07/02/2014 05:00 EDT | Updated 08/31/2014 05:59 EDT

Insurers zero in on flood-prone areas

After a year in which it paid nearly $1 billion in claims in Ontario and $1.7 billion in Alberta because of natural disasters, the insurance industry is testing out a new tool that will help identify where municipalities might direct their money so future flooding does not do as much damage.

The Insurance Bureau of Canada, which represents property insurers across Canada, has been dealing with worsening weather events for more than a decade, according to Bill Adams, IBC vice-president for the Western and Pacific region.

There's been a 12 per cent increase in the amount of rain in Canada since 1950, and extreme weather events that happened every 40 years in the past now occur every six years, both factors that have helped drive up insurance claims.

"It's a problem that the industry continues to be adapting to because the predictor of claims in our industry going back a century or more has been past claims  In fact, that is no longer a good predictor of what future claims are going to be," Adams said.

It used to be the greatest risk to your home was fire. Now, it's water. The three factors driving up your insurance premiums are climate change, aging municipal sewers and storm sewers, and the trend of putting a "man cave" with an expensive entertainment system in the basement — where it is liable to get damaged during extreme weather events.

Adams calls the problem of predicting extreme weather an "actuary's nightmare." Already this year, Manitoba and Alberta have seen flooding, and Ontario has been hit by a tornado. 

One problem is the intensity of the rain in what might otherwise be an ordinary storm – for example, if 100 mm of rain falls in six hours rather than over 48 hours, he said.

That overwhelms municipal storm sewer systems, many of them not upgraded since the beginning of the last century.

Storm sewers overflow and back up, and the next thing you know, basements are flooding and someone's hardwood floor and big screen TV has to be replaced.

The Federation of Canadian Municipalities has estimated the deficit in spending on municipal infrastructure in Canada at $55 billion and has lobbied both federal and provincial governments to contribute more.

The IBC has supported that lobby effort, but it wanted to do more, Adams said.

"We know there's not going to be that kind of funding anytime soon to upgrade the storm water and sewer infrastructure. We've said, maybe what we should be doing is using the capital resources that are available and targeting them better to where the high-risk areas are," he said.

Tool to determine where flooding worse

Which is why the IBC is testing out a system called Municipal Risk Assessment Tool (MRAT) that will identify the streets that will be hardest hit in a storm. Created with the help of engineers and geologists, it combines information about the age and condition of municipal infrastructure, current and future climate, soil quality and past insurance claims.

Three cities —​ Coquitlam, B.C., Hamilton, Ont., and Fredericton, N.B. — are participating in a pilot with the tool this year. The idea is to test whether MRAT – essentially, a series of maps that highlight areas where basement flooding is most likely — is effective in giving city engineers a new picture of where infrastructure is vulnerable today and where it will be vulnerable in 2020 and in 2050.

That won't change the fact that municipalities are strapped for cash in attempting to fund repairs and upgrade their aging storm water sewers. Nor will it make spending on sewers — already not the sexiest issue in political circles — any more attractive in a municipal election year.

But it might make a difference in how cities allocate funding for the following year's budget, Adams said.

"The capital dollars that are allocated for next year's budget – you've only got $10 million and you've got a $200 million deficit [in infrastructure], you're going to take that $10 million and you'll target it where your vulnerabilities are highest," Adams said.

Adams said the MRAT tool is so sophisticated there has been interest in it from insurers around the world that are grappling with the same climate and infrastructure challenges. 

IBC aims to roll the diagnostic tool out to cities across Canada once it has been tested and refined and will not use it as a way of deciding where premiums should rise, Adams said.

How your policy has changed

And, yes, premiums will be rising – though IBC has no estimate how much more Canadians can expect to pay for house insurance as flooding becomes more common.

The other change homeowners might see on policies are limits on coverage for water damage and deductibles in areas where there may not have previously been deductibles.

"It used to be you could get an all-encompassing policy that would cover almost everything except overland flooding," Adams said. "Now, what many companies are doing is they're breaking down the individual risks within a policy and they're portioning the premium attributed to it."

Canadian insurers have never covered overland flooding — the kind of water that spills over your doorway in a natural disaster. The area that is most likely to be portioned out and priced separately is sewer backup coverage.

That's because insurance companies are attempting to get consumers to change their behaviour so they are less at risk – by taking up concrete around their house in favour of a more permeable surface such as soil, by waterproofing or eliminating window wells and by installing a sewer backflow valve.

Adams's prime piece of advice for homeowners is to install that backflow valve. Some insurers are decreasing deductibles or removing limits on sewer backup water damage for homeowners who have installed them.

"If there is one piece of advice I have to any homeowner in this country, if you are attached to any kind of municipal storm water, sewer infrastructure, your home is vulnerable," he said. "Install a sewer backflow valve."