Square One advises flood insurance not available in Canada

June 21, 2013

(Vancouver, BC): Earlier this month, cities across Germany were challenged by flooding. Now several Canadian cities, including those in Alberta, are facing the same challenge. “Our policyholders are calling to ask if their home insurance policies cover flood,” states Daniel Mirkovic, President and CEO of Square One. “Many think ‘Acts of God’ are excluded from home insurance policies. This is not the case. No home insurance policy specifically excludes ‘Acts of God’. That said, whether or not your home insurance policy covers flood damage depends on where you live in the world.”

Some countries have mandated that flood coverage be included in all home insurance policies. Others have government-operated flood insurance programs that people can opt to participate in. And yet others, including Canada, home insurance providers do not typically offer flood insurance programs; instead, the government provides some amount of financial assistance.

It’s important to note that flood damage is distinct from water damage. More specifically, flood damage means loss or damage caused by surface water originating from rain, snow, overflowing rivers, lakes, and other bodies of water. Most home insurance policies in Canada provide some form of coverage for water damage.

There are several reasons why flood insurance is not typically available in Canada. The two most notable reasons are described below.

  1. Since flood insurance is not a mandatory coverage in all Canadian home insurance policies, providers are concerned that they would face adverse selection. That means only people who had a high risk of flood damage would purchase the insurance.

  2. In most cases, governments know that specific areas are susceptible to flood. As such, zoning these areas for residential development, without first investing in proper infrastructure, means it’s only a matter of time before flood damage will occur.

In both situations, it is virtually impossible for home insurance providers to obtain enough premiums to cover potential losses from flood damage.

So, what do you do if your home suffers flood damage? As mentioned earlier, you may be eligible for financial assistance from the government. The BC Disaster Financial Assistance Program, for example, will pay 80 percent of the amount of total eligible damage that exceeds $1,000, to a maximum claim of $300,000. Links to the programs available by province are provided below.

While home insurance in Canada does not cover loss or damage due to floods, there are government programs in place to provide assistance. If you’re uncertain what is or isn’t covered with your policy, contact your home insurance provider.