Flood

Question 1

What are the priority areas for the Emergency Management Strategy (EMS) in Canada?

Answer 1

Collaboration to strengthen resilience
Understanding disaster risks in all sectors
Focusing on disaster prevention and mitigation
Enhancing disaster reponse capacity and development of new capabilities
Strengthening recovery efforts

Question 2

How can overall flood risk be reduced?

Answer 2

Relocation
Building resilient infrastructure

Question 3

What are the key drivers of flood risk in Canada?

Answer 3

• Population growth
• Urban development
• Climate change
• Densification and development of urban areas exposed to flood

Question 4

What are the challenges in making flood insurance available and affordable in high-risk areas?

Answer 4

• High costs of insurance
• Low risk awareness amongst homeowners
• Misaligned incentives that do not encourage risk reduction or insurance purchase

Question 5

Frequency of flood can be affected by:

Answer 5

Increases in extreme precipitation due to climate change

Question 6

Severity of flood can be affected by:

Answer 6

Development of floodplains

Question 7

overall flood risk can be reduced by:

Answer 7

【1】Relocation
【2】Building resilient infrastructure

Question 8

Pluvial:

Answer 8

when an extreme rainfall event creates a flood independent of an overflowing water body

Question 9

Fluvial:

Answer 9

when the water level in a river, lake or stream rises and overflows onto the neighboring land

Question 10

Coastal:

Answer 10

when dry and low-lying land is submerged by seawater

Question 11

What are the key drivers of flood risk in Canada?

Answer 11

• Population growth
• Urban development
• Climate change
• Densification and development of urban areas exposed to flood

Question 12

What are the challenges in making flood insurance available and affordable in high-risk areas?

Answer 12

• High costs of insurance
  further eroded by
  -> High housing costs
  -> Recent flood events
  -> Reinsurance rates
  -> Material changes in risk leading to increased premiums
• Low risk awareness amongst homeowners
  -> Flood maps are not easily accessible leading to homeowners not purchasing coverage
  -> Not buying enough optional flood coverage
  -> Not investing in property-level protections
• Misaligned incentives that do not encourage risk reduction or insurance purchase

Question 13

Why is flood insurance cost-prohibitive for low-income households?

Answer 13

• High housing costs
• Recent flood events
• Reinsurance rates
• Material changes in risk leading to increased premiums

Question 14

Why do most Canadians in high-risk areas lack awareness of their flood risk?

Answer 14

• Flood maps are not easily accessible leading to homeowners not purchasing coverage
• Not buying enough optional flood coverage
• Not investing in property-level protections

Question 15

What is the impact of misaligned incentives on flood risk management?

Answer 15

Homeowners and local governments have little incentive to reduce risk or purchase insurance..
..and the expectation of government assistance reduces motivation for lower-level stakeholders to take preventive measures

Question 16

What does the EMS emphasize regarding financial risk sharing for disasters?

Answer 16

The need to develop options for sharing the financial risks of disasters.

Question 17

What is the traditional approach to flood risk management?

Answer 17

Building structural controls to keep people and property separate from flooding sources.

Question 18

What is Flood Risk Management (FRM)?

Answer 18

An approach where the responsibility for flood risks is spread across various stakeholders and uses non-structural mitigation methods to complement structural ones.

Question 19

What are the responsibilities of the Federal Government in flood risk management?

Answer 19

• Coordinating and supporting local efforts
• Providing assistance through the DFAA program
• Offering emergency management services to Indigenous groups
• Regulating and monitoring water resources.

Question 20

What are the responsibilities of the Provincial Government in flood risk management?

Answer 20

• Setting regulations and policies on land use
• Regulating the insurance sector
• Establishing land use planning standards
• Regulating natural resource development

Question 21

What are the responsibilities of Indigenous Communities in flood risk management?

Answer 21

• Developing community emergency management plans
• Working on structural mitigation projects with ISC
• Receiving funding from CIRNAC to respond to climate change impacts

Question 22

What are the responsibilities of the Insurance Industry in flood risk management?

Answer 22

• Transferring flood risk from homeowners to insurers
• Paticipating in data collection
• Incentivizing risk reduction measures
• Helping shift the burden away from government DFA programs

Question 23

What are the four preconditions needed to enable the private market to function in flood insurance? (Hint: LIAA)

Answer 23

• Limited or restructured post-disaster financial assistance
• Improved public awareness of flood risk
• Accurate and up-to-date flood maps
• Adequate investments in flood defences

Question 24

What are the responsibilities of Non-governmental and Civil Society Organizations in flood risk management?

Answer 24

• Supporting flood recovery efforts
• Emergency planning
• Public education
• Coordinating volunteers
• Providing on-ground assistance during incidents

Question 25

What are the responsibilities of communities and individuals in flood risk management?

Answer 25

Seeking information on flood risks and undertaking non-structural and structural risk mitigation efforts, such as: * purchasing flood insurance * flood-proofing homes

Question 26

What is the most effective strategy for reducing flood risk?

Answer 26

Strategic relocation, which involves removing all assets and properties at high risk of repetitive flood damage through government buyouts

Question 27

What are the challenges associated with strategic relocation?

Answer 27

It is challenging, time-consuming, expensive, and there is an affordable housing shortage in Canada

Question 28

What type of flood insurance market does Australia have?

Answer 28

* Fully private market with regulation from the government * Voluntary take-up * Risk-adjusted premiums * Low cost to the government

Question 29

What are the main characteristics of France's CatNat scheme for flood insurance?

Answer 29

* 12% surcharge on home insurance policies * Mandatory for mortgages and optional otherwise * Premiums ceded to a state-owned reinsurer * Affordable * Lacks risk differentiation incentives

Question 30

How does the UK manage flood insurance for high-risk areas?

Answer 30

* Private insurers provide coverage * Premiums ceded to a high-risk reinsurance pool (Flood Re) * Affordability prioritized * Flood Re is Non-profit entity accountable to the government * Minimal cost to the government.

Question 31

What is the US's National Flood Insurance Program (NFIP)?

Answer 31

* Administered by FEMA * Mandatory for federally backed mortgages in flood-prone areas * Risk-based premiums * Community rating system for risk reduction * Available and affordable * High cost to the federal government

Question 32

What are the four guiding themes for Canada when setting up a flood program?

Answer 32

* Uncertainty * Market penetration; Adverse selection and mutuality * Affordability * Moral hazard

Question 33

What are the policy objectives for flood insurance in Canada?

Answer 33

* Adequate and predictable financial compensation * Risk-informed price signals and mitigation * Affordability * Wide availability * Maximized participation * Value for money for governments and taxpayers.

Question 34

What are the trade-offs between availability and affordability in flood insurance?

Answer 34

Increasing affordability may reduce financial incentives for property-level risk reduction and likely increases government costs.

Question 35

What are the trade-offs when prioritizing risk-based pricing?

Answer 35

It will affect the number of residents who can participate

Question 36

What are the trade-offs in balancing affordability and coverage?

Answer 36

Balancing affordability requires trade-offs between adequate coverage and financial burden to the public

Question 37

What are the trade-offs in focusing on cost-effectiveness for flood insurance?

Answer 37

It may shift the burden to homeowners or municipalities, with the total flood risk cost remaining (and only reducible through mitigation and prevention)

Question 38

What are the trade-offs in maximizing participation in flood insurance?

Answer 38

Maximizing participation with mandatory provisions and government funding increases government costs (needing to balance with closing the protection gap)

Question 39

What are the four proposed insurance models for Canada?

Answer 39

* Flat cap high-risk pool * Tiered high-risk pool * Public insurance * Public reinsurance (layered)

Question 40

Assumptions - Current Total Flood Risk

Answer 40

Annual average loss of $2.9 billion in residential flood damage. The vast majority of risk is concentrated in a small number of the highest risk homes

Question 41

Assumptions - Lifespan of Model

Answer 41

* Models designed for a lifespan of approximately 25 years * Analysis based on costs/features in a given operational year * Transition/wind-down costs not included; criteria for ending the arrangement require further work

Question 42

Assumptions - Climate Change

Answer 42

* Risk distribution expected to change due to increasing and severe climate events * Current analysis based on 2020 flood hazard models * Future climate modeling addressed in a multi-year research project starting in May 2022

Question 43

Assumptions - Inflation

Answer 43

* Costs provided on a 2020 current dollar basis * Future projections and inflationary adjustments not considered due to difficulty in prediction * Inflation expected to impact models similarly, not altering their comparative assessment fundamentally

Question 44

Model Design Features - High Risk Homeowners Threshold

Answer 44

→ High risk defined as top 10% by Average Annual Loss (AAL), with the highest risk in the top 1%. → A price-based threshold is used: premium > 0.1% of coverage ($300 for a $300,000 policy). → This threshold aligns with international affordability standards. → Approximately 10% of households fall under this category.

Question 45

Model Design Features - Affordability

Answer 45

→ Measured by the ratio of premiums to household wealth or income. → Home value often accounts for 70% of household net worth. → Premium caps and subsidies can help make insurance affordable. → Premium caps phase out over time. → Subsidies decrease as income increases.

Question 46

Model Design Features - Premium Loading Factors

Answer 46

ROAM → Includes administration, overhead, reinsurance, and safety margins. → Calculated based on average annual loss (AAL). → No profit margin included.

Question 47

Model Design Features - Cross Subsidization

Answer 47

→ Redistributes premiums to lower high-risk homeowner costs. → Low-risk homeowners pay slightly more. → A levy of $20-$45 provides $250-$650 million per year.

Question 48

Model Design Features - Deductibles

Answer 48

→ Initial costs are paid by homeowners. → Can be used to reduce moral hazard and incentivize risk reduction. → A $5,000 deductible is used for model costing. → Higher deductibles can reduce participation.

Question 49

Model Design Features - Participation

Answer 49

→ Low participation rates reduce financial stability while homeowners have to bear more residual risk. → Higher rates needed to spread risk and lower premiums. → Current participation is 40-60%, mainly in low/medium risk areas. → Participation can increase with public awareness and affordability supports.

Question 50

Model Design Features - Standardization of Flood Insurance Policies

Answer 50

→ Government involvement increases standardization. → Policies may standardize language, perils covered, and bundling of water-related perils.

Question 51

What is residual risk?

Answer 51

* Financial risk remaining after applying insurance. * Important for transitioning from public disaster financial assistance (DFA) to an insurance-based system.

Question 52

Model 1: Flat Cap High-Risk Pool

Answer 52

→ Inclusion: High-risk households (premium > 0.1% of coverage) → Flood Premium Cap: $500 → Income-based Subsidies: None → Coverage Cap: $300,000 per event → Deductible: $5,000 → Cross Subsidization: $20 levy on all residential property policies → Stabilization: Reinsurance and government backstop → Participation Assumptions: Mandatory offer, optional purchase. 80% for low risk, 50% for medium and high risk → Premium Loading Factor: 96% of Average Annual Insured Loss → Policy Standardization: Standardized policies for high-risk homeowners

Question 53

Model 2: Tiered High-risk pool

Answer 53

→ Inclusion: High-risk households (premium > 0.1% of coverage) → Flood Premium Cap: 5 levels based on reconstruction cost quintiles: $250; $500; $1,000; $2,000; $4,000 → Income-based Subsidies: None → Coverage Cap: $300,000 per event → Deductible: $5,000 → Cross Subsidization: $40 levy on all residential property policies → Stabilization: Reinsurance and government backstop → Participation Assumptions: Mandatory offer to all; mandatory purchase with mortgage and optional without. 80% for low risk, 65% for medium and high risk → Premium Loading Factor: 96% of Average Annual Insured Loss → Policy Standardization: Standardized policies; comprehensive bundling of water coverage

Question 54

Model 3: Public Insurer

Answer 54

→ Inclusion: All households (low, medium, and high risk) → Flood Premium Cap: $3,000 → Income-based Subsidies: Sliding scale based on income, funded by FPT governments → Coverage Cap: $300,000 per event → Deductible: $5,000 → Cross Subsidization: $45 levy on all residential property policies → Stabilization: Reinsurance and government backstop → Participation Assumptions: Mandatory offer and purchase via bundling with home insurance. 95% for low and medium-risk households, 90% for high-risk households → Premium Loading Factor: 66% of Average Annual Loss, includes annual living expenses → Policy Standardization: Standardized policies for all with home insurance; comprehensive bundling of water coverage

Question 55

Model 4: Public Reinsurer

Answer 55

→ Inclusion: All households (low, medium, and high risk) → Flood Premium Cap: None for first layer; $3,000 for second layer → Income-based Subsidies: None for first layer; sliding scale based on income, funded by FPT governments for second layer → Coverage Cap: $25,000 for first layer; $300,000 for second layer → Deductible: $5,000 for first layer; N/A for second layer → Cross Subsidization: $20 levy on all residential property policies → Stabilization: Determined by individual insurers’ business model for first layer; reinsurance and government backstop for second layer → Participation Assumptions: Mandatory offer and voluntary purchase for first layer (80% for low risk, 50% for medium risk, 35% for high-risk households); mandatory offer and purchase via bundling with home insurance for second layer (same participation rate as Public Insurer model) → Premium Loading Factor: 166% of Average Annual Insured Loss for first layer; 66% of Average Annual Loss for second layer → Policy Standardization: Non-standardized policies for first layer; standardized policies for second layer

Question 56

What is the role of deductibles in the insurance models?

Answer 56

Initial costs paid by homeowners to reduce moral hazard and incentivize risk reduction

Question 57

What is the primary focus of the risk reduction efforts in the insurance models?

Answer 57

Targeting the riskiest properties through strategic relocation or other mitigation measures to reduce the annual costs of caps and subsidies

Question 58

How is inflation expected to impact flood risk models?

Answer 58

Inflation on re/construction costs is typically higher than inflation on common goods and services, impacting future projections

Question 59

What is the importance of standardizing flood insurance policies?

Answer 59

Standardization increases government involvement, ensures consistent coverage, and reduces coverage disputes

Question 60

How is the government backstop used in flood insurance models?

Answer 60

It provides stabilization through capital investment and accumulation of reserves.. ..reducing the probability of drawing down the backstop over time

Question 61

How can standardized policy language improve flood insurance?

Answer 61

It simplifies policies and empowers consumers, reducing ambiguity regarding coverage amounts and responsibilities based on the source and cause of flooding

Question 62

What are the key evaluation points for the Flat Cap High-Risk Pool model regarding adequacy and predictability of compensation?

Answer 62

* Allows consumer choice * Sandardized coverage * Optional coverage can lead to inadequacy for some.

Question 63

How does the Layered Public Reinsurer model perform in terms of adequacy and predictability of compensation?

Answer 63

Strong, with mandatory take-up in Layer 2 ensuring big events are sufficiently covered (and optional coverage in Layer 1 allowing homeowners to self-insure)

Question 64

How can individual risk reduction behavior be incentivized?

Answer 64

* Premium price * Deductible * Capacity to pay * Linking premiums to mitigation actions

Question 65

Which model is strongest in terms of risk reduction and why?

Answer 65

Layered Public Reinsurer, as it: * balances homeowner and government mitigation incentives * encourages property-level protection and strategic community/watershed-level risk reduction

Question 66

What makes defining an affordability threshold complex?

Answer 66

Factors like: * Ability to pay * Relative risk * Income * Housing costs * Type of coverage * Regional differences. Affordability measured by the ratio of premiums to household wealth or income 

Question 67

How does the Public Insurer model address affordability?

Answer 67

Combines a single higher premium cap and means-tested subsidies, balancing affordability while reducing excessive costs for the highest risk properties

Question 68

Why is ensuring insurance availability important?

Answer 68

It ensures coverage remains available post-flood and addresses gaps in northern, remote, and some Indigenous communities

Question 69

Which model is weakest in terms of participation and why?

Answer 69

Flat Cap High-Risk Pool, as it relies on optional coverage which leaves substantial residual risk for homeowners

Question 70

Why is participation key in flood insurance?

Answer 70

to ensure adequate coverage and reduce residual risk

Question 71

What is the impact of greater public intervention in flood insurance?

Answer 71

It can more fully close protection gaps, but at a cost. Aiming for higher participation rates and increased affordability without significant risk reduction investments

Question 72

How can relocation serve as a risk reduction tool?

Answer 72

It removes risk and improves insurance viability, though practicality in areas with housing shortages must be considered

Question 73

Why is community-level engagement important in relocation efforts?

Answer 73

Early engagement with communities and jurisdictions is crucial, particularly for Indigenous communities with strong ties to their land

Question 74

Why is the affordability of flood insurance premiums important?

Answer 74

It enables equitable access to insurance, supporting socio-economically disadvantaged groups

Question 75

What other factors, besides money, influence access to flood insurance?

Answer 75

* Removing barriers * Promoting financial literacy * Building community capacity * Adapting national solutions to regional or cultural contexts.

Question 76

How should Indigenous perspectives be incorporated into flood risk management?

Answer 76

Indigenous knowledge and perspectives should inform flood risk management (with further engagement and respect for the cultural connections of Indigenous peoples to water and land)