What Canada’s national flood insurance program could look like

Canada’s upcoming national flood insurance program will likely take characteristics from flood models in both France and Britain, Insurance Brokers Association of Canada (IBAC) CEO Peter Braid told Canadian Underwriter in an interview.

In its 2023 budget, the federal government committed $31.7 million over three years to protect households at high risk of flooding and without access to adequate insurance. “This would include offering reinsurance through a federal Crown corporation and a separate insurance subsidy program,” the budget document said.

“It would make eminent sense to leverage the existing Canada Mortgage and Housing Corporation (CMHC)…as opposed to establishing a new Crown corporation, but that’s unclear at this point,” Braid told CU. Starting in 2023-24, Public Safety Canada and CMHC will work with the Department of Finance to start up the low-cost flood insurance program, according to the budget.

“I suspect that this will be a made-in-Canada approach that will probably take some characteristics from both the British as well as the French models,” Braid told CU. “In the case of France, they actually have a publicly, government-owned reinsurer….It sounds like that’s the solution that the federal government has landed on.”

Braid pointed to an August 2022 report from Canada’s Task Force on Flood Insurance and Relocation involving full actuarial analysis of four flood insurance models. One was a public reinsurer model. “So that may give some hints as to what the model suggested in the budget may look like,” he said.

Partially inspired by France’s public reinsurer, Caisse Centrale de Réassurance, the public reinsurer model builds on both public and private-based elements of previous models.

A pickup truck floats in the flood waters next to a road in Abbotsford, B.C., Monday, November 29, 2021. THE CANADIAN PRESS/Jonathan Hayward

“I think it’s critical that the program at the end of the day is a public-private partnership between government and industry. And all indications are that that will be the case,” Braid said. “It’s essential that government leverage not only private sector expertise but the current distribution channel that exists in this country of which brokers are such a significant part.”

According to the task force’s report, the public reinsurer model involves two layers. The first layer provides the homeowner the option to purchase insurance from the private market at the full risk-based price, which must offer coverage up to a ‘modest’ limit of $25,000. The second layer involves the mandatory purchase of flood insurance above this coverage limit up to a high limit ($300,000) from the insurance industry.

“The Crown corporation would sell subsidized excess of loss reinsurance to private insurers, and reimburse insurers for losses covered in the second layer,” the report said. “The Crown corporation is stabilized through a government backstop and market-based reinsurance.”

For its part, the British flood insurance model, Flood Re, relies on private insurers to provide coverage to high-risk areas. Insurers cede the flood portion of residential flood insurance policies and related premiums to a high-risk reinsurance pool when premiums are above a pre-determined affordability cap.

Insurance Bureau of Canada (IBC) suggested in a statement the national flood insurance program would be set up within the next 24 months. “I think the government has indicated two to three years,” Braid said. “I think two years is probably on the optimistic side, because this will involve discussions and negotiations likely between all three levels of government.

“This is something both IBAC and the IBC have been working closely together on,” Braid added. “It’s very positive for the industry, but most importantly, it’s a positive outcome for the Canadians who happen to live on a high-risk property. And it helps to close a protection gap because currently those Canadians don’t have access to private sector flood coverage.”

Among other items, the 2023 budget also proposed $15.3 million to create a publicly accessible online portal where Canadians can get information on their flooding exposure.

“Raising consumer awareness is key,” Braid said. “And providing new information that’s as specific as possible with respect to a person’s property will make all the difference in terms of understanding the level of flood risk for a specific property.”

Feature image by iStock.com/GEFHunter