(Rod Story, Financial Advisor/Analyst, Financial Advisor-Analyst at the
Parliamentary Budget Office)
The
Disaster Financial Assistance Arrangements (DFAA) program, created in 1970,
reimburses the provinces and individuals (via the province) for expenses and
damages resulting from disasters, natural or manmade. The program shares costs
with the provinces on an increasing proportion up to the level reached at $15
multiplied by a province’s population. Above this amount, the DFAA program pays
90 per cent of the costs.
For this
report, PBO obtained historical DFAA payment data directly from Public Safety
Canada (PSC) rather than using PSC’s public disaster database. The public
database is missing some disaster payments and some other listed payments are
incorrect due to payment changes not being updated in the database. Therefore,
the DFAA numbers used in this report are not the same as those found in the
disaster database.
As shown
in Figure 1, over the past five years DFAA’s 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 (Figure 2).
It is
important to note 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 Figure 2 going out to fiscal year 2017-2018.
Figure 1: DFAA liabilities
Source: Public Safety
Figure 2: DFAA annual transfers
Source: Public Safety
Note: *Public Safety estimates
In the
fiscal year 2012-2013, DFAA transferred $280 million to the provinces; by
2013-2014, this had increased to $1.02 billion and $305 million in 2014-2015.
DFAA estimates its transfers resulting from previous events will be higher in
subsequent years ($848 million in 2015-2016, $590 million in 2016-2017, and
$580 million in 2017-2018).
This
report estimates the expected additional average annual cost to the DFAA
program resulting from anticipated weather events (floods, hurricanes,
convective storms, and winter storms) over the next five years.
PBO used
data from numerous sources, including the Insurance Bureau of Canada (IBC),
DFAA, Swiss Re, and Risk Management Solutions Inc. (RMS), to determine its
estimate. For losses due to hurricanes, convective storms and winter storms,
PBO used estimates provided by RMS. For losses due to flooding, PBO used
estimates from IBC. RMS had Canadian specific models for hurricanes, convective
storms and winter storms. The IBC flood estimate used a Canadian specific flood
model based on Canadian flood extent and flood risk.
PBO estimates
that over the next five years, on average, DFAA can expect annual costs of $229
million per year because of hurricanes, convective storms and winter storms.
Using the IBC estimate for flood losses, PBO estimates that on average, DFAA
can expect annual costs of $673 million for floods. Therefore, the total annual
costs to the DFAA for weather events are estimated to be $902 million.
The
results are listed in Table 1 and Figure 3 below. It is important to stress
that these values are averages; in any given year, the losses can be much
higher or much lower.
Table 1: Estimated DFAA annual weather
event costs
Sources: PBO; RMS; IBC; DFAA and Swiss Re
Therefore,
based on the estimated annual DFAA payments for future weather event shown in
Table 1, the DFAA will continue to require more than its nominal $100 million
appropriation.
Table 1
also shows that the DFAA costs resulting from floods are the largest of the
weather events at $673 million and represent 75 per cent of DFAA’s weather
expenditures. This high value is partly due to the lack of flood insurance in
Canada, as well as regulatory challenges in the Prairie Provinces. Over the
past 10 years (2005-2014), Manitoba, Saskatchewan, and Alberta have accounted
for 82 per cent of all DFAA weather event costs, almost all of which are a
result of flooding.
The
Prairie Provinces face regulatory challenges of reduced enforcement and compliance
when floodplain management is the responsibility of municipalities.
Figure 3: Estimated DFAA annual weather event costs
Sources: PBO; RMS; IBC; DFAA
and Swiss Re
Furthermore, Saskatchewan has unlicensed drainage of
wetlands that increases peak flows during floods and Alberta appears to have
inaccurate flood maps. Furthermore, in creating flood maps, Alberta does not
take into account rising groundwater and debris floods on steep mountain
creeks.
One last consideration 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.
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