What we’ve really learned is that if a client does decline overland or sewer backup, we need to talk with them more and not just say ‘OK’ and accept it,” says Tremblay.

At her firm, Tremblay talks with customers about the specific contents they have stored in their basements. “We had a loss that was $250,000,” she says. “It went above the policy limit on the property for the basement because the gentleman had so much stuff in his basement that we weren’t aware of.”

Brokers also need to know how clients are using their basements. “Is it a recreational room? Is it a living room? Just so we actually make sure they have the right limit of coverage,” she continues. “A lot of the companies limit the coverage to $10,000 or $15,000. That’s not enough for some people.”

21%

believe flooding risk will increase over the next quarter century

Source: Canadian Voices on Changing Flood Risk 2017 study

Complex policies

Perhaps one reason why consumers bypass water coverage is the policies themselves. For one thing, the wording can be complex.

“It’s tough,” says Tremblay. “We’ve been selling overland for almost two years now. We get it now, and we get the complexities of it, but it’s explaining it to the client.”

Some policies have “interesting” clauses in them, continues Tremblay. “Some have blanket water coverage. They don’t really care if it’s sewer or overland,” she says. “Others specifically say sewer and specifically say overland, and if one loss precedes the other, it cancels one out.”

Could the policies, then, be failing the consumer? Perhaps. Traci Boland, a partner with Ontario West Insurance Brokers in London, Ont., and president of the Insurance Brokers Association of Ontario, says she understands from a business point of view why companies change their wording.

“[A company] might see a risk that another company doesn’t. They might have big data that has told them over the years that this is where they need not insure and this is where they should insure,” she says. “But for consumers, the best would be clear, concise, consumer-friendly water wording.”

Still others, like Erwin, don’t see that policies are at fault. “I would say the consumer hasn’t chosen to make a great decision yet,” he says. “When you’ve been made aware of it, and you’ve declined it, who’s at fault? The broker’s done their job.”

Homeowners’ responsibility

Even if brokers have done their job, consumers must choose to purchase the insurance. Unfortunately, they don’t always choose wisely.

“Consistently, consumers are surprised that, following a loss, they may not be covered, their coverage may be limited, or they may have different sub-limits.”

While many brokers say their consumers’ purchases of overland flood insurance have increased, particularly since the recent downpours in Ottawa-Gatineau and Windsor, the statistics prove otherwise.

According to a University of Waterloo study, 83% of Canadians believe homeowners are responsible for their own personal protection. However, less than 30% of respondents have used “property-level flood protection,” such as sump pumps or waterresistant materials in their basements to protect their homes from flooding. And 50% say they wouldn’t bother buying overland water insurance.

Tremblay says homeowners should have a sump pump with a backwater valve installed in their homes. Unfortunately, they’re expensive to install, so many don’t do it.

Boland agrees. “They are costly, but again, if you have this in and you’re able to get your insurance coverage for much less— because insurance companies give big discounts for these—then over the years you’ve already paid for that,” she says, adding that, in Windsor, homeowners can get up to an $800 rebate if they have a backwater valve installed. “The savings over the next couple of years would pay for it. And then there’s the fact you have peace of mind that you’re covered.”

1.7 million
Canadian households are at risk of overland flooding

Source: The Intact Centre on Climate Adaptation

Unfortunately, with the severity of these storms, even a sump pump won’t necessarily keep the water away. “I talked to one of my clients who still had damage, but he only had six inches [of water],” says Tremblay. “He was saying had he not had his pumps working overtime, he probably would have had three feet.”

Government’s role

While homeowners can take preventative measures and insurers can do their best to sell overland flood and sewer backup, sometimes flooding is the fault of the infrastructure.

It’s not necessarily that infrastructures are falling apart; rather, they’re simply not able to move the amount of water that’s now falling.

“We’re facing a change in climate that’s impacting our communities, so we have to look at how to adapt. Part of our role at IBC as well is to reach out to government and help them understand what our consumers are seeing,” Karageorgos says.

“Government at the federal, provincial, and municipal levels need to be aware of the work that needs to be done on their behalf, too,” he continues. “Infrastructure is an issue.”

“These are 12-to 15-minute rainstorms dropped on you, and the older systems just can’t handle that amount,” Boland says. “You can’t expect insurance companies to keeping paying for this over and over and over.”

While governments have been there to bail out some homeowners, Tremblay says it isn’t a replacement for insurance. “We don’t want people to say, ‘Well, there’s government funding in place.’ You can’t hang your hat on that.”

Still, Karageorgos says the greatest challenge when it comes to overland flooding is that certain regions are at a higher risk than others.

“Some areas may be uninsurable from the perspective that the risk is so great that the premium is so large and consumers may not be able to afford it or companies are not willing to offer it,” he says, noting that Canada is behind some of the other G8 nations with national flood programs.

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Copyright © 2017 Transcontinental Media G.P. This article first appeared in the November 2017 edition of Canadian Insurance Top Broker magazine