What Canadian homeowners need to know about flood insurance

Flooding has surpassed forest fires as the top cause of property damage in Canada in the past several years, costing property owners more than $1 billion in losses each year, according to government figures.

Despite the threat, a recent study has revealed that an overwhelming majority of Canadians living in high-risk regions are not only unprepared to deal with the impact of floods, but they are also unaware of the potential danger.

A 2020 survey conducted by Partners for Action, a climate resiliency network based at the University of Waterloo, and insurance firm The Co-operators, found that out of the 2,500 respondents living in designated flood-prone areas, 94% did not know they were living in such an area and more than half, or 57%, did not have flood insurance. For the remaining 6% who were aware of the flood-risk in their communities, only about 30% had taken action to protect their homes.

The researchers did the same study in 2016 and they were concerned that even after four years had passed, the results remained largely unchanged.

Read more: Many Canadian homes not prepared for the risks and costs of severe flooding – report

“It shows us a concerning lack of awareness of Canadians of the risk for flooding,” Shawna Peddle, program director of sustainability at The Co-operators, told The Weather Network. “We had hoped that there would have been a change in the awareness, but we’re not surprised.”

Peddle added the lack of awareness could also be a result of the respondents’ lack of personal experience with a flood event.

“You may live in a high-risk zone, but nothing’s ever actually happened to you personally,” she said. “People might not just be aware. It may not be on their radar.”

According to the survey, the average cost of claims for flood damage to a property is around $43,000, but this could go much higher, especially with the pandemic pushing more people to work and study at home as this also means an increase in the number of high-end electronic equipment and office furniture in their residences, which could worsen the financial impact of floods.

The report also shares tips on how homeowners can protect their properties from flooding, but one thing that Peddle strongly advises is that people talk to their insurance providers to determine their exposure and get the coverage they need.

Read more: Experts weigh in on current flood risk measures

What does flood insurance cover?

A comprehensive home insurance policy, which is one of the most popular types of insurance, typically provides coverage for water damage caused by a burst pipe or leaking appliances, according to the Insurance Bureau of Canada (IBC). However, the association noted that water damage to a property can result from several other incidents beyond the ones standard insurance covers.

Stefan Tirschler, product and underwriting manager for Square One Insurance Services, warned that contrary to what most consumers may think, flood is not a “catch-all term” for all forms of water damage when it comes to home insurance. 

“People often use the term ‘flood’ to refer to water that is somewhere they don’t want it to be – no matter where it came from,” he told digital finance magazine MoneySense. “Usually, the [insurance] industry will use terms like ‘overland flood’ to refer to widespread flooding events that are specifically caused by rain, melting snow, or the overflow or breaking out of water from a dam, river or lake. This is what we mean by ‘flood’ in the home insurance world, and it is generally not included by default [in a home insurance package].”

Read more: Flood is still a "very complicated risk" for insurers – IBC

According to the IBC, there are two types of add-ons that policyholders can purchase to protect their homes from flooding:

• Sewer backup coverage: This covers for water damage resulting from a blockage in the main sewage line causing wastewater to reverse direction and flow up into the home. A few insurers include this type of coverage in their standard comprehensive home insurance policy, but most offer it as an add-on.
• Overland flood coverage: This provides protection against damage caused by overflowing bodies of water – including lakes, rivers, and ponds – heavy rainfall, and melting snow.

Insurance companies do not typically offer coverage for floods caused by storm surges, tsunamis, or tidal waves, according to IBC’s website, but financial comparison site Ratehub.ca says The Co-Operators currently provides protection against damages resulting from storm surges or coastal flooding – the only insurer doing so in Canada.

Read more: What's the leading type of flooding in Canada?

How much does flood insurance cost?

Most Canadian homeowners can purchase overland flooding insurance for between $100 and $300 annually, according to the IBC. Policyholders living in flood-risk areas can expect to pay $500 to $1,000 a year. But with climate change causing extreme weather conditions to increase in frequency and magnitude, the bureau is concerned that the situation could push premiums to unaffordable levels.

“We’ve been tracking insurance payouts for severe weather events – things like storms, fires, floods – going back to the 80s,” Aaron Sutherland, vice-president of Western and Pacific at IBC, told The Globe and Mail. “It’s important to treat those weather events as a trend, rather than a fluke.”

“Where the industry used to just pay out a few hundred million dollars annually for those claims, more recently that number has ballooned to more than $2 billion each and every year just for claims associated with a changing climate,” he added.

Read more: Flooding claims see 6X spike in three years – Aviva Canada

List of Canadian insurance providers offering flood insurance

Ratehub.ca has compiled a list of insurers offering flood insurance policies across the country. Most of these companies provide water damage coverage for burst pipes as standard inclusion in their comprehensive home insurance policies, while sewer backup and overland flooding protection are offered as an add-on. The following is correct as of December, 2021:

_{Source: Ratehub.ca}