Residents of Slave Lake were recently devastated by forest fires which swept through the northern Alberta community, destroying hundreds of homes. But they have one consolation. The damage is most likely covered by insurance.
Not so for people in flood-ravaged Manitoba who will have to rely on government disaster assistance to help compensate for damage to their properties. Insurance does not cover flooding.
On the surface, it seems unfair. Flood and fire are both natural disasters. Why does insurance cover one but not the other?
The answer, according to insurers, is that flood coverage is just too expensive to provide.
“I would agree that it’s disappointing. But, unfortunately, we have not found the mechanism by which the product can be offered in a cost-effective manner,” said Lindsay Olson, the Insurance Bureau of Canada’s vicepresident for Mani toba, Saskatchewan and British Columbia.
Olson said the main problem is that floods are localized. They usually occur around waterways in very specific geographical locations. Also, floods are not always random events. They are more or less predictable, as is the case in the Red River Valley where residents can expect at least some spring flooding almost every year.
That’s no help to flood victims in western Manitoba and along the Portage Diversion who feel unfairly sideswiped by unprecedented events. No one could have foreseen a one-in-300-year flood along the Assiniboine River this spring.
But that’s still considered a predictable, localized event, said Wayne Wyborn, vicepresident of underwriting for Portage la Prairie Mutual Insurance Company.
“Any river valley has the potential to flood. We know where the flood plains are. Some floods may be less frequent but they do occur,” Wyborn said.
In order to provide an insurance package, insurers must have an “adequate spread of risk” with enough potential subscribers to make the product financially viable, said Olson. In the case of flooding, people living in low-lying areas would buy insurance but those on higher ground would not because they wouldn’t see the need.
SMALL RISK SPREAD
Because affected areas are localized and the pool of people willing to buy coverage relatively small, it would be impossible to charge an affordable premium, Olson said.
She said some insurance carriers tried to put a flood program together after the record 1997 Red River flood. They gave up because they couldn’t get enough participation.
“The problem is, the people on high ground don’t see any need to buy it and won’t buy it. The people who are on lower ground and really need and want it look at the price, because you don’t get that spread of risk, and say, I don’t want to pay that price.”
So floods, unlike other natural disasters such as fire, wind and hail, do not qualify for insurance coverage because the spread of risk is too narrow.
“Virtually everybody in a country is exposed to fire. But not everybody in the country is exposed to flooding,” said Olson.
Some flood insurance programs do exist in the United States and parts of Europe. But they are government backed, which private insurance in Canada is not, Wyborn said.
Canada does have the federal-provincial Disaster Financial Assistance (DFA) program. But that’s only compensation for specific losses and not true insurance.
It’s true that home insurance policies can cover basement flooding from sewer backup. But that’s not the same as flood insurance, said Olson.
“If the water comes in from over land, that’s not covered.” [email protected]
“Noteverybodyinthe countryisexposed toflooding.”
– LINDSAY OLSON, IBC