Subsidized home insurance for flood coverage a “touchy topic”

Published: September 7, 2018



Canada’s flood insurance situation is still in the midst of heated debate, not least a gap in the market where flood coverage is not available in high-risk areas. While Canada learns to not build on flood-risk land, the situation for existing building is perilous. One controversial subject has been whether the government should help insurers by subsidizing homeowners in high-risk properties.

Home insurance policies did not offer overland flood protection up until 2015, but since many carriers have started to offer flood coverage as part of their home insurance packages.

Raymond Thomson, associate director of A.M. Best Company Inc. says if overland flood insurance “is priced properly, there may be many people who are going to get priced right out”. There is two ways to look at that statement. Firstly, if we assume current pricing is correct, some people won’t be able to afford protection. Secondly, perhaps insurance companies have simply got the pricing system wrong.

Thomson suggests it is the former and the government should help homeowners with subsidies. Speaking at the 2018 insurance market briefing this week, Thomson admitted the concept of subsidizing customers is “going to be a touchy topic”.

Other major insurance markets already have government-backed flood programs. In the United Kingdom, Flood Re has been a successful solution. Flood Re was introduced in the United Kingdom in 2016, acting as a reinsurance company that is propped up by a tax placed on all insurance companies that write home insurance in the country. Through this system, 98% of the UK population subsidizes the 2% who live in high-risk properties.