One year after the Alberta Floods

On June 11, 2013, Fort McMurray declared a state of emergency as the Hanging Stone River breeched its banks and evacuation orders went into effect. For the next eight days, Albertans held their breath as flood warnings were downgraded and waters began receding. But on June 19, torrential rains began falling all over Southern Alberta; the Bow and Elbow Rivers showed no signs of slowing down.

By June 20, a state of emergency was declared and evacuation orders began for Calgary, High River and Canmore, the Siksika First Nation, nine other municipalities, including the City of Lethbridge; the towns of Black Diamond, Cochrane, Sundre and Turner Valley; the Municipality of Crowsnest Pass; Rocky View County; and the municipal districts of Bighorn No. 8, Pincher Creek No. 9 and Foothills No. 31. On June 21, the town of Medicine Hat also declared a state of emergency and braced for flooding; followed by the City of Red Deer, as well as a dozen other communities, including several First Nation communities.

The 2013 Alberta floods devastated the province to a degree never felt before; the provincial government described it as the worst in Alberta’s history. Over 100,000 Albertans were displaced throughout the region with the total damage estimated at $5 billion. Unfortunately some of the displaced also faced devastating blows that came by way of insurance companies refusing to pay out claims. It appeared as though they were wishy-washy on what they would cover; one neighbour on the street completely covered while another three-doors-down would not be. The media broadcasted residents of the hardest hit areas naming and shaming insurance companies, to the point that some later reversed their decisions.

Ultimately, as an insurance brokerage, we wanted to shed light on how our clients have fared one year later and what the industry looks like today. There were occasions where some of our clients were initially denied coverage, but we intervened on their behalf successfully. To gain an insider perspective, we chatted with Vice President, Austen Lillies, who works with our commercial clients and Vice President, Lena Tityk who works with our personal clients.

Commercial Insurance with Austen Lillies:

From the commercial perspective, the number of claims reported and the amount of damage done was initially overwhelming, but our clients and insurers pulled together to get through. Now a year after the floods, we’re pleased to share that most of the businesses insured for flood-related losses have been resolved. We continue to work on the more complex claims, but the majority have been settled and closed with customer approval.

In terms of changes going forward for commercial insurance, the industry has had to review and adjust underwriting guidelines or principles as a result of the flood. It probably comes as no surprise that we anticipate restrictive rules rolling out as a result of the number of claims. However, most insurers have been reasonable with their amended terms.

Flood coverage was typically very inexpensive and carried lower deductibles.  We are now seeing flood rates being charged based on “Flood Zone Mapping”, and/or losses in the previous year. The majority of change with flood coverage comes with increased deductibles and a cap on the extent of loss.  It’s now common to see flood deductibles at a minimum of $25,000 per claim up to $500,000 per claim.  Limits of loss are typically a percentage of the total limit insured, however limit of loss amounts are typically adequate for the exposure.  The increased deductible in some instances ($100,000+) are challenging for commercial clients to accept, but the consensus is that it’s much better than not having flood coverage available.

Some insurers are taking a very hard line and not offering coverage or very limited amounts.  This is typically done based on location.  In these circumstances it is important that your broker is working with multiple insurers to find the best solution for you.  In some instances we have had to find stand-alone flood policies. However, we want commercial businesses to also be aware that some insurers that offer such coverage’s have amended the wording in their policies to state that floods resulting from overland flooding is excluded; pay close attention to the terms of the policy.

Businesses that have invested in flood mitigation efforts need to make sure their broker is aware of any plans and efforts prepared with the intention to prevent or reduce the efforts of flooding. E.g.: back flow preventers in sewer lines, sump pumps, backup power systems, diversion equipment and water resistant rebuilding techniques may help you in securing flood coverage at reasonable terms.
Personal Insurance with Lena Tityk:

Availability, affordability and sustainability are all areas of concern for insurance carriers in Canada. At Rogers, we processed 450 flood claims and now a year later, 94% are resolved. Now looking into the future, in order for home insurance to be available and sustainable from a company perspective, insurance companies must raise premiums. This is directly related to the increasing costs of catastrophes across the country. They’ve also begun limiting coverage’s with regard to water, wind, hail to ensure that they remain sustainable in the marketplace.

With that said, consumers can expect that premiums will continue to rise over the next five years. Personal lines clients will also see an increase in deductible rates.

Example of increase in rates:

• Average increase 20% on homes with no claims
• Home with multiple claims increase in premiums up to 55% – 60%

Keep in mind that it’s not just one bad year that is affecting the change in premiums or coverage’s. Here are some examples of disasters influencing the markets:

  • 2013 Alberta floods: $6 billion+ ($1.7 billion insured)
  • 2012 Calgary hail, wind storms: $552 million
  • 2011 Slave Lake fire: $700 million
  • 2010 Calgary hail storm: $400 million
  • 2005 Alberta floods: $400 million
  • 1998 Que.-Ont.-N. B. ice storm: $5.4 billion
  • 1997 Man. flood: $3.5 billion

The changes in offerings for personal lines are similar to commercial insurance, in that wordings are being changed, deductibles are being raised, they’re limiting coverage’s  and in some cases no coverage is being offered depending on where the home and/or risk is located regardless of mitigation that the insured’s have prepared. (Ex. Installing sump pumps and back water valves.)

As always, if you have questions or concerns about flood insurance policies, please don’t hesitate to contact our experts!

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