To understand the current Canadian approach to damage caused by water, we need to understand the difference between flood, sewer backup and water damage. Let’s take a look at the different types of water-related losses.
A flood occurs when a large quantity of water flows over what is normally dry land, and seeps into your home through windows, doors and cracks. The common causes of flood are:
Most home insurance policies do not currently cover damage due to flood. As described on the Canadian options webpage, some providers have introduced inland flood insurance, as it relates to freshwater or wastewater.
Sewer backups can occur when municipal sanitary and/or storm sewer systems cannot handle high volumes of water from snowmelt or rainstorms. As a result, wastewater or freshwater backs up into your home through toilets and/or drains.
If the water backing up into your home is from a sanitary sewer system, it is usually brown or grey. If, on the other hand, the water is from the storm sewer system, it is usually clear.
Most home insurance policies offer protection against damage due to sewer backup. In some cases, protection is automatically included. In others, it needs to be added.
The sudden and accidental entry, or release of, water in to your home is considered water damage. The water must be caused by something other than a flood or sewer backup. For instance, your washing machine overflows, a pipe bursts, or a tree falls on your roof causing rain water to enter your home.
Most home insurance policies offer protection against water damage, but this does not include water that slowly leaks or seeps into your home. For instance, if you have cracks in the foundation of your home, and water seeps in every time it rains. In some cases, you may need to specifically add water damage protection to your policy.
Did you know that until recently Canada was the only G8 country not to offer residential flood insurance? You might be inclined to think that Canadian home insurance policies exclude flood damage because these events don’t happen very often. As the table below shows, that’s not the case. In fact, there have been 36 major inland floods in Canada since 1900.
|1909||Chester, New Brunswick||$149 million|
|1916||Central Ontario||$161 million|
|1920||Southwestern Ontario||$132 million|
|1920||Prince George, British Columbia||$131 million|
|1923||St. John, New Brunswick||$463 million|
|1934||Plaster Rock, New Brunswick||$198 million|
|1936||New Brunswick||$188 million|
|1937||Southern Ontario||$470 million|
|1948||Fraser River, British Columbia||$5,172 million|
|1948||Southern Ontario||$706 million|
|1950||Winnipeg, Manitoba||$4,652 million|
|1954||Southern Ontario||$5,392 million|
|1955||Saskatchewan and Manitoba||$362 million|
|1961||St. John, New Brunswick||$148 million|
|1972||Richelieu River, Quebec||$124 million|
|1974||Maniwaki, Quebec||$103 million|
|1983||Newfoundland and Labrador||$115 million|
|1987||Montreal, Quebec||$147 million|
|1993||Winnipeg, Manitoba||$618 million|
|1995||Southern Alberta||$285 million|
|1996||Saguenay, Quebec||$2,699 million|
|1996||Montreal, Quebec||$145 million|
|1997||Southern Manitoba||$1,230 million|
|1999||Melita, Manitoba||$163 million|
|2004||Edmonton, Alberta||$303 million|
|2004||Peterborough, Ontario||$129 million|
|2005||Southern Ontario||$1,587 million|
|2005||High River, Alberta||$1,519 million|
|2008||St. John, Newfoundland and Labrador||$12 million|
|2009||Red River, Manitoba||$1,000 million|
|2010||Southern Alberta and Saskatchewan||$956 million|
|2011||Assiniboine River, Manitoba||$1,000 million|
|2012||Ontario and Quebec||$350 million|
|2013||Calgary, Alberta||$5,000 million|
|2013||Toronto, Ontario||$940 million|
|2020||Fort McMurray, Alberta||$562 million|
|2021||Southern BC||$450 million|
The frequency of inland floods in Canada appears to be increasing. Many believe this is largely due to climate change and urbanization. Urbanization occurs when bare land is developed: roads are asphalted, homes are constructed, driveways poured. The amount of permeable land is so reduced, that even a moderate rainfall can cause flooding.
In cases where insurance protection is not available, assistance to those affected by flooding is available from the Canadian government. If insurance companies can accurately calculate the risk of flood in various areas, they can then determine the proper rates to charge and deductibles to apply. Higher premiums could provide an incentive for homeowners to take action to prevent the risk of flood damage. Also, insurers are experienced at settling claims and getting people back into their homes quickly.
So, why do some Canadian home insurance policies not cover flood damage? Most insurers and industry associations typically cite the following reasons:
Municipal, provincial and federal governments know that specific areas are susceptible to flooding. As such, it’s not prudent to zone these areas for residential development, without first investing in proper infrastructure. Doing so means that it’s not a question of if flood claims will arise, but when will they arise and how much will they cost.
Much of the public infrastructure used by Canadians is very outdated. The municipal, provincial and federal governments need to work together to fund improvements to sanitary and storm sewer systems, dykes, levees, pumping stations, flood boxes and other structures to better protect communities from flooding.
For most of Canada, maps identifying areas at risk of flooding are simply not available. Some provinces, like British Columbia, Alberta and Ontario, first developed provincial maps in the 1970s. Many of these maps haven’t been updated. For these maps to be useful, they must consider the current mix of infrastructure as well as the structures in the areas.
It’s because of these reasons that some insurance providers are concerned that they would face adverse selection if they offered flood insurance. That means only people living in areas with high flood damage risk would purchase the insurance. As a result, it would be impossible to charge enough premium to cover potential losses from flood damage.
So, what happens when there’s a flood that causes damages to homes? First, affected homeowners and renters will need to determine if their home insurance includes flood protection. If it doesn’t, the provincial/territorial and federal governments work together to offer affected homeowners and renters financial assistance.
The federal government provides financial assistance through the Disaster Financial Assistance Arrangements program. Under this program, the federal government provides assistance to provinces/territories if costs for response and recovery become so high that provinces and territories can’t be expected to cover them on their own.
However, Disaster Financial Assistance is only available to residents who cannot buy flood insurance coverage, which is often the case for those in high-risk areas. If flood insurance is reasonably available to a resident but they choose not to purchase it, they would be ineligible for Disaster Financial Assistance and their application to the government would likely be denied.
The amount of financial assistance is determined on a “dollar-per-capita” formula. The first dollar per capita of damages is a provincial/territorial responsibility. Damages beyond that threshold level are eligible for federal assistance. This financial assistance is paid to the provinces and territories in need, not to individuals affected by the disaster. It is up to the provincial/territorial government to divide the funds amongst individuals. As a result, the applicable limits per loss may vary from one location to the next.
The federal government has paid out more than $3.4 billion dollars since its inception in 1970. Some examples are the Alberta floods in 2005, the 2003 British Columbia wildfires, and the 2006 flood in Newfoundland.
Details of the financial assistance programs by province/territory follow.
When a disaster occurs in British Columbia, the provincial government may declare those affected to be eligible for Disaster Financial Assistance (DFA). It’s important to note that the DFA program is only available if the loss could not be insured or other assistance programs are not available. The DFA program is intended to help replace or restore essential items and property destroyed or damaged, back to pre-disaster condition. Highlights of the program follow.
For full details, see BC Disaster Financial Assistance.
When a disaster occurs in Alberta, the municipal government applies to the province for assistance on behalf of its citizens. If the province approves the request, a Disaster Recovery Program (DRP) is set up to help people whose property was damaged. The province will only approve requests if the event is considered extraordinary, insurance is not available to cover all damages and losses, and the event is widespread.
TThe DRP will cover some the costs of returning essential property to its pre-disaster condition. Beginning in 2021, the funding is capped at $500,000 per application for eligible costs. The assistance is also limited to one application per property, even if that property transfers ownership and even if the assistance provided is under $500,000. This means the DRP will only respond once per home, for no more than $500,000, and it will not respond again to future disasters – even if the home is sold to a new owner.
Eligible assistance for homeowners and renters may include:
The DRP functions under a cost-sharing arrangement; the Government of Alberta will provide 90% of eligible disaster assistance, with the remaining 10% covered by the applicant.
The DRP is meant to be a last resort; homeowners who can cover disaster recovery costs on their own may opt out of the DRP and save their one-time assistance for a future, more significant disaster.
From 2021 on, the Government of Alberta will post on its website a list of properties that have received DRP funding. This will allow prospective home buyers to look up whether or not the home is eligible for DRP assistance in the future.
Alberta’s government urges homeowners to ensure that they are adequately insured, and aware of the disaster risks that their home faces.
For full details, see Alberta Government Disaster financial assistance and recovery support.
After a disaster, the municipal government must apply to the provincial government for assistance under the Provincial Disaster Assistance Program (PDAP). PDAP is not a substitute for private insurance nor does it provide full compensation for losses. PDAP provides assistance to return property to its pre-disaster value. It does not provide financial assistance for drought or fire-related losses. Highlights of the program follow.
For full details, see Saskatchewan Provincial Disaster Assistance Program.
If a disaster strikes in Manitoba, Disaster Financial Assistance (DFA) can be made available for eligible costs. DFA is intended to provide financial assistance to restore property to a habitable and functional state. Highlights of the program follow.
For full details, see Manitoba Disaster Financial Assistance.
The Ontario Disaster Relief Assistance Program (ODRAP) is an assistance program designed to help municipalities, individuals, farmers, small business, and non-profit organizations after a natural disaster. The intention is to cover the costs of returning essential items to pre-disaster condition. ODRAP is not intended to be an alternative or a substitute for insurance.
The ODRAP states that in the event of a natural disaster, individuals are expected to bear the initial responsibility for their losses. If the losses are so great that individuals cannot cope on their own, the municipality and the community at large are expected to provide support. Ontario is the only province in Canada that requires victims of a disaster to raise their own money.
General assistance helps victims restore essential furnishings and property to pre-disaster condition. Payments may be up to 90% of adjusted claim amounts, however, the final amount paid is determined by how much money is fundraised. For each dollar fundraised by the community, the province will match up to two dollars. Payments may be reduced if not enough money is fundraised.
You may be eligible for assistance if:
Eligible losses include:
Ineligible costs include:
For full details, see Ontario Disaster Relief Assistance Program.
If there is an actual or imminent disaster In Quebec that puts your safety and your property at risk, you may be eligible for the Financial Assistance to Disaster Victims (FADV) program. In order to be eligible, belongings must be considered essential, and must be uninsurable. Claims may also be made under the FADV program for temporary shelter, and emergency response measures. Highlights of the program follow.
Effective April 15, 2019, the government of Quebec modified this program to help encourage homeowners who experience successive flood disasters to relocate elsewhere or mitigate future occurrences. Key points of this change are as follows.
For full details, see Quebec Financial Assistance to Disaster Victims.
In Nova Scotia, the Disaster Financial Assistance (DFA) program is available to help local residents, farmers, small businesses and non-profit organizations recover from damage due to an emergency. Nova Scotia provides assistance under an agreement with the federal government, subject to its guidelines. Highlights of the program follow.
For full details, see Nova Scotia Disaster Financial Assistance.
In New Brunswick, the government may establish a Disaster Financial Assistance program to respond to the most urgent needs of affected residents in a disaster. Highlights of the program follow.
Not eligible for DFA:
For full details, see New Brunswick Disaster Financial Assistance.
If a natural disaster occurs in Prince Edward Island, the province may apply for assistance through the federal Disaster Financial Assistance Arrangements program. A disaster recovery program may be implemented, which could include providing financial assistance to residents and small business owners. This program is available when the natural disaster has broad economic and community impacts.
For full details, see Prince Edward Island Financial Assistance Programs.
In Newfoundland and Labrador, if a natural disaster occurs, assistance may be provided through the Newfoundland and Labrador Disaster Financial Assistance Program (NL-DFAP). The program is designed to provide basic financial assistance to individuals, small businesses, non-profit organizations, municipalities, and farm operations. Damage must be widespread and caused by an abnormal event, like flooding or landslide, that is not as a result of negligence or deterioration. Highlights of the program follow.
Examples of damage or loss not covered by NL-DFAP:
For full details, see Newfoundland and Labrador Disaster Financial Assistance Program.
If a natural disaster occurs in the Yukon, the territory may apply for assistance through the federal Disaster Financial Assistance Arrangements program. A disaster recovery program may be implemented, which could include providing financial assistance to residents and small business owners. This program is available when the natural disaster has broad economic and community impacts.
For full details, see Yukon Recovery.
When a disaster occurs in the Northwest Territories, financial assistance may be available to affected individuals and small businesses through the Disaster Assistance Policy (DAP). This assistance is intended to help those affected recover from the disaster, and to restore damaged property to pre-disaster condition. Highlights of the program follow.
Eligible costs may include:
Examples of ineligible costs:
For full details, see Northwest Territories Disaster Financial Assistance.
If a natural disaster occurs in Nunavut, the territory may apply for assistance through the federal Disaster Financial Assistance Arrangements program. A disaster recovery program may be implemented, which could include providing financial assistance to residents and small business owners. This program is available when the natural disaster has broad economic and community impacts.
For full details, see Nunavut Emergency Management.
This approach to residential flood insurance has been criticized by many residents who had to rely on the government’s disaster financial assistance programs. These programs do not fully indemnify residents and will only provide assistance for the essentials. Moreover, residents are responsible for managing the claims/restoration processes on their own. The government only provides financial assistance to those who qualify.
Demand for a better approach to flood insurance increased as a result of the 2013 floods in Alberta and Ontario. Canadians want broader flood insurance protection as is offered in virtually all other developed countries in the world.
As mentioned earlier, home insurance is available whether you own or rent your home, and whether it’s used as your primary residence, a rental property, or a vacation property. Traditional insurance providers most commonly offer the following three type of home insurance policies:
These policies specify the loss types (or perils) that you’re protected against, usually including:
These all-risk policies protect you against all types of loss except those specifically excluded.
Loss or damage due to wear and tear, snowslide or landslide, acts of terrorism, and war are some examples of the types of loss typically excluded in comprehensive policies.
Even with the exclusions, comprehensive policies provide you with the best protection and you shouldn’t settle for less.
The best way to describe broad form policies is that they provide comprehensive protection on your home and named perils protection on your personal property.
While this may seem like an interesting idea, it’s actually quite silly. Let’s say you’re painting your family room and accidentally drop your TV while moving it. With a broad form policy, any damage to your hardwood floors would be covered, but damage to your TV would not.
Be sure to check that you actually have a comprehensive policy. If you don’t, you’re not fully protected and will be disappointed if you have a claim. Even if you have a comprehensive policy, you often need to specifically add, and pay extra for, critical protection you need. For example, most traditional policies don’t automatically provide earthquake or sewer backup protection. And, it’s important to note that regardless of the type of home insurance policy you have, it likely does not cover damage due to overland flood.
Square One home insurance starts at $12/month. With this policy, you get comprehensive coverage that includes protection against break-ins, earthquakes, hailstorms, and fires. The policy automatically includes critical sewer backup and water damage protection. In most cases, it also protects against damage from inland flood. No paying extra.
To see how affordable Square One home insurance can be, get your free online quote now. Or, call 1.855.331.6933 for a phone quote. Square One is open 5:30 am to 6:30 pm (PT), Monday to Saturday. It only takes 5 minutes to get a quote.