1. The affects of flood on
insurance
Glenn McGillivray
Managing Director
Institute for Catastrophic Loss Reduction
April 16, 2015
2. ICLR
Mission - reduce loss of life and property caused
by severe weather and earthquakes
Created in 1997 by the Canadian non-life
insurance industry to confront rising disaster
losses
Multi-disciplinary research and education
provides an essential foundation for “science to
action”
Financed by member assessments (formula
based on premiums written), and flat-fee basis
for associate members
Historically, some funding through government
programs
Fee-based for specific research projects
4. ICLR board
Kathy Bardswick (Chair)
President & Chief Executive Officer, The Co-operators Group
Barbara Bellissimo
Chief Agent & Senior Vice President, State Farm Canada
Charmaine Dean
Dean of Science, Western University
Louis Gagnon
President, Service & Distribution, Intact Insurance
Andrew N. Hrymak
Dean, Professor, Chemical and Biochemical Engineering,
Western University
Paul Kovacs
Executive Director, Institute for Catastrophic Loss Reduction
Sharon Ludlow
President, Aviva Insurance Company of Canada
Brian Timney
Dean of Social Science, Western University
5. A very brief history of
(re)insurance
Almost all early insurances were for coverage of cargo
moved by sea and were designed to protect business
interests (i.e. Lloyd’s of London)
The London fire of 1666 credited for prompting the creation
of direct insurance
What is now widely known as ‘property’ insurance was once
known as ‘fire’ insurance
Big reinsurers created as a direct result of large urban fires
and the ensuing bankruptcy of many primary carriers
Cologne Re (Hamburg fire, 1842)
Swiss Re (Glarus fire, 1861): “The fire, which hit some local
insurers with claims five times their reserves, highlighted the
threat of major catastrophes to the Swiss insurance industry
and demonstrated the need for reinsurance to provide
protection for events with a low frequency, but a yet unknown
severity.” (A history of insurance in Canada, Swiss Re)
Munich Re and Swiss Re both claim that the 1906 San
Francisco earthquake and ensuing fires solidified their
reputations in the U.S. as solid, reliable players
6. A very brief history of
(re)insurance
In Canada, The Phoenix Company of London first opened
agencies in Montreal (1804) and Halifax (1805) to offer fire
insurance
The first Canadian insurer, The Nova Scotia Fire
Association - a mutual - opened in Halifax in 1809 to offer
fire insurance. It was converted to a stock company 10
years later and renamed Halifax Fire
“Western Assurance Company in 1851 stipulated that a
director should attend each fire and exert influence on the
fire brigade to save insurance property.” (A history of
insurance in Canada, Swiss Re)
By 1870, there were 20 registered fire insurance companies
in Canada (5 Canadian, 12 British and 3 from elsewhere)
Many companies still have ‘Fire’ in their names (Fundy
Mutual Fire Insurance, Hartford Fire Insurance Company,
The Mutual Fire Insurance Company of BC, North Kent Fire
Insurance, State Farm Fire & Casualty Company)
8. 0%
10%
20%
30%
1970s 1980s 1990s 2000s
Annual insurance disaster claims, proportion of total homeowner claims
Four-fold increase since 1970s!
Source: Insurance Information Division, Personal Lines Statistical Exhibits, IIIA
Water damage
9. Aviva water damage claims
(2004-2014)
Source: Aviva Canada, 2015:
44% of all prop claims
2004 average: $11,709
2014 average: $16,070
10. The new reality…
We essentially now have a fire insurance policy that is
increasingly responding to water losses
Going from fire losses (low frequency/high severity) to
water losses (which range from low frequency/low
severity, to high frequency/low severity and sometimes
high frequency/high severity)
From a peril where past experience is largely indicative
of future losses (fire) to one where the past, for several
reasons, is not indicative of future losses (water)
From a peril where most of the forces causing the loss
are internal (fire) to a peril where the forces causing the
loss may be external and out of an insured’s control
(rainfall, neighbourhood, infrastructure)
From a peril where data is sufficient and reliable (fire) to
a peril where data is often not sufficient and reliable
(water).
11. Personal property losses
(2009-2013)
Source: Sandink et al. (forthcoming)
0
200
400
600
800
1000
1200
1400
1600
1800
2000
2009 2010 2011 2012 2013
TotalLosses($000,000s)
Year
Water
Fire
Wind/hail
Unspecified losses
Burglary/theft
12. 2013 high water marks
Canada’s costliest and third costliest insured
loss events within three weeks of each other
Ice storm now the second costliest – took 15
years!
Two billion dollar natural catastrophes in
one year – a first!
Second place event (Slave Lake) fell not
one, but two notches to fourth place
5th consecutive year of billion-dollar events
(2014 made it the 6th consecutive year)
17. Southern Alberta flood(June 19-24, 2013)
150-200mm+ fell in just two days
Small pockets of very high rainfall
(Canmore, 220mm in 36hrs, High
River, 325mm in <48hrs)
‘Hybrid’ event (river and urban
flooding)
Evacuation of 100,000+
5 deaths
1000+ km of road damaged
In downtown Calgary alone 4000+
businesses and 3000+ structures
affected
$1.7 billion insured
Approx $6 billion economic damage
Costliest insured natural catastrophe
in Canadian history
18. Lessons learned
Riverine (fluvial) flooding
Riverine or fluvial floods occur when a river bursts
its banks, whether due to extreme rainfall, snowmelt,
ice jamming or any combination thereof.
Source: iStockphoto
19. Lesson 1a
Pay attention to most recent lessons learned
Flood in Alberta in 2005
2006 Groeneveld committee report outlined many actions
to prevent a repeat
Resources for mapping and communicating flood risk
Call to stop selling government land in floodplains
Report wasn’t made public until 2012
Essentially none of the report recommendations were
implemented
20. Lesson 2a
Eliminate flood damage to homes in the floodway, the
zone of highest risk of flooding
Prohibit new development in the floodway
Commit resources for structural investments in flood
defence
Consider land buy-out offers to relocate those in high risk
zones
21. Lesson 3a
Strongly discourage rebuilding in floodways
Provide compensation to landowners to convert land in
floodways to recreational or other use
Owners that rebuild in the designated floodway should not
qualify for future government disaster assistance
22. Lesson 4a
Revisit design flood criteria and establish a high
standard
British Columbia has a 200-year standard
Saskatchewan has a 500-year standard
Parts of Manitoba have 700-year flood protection from
defence structures
Alberta has 100-year flood criteria
23. Lesson 5a
Actively communicate the danger of flood to homes in
or near the flood fringe
Recognize that flood proofing reduces the cost of
recovery from flooding but does not prevent the risk of
flood damage
24. Lesson 6a
Consider requiring additional flood proofing actions for
homes located in areas at risk of flooding
Raise the lowest-floor elevation of buildings above the
flood elevation with an acceptable safety factor (i.e.
freeboard).
Very important when factoring in climate change
Prohibit basements where there is risk of flooding (new
construction)
Prohibit the use of basements for living space (existing
homes)
25. Lessons learned
Urban (pluvial) flooding
Urban or pluvial flooding is not directly associated with a
body of water and is largely caused by extreme rainfall
events.
Source: City of Ottawa
31. Lesson 1b
Create a provincial urban flood damage reduction
strategy
The strategy should build on any existing guidance for
stormwater and sanitary sewage management
Should complement actions to reduce riverine flood
damage
32. Lesson 2b
Develop a provincial strategy to upgrade sewer
infrastructure
Replace all combined sewer systems with independent
sanitary and storm sewers
Establish a timeframe for completion and clarify funding
options for local governments
33. Lesson 3b
Consider increasing standards for sizing stormwater
pipes to focus on the 10-year-storm (not the 2 or 5 year
storm)
New standards should include a margin for uncertainty
about current and future precipitation for both the minor
system (i.e. underground pipes) and the major system
(i.e. overland flow routes)
This uncertainty is due, in part, to the impact of climate
change on frequency and severity of extreme rainfall
events
34. Lesson 4b
Revise building codes to reduce the risk of urban flood
damage.
Codes should mandate the use of household mitigation
measures in new construction such as backflow
prevention devices
Ban use of reverse slope driveways etc
Require backup power for sumps
35. Lesson 5b
Senior tiers of government should work with local
governments and other stakeholders - including the
(re)insurance industry - to promote actions that reduce
the risk of urban flooding for existing homes
May include bylaws, regulations and financial/insurance
incentives for homeowners to install risk mitigation
measures
40. Lesson 6b
Major stakeholders, including local and senior levels of
government and (re)insurers do not always have
access to the information required to effectively manage
and reduce the risk of urban flooding
Senior tiers of government should require local
governments to create and disclose information about the
state and location of sewer/drainage systems and
overland flow routes
Senior government should work with local governments to
prepare and make available a property-by-property
database of actions implemented by homeowners that
affect or mitigate the risk of urban flooding
41. Alberta Auditor General report
(6 March 2015)
Update flood hazard maps and mapping guidelines
Assess risk to support mitigation policies and spending
Designate flood hazard areas and complete floodway
development regulation
Assess effects of flood mitigation actions
Develop plan to regulate dams
Improve dam regulatory activities
Full report at
http://www.oag.ab.ca/webfiles/reports/OAG%20March%202015
%20Report.pdf
42. Some of the issues forced
to the forefront
Financial impact
Alberta floods added approx. 3.5% to the
industry’s combined ratio in 2013
Wordings, wordings, wordings!
Alberta highlighted big differences in companies’
sewer backup wordings
What other differences are out there?
Reputation risk
Political risk
Do we really know what’s going on our balance
sheets?
Are we getting the premium for all the risk?
Managing large volumes of claims
43. Some of the issues forced
to the forefront
Further confirmation that the fire policy has
become a water policy
Greater need for data and information
Further confirmation that past loss experience is
no longer a good indicator of future losses
Proliferation of modeling and greater need for
location-based data
Greater differentiation between carriers
Pricing and deductibles
Caps and limits
New products
Very competitive and heavily scrutinized market
Need to make the right decisions quickly
44. Some of the issues forced
to the forefront
More severe weather ahead
Need to manage accumulations better
Often more data required from reinsurers
Detailed bordereaus before paying flood claims
Increasing need to explain market changes to
insureds (i.e. why premiums and deductibles are
rising, why coverages are being capped/limited)
Greater need to understand mitigation measures
Potential for more demands from regulators
Need to better understand impact of climate
change on your book of business
Need to keep claims costs down
Introduction of flood insurance products
45. Overall poor government hazard data quality in Canada
Government data scattered over many departments (no
central repositories) and provinces (eg. Wildfire, flood)
Some data sources have been destroyed or scaled
back
Government cutbacks over the years have taken their
toll
Downloading/offloading (eg. flood mapping)
Some hazard info better than others (earthquake is
quite good, flood not so good)
Who’s has what, where, and how do we get at it?
Some of the issues forced
to the forefront
46. Many private sources of data
Some of it is proprietary and owners keep it close
to the vest
Need to be careful of anti-competitive behaviour
Some data has a (big) price tag on it
Quality varies
If it seems too good to be true…
Privacy issues still abound
Even if you get good data, does your company
have the resources to analyze and act on it?
Some of the issues forced
to the forefront
47. Avg. difference between
loss ratios
(Auto vs. personal property)
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
18.00%
20.00%
1983-1992 1993-2002 2003-2012
48. Canadian catastrophes
10 killed/100 evacuated/community
assistance required/historically
significant/community unable to recover on
its own
Based on data from the Canadian Disaster Database, Public Safety Canada
50. Additional reading
Making flood insurable for
Canadian homeowners
(www.swissre.com or
www.iclr.org)
Best practices for
reducing the risk of future
damage to homes from
riverine and urban
flooding (www.iclr.org)
Flood Forecast
(www.amazon.com)
Cities adapt to
extreme
rainfall:
Celebrating
local
leadership
(www.iclr.org)
