Understanding weather risks for home insurance as premiums, coverage shift

TORONTO - As the immediate impacts of hurricane Dorian fade from the East Coast, its effects on home insurance profiles will linger on.

The claims made by homeowners for storm-related damage are added to a long-term profile of their properties, which, like a credit report, creates an overall picture of risk that can sway how much they may have to pay in premiums, and potentially, if they can get coverage at all.

As weather events get more costly, homeowners and those shopping for a home need to be increasingly aware of the risks, said Blair Feltmate, head of the Intact Centre on Climate Adaptation at the University of Waterloo.

"I can tell you it's a phenomenon from Halifax to Victoria, where there are sections of cities, or homeowners who have found themselves in a position that they can't get insurance coverage for any amount of premium, because their probability for flooding is simply too high."

Water damage has overtaken fire to become the top home insurance cost in recent years, thanks to a combination of aging infrastructure, a loss of natural buffers like wetlands, and of course, climate change, Feltmate said.

"As an absolute certainty for Canada, the frequency and magnitude of flooding on the whole is increasing and that is largely attributable to a changing climate, it's not the only factor, but it is a major factor."

Home insurance is not mandatory if you house if fully paid for, but if you have a mortgage your lender will likely require it.

For homeowners, the shifting risk profile means they need to be mindful of potential preventative measures, like making sure drain-spouts are directed away from the house, window wells are covered and sealed, and that their sump pump is working and has a backup power source.

Such measures could lead to discounts for insurance premiums, which have been on the rise in recent years as claims increase. In just the last five years, premiums have gone up 20 to 25 per cent, with water damage accounting for about 60 per cent of that rise, said Feltmate.

Homeowners should also look at their policies and be aware that some insurers are lowering their maximum payout for things like flooded basements. Limits of $10,000 to $20,000 are increasing, even though the average cost of a flooded basement is $43,000, Feltmate said.

"Increasingly so, the homeowners are on their own to cover whatever flood damage occurs."

Homeowners also need to be aware that the long-standing coverage for sewage-related insurance doesn’t cover overland flooding like flash downpours or overflowing rivers. Insurance companies started to offer overland flood insurance about five years ago, and about a third of eligible homeowners have bought it, said Feltmate.

For house hunters, it's a good idea to assess the weather risks of a home, or make sure a home inspector knows how to. Feltmate said inspectors generally only started to get training on assessing flood risks a couple of years ago.

Prospective homeowners can use online tools to get an insurance quote for a general sense of the potential costs, said Pete Karageorgos, director of consumer and industry relations at the Insurance Bureau of Canada.

He said the bureau doesn’t keep close track of home insurance issues like they do with mandated auto insurance, so it isn't sure how widespread the problem of uninsurable homes might be.

But the bureau has heard complaints about people having trouble getting insurance at all, so certainly something to be aware of, said Karageorgos.

"A lot of what we're seeing and hearing is related to the fact of multiple claims in areas that have had recurring severe weather events mostly. It indicates insurance companies are a little more cautious in terms of their underwriting of properties that are likely to have future claims, future losses based on their past experiences."

This report by The Canadian Press was first published Sept. 19, 2019