While Canadian insurers wrestle with a national flood policy, Americans are being warned that policy premiums for the National Flood Insurance Program participants are going up – substantially.
The NFIP, which offers government-subsidized policies for households and businesses threatened by floods, announced increases for businesses in flood zones and homes that have been severely or repeatedly flooded will be going up 25 per cent a year until rates reach levels that would reflect the actual risk from flooding.
Sherry Patterson, a broker with Working Enterprises Insurance in Kelowna, B.C., says the drastic hikes announced by the NFIP are indicative of how reluctant Canadians would be to purchase flood insurance if it were presented in a national program.
“Only a small portion of homeowners can afford the premiums,” says Patterson. “One homeowner said his premium will go from $2,300 to $16,000 for flood coverage. So how many in Canada would actually purchase it?”
For property owners in flood-prone areas who had been paying $500 a year, they will see rates rise thousands of dollars over the next decade. The hikes have spurred a backlash among homeowners, especially along the eastern seaboard. On September 28, dozens of New York Long Islanders (many of whom were victims of Superstorm Sandy) got together for a “Stop FEMA” rally – one of many held around the country.
FEMA – the Federal Emergency Management Agency with runs the NFIP – says that its hands are tied, as director Craig Fugate says the Biggert-Waters Act that was passed last summer allows FEMA no leeway in adjusting the NFIP rates.
The announced hike south of the border comes on the heels of the recent Alberta meeting of insurance industry stakeholders, who announced that Canada’s property coverage needs an overhaul to properly address the risk posed by weather-related loss. (continued.)
“Sewer back up, wildfire, wind, hail, and other natural disasters have risen,” Paul Kovacs, executive director of the Institute for Catastrophic Loss Reduction told the Insurance Brokers Association of Alberta Property Insurance Forum delegates. “In the last decade, we pay five times more for weather-related losses than for the other perils.”
The some 13 participants and 70 invited observers from all across the property and casualty insurance industry tackled everything hail, wind, fire, flood and sewer backup property risks – with particular focus on the summer’s major flooding events in southern Alberta and Toronto. Most at the conference agreed that property insurance needs to be changed for it to be sustainable, as government coffers “are increasingly stressed by disaster relief for property damage not covered by insurance.”
Concerns of premium increases were voiced by people like Bill Adams, the vice president of Insurance Bureau of Canada, Western and Pacific Region, who pointed out that a proposal from the Office of the Superintendent of Financial Institutions Canada for a 5-20 per cent increase in capital charge on insurers’ personal and commercial property exposure will “inflate required capital reserves or reinsurance and thus inflate product cost.” (continued.)
Among the policyholders who will face increasing premiums are those whose property has been repeatedly damaged by flooding, year after year. Even though those “repetitive loss” properties only account for 1.3 per cent of NFIP policies, they are expected to account for 15 to 20 per cent of future losses.
A 2010 study found that even if there were no unusual weather events — which are the usual cause of flooding — it would take the NFIP 100 years to recoup its losses.