February 26, 2016 by Canadian Underwriter
A recent report on the financial cost to the federal government of natural disasters, linked to climate change, is “an affirmation of our research at Insurance Bureau of Canada,” said the IBC’s vice president of federal affairs, Craig Stewart, on Thursday.
Also on Thursday, the Parliamentary Budget Officer (PBO) released a report estimating that the Disaster Financial Assistance Arrangements (DFAA) program can expect claims of $229 million per year due to hurricanes, convective storms and winter storms and $673 million for floods, for a total of $902 million, between the years of 2016/17 to 2021/22.
“This report is an affirmation of our research at Insurance Bureau of Canada, which shows that climate change is a real and present danger costing government – and Canadians – hundreds of millions of dollars every year,” Stewart said in a statement on Thursday. “Extreme weather events driven by climate change have increased in frequency and severity. Canada is not prepared for the increase in damage caused by climate change and primarily flood. As the only G7 country without a national flood program, Canadians, our governments and the insurance industry are dangerously exposed to severe weather risks.”
On Thursday, IBC president and CEO Don Forgeron spoke at the Economic Club of Canada in Halifax, where he called for a national collaborative national flood program. Forgeron proposed a framework for the financial management of flood risk, with shared responsibilities between the insurance industry, all tiers of government and consumers. IBC has also just completed flood risk mapping across all 10 provinces, showing that 19% of Canadian households are at risk of flood. [click image below to enlarge]
The DFAA, operated by Public Safety Canada, is the primary source of financial assistance for provinces in the case of disasters, including ice storms, large forest fires and floods. In the PBO report, titled Estimate of the Average Annual Cost for Disaster Financial Assistance Arrangements due to Weather Events, the parliamentary budget officer noted that over the past five years DFAA liabilities have “increased substantially” because of a number of weather events that have caused heavy damage.
As a result, DFAA’s annual transfers to the provinces have been much higher than its nominal appropriation of $100 million (see Summary Figure 2). For example, the DFAA-estimated liabilities for claims not yet paid in 2015-16 is more than $800 million and about $600 million in 2016-17 and 2017-18.
The report noted that when a disaster occurs, DFAA in general books the liability in the year of the disaster recognizing its financial obligation. Yet, the actual transfers to the provinces for disasters can take place upwards of eight years after the event. This explains the large estimated transfers shown in Summary Figure 2 (pictured below) going out to fiscal year 2017-2018.
The DFAA costs resulting from floods represent 75% of the program’s weather expenditures at $673 million between 2016/17 to 2021/22. “This high proportion is partly due to the lack of privately available flood insurance, in Canada,” the report said. “In addition, the program’s design does not incentivize active flood damage mitigation in many of the affected areas.”
For example, over the past 10 years (2005-2014), Manitoba, Saskatchewan, and Alberta have accounted for 82% of all DFAA weather event costs, almost all of which are a result of flooding, despite accounting for only 18% of Canada’s population. “The Prairie provinces face regulatory challenges of reduced enforcement and compliance when floodplain management is the responsibility of municipalities,” the report noted.
Furthermore, Saskatchewan has unlicensed drainage of wetlands that increases peak flows during floods and Alberta appears to have inaccurate flood maps. In addition, in creating flood maps, Alberta does not take into account rising groundwater and debris floods on steep mountain creeks.
One last consideration, the report said, is interprovincial co-ordination of flood management. “This currently does not exist in Canada even though it has been shown to be effective at reducing damages in other countries. This is particularly important in the Prairie provinces where rivers such as the Saskatchewan and its tributaries span all three provinces.”