Resilience is Everyone’s Responsibility

(Veronica Scotti, President & CEO, Swiss Re Canada)

The insurance industry is fully capable of meeting its obligations in the wake of the Fort McMurray fire, yet the assets lost are a sobering reminder of the ferocity of nature’s perils and our vulnerability. 

Replaying the scenes of the devastation in my mind, I’ve been thinking about how resilient we really are – both physically and financially. Are Canada and its citizens equal to the challenge of extreme events like Fort McMurray? What about other events such as earthquake and flood? I think there's work that can and should be done. 

My colleague, Christoph Oehy, former Head Treaty Underwriting, and I share a passion of wanting to raise the odds of Canada's preparedness for when the next flood strikes. Over the past year, we've discussed, at length, what we think is needed for that to happen, and how we can help. Those conversations are now compiled in a report Christoph co-authored with our flood peril specialist, Caspar Honneger. The road to flood resilience in Canada explores the consequences of a 200-year event and recommends steps to close the protection gap – the difference between economic and insured losses. 

Our research estimates that Canada’s property protection gap is CAD$2.9 billion – the 11th highest in the world. It’s a sad fact that few homeowners have flood insurance. One major event could result in damages that far outstrip the level of insurance available in the market. We only need to look back a couple of years for a vivid illustration of this problem. In 2013, insurance only covered about one-third of the economic losses from the southern Alberta floods and CAD$1 billion of the nearly CAD$1.5 billion in total losses from the Toronto flood.

So what’s causing this protection gap? There are many reasons, but let’s look at two very important factors. First, there’s a general misunderstanding (or assumption) that the government will step in and pay for extensive repairs and replacement, which leads to complacency about the need for insurance. Second, insurers have been hesitant to take on flood risk due in part to inadequate modelling skills and no clear actions to continuously mitigate exposures, which homeowners and municipalities are in charge of.

Ignorance and maintaining the status quo are no defense against the very real threat of a 200-year flood. Consider the following river flood projections based on a model developed by our catastrophe peril experts:

- A 200-year flood in Ontario is likely to be triggered by heavy precipitation and inadequate urban drainage, resulting in total losses approaching CAD$5.3 billion -- CAD$4 billion of that is uninsured at the moment.

- A 200-year flood in Alberta could destroy CAD$3.6 billion in property -- CAD$2.6 billion of that uninsured -- caused by excessive snowmelt on the Bow and Elbow Rivers which converge at Calgary.

- In British Columbia, development along the Fraser River would exacerbate already tenuous flood conditions in the event of a heavy snowmelt, triggering CAD$4.6 billion in losses of which CAD$2.8 billion isn't covered by insurance.

Those are just a few examples. As you can see, the culprit varies depending on geography, topography, climate, population, development and local infrastructure. 

Canada's the only G7 country today that leaves homeowners largely unprotected from the financial losses caused by floods, and still relies on post-event measures, which are sincere but ineffective and certainly unsustainable. So what will it take to change the multi-party conversation on the flood file and close the flood protection gap through planned actions? You’ll find our recommendations in the report, but here’s the general idea: It will take partnership between the public and private sectors to satisfactorily address the need for physical resilience, social resilience and economic resilience (all three are important). Insurance can lead the way to higher economic resilience through improved modelling, product innovation and application of behavioural economics toward better understanding consumer attitudes and motivations when it comes to the perceived value of insurance. A clear appreciation for the value of insurance is directly linked to 1) a well-informed choice when selecting coverage and 2) in assuming responsibility through very simple and inexpensive risk mitigation measures that can save thousands of dollars in losses as well as emotional distress. 

I encourage you to read this report – while it's scientifically sound it's also an easy read. And you can always reach out to us through this blog if you have questions or tips on how to make the dialogue richer and the actions more compelling. I'm convinced we can make a difference if we all take responsibility.

And if you’re having some of these same discussions with colleagues, please let us know. That's how it all started for Christoph and myself a year ago in our Toronto office.

This article was originally posted on Swiss Re's Open Minds Platform.

Swiss Re Canada is a proud sponsor of CatIQ's Canadian Catastrophe Conference (C4 2017) that is taking place February 1-3 at the Allstream Centre located in Toronto. Balz Grollimud, Head Treaty of Underwriting at Swiss Re will be speaking during the Geomagnetic Storms - The Next Black Swan session at the conference.

Model Flood Risk Without Historical Data – An Innovative Solution!

(Carl Lambert, Vice-President of Business Intelligence at The Co-operators)

In June 2013, Canada suffered one of its most severe floods in recorded history. 32 towns in southern Alberta were flooded for total damages exceeding C$5 billion. At the time, the insurance industry did not offer flood insurance.  Sewer backup losses were covered and the total cost for the industry was C$1.7 billion. Yet, in early 2015, Canada remained the only G7 country where residential flood insurance coverage was not available.

At Co-operators, we were already working on launching a flood product.  Those events reinforced the demand for residential flood coverage and put more pressure on the industry to develop a solution.

The Co-operators was the first in Canada to launch such a new coverage. Significant effort was required across the organization to ensure we implemented the proper solution that would answer an unmet need, while focusing on making Canadian communities more resilient to flooding. This blog will focus on only one piece of the work, the development of the risk assessment and the pricing. The BI-Research team and Actuarial pricing team collaborated on a non-traditional pricing solution. 

The Approach - Research

Learn & Partner with Canadian Universities

We started by reaching out to our network of partners in Canadian universities. This helped us better understand important concepts around flood hazards, flood plains, and damage functions. Our Statisticians and Actuaries have learned to work with Hydrologists, Geologists, Hydraulic Engineers and Civil Engineers.

Seek out Third Party Vendors

We then started a long process of seeking out and assessing existing flood models and data sources. We learned to speak with modeling firms, and gradually built enough expertise internally to be able to assess the credibility and value of third party vendors.

Leverage Open data & Big Data

We then sought out external available data.  There is a lot of information available and the challenge was to identify the ones that are usable for that purpose.  By usability of information, we mean reliability, predictability and frequency of updates.  

We have tested dozens of external sources and a significant number of them have been used.  For example, we used elevation data at every 5 meters Canada Wide.  (30 meters in rural areas).  We also used the Soil type across Canada to better model water dispersion and evaluate how long the flood will last.  We also used Historical River flows, with numerous lecture points of all rivers in Canada, available every minute, for at least 50 years.  We even used a database showing historical Tectonic Plates movements.

Assessment of the Risk

There were three sources of flood risk to model: Fluvial flood, pluvial flood and coastal flood. Each of them has their own specificities and therefore have different models.

It was important for us to provide adequate and flexible coverage for all Canadians, whether they are in a high risk zone or not, at a price that accurately reflects the true risk. For that reason, we needed a model that was accurate, precise, and consistent.

Our model is customized to use different sources of insight that complement each other. Vendor models will sometimes fail our quality standards and, most of them also ignore a significant amount of local flood defense structures such as dikes and reservoirs. On the other side, our internal models were not always based on enough data to be fully credible. 

With extensive R&D efforts, we were able to leverage the large amount of data available in Canada to bridge that gap and create a national flood risk model that meets our standards.

Assessing the risk means developing models for the following 3 phenomena:

Model Flood Water amounts

Hydrological models are used to determine the probability that a water body will flood. 

Model Water Dispersion

Hydraulic models are used to determine how those water volumes flood the landscape. 

Model the « submersion depth »

Submersion depth models use the results of water dispersions and combine them with other sources of information to determine models for submersion. Furthermore, the required use of rooftop geocoding of the exact location of the insured building complicated the availability of information since many possible sources did not have the geocode.

Convert the « submersion depth » into building & content damage

Many factors impact the amount of damages:  the submersion depth, the type of building, the expected duration of the flood, the temperature of the water and many more. In order to build both content and building predictive models, we have used text mining on notes coming from past sewer backups claims and integrated that with external probabilistic models. 

Pricing Policies

Flood models estimate the flood risk but they don’t calculate an insurance premium. For example, third party damage curves work well at estimating flood damage but cannot be directly applied to insurance claims, because the latter includes elements of client behavior as well as the effect of limits and deductibles. Furthermore, our comprehensive water insurance product offers our clients unprecedented flexibility regarding their water coverage, which also provided pricing challenges. In times when the “buzz word” in technology and science is Minimal Viable Product, in the case of flood insurance the bar for a viable product is very high.

In the end, a key to our success is to take a scientific approach to modeling the flood risk, for each and every house, farm, and building. It is what allows us to provide insurance at the right price, for everyone. It is that analytical mindset, combined with a lot of determination and innovation, that is and will continue to be the Co-operators’ advantage. 

This blog post has been written by Carl Lambert, who is vice-president of Business Intelligence at The Co-operators. Carl completed a Master's degree in Actuarial in 1994. He joined The Co-operators in 2009, where he launched a Research team that now consists of over 65 professionals in Mathematics, Statistics, IT and Actuarial. The team is responsible for the development of Analytics throughout the organization.

Carl Lambert is a panelist at CatIQ’s Canadian Catastrophe Conference (C4 2017) on the How to Create an Inventory of Canadian Hazard Data session during the conference.

Canada’s Near Failing Grade in Flood Preparedness

By Joanne Kennell, Meteorologist at CatIQ

It may surprise you to learn that nearly all 10 Canadian provinces and Yukon have received a near failing grade when it comes to flood preparedness. According to a new report titled “Climate Change and the Preparedness of Canadian Provinces and Yukon to Limit Potential Flood Damage” by the University of Waterloo and sponsored by the Intact Centre of Climate Adaptation, these grades are a symptom of significant change being needed across the country. And these changes need to happen quickly in order for Canada to be prepared to address the climate-related risks of increasing severe weather events, including catastrophic floods.

In Canada, the majority of insured catastrophic losses are from water-related damage, and up until the Fort McMurray Fire (2016-05-Cat-0070) in Alberta this past May, the 2013 Southern Alberta Flood (2013-06-Cat-0049) was the costliest insured natural disaster with a CatIQ insured loss estimate of over $1.5 billion. According to the Office of the Auditor General of Canada, 2016, the federal government has spent more on recovering from catastrophic natural disasters over the last 6 years than in the previous 39 years combined. Clearly, climate change risks could pose a significant threat to not only Canada, but to the global financial system as both storm intensity and frequency continue to rise.

Figure 1: Catastrophic Insured Losses from Natural Disasters in Canada (1983 to 2016)

So what does the report mean by flood preparedness? Preparedness is defined as “the capacities and knowledge developed by governments, professional response organizations, communities and individuals to anticipate and respond effectively to the impact of likely, imminent or current hazard events or conditions”, the report quotes from The United Nations Secretariat of theInternational Strategy for Disaster Reduction (UN/ISDR), 2016. To survey the flood preparedness of Canada’s provinces and Yukon (Northwest Territories and Nunavut were not covered in the report), 103 government representatives across 91 provincial and territorial ministries, departments and agencies were polled on the preparedness to limit flood damage relative to current (2016) and future (2030) major rainfall events based on 12 categories (Feltmate, 2016):

1.       Floodplain Mapping

2.       Land-use Planning

3.       Drainage System Maintenance

4.       Sustainable Flooding Management

5.       Home Adaptation Audit

6.       Commercial Property Adaptation Audit

7.       Transportation Systems

8.       Electricity Supply

9.       Drinking Water Systems

10.   Waste Water Systems

11.   Public Health and Safety

12.   Emergency Preparedness and Response

Overall, the Canadian provinces and Yukon scored very well in maintaining Public Health and Safety and Emergency Preparedness and Response. However, many provinces fell short in the remaining 10 categories. For example, most survey participants agreed that current land-use planning practices do not “sufficiently restrict development in flood-prone areas” and that “municipal councils have significant power to override their own land-use restriction bylaws to approve new developments, even if the developments are in recognized flood-prone areas”. Additionally, four provinces are currently not involved in the development of a Home Adaptation Audit program, which is a program that helps homeowners assess their vulnerability and minimize their risk to flooding. Similarly, nine provinces indicated that they have not developed a Commercial Property Adaptation Audit program, which is comparable to the Home Adaptation Audit, but for businesses.

By now you must be itching to know how Canada, as well as individual provinces and territories, scored. Using a scale from A (strong flood preparedness) to E (weak flood preparedness); Canada received an overall grade of C-. This is not great, and “suggests that there is a considerable margin for Canada to better prepare for, and potentially mitigate, future flood risk” states the report. Ontario leads the pack with a score of B-, and the provinces with the lowest score include British Columbia and Prince Edward Island, which both received a D.

        Figure 2: The Canadian Average Flood Preparedness Score Across all Canadian Provinces and Yukon

However, the survey participants did recommend several measures that provinces and territories should take in order to limit future flooding risks:

1.       Create a position of Chief Adaptation Officer (CAO) whose duty is to identify    
  areas of both strength and weakness to flood preparedness and develop methods  
  to mitigate the risks

2.       CAOs would be in charge of ensuring that flood risk preparedness is deployed

3.       Provinces and territories should issue, on a multi-year cycle, audited public  
  reports on the state of flood preparedness and future challenges that may develop

4.       Provinces and territories should mandate that new development in flood-prone
  areas be restricted, and that municipalities should not be able to overturn bylaws
  set by provinces and territories

5.       Where practical, infrastructure should be re-built to better handle our changing
  climate

Although concerns related to flooding have been minimal in recent decades, the report concludes that “the risks of the past are not the risks of the present, and certainly not the risks of the future”, and failure to improve the preparedness of provinces and territories could result in unceasing economic losses, threatening Canada’s status as a safe country in which to invest and do business.

References

Feltmate, Blair. (2016). Climate Change and the Preparedness of Canadian Provinces and
         Yukon to Limit Potential Flood Damage. University of Waterloo. URL:
         http://www.intactcentreclimateadaptation.ca/wpcontent/uploads/2016/10/Intact-
         Centre-Climate-Change-and-the-Preparedness-of-Canadian-Provinces-and-Yukon-
         Oct-2016.pdf

Office of the Auditor General Canada (2016). 2016. Spring Reports of the Commissioner of
         the Environment and Sustainable Development: Report 2 – Mitigating the Impacts of
         Severe Weather. URL: http://www.oag-bvg.gc.ca/internet/English/parl_cesd

         _201605_02_e_41381.html#hd4a

The United Nations Office for Coordination of Humanitarian Affairs (UN/OCHA), Policy and
         Development Branch and United Nations Secretariat of the International Strategy
         for Disaster Reduction (UN/ISDR). (2008). Disaster Preparedness for Effective
         Response: Guidance and Indicator Package for Implementing Priority Five of the
         Hyogo Framework. Geneva, Switzerland: UN/ISDR and UN/OCHA. URL:
         http://www.unisdr.org/files/2909_Disasterpreparednessforeffectiveresponse.pdf

Not enough rain is also a problem...

(Geoff Coulson, Warning Preparedness Meteorologist, Environment and Climate Change Canada)

Significant rainfall, and the flooding that can result, has been top-of-mind for many of the clients I have talked to that are involved in flood forecasting and emergency management and response. Canada’s insurers are now saying that water is the number one cause of insurance payouts over the last few years. Short duration, high intensity bursts of rainfall have been responsible for significant infrastructure damage in locations across the province over the last 10 or 15 years. Large storm systems, some fed by the remnants of tropical storms, have also caused widespread flooding. Lastly, seasonal spring flooding has also been a concern in parts of the province during periods of rapid warm-up and rain that can combine with snowmelt to cause rivers to overflow. These events have not played favourites with respect to where they have occurred...Windsor, London, Burlington, Toronto, Bracebridge, Peterborough, Ottawa, Timmins, Thunder Bay and Dryden have been but a few of the communities required to deal with the impacts of flooding for a variety of reasons. 

This past summer was no exception as significant rains fell on the Windsor area between September 28 and 30. The bulk of the rain fell during the first part of the event with some locations receiving in excess of 160 mm of rain with the first intense bands that moved over the area. Normal rainfall for the whole month of September in the Windsor area is around 94 mm. Thousands of residents felt the impacts from this event.

And yet, in the same summer that gave us another example of flood damage, other parts of southern and eastern Ontario were dealing with one of the driest spring and summers they had seen in years. Drier than normal conditions have been reported starting in April in some areas of southern and eastern Ontario as the favoured storm tracks, month after month, avoided these areas in favour of other parts of the Great Lakes basin. This extended dryness has led to a variety of impacts in these regions. Low reservoir levels and stream flows, wells drying up, reduced crop yields and the increased need for irrigation on the part of local farmers are but a few of the issues that have occurred. The map below provides the low water condition information gathered by the Ontario Ministry of Natural Resources and Forestry’s (OMNRF’s) Surface Water Monitoring Centre in Peterborough as of October 20, 2016. The map brings together information from a variety of Conservation Authorities and OMNRF’s district offices. 

Low water condition level III is the most severe and is denoted by the red areas on the map. Low water condition level III implies that the water supply is failing to meet the demand and must be managed through the use of water conservation and restrictions and regulation of water use.

Unfortunately, a few rainfalls here and there in the coming weeks are not going to make any notable changes in the overall situation. In fact, the latest precipitation forecasts for November hint that conditions could remain somewhat drier than normal. The situation will also not be improved by the fact that as the weather gets colder, the ground will get harder and precipitation will be more in the form of snow. This will keep needed moisture from getting into the watersheds in the most affected areas and will likely mean the situation will continue into the spring of next year.

So while it is important to acknowledge the significant infrastructure and financial impacts that flooding can cause, this summer has also provided a reminder of the impacts that extreme dryness can create. Climate experts have expressed concerns about both extreme rainfalls and drought in the coming decades. This past summer has provided us some insights into what we could be dealing with in the years to come as some areas deal with flooding rains while others look for rain of any amount.

This blog post has been written by Geoff Coulson, who has been a Meteorologist with Environment and Climate Change Canada for 33 years. For the past 12 years, Geoff has been a Warning Preparedness Meteorologist providing weather information to clients at all levels of government, the media, and the private sector. He also sits on the Provincial Flood Forecasting and Warning Committee and manages the CANWARN volunteer storm spotter program in Ontario.

Geoff Coulson is a panelist at CatIQ’s Canadian Catastrophe Conference (C4 2017) on the Lessons Learned from Ice, Flood & Hail session during the conference.