Making Floods Affordable

Canada, Commentary, Local Government, Meredith Lilly, Water

The 2013 southern Alberta floods were needlessly costly and destructive. The overwhelming costs arise not as a result of an ill-executed response and recovery, but because of a failure to prepare for the possibility of severe flooding by the provincial and municipal governments.

Alberta has a long history of flooding but the damage caused by floods this summer was unprecedented. The estimated $5 billion in damages makes it the most expensive flood in Canada’s history, five times the forecasted expense of a 500 year flood in the region. 

Alberta’s vulnerability was well-known. After the 2005 floods, the provincial government produced a report recommending they ban floodplain development and increase structural mitigation measures to protect at-risk communities. However, its publication was delayed for six years and its recommendations were largely ignored.

This short sightedness is a classic problem in democracies. There is little incentive for politicians to address potential problems before they escalate to a crisis. The time horizon of a politician with a 4 year mandate falls considerably short of a 500 year flood risk, and paying short-term costs for long-term gains is rarely politically expedient.

Most people, for that matter, would rather take each day as it comes. A 2005 GPC Public Affairs report found that Canadians’ actions tended to contradict their attitudes on disaster preparedness.  For example, 61% believed a person ought to have an emergency kit, but only 30% actually had one. Though they were aware of both the risks where they lived and the precautions they could take, their intentions never materialized.

The expense of the 2013 floods and the possibility to reduce it ought to tip the scale towards action. Floods cause more property damage in Canada than any other natural disaster, much of it avoidable. Flood mitigation programs in the US pay higher dividends than any other mitigation investment. The benefit-cost ratio is 5:1. Programs in Australia and the UK have been similarly gainful.

The modest mitigation measures that have been implemented in Canada have been a success. For example, in 1986 a severe rainstorm along the Michigan/Ontario border resulted in property damage in the United States that was 1,000 times greater than in Canada, an outcome attributed largely to the fact that Canadians were mostly prohibited from building in the area. Also notable, the $63.2 million Red River Floodway was used 18 times during its first 40 years, saving Canadians an estimated $8 billion in damages.

One way to help finance and encourage mitigation and recovery is through insurance. Unfortunately, overland flood insurance is unavailable in Canada due to the large potential losses and the small number of at-risk homeowners. If distributed only over properties in floodplains, premiums and deductibles would be exorbitant.

It’s a difficult problem to solve because subsidizing rates to make them less expensive also makes them less effective. Risk-based pricing can provide incentives to move out of floodplains, adequately weatherproof one’s home, or simply pay a premium for protection. Distorting price signals thus leads to higher recovery costs later.

There are other ways to make insurance more affordable without compromising risk-based pricing. A 2010 report by Swiss Re suggests Canada consider the UK model, where flood insurance is bundled with home insurance. Though home insurance is not mandatory, it is generally a condition of a mortgage. Bundling them together distributes costs over a large number of homeowners, making insurance more affordable.  Properties with a high risk of flooding would pay higher prices, but nearly all homeowners would carry some amount of flood insurance whether they live in a floodplain or not. Because heavy rain can lead to flooding nearly anywhere, the policy would be potentially beneficial for everyone.

Creating a new insurance program is no small task, and would require cooperation between insurers, governments and individuals. The number of groups involved is what makes it difficult to implement, but also what makes it so worthwhile. The most successful and sustainable disaster management strategies are not top-down projects.

Nature is never fully to blame for the damage caused by natural disasters. Where we build our homes and how we prepare for extreme conditions determines the scale of destruction as much as the severity of the event itself. On July 21 Premier Alison Redford promised to make “Alberta a global leader in flood protection and prevention.” Let’s hope Canadians keep the perspective needed to make that happen.