Flood Insurance, is on the rise.

Floods are something that keep insurance companies up at night. It is a natural disaster that wreaks incredible amounts of damage, destroying homes, vehicles, businesses and lives.

With climate change, it appears likely that floods are going to become more common in the future. Recent examples include the catastrophic flooding in Calgary last summer, as well as Toronto receiving a month’s worth of rain in less than 24 hours. And now, Belleville has declared a state of emergency. That said, there are still some who believe there is no strong link between climate change and heavy rain.

Despite the argument over whether we should expect more or less flooding in the future, the fact remains that floods cause extreme damage to property. The Calgary floods alone cost that province upwards of $5 billion. With such high expenses, you would think insurance is in place precisely for problems like this… but you’d be wrong.

The Truth

The truth is, insurance isn’t designed with massive catastrophes like a flood in mind. Insurance generally isn’t for natural disasters at all, because if it was insurance companies would simply go bankrupt.

Insurance is all about spreading risk. Twenty people buy a policy for their vehicle, when it is unknown which of the twenty are going to be in an accident. Every year, there are one or two accidents, and the cost is split between the policyholders (as the price of the insurance, known as “premium”), so no single person is stuck with paying all the costs in one year, and instead pays a small amount over many years.

Now what would happen if instead of one or two accidents, there are 20? The company that is providing the policies does not have the money to pay for all of the claims, so they either need to increase premiums to equal the cost of an accident (think premiums reaching $25,000) or go bankrupt.

And that phenomenon is what happens during floods, or other natural disasters. Nearly every single person has a claim, so the insurance companies cannot spread risk, and simply go out of business. This is why flood, as well as many other natural disasters and acts of war, are excluded from your insurance policy.

According to the Registered Insurance Brokers of Ontario standard form habitational contract:

There is no coverage for loss or damage caused by waters on the surface of where water does not usually accumulate.

Your home is not covered from surface water damage resulting from a flood. You have to pay for that damage yourself. Not an easy pill to swallow is it? Especially if the destruction ranges up into the billions.

Water—Defined

There are several different types of water damage. Here are the definitions:

Flood—This is defined specifically as rising water from a bay, lake or river. In Canada, insurance for this is currently not available for homeowners, but it is available for businesses.

Sewer back-up—This is defined as water backing up from a sump pump or drain in your house. It is covered, if you have requested sewer back up coverage. We try to put it on every policy as we know it is an issue.

Water damage—Water from a broken pipe, overflowed toilet or sink is covered. Every policy has different exclusions and conditions so make sure you understand your policy.

Seepage—This is defined as water that seeps through your foundation walls or floors. This is generally not covered. The insurance companies consider this a maintenance issue and suggest making sure the land is graded properly, downspouts are pointed well away from the house and that you remove snow from around the foundation in winter.

What do we recommend?

The brightside about water damage (if there is such a thing as a brightside to damage) is that your vehicle can be covered from it through named perils, comprehensive or all perils coverage, and some forms of commercial insurance also protect your business from floods.

There are also some steps you can take to protect your home:

• Get sewer backup (SBU) coverage. We already discussed SBU in an earlier blog, and it is a great way for you to protect your home from water damage. SBU is pretty much essential, whether you have property insurance in Kingston, Oshawa, Barry’s Bay or Trenton. Check your policy, and make sure you have it.
• Defend your property the old fashioned way – common sense and a sump pump. Insurance may not protect your property from floods but you can. Ditches, sandbags and emergency backup pumps are all options to protect your property in the face of minor flooding.

As always, talk to your broker about flooding. And if you have no one to talk to, talk to us. We may not be able to cover you from floods, but we will make sure you understand what is and is not covered, and measures you can take to protect yourself. After all, knowing is half the battle.

Please call us with any questions at McDougall Insurance & Financial, 1-800-361-0941.