Protecting Canadians against flood risk

Swiss Re experts say that affordability, good communications and simpler products are among the ways to increase take-up of flood coverage in Canada.

A new publication entitled, "The road to flood resilience in Canada", points out that flood events in Canada can potentially trigger losses exceeding CAD 13 billion with less than half of those covered by insurance. This fact can have severe economic and social consequences for all concerned. Strengthening flood resilience, the authors say, requires holistic flood risk management with the involvement of the government, the insurance industry and homeowners.

A triple-track approach

The flood menace in Canada can, and should be, managed through physical, social and economic means. Examples the publication cites include zoning laws, flood control, emergency response and insurance.  Zoning laws can effectively mitigate flood risk by restricting construction in the most vulnerable locations, such as in river flood plains, and incentivizing the same in low-risk locations. The cost of government investment in the construction of dykes and other flood control measures are outweighed by the social and economic benefits of risk reduction over the lifetime of the measure, the publication says. The flood channel in Winnipeg constructed almost 50 years ago is testimony to this fact. Raising awareness and promoting preparedness, even through such mundane means as moving one's valuables to a higher floor or controlling river flows with sandbag walls, can also prove effective loss mitigation measures. In addition, early warning systems and pre-arranged emergency plans are key public measures to save lives and reduce property damage, say the authors.

Where the insurance industry comes in

The publication nevertheless points out that "even with risk reduction measures in place, residual flood risk remains. And where physical resilience ends, financial resilience starts. Well thought-out insurance coverage is an economical and effective way to transfer financial risk way from businesses and homeowners to the insurance industry." The authors say that insurers need to launch a more effective product marketing effort towards consumers.  This is crucial if the industry is to play its full part in the collaborative effort to implement flood mitigation strategies.

Getting consumers onboard

Swiss Re's experts allude to several ways to increase flood coverage take-up among Canadian homeowners. One key element is simplicity. The product features need to be understandable for the consumer and able to be easily communicated by the insurance company. The coverage provided by the policy should also be as transparent as possible to avoid ambiguity and prevent negative reputational issues. Another aspect mentioned is an effective communications plan that guides consumers in their purchasing decision, for example in respect to the deductibles they select. The publication also emphasizes the crucial importance of pricing and affordability. It cites global consumer surveys which reveal that 50% of insurance buyers make their final policy decisions based on price. Something else that could be relevant for the way in which insurers pitch their products, it says, is that human beings are strongly influenced, initially at least, by how things are presented and not as much by the actual content on offer. Recent advances in behavior economics can help to improve the perception of a product's value, the authors conclude.

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