What a Much-Needed Canadian Flood Insurance Program Could Look Like

DBRS Morningstar released a commentary titled “What a Much-Needed Canadian Flood Insurance Program Could Look Like.” The commentary discusses the options available to the Canadian Government as it moves forward with proposed measures to help Canadians mitigate risk exposures to flooding. Programs similar to the National Flood Insurance Program (NFIP) in the United States and Flood Re in the United Kingdom (UK) have the potential to benefit affected homeowners and reduce taxpayer outlays, as they would operate by collecting premiums to offset claims.

The commentary highlights the following:
-- Canada could benefit from a flood protection program combining the features of the U.S. NFIP and the UK's Flood Re.
-- The NFIP is risk-based and requires residents living in flood-prone areas to pay premiums to cover future claims.
-- Flood Re is a risk pool that all insurers that provide property insurance in the UK support. This helps keep flood insurance affordable for high-risk homes.
-- The Disaster Financial Assistance Arrangements offered by the Canadian Government is an ad hoc program that receives no revenues from property owners with high flood risk exposure.

“A program like the NFIP has the potential to reduce taxpayer outlays since it would receive premiums to offset claims,” says Victor Adesanya, Vice President, Insurance. “However, a risk pool like Flood Re would ensure industry participation and a potential reduction in insurance costs for homeowners since the exposures are shared by the industry instead of one insurance company.”