Updated Oct 2, 2024
The number of Canadian households that are vulnerable to flooding is 10%. Worse, these households generally do not have access to flood insurance. The floods in central Canada in 2017 and 2019, Newfoundland and Labrador in 2022, and Nova Scotia a year later were particularly disastrous.
Without proper flood insurance, many Canadians living in those areas went through serious emotional and financial turmoil.
Thankfully, the federal government is starting to take this matter more seriously. The government recently approved a National Flood Insurance Program designed to help provide cheap flood insurance to 1.5 million Canadians living in flood-prone areas. This program will officially begin sometime in 2025.
Despite this welcome development, there are still many questions about flood insurance in Canada, like:
In this article, Insurance Business Canada will shed light on these and more, while also providing basic but essential knowledge about flood insurance. Take note of the updates to flood insurance in Canada and share this information with your clients.
Flood insurance in Canada provides coverage against overland flood damage, which occurs when a large quantity of water overflows on to dry land and enters a residence. Common causes of overland flood include:
Historically, home insurance policies in the country do not cover loss or damage caused by overland flood damage, according to the Insurance Bureau of Canada (IBC). In fact, up until 2015, the Insurance Institute of Canada (IIC) reported that Canadians who suffered flood damage turned to the Disaster Financial Assistance programs through their federal, provincial and territorial governments.
What they were surprised to discover was that this assistance didn’t account for much of their out-of-pocket flood-related expenses.
However, this arrangement has changed since some Canadian insurers began offering overland flood coverage for policyholders. Aviva was the first insurer in the country to offer overland water protection to consumers. This product, however, does not cover flooding from salt water, such as tsunamis and tidal waves. This and similar types of coverage from insurers like RSA Canada and The Co-operators are still new on the market and are not offered by all firms. In some cases, if a policyholder lives in a flood plain, coverage may not be available at all.
There is an important distinction between the main types of events causing water-related losses: flood, sewer backup, and water damage. Sewer backup can happen when sewer systems are overwhelmed by a high volume of water from snowmelt or rainstorms. As a result, wastewater or freshwater then backs up into a home through toilets or drains.
Most home insurance policies offer coverage for damage to your home related to sewer backup, though purchasing it separately may still be needed. Customers can be confused by the difference between sewer backup coverage versus overland flood. Insurance brokers can help address this by discussing home insurance policies with their clients.
Water damage refers to the sudden or accidental flow of water into a property caused by events not related to flooding or sewer backup. This can include bursting pipes, an overflowing tub, or a windstorm that rips off the roof, causing rainfall to enter.
Most home insurance policies also offer coverage for this type of damage, but the insurance company would not usually include water that leaks into a structure from cracks in a foundation.
While home insurance policies do not tend to cover the risk of overland floods, an increase in severe weather is causing more water-related damage and insurance claims.
This has motivated the insurance industry to re-evaluate its role in mitigating this risk. In September 2018, a thunderstorm brought 72 millimetres of rain to Toronto with over 70% of it falling in an hour, causing $80 million in insured damage from widespread flooding.
Meanwhile, the flooding of Windsor in August 2017 was considered the largest catastrophic loss for Canadian insurers that year, with insurance companies paying claims worth $165 million. The province of Ontario also shelled out close to $1.5 million from its Disaster Recovery Fund.
At that time, Insurance Bureau of Canada’s director of industry relations for Ontario, Pete Karageorgos said, “Water has become the new fire,” there’s now more payouts for water than fire, which used to be the top source of claims. We’ve seen this across the province and the nation.”
IBC has since determined that climate change, along with the disappearance of wetlands, aging infrastructure, and unfinished basement floods, have all contributed to the surge in flood insurance claims.
According to a study from the Intact Centre on Climate Adaptation at the University of Waterloo, among all the extreme weather events that impact Canadians, flooding is currently the costliest. It has caused millions of dollars in property damage. The damage from floods also includes the mental toll on Canadian workers, causing them significant stress and to take unplanned days off, reducing productivity.
Using data from IBC, the study also outlined that 58% of catastrophic insurable loss claims from 2008 to 2015 were a result of water damage. This demonstrates the rising threat that flood waters pose to Canadians.
An IBC public opinion poll in 2018 found that almost 45% of homeowners in Canada who have a ground-level home believe they have private flood insurance included in their regular home insurance policy, while 26% are unaware if they have it or not. Adding to this, only 37% say they feel confident in their understanding of what is covered in their home insurance policies.
Brokers can help educate policyholders by first outlining the type of insurance they have in place for their home, condo, or rented property. All-risk or comprehensive policies will protect against all losses except for what’s excluded, which commonly lists flood.
In that case, brokers can guide clients to purchase additional protection for water damage caused by flooding. Allstate, for instance, offers an enhanced water damage endorsement that includes sewer backup. The rider also covers water overflow from a freshwater source, rainfall, or accumulation of ground or surface water.
Home insurance policies in Canada don’t usually cover water damage from a source outside your home, such as flooding. However, it is possible to get extra coverage for flood damage, but depending on your location, this can cost more. This type of coverage can also be known as:
Remember that most flood insurance deals with the damage caused by the water and not the main cause itself. For example, if there is a flood and sump pumps in your basement don’t work or a water heater leak damages your carpet, the damage to your carpet is covered.
The cost to replace your heater or pump will not usually be covered. This is because the damage to these machines would be due to deterioration, faulty workmanship, or some other cause that is not covered by your policy.
Contents insurance is the type of insurance that you can get for your personal belongings, or the contents of your home. This is a useful type of insurance if a home is in a flood-prone area and insurance companies won’t provide coverage.
Insurance policies for homeowners, condo owners, and renters often include coverage for the contents of their residences. This is also called personal property coverage. Contents coverage helps pay for replacing or repairing covered possessions in case of theft or damage caused by events like floods.
In case of a disaster like floods, the government provides financial assistance to provinces and territories via the Disaster Financial Assistance Arrangements (DFAA).
Provinces and territories harness these funds to repair public infrastructure and give financial assistance to affected residents, communities, and small businesses. Financial assistance of this sort is only made available to those affected by uninsurable events, such as landslides.
However, those eligible for DFAA must meet certain conditions, varying by province. In British Columbia, for instance, up to 80% of eligible damage worth more than $1,000 is covered up to a maximum of $300,000.
The Canadian government does not provide flood insurance per se, but it has started a measure called the National Flood Insurance program. This program is in partnership with Canada’s property and casualty insurers to provide affordable flood insurance to residents in high-risk, flood-vulnerable areas.
Speaking of flood-vulnerable areas, you can refer to this guide and know whether you reside in a high-risk area.
The premiums that homeowners will have to pay insurers will vary. In Canada, insurers calculate insurance premiums based on the level of flood risk in the area. If a homeowner lives in a high-risk area, some insurance companies may not offer any coverage. But if insurance companies do offer coverage, expect it to cost higher.
The average flood insurance in Canada can range from $100 to $300 per year, according to the Insurance Bureau of Canada. Keep in mind, however, that Canadian homeowners who live in high-risk areas will have to pay significantly more for flood insurance. In these locations, flood insurance premiums are in the range of $500 to $1,000 annually.
Also, not all insurance companies provide flood insurance for those residing in these high-risk areas, but you can refer to our list of flood insurance providers.
Speaking of high-risk areas, even progressive cities like Toronto aren’t spared from the effects of severe weather due to climate change. Here’s a peek into what the people of that city have to contend with after a bad storm:
Typically, flood insurance in Canada is not mandatory. While it may be sensible to require flood insurance in flood-prone or flood-vulnerable areas, there are no laws mandating them. Flood insurance ultimately remains a personal choice for homeowners in places where it is available. However, your mortgage lender may require that you take on flood insurance if your home is in a high-risk area.
In places like flood-prone Québec, where studies say will experience the effects of climate change twice as quickly as the world average, there are properties there that are not eligible for flood coverage. Homeowners should evaluate their specific risk and consider obtaining this coverage as a proactive measure against financial losses from flooding.
When it comes to buying or renting a home in Canada, homeowners should find out whether they are in a flood-prone area and obtain the available flood insurance, whenever possible. Check with your mortgage lender if you will be required to get flood insurance to avoid additional costs.
First-time home buyers should also consider the pros and cons of buying in a high-risk flood-prone area – are the hassles of flooding and flood insurance worth the trouble? You may have to consider the rising cost of car insurance if you own a vehicle as well.
So, before you purchase a home in any part of Canada, check the availability and cost of flood insurance for your home and your other possessions. You can use our Best in Insurance Special Reports page to find an insurance company or insurance agent to help you with your flood insurance needs.
Did you find this piece about flood insurance in Canada helpful? Let us know in the comments.
