Podcast Episode 122: “Water Is Coming”: Climate Change Preparedness for Homeowners and Real Estate Investors.
Damaging floods are on the rise, whether as sewer backups, swollen rivers and lakes, rising ocean levels, or overland flooding. As a result, water related insurance claims have been rising, triggering changes to policies and premiums. If you own property—and especially property with a basement—it’s time to re-evaluate your preparedness. This blog post considers climate change and what it means for Canadian homeowners and real estate investors in terms of maintenance, prevention, and insurance against water damage from flooding.
Flooding Is a Big Concern and Rapid Climate Change May Be to Blame
Extreme weather events are more common now than they used to be. Is this all about climate change? All I know is what I read. I’m a lawyer not a climatologist or meteorologist. But I read a lot. And, I’ve been concerned, actually worried for a considerable period of time about climate change. Sure, history tells us that the Earth’s climate is forever changing, but for almost all of the billions of years of geological time, mankind was not involved.
Recently, and by “recently” I mean in the last several hundred years, mankind has really started to accelerate climate change. There is real concern that accelerated climate change is having potentially catastrophic consequences for many parts of the world. The UN Intergovernmental Panel on Climate Change (IPCC) released a report in October 2018 saying we really only have about 12 years to stop global warming—or climate change may be irreversible.
Here’s the macro picture. Scientists say we must reduce global emissions to prevent average annual temperatures rising more than 1.5–2 degrees centigrade (depending on what climatologist is predicting the temperature) or we are definitely hooped. The discussions about what that will take worldwide are hugely complicated with an unbelievable number of moving parts that require amazing cooperation between huge numbers of countries, businesses, interest groups, and the general populace. I find it hard to get my head around the size and scope of what needs to be done to meet the challenge set out by the IPCC.
Homeowners and Real Estate Investors Can Protect their Properties Against Floods
I’m not going to solve climate change in this blog post, so let’s deal with the micro picture. What might climate change mean to you and your property?
Climate change means extremes of weather. Dryer periods, wetter periods, more snow, less snow, hotter, colder. Winter snow packs are melting across Canada, and many regions are experiencing flooding, so let’s talk about wetter. As Globe & Mail personal finance columnist Rob Carrick writes (with a nod to Game of Thrones), “water is coming.”
Inundations can be hard to forecast, so is there anything to be done? All levels of government are becoming aware of the increasing need to stockpile resources (e.g., sandbags) and to build infrastructure (e.g., dykes) in flood-prone areas.
Keeping this micro and on a personal level, yes, there is plenty that you can do. Here are a few suggestions culled from the “Flood Protection Resources” webpage offered by the University of Waterloo’s Intact Centre on Climate Adaptation:
Maintenance Routine to Protect Your Property from Flood Damage
- Clean out your eavestroughs
- Remove debris from any storm drains nearest to your house
- Test your sump pump
- Check your backwater valve and keep it clean
Preventative Measures Against Flood Damage to Your Home
- Make sure your property has a positive grade (i.e., water flows away from your house)
- Extend your downspouts so water discharges at least a couple of metres from your house
- Do not store documents or anything expensive in your basement
- Make sure someone checks on your property when you are on vacation
- Where flooding is common, elevate your furnace, hot water tank, and electrical panel, or put them on a different floor
Of course, some flooding is more extreme, requiring water retention walls or even emergency evacuation plans. I hate to say it, but a lot of folks are going to need to look for new housing if the current climate change trends continue.
Impact of Climate Change on Canadian Home Insurance Policies
Unexpected flooding is a serious risk to property for Canadians across the country. Some might say, “I’m not worried, I have insurance.” But does your insurance actually cover full-on flooding or does it just cover excess water from a leaky roof or pipe? If your insurance does cover flooding, do you have enough coverage to insure against significant damage? As a real estate lawyer, I know how important it is to read the fine print, and some people might be surprised that they don’t have the amount of coverage they thought.
According to Craig Stewart, Vice-President of Federal Affairs at the Insurance Bureau of Canada (IBC), “[T]he fact is that most Canadians are not financially protected against flooding, and they may not realize it. Climate change is not a future threat – it’s happening now. Over the past three decades we have seen an increase in insured damages, and it is up to all of us – the insurance industry, governments and citizens – to do our part in responding to the effects of climate change.” The IBC also says that for every $3–$4 of damage there is often only $1 of insurable coverage. Ouch!
Insurance claims have been rising and that means insurance companies are paying out more claims. More claims equal more dollars and less profit. Insurance companies, like all companies, are in business to make money. If insurance claims and payouts rise, premiums increase.
As an example, let’s take the floods of 2013 in Alberta. Calgary was particularly hard hit, but the full impact across the province has been assessed at approximately $5 billion. Coupled with the recent and disastrous fires in Fort McMurray and Slave Lake, insurance companies aren’t very happy with their profitability in Alberta. Anecdotally, clients have said that on receipt of their renewal notices from their insurance companies, some premiums have doubled. Yes, doubled! And, along with substantially increased premiums, coverage has been declining. So, Albertans may be paying more money to have diminished coverage.
Home Insurance Coverage Against Flooding and Water Damage
Lastly, and very importantly, you have to know what insurance coverage you actually have. The last couple of years, the annual renewal information on insurance for my home in Edmonton has referred to, “changes to serve you better.” On a detailed reading of the policy itself, however, water damage coverage has more limitations, deductibles have increased, and premiums have gone up.
Despite being a lawyer, I still found it difficult to read the correspondence from my insurance company and reconcile it with the changes to my policy. Insurance policies are just very complicated and tough to read. Still, it was worth my time because the changes do not serve me better—despite what the letter from my insurance company suggested.
To get some reassurance, you might want to make an appointment with your insurance agent and have a face-to-face meeting. Have a general discussion about insurance trends and a particular discussion about you, your policy, any changes to your policy over the last 3–5 years, and what those changes mean to you. Get some real, common sense discussion and coaching from a trusted insurance agent.
Make sure you understand what coverage you have now and whether or not, between you and your insurance agent, you think that coverage is adequate. If it isn’t adequate, can you purchase extra coverage by paying an increased premium? Remember, typical insurance policies often come in three categories with increasing amounts of coverage: basic, broad, and comprehensive. Sometimes comprehensive coverage doesn’t cost that much more.
Implementing the suggestions above and getting a firm grip on your insurance coverage will go a long way toward diminishing insurance surprises and unexpected losses.
For all your Alberta real estate legal needs, Contact Barry now!