Proceedings of the Standing Senate Committee on
Energy, the Environment and Natural Resources
Issue No. 35 - Evidence - November 2, 2017
OTTAWA, Thursday, November 2, 2017
The Standing Senate Committee on Energy, the Environment and Natural Resources met this day at 9:05 a.m. to continue its study on the effects of transitioning to a low carbon economy.
[Translation]
Senator Massicotte: Welcome to this meeting of the Standing Senate Committee on Energy, the Environment and Natural Resources. My name is Paul Massicotte, senator from the province of Quebec.
Before we begin, honourable senators, I would like to ask for authorization to chair the proceedings today, since the December 7, 2016 motion expired on October 31. I point out to the honourable senators that, if authorization is not granted, we will have to get the matter settled.
[English]
Does everyone agree to keep on meeting?
Hon. Senators: Agreed.
[Translation]
Senator Massicotte: I wish to welcome the members of the public who are with us in the room and those watching us on television. As a reminder, please note that the committee hearings are open to the public and can also be viewed through the webcasts on the website at sen.parl.gc.ca. In addition, you will find more information on the schedules under “Committees” on the Senate website.
I invite the senators around the table to introduce themselves, starting on my right.
[English]
Senator Richards: David Richards from New Brunswick.
[Translation]
Senator Galvez: Senator Rosa Galvez from Quebec.
[English]
Senator MacDonald: Michael MacDonald from Nova Scotia.
Senator Wetston: Howard Wetston, Toronto, Ontario.
Senator Patterson: Dennis Patterson, Nunavut, Iqaluit.
[Translation]
Senator Massicotte: I would also like to introduce our staff, beginning with the clerk, Maxime Fortin, and our two Library of Parliament analysts, Sam Banks and Marc LeBlanc.
In March 2016, the Senate mandated our committee to examine the effects, challenges and costs of transitioning to a lower carbon economy. The Government of Canada has pledged to reduce greenhouse gas emissions by 30 per cent below 2005 levels by 2030.
Our committee has taken a sector-by-sector approach to this study. So we have planned to study five sectors of the Canadian economy, which together are responsible for 80 per cent of greenhouse gas emissions. These sectors are electricity, transportation, oil and gas, emission-intensive trade-exposed industries, and buildings. Our interim reports on the electricity and transportation sectors were released earlier this year.
For our 56th meeting in this study, which will focus on the building sector, I am pleased to welcome, from the Insurance Bureau of Canada, Craig Stewart, Vice-President, Federal Affairs, and Nadja Dreff, Director, Economics and Assistant Chief Economist.
Thank you for agreeing to appear before our committee today. I invite you to make your opening remarks, after which we will go to questions and answers. The floor is yours.
Craig Stewart, Vice-President, Federal Affairs, Insurance Bureau of Canada: Thank you and good morning, Mr. Chair and members of the committee.
[English]
Thank you for the opportunity to discuss with you the present costs of climate change as context for the need to transition to a low carbon economy.
Increasingly in recent years, our industry has been vocal about the need to regard climate change not as some ephemeral future threat but as a reality whose dangers are already upon us.
In a report published this past June as part of the U.S. National Climate Assessment, as mandated by the U.S. Congress, scientists across 17 U.S. federal agencies have articulated the linkages between the severe weather that we are now witnessing and climate change. They project with high confidence that temperatures in North America will continue to rise and that heavy precipitation events will continue to increase in both frequency and intensity. Although it is difficult to link any single event, they found it is likely that the severity of the most damaging severe weather events we are now observing is attributable to these projected extremes. In other words, the events themselves may have happened anyway, but their effects would not have been as severe.
I represent the Insurance Bureau of Canada, the national trade association that represents 90 per cent of the market of property and casualty insurers providing home, car and business insurance in Canada. Our members employ about 125,000 Canadians. We have a total premium base of $53 billion and on aggregate we contribute about $9 billion in taxes and levies to federal, provincial and municipal governments.
Last year, insurers paid out $36 billion in claim settlements, $14 billion of which were paid for residential and commercial property insurance customers alone.
We are in a unique position to quantify the escalating costs of climate change to Canadians. Allow me to show you what the global picture looks like referring to the slide deck in front of you.
[Translation]
I am sorry. I did not have time to translate the presentation, but all these images will be available in French if necessary.
[English]
Slide 2 from our member company Munich Re shows global trends in catastrophic loss events. There is a clear upward trend in insured loss events globally. Please take note of what is driving them. Geophysical events, which are those at the bottom in red, are typically earthquakes. Climatological events are typically droughts and wildfires. Those are in orange ones at the top. But the graph is dominated by the blue and green portions of the bar. These are meteorological events, intensive hurricanes, convective and winter storms and hydrological events flooding overland from a nearby lake, river or ocean, and these drive most of the losses globally. As this graph shows, globally water is the real problem, not fire.
This is also true in Canada. Seventy-five per cent of government-backed losses paid out through disaster financial assistance arrangements are for flood claims. Despite the recent wildfires in British Columbia and Fort McMurray, Alberta, it is flooding that we regard as the real problem. I’ll come back to that in a minute.
Slide 3 shows the trends in Canada over the last 35 years. These are the financial numbers for insured losses. You can see the outliers: the 1998 Quebec ice storm, the 2013 floods in Calgary and Toronto, and the 2016 wildfire that swept through Fort McMurray. However, the overall trend is similar to the global one. Whereas throughout the 1980s and 1990s we expected annual losses below $300 million a year, 2009 issued in a new benchmark. Insurers now expect losses from severe weather to exceed $1 billion a year and the costs will rise from there. These numbers are all presented in 2016 dollars.
Slide 4 shows the effects of that on personal property claims. This graph does represent claims from all sources, not just severe weather. However, the rise in overall claims is due to the increase in severe weather. Other sources of claims have remained static or even decreased.
Slide 5 shows how this correlates to the trend in values of premiums written. This increase is correlated to two underlying variables. First, Canadian homes and their contents have rapidly become costlier to replace; second, the risk to many of these homes has been increasing, and in insurance risk equates to price.
Slide 6 shows similar trends with respect to federal spending on disaster recovery. The Parliamentary Budget Office projects that over $900 million will be spent, on average, annually on disasters this decade, with the vast majority of that, over $600 million per year, on flood.
So what does all this mean?
We now expect a severe flood event somewhere in Canada every two to three weeks between April and November. This week, it was Wakefield and Chelsea, a 20-minute drive north of here. That area, the Outaouais, has now experienced three 1-in-100-year floods. The next slide has a picture of the main street in Wakefield on Monday.
In August, the city of Windsor experienced its second 1-in-100-year flood in two years, and of course we are all aware of the flooding that happened across the country this past spring.
It is our belief that a conversation about the transition to a low-carbon economy should focus on reducing emissions in order to curtail worsening climatic change and associated future losses. However, it should also consider building resilience to the events we are already witnessing.
If I can leave you with one statement, it is this: We are not ready. As a nation, we are especially ill-prepared for flooding. Too many people live and work in harm’s way and are unprotected physically, financially and socially.
In two weeks, Minister Goodale, Minister of Public Safety Canada, will launch a pan-Canadian conversation through a national round table on flood risk. All provinces, territories and national indigenous organizations will be represented, as will other experts in the area. We deeply appreciate his leadership. However, he can’t do this alone. He needs support.
In closing, the numbers I have shown you today illustrate why the work of your committee is so important. While Canada will face costs in transitioning to a low-carbon economy, the reality is we can’t afford not to.
Thank you.
Senator Massicotte: Thank you, Mr. Stewart.
Ms. Dreff, would you like to add anything?
Nadja Dreff, Director, Economics and Assistant Chief Economist, Insurance Bureau of Canada: No.
Senator Galvez: Thank you so much. It is important to have you here, because intuitively we all know what is happening, but we need experts to tell us the numbers. One thing that surprised me is that your numbers stop this year. I am sure you have projections. It will be important for this committee to receive your projections.
I just came back from New York, where I was invited by the American Society of Civil Engineers to talk about sustainability in infrastructure, so this is very interesting for me. I have a few questions.
First of all, until when will the claims be held back? How many years do you have money to pay back, because I’m sure you will start increasing the premiums. So what is the projection?
Second, what is your recommendation for reconstruction? Are we going to reconstruct in the same places using the same codes and the same materials? I’m sure you have a lot of expertise in housing and building. What are your recommendations?
Ms. Dreff: I can talk to the projections for 2017. What we can tell you is that data that you see in front of you is based on actual incurred claims, so claims that have happened.
Claims are inherently not predictable because they are a result of highly unpredictable natural causes and events. While individual companies would surely have reserves in pricing projections and other analytical data to have a better idea of what might come, no one knows for sure. So we represent the industry as a whole, and we don’t have access to such projections.
Mr. Stewart: Global reinsurers do have sophisticated models they use to inform the rates that they charge to insurance companies. They have probably the most sophisticated work on projections. We can certainly look into — it would probably be global — projections from reinsurers for you, if that would be helpful.
Senator Galvez: What about the buildings?
Mr. Stewart: About the buildings. We’ve become increasingly vocal in speeches across the country that it is irresponsible to put people in harm’s way or to put people back in harm’s way in the case of a flood. A case example that we point to is in 2016. In Fort McMurray, there was a community called Waterways. Many of the homes in Waterways were burnt down. Waterways is so named because it’s in a floodplain. Unfortunately, permission has been given for homes to be rebuilt in Waterways. So although they may not face fire next time, it’s quite possible they will face a flood.
Municipalities rely heavily on a limited tax base, and often homes that are close to water are the most desirable to live in, so there is pressure to allow that development to occur. However, Ontario showed great leadership back in the 1960s in taking the decision for municipal development in floodplains out of the hands of municipalities and putting it into conservation authorities. As a result of that decision, Ontario has the lowest draw per capita on federal disaster financial assistance arrangements — only 9 per cent.
Provinces do have the levers to inhibit redevelopment in floodplains. We’ve seen Quebec, in the past year, struggle with that decision but come to the right decision over the course of the summer to not allow redevelopment in areas where people are prone to be flooded again.
It is a difficult political decision, but we think, given what we’re seeing and what is to come, it is the decision that needs to be made.
Senator MacDonald: Well, my question is along the same lines. We see it all the time. People build on low-lying land. Everyone in the area knows it’s a floodplain that has always existed. I’m curious, how much of this increase is attributable to climate change, and how much is really attributable to bad building practices and putting houses where they shouldn’t be?
I see people in the Saint John River Valley — it’s a huge floodplain — and they get flooded, and they will say that the government has to do something. Well, what are you doing on a floodplain? I don’t understand the rationale at times. How much of this is due to climate change and how much is due to building practices and urban sprawl?
Ms. Dreff: I can perhaps talk about climate change and how insurers view the severe weather events and their future incidents.
What we can tell you is that there are several reputable studies that do link warming in climate to an increase in extreme weather events such as floods, storms and wildfires, but it is extremely difficult to link any single event to climate change. Furthermore, it’s very difficult to link any particular set of claims that have been incurred to climate change.
I know it’s not an ideal answer, but it is something that insurance companies struggle with. It would certainly be helpful to have these projections of what climate change means in terms of insured losses. The best we can do is use the models that Craig has spoken about and set aside enough capital and reserves as we do. With respect to building in flood zones, Craig can speak to that.
Mr. Stewart: We have a number of homes that have been grandfathered in over decades and even a century of developing in floodplains. The legacy of those decisions is that with the increase in severe weather events, the increase of flooding coming from rivers and lakes, those homes are now being affected.
Whether or not you ascribe the increase in severe weather to climate change, our reality is that we now expect that there will be frequent severe weather events. What used to be a 1-in-50-year event may now be a 1-in-20-year event. As I mentioned, this area north of us has had three 1-in-100-year events in 10 years. We believe that those trends are going to continue. Given that, we believe that it’s now irresponsible to permit further development in floodplains, and, as an industry, we believe that further new development in floodplains should be restricted.
To answer your question directly, based upon the modelling, we expect that severe weather events will increase in intensity and frequency. There will be further flooding in floodplains. Yes, there are more buildings there, and we need to limit that increase.
Senator MacDonald: With respect, neither one of you answered my question. I asked you how much of the problem is because of the constant construction of housing in areas where they shouldn’t be constructed, not necessarily the weather. If a place is on a floodplain and it floods, you’re going to get water. Whether it’s a storm of the century or a storm of the weekend, if you’re in the wrong place at the wrong time and the house is built there, it shouldn’t be . How much of these claims are attributable to houses that are just built where they shouldn’t be?
Mr. Stewart: Floodplain claims represent about 20 per cent of the overall flood. About 80 per cent are pluvial claims, which are claims that result from poor storm water drainage. Inundation that comes from a floodplain is somewhat predictable to our industry. There are homes in the floodplain; they shouldn’t be there. But there are places in an urban setting, in a city, where just the aggregate of asphalt and pavement and then poor storm water systems that weren’t designed for this water load and they represent about 80 per cent of our overall claims cost. That is a larger portion of the problem, and those storms are quite unpredictable because we don’t know where a cloudburst is going to happen and dump a lot of water in a short period of time and overwhelm that system. So it’s both.
To answer your question, floodplains account for a predictable portion of the problem, but to solve it all, we need to look at storm water upgrades in urban settings as well and allocating dollars to upgrade them, given our new models for the amount of water they are now expected to receive.
Senator Wetston: Thank you for coming today. I wanted to ask you about IBC and its role. It’s my understanding that your primary role in this area, besides what you talk about today, is understanding adaptation. Where do we go from the disaster of climate change, greenhouse gas, and their impact on the environment, should we agree that that is what is occurring, to the role that you have and working with your industry regarding adaptation to this new environment?
Mr. Stewart: Our industry has been focusing heavily on adaptation. Over the last few years, there has been a lot of focus on carbon pricing and mitigation, which we think is an important conversation. But at the same time, we believe that climate change is upon us, that the changes in severe weather are already affecting Canadians, and that Canadians who live along the banks of the Ottawa River and have no idea they’re at risk and who lose their life savings as a result of losing their house to an unexpected flood, we believe that shouldn’t be happening in this country.
We have been engaged very heavily, as an industry association but also through our members, in a number of ways. One is that we are focused in conversations around disclosing climate risk, climate disclosure with excellent work that has been done recently by Mark Carney and Michael Bloomberg through a task force and climate disclosure. We’re actively involved globally and locally in that work.
Second, one of our members, Intact, funds the Intact Centre on Climate Adaptation at the University of Waterloo, which has been doing excellent work on helping to educate consumers about the risks facing them and helping empower them to take the steps they need to.
One of the things they’re looking at is a home evaluation program. Just as we have done for energy efficiency, where we’ve sent home inspectors in to assess how you can increase energy efficiency of a residence, you could basically do an audit, if you will, of the vulnerability of a residence to a flood and take some simple steps. Thereafter, that home inspector can say, “Here is a checklist of 50 things. Here are the 20 things that pertain to you. This is what you could do.” In their estimation, most homes could be made flood proof for a very modest investment of $1,000 to $1,500.
This is the sort of innovative approach that we have in mind. If we are thinking of a new national home retrofit program, for instance, or a new national building retrofit program that is focused on energy efficiency, we think that you could couple it with a resilience portion and do both — help increase efficiency but also help make it more weather resistant. We have been talking to Natural Resources Canada about that. There is a range of efforts that our industry is undertaking in order to try to address climate adaptation right now.
Senator Wetston: You have this community impact analysis tool that I think you have developed. It’s not a forecasting tool, though, is it?
Mr. Stewart: No.
Senator Wetston: It is not a model that you are using to forecast climate risk, as Senator MacDonald was talking about.
I want to ask you about the forecasting model, and Senator Galvez was getting at this issue. I think it would help a great deal to understand a bit more clearly how your models are developed — that’s probably more industry than your organization, but if you could ask your industry members whether they might be prepared to share that — to understand the components and risk elements in your models with respect to your belief that climate change is having an impact in terms of flooding and other risks. It’s important to connect a belief in climate change to the risks associated with that.
We know that models are a starting point, but judgment is key. Are you able to provide to us — or perhaps Ms. Dreff can — a little more information on the nature of these models, or are you able to simply provide to the clerk more information so we can understand the modelling better? Can you help us with that?
Ms. Dreff: We would be more than happy to dig further into exactly how the sophisticated insurance companies that we represent, and reinsurers in particular, view climate change and long-term climate change models.
The sad truth is that the impacts are very much into the future. This is a long time horizon, whereas every business — customers included — has very much short-term horizons for their planning and decision-making purposes. That is why Craig has spoken about adaptation and resilient infrastructure as being very much the key as we look to meeting our emissions targets down the line and well into the future.
As I said, reputable studies have made the link between warming climate systems and more severe and destructive weather events that we have also seen in the numbers. However, I think science is not quite yet there to tell us exactly what will happen and when, and I’m not sure whether we’ll ever be that precise. As you mentioned, models are models, and they are sort of the best we can come up with. There is still a lot of judgment, and insurers are there. Their primary purpose for being is risk transfer from other sectors of society.
Senator Wetston: To follow up: Behaviour is an important part of these models. If you’re going to build on a flood plain, that’s behavioural. If climate change is here, it’s a long-term risk. It’s important for us to understand the components of that. I think you might agree with me on the behavioural aspect of this.
Mr. Stewart: Absolutely, and we can. The most sophisticated climate models are developed by the reinsurers. Swiss Re and Munich Re are the two that have the best models for Canada. We would be happy to share them with you. They have published in great detail about how their climate models are aggregated. We would be happy to forward that material to the committee.
Senator Massicotte: If you could send that to the clerk, we can then circulate it.
Senator Wetston: Would that be acceptable to you?
Senator Massicotte: Yes.
Mr. Stewart: One more point: The Ontario government has recently developed an Ontario climate modelling initiative. This will create a centre of expertise that I believe will be the best in the country for doing exactly the type of scenario modelling that you’re talking about. It’s being led by John Godfrey, which is probably not a surprise. It has now been funded. Because most of our modelling is global and we are relying upon the reinsurers, this will help to advance the practice within a Canadian context.
Senator Patterson: You make the strong point that we are not ready for emergencies. Could you give examples of the current lack of preparation for emergencies and how these might be addressed?
Mr. Stewart: Certainly. There are essentially four stages of emergency response. There is the preparedness side, which includes mitigating the risk from the outset. Then there are the response and recovery stages. We are not very good at any of them, frankly.
The key to preparedness is risk identification, making sure that people — Canadians and communities — are aware of the risks they face. In a recent study done by the University of Waterloo, released in the spring, only 6 per cent of Canadians who lived in high-risk zones, flood plains, were aware they were at high risk. Until you address that, you will not incent that behavioural change we are talking about. That’s number one.
Second, what we believe happens during an event is that communities have a reticence to ask for help. During the recent flooding, essentially it was volunteer fire departments and, to a limited degree, the Red Cross that came to people’s aid. We had pregnant women sandbagging their own homes all day before losing their home. That shouldn’t happen in Canada. We have an Armed Forces base just north of here. We should not be as reticent as we are to call for help, and the help should have been there.
We are also not great at deploying volunteer resources. There were 670 people who volunteered to help and who registered with the City of Ottawa. Our understanding is that they were not deployed as well as they could have been. We have to change the culture.
On the recovery aspect — we’ve already spoken about this — we can’t put people back into harm’s way, back in the same place once they have faced a disaster. We have to make those difficult political decisions.
Senator Patterson: You mentioned that about 6 per cent of Canadians are not aware of being in a risk area. Have regions of Canada that are at risk from severe weather events been identified?
Mr. Stewart: From a claims perspective, we can identify where the most-at-risk places are, those that tend to have the most draw — based on claims, but also on government resources — with regard to disaster financial assistance arrangements. Over and over again, it is the Prairies that are the most-at-risk area in Canada for severe weather. Particularly Alberta, Saskatchewan and Manitoba — whether it’s fires, floods, hail or windstorms — are the areas of the country that face these events the most. We all face these events across the country. We have seen a lot of events in Quebec this year, and an event in Cape Breton last year, and we talked about the Saint John River in New Brunswick, but the Prairies are the area of greatest risk overall.
Senator Patterson: You talk about municipalities’ responsibilities for making tough decisions about rebuilding. We all saw the horrifying situation in Calgary. Did the City of Calgary stop people from rebuilding in the flood plain? Did they have the courage to do that? Is that a good story?
Mr. Stewart: It is a good story. Particularly along the Elbow River, there were areas where they said you could not rebuild; and then there were other areas where they said, “If you do rebuild, you will have to protect yourselves, because we will never bail you out again.”
Calgary is a good-news story, and High River is an even better good-news story. High River, Alberta, which also faced great inundation at that time, has not rebuilt. They have turned the most flood-prone area of that city into a park and said they will not put people there again. In fact, it is a terrific example we can point to in terms of how you should make those hard decisions after a catastrophe.
Senator Patterson: You intrigued me when you said that for $1,000 or $1,500 a homeowner can mitigate flood risk. Can you give some examples of what you can do?
Mr. Stewart: There are simple ones. There is a backwater control valve that you can put into your basement that keeps water from coming back up when the water table rises through your sewer pipes into your house. You can improve your drainage around your house to make sure that water on your property is not draining into the house. You can make sure you have the correct downspouts that are also draining water away from the house. You can seal the cracks in your basement. There are a number of simple measures that a homeowner can take on their own.
Senator Massicotte: That is $1,500 right there.
Senator Richards: My question has been asked by Senator Patterson and Senator MacDonald, but I will give a historical perspective. People for 100 years or more have been told not to build in the low-lying areas of Fredericton where I come from because of the floodplain. The biggest flood we faced was in 1972, which washed away bridges. The greatest storm was the Escuminac disaster in 1959. That was the biggest storm in the bay. The biggest fire was in 1825, with 10,000 square miles burning in 10 hours. The Mi’kmaq, the Acadian and the English living there didn’t associate that with climate change. I’m wondering about the threads to the link here and how strong and provable they are.
There is a certain underlying sense of police legislation here that I don’t like. How certain are you about the links to climate change and all this? Of course the fire in New Brunswick in 1825 was far greater than the fire in Fort McMurray, although the fire in Fort McMurray was certainly devastating. I’m trying to figure this out.
Mr. Stewart: We have always had these events. We’ve had wildfires and floods before, and we’ve had severe floods in the past as well. With the frequency of severe floods and the intensity of severe flooding, as Nadja mentioned, it’s impossible now to say that that event was caused by climate change. It’s the question of the trends.
I cited a U.S. report released this summer, and it was basically a climate assessment team by experts across 17 different agencies. They probably went the furthest in their assessments of making those linkages as anyone has. It is a dry read but a fascinating read in that it does say the atmosphere is warming, and a warm atmosphere will hold more moisture and it will slow down the jetstream and, as a result of those things coupled together, you will end up with slower-moving storms that can dump more water on one place. That’s the linkage that has been made.
Senator Richards: I realize that. I am trying to figure out how you conclusively link that with carbon emissions and how the government tends to believe that if we go to low carbon that is going to save us from these storms, floods and fires. I’m not entirely sure that the connection is there. At least it has not been proven conclusively to me, but I might be dense here.
Mr. Stewart: It has not been proven conclusively, no. I don’t know if it ever will be proven conclusively. All we can say is that there appears to be a correlation with the models, so we believe the linkages are there.
Senator Massicotte: I’m looking for details. In your presentation, you said scientifically it is likely that there is a relationship. To me, that means 51 per cent. Could you be more specific? I would like to see things with 97 per cent certainty. What is a better word than “likely”? That means it could be hot or cold.
Mr. Stewart: In the report they have quantified exactly what that means. I believe the number they used was projected with high confidence. “High confidence,” I believe, is around the 80 per cent.
Senator Massicotte: That’s better than “likely.”
Mr. Stewart: That is better than “likely.” Yes.
Senator Massicotte: We talked about people moving back to higher-risk areas, but nothing stops you from saying, “I will not insure those homes.” When the mortgage lender decides not to give you a loan because of the risk, or the insurance companies stop insuring it, the alarm bells finally will start ringing. You cited examples where people are foolishly going back. Are you insuring those homes?
Mr. Stewart: That is a great question. We are a competitive market. There are over 200 insurance companies that are voraciously striving for market share. In that competitive environment, some insurers may take the poor decision of going back and insuring those homes. They act independently. They will take measures, however, in order to reduce their exposure. They may cap their exposure and say, “Yes, we’ll insure you, but the most you can claim is $10,000 to $20,000 if an event occurs.” They might have very high deductibles that they put on those properties. One company has said that they are going to insure everybody but the price will accurately reflect the risk, so if you want insurance, it will cost you $10,000 to $15,000 a year.
Senator Massicotte: I presume the insurance people are rational, logical people. Let’s make that assumption. That means that those companies who decide to insure those homes with those conditions have obviously said the probability is such that they will make money on this insurance plan. So it takes away from your argument because they have said, irrespective of the higher risks, that they can make money from it. So it seems to take away the alarm bells when you say don’t do this.
Mr. Stewart: I’m not sure if those homes, for instance in Waterways, are insured at this point. I’m saying it’s possible they might be. But the reality is companies have actuaries that see the world in different ways, and they may take particular strategies to say this will be a loss leader for us going in here, but we will subsidize it elsewhere. They each are taking different strategies and approaches.
Right now it’s a mess. The overland flood insurance area is very difficult. That’s why we’re in conversations with Public Safety Canada and with provinces because right now provinces are backstopping and, frankly, insuring these people without collecting any premium. So the question is how you add some rationality to the system because there is no rationality.
Senator Massicotte: My background is as a business person. The only comment to that is it’s rare for people or companies to purposely do something to lose money.
Senator Galvez: There are two things that I want to ask questions about. I live on the shore of the St. Lawrence, but I don’t live beside the river. I live on the other side. My neighbours are flooded every fall because the storm system is not designed to hold all the water that comes. I have been living in this house for 20-something years. They used to have the flooding every three years. Now it is every year. So we do see a relationship between more water, warmer weather and flooding.
When I bought my house, I asked the municipality if I could have the flood lines. They said it was confidential because there was money associated with the speculation of living close to the waterfront. After a lot of pressure and because of increasing floods, the municipality finally sent each one of us the flood line for our house — just the portion of our house — and said it was confidential.
I was at the municipality forum when this subject was discussed. The issue was collecting data to make these models reliable. My question is: Will your models be good projection models?
Ms. Dreff: I wanted to comment on data and say that that is really what we live and die by, clearly. But flood maps are something that Craig will speak to, and it’s certainly an initiative we have undertaken.
In response to some of the other comments, the way insurance companies work is that they can’t tell, with any level of precision, which house will be flooded this year or even next year. They work with pools of policyholders, and their projections are based on those pools — so a lot of large numbers — and, therefore, nobody goes willingly into a situation to lose money.
But climate change, as we’ve pointed out, is certainly changing how we look at the data. Furthermore, what we have seen in the past may not necessarily hold in the future, depending on what governments and what societies do at large in terms of emissions and how much further climate change is going to take place. I will let Craig talk about flood mapping.
Mr. Stewart: Insurers rely on three global companies that provide the risk data, the modelling. They assess premiums based upon these three companies — RMS, Aon and JBA — and those three companies have only started modelling in Canada since 2015. We are probably on the third iteration of their models; so they are rapidly testing, validating and improving them. They are getting better. They weren’t perfect; they are still not perfect.
How do you get that data in the hands of consumers so they know they are at risk in advance? We are working on that now.
The City of Edmonton and the City of Halifax have both released their flood mapping data publicly. The City of Edmonton was forced to. The provincial ombudsperson told them they had to do it. They did it, and Mayor Don Iveson has spoken out and said the sky didn’t fall; it did not affect property prices when we did that, not in a very grand way.
We believe there is no reason for a municipality to be holding that information from the public. People have a right to know.
Senator Patterson: You talked about the need to build resiliency to events, and I was struck by your examples of how homes can be flood proofed or damage reduced. The way you effect this change, I would think, would be through building codes. I’d like to know if the IBC is involved in recommending these simple and sometimes even inexpensive changes to building codes? Because that to me seems to be the way of building resilience.
Mr. Stewart: IBC is represented. We have a member on the climate resilience committee that was set up by the National Research Council to evolve the National Building Code. As you have heard, there is pressure to add climate resilience into that code by 2020. We are wholeheartedly supporting that however we can.
The problem is in implementation, of course. As you heard from others, the National Building Code becomes a ceiling, not a floor. We rely on other jurisdictions to emulate it and take it up, and then, of course, there are pressures from developers to dilute it or water it down.
We are hoping that does not happen with the climate resilience pieces. We believe there is good work being done to improve the code, but the hard work will be after 2020 and getting it implemented.
Senator Wetston: I’m glad that Senator Patterson asked the question about Calgary. Thank you for doing that. We have chatted about it.
I would like to talk about risk. There are risk premiums throughout society. It’s priced into a lot of what occurs. Senator Massicotte more or less addressed this issue.
We know we have a lot of geopolitical risks in our society today. Since the financial crisis of 2007, we have a lot of financial risks priced in. We have a lot of risks, whether you believe in climate change or not, that are starting to be priced in with respect to how we are dealing with these societal events. We have a lot of political risks south of the border, Korea and other places. It is a phenomenon today that might be more accentuated than at other times.
Let’s assume that climate change is not what is creating these issues around flooding and other matters. You were talking about the trend here. Tell me how you view risk in that context. For those who say it’s not a problem, for those who say it is a problem — and there are studies to demonstrate that — do you view that scenario of risk somewhat differently, or are you accepting the fact that is a real risk and you have to price it into how you are viewing the functions of the industry that you are representing?
Mr. Stewart: When the industry embarked on providing flood mapping, we invested in the first flood model on flooding across Canada. When we invested in it, we developed a hazard model that took actual data. At the end of the day, we are a field of actuaries that rely on real data. We took a look at historic claims data to drive our modelling.
Yes, we took a look at scenarios and projections. We looked at hydrology; we took a look at the land form, where water is likely to pool; and then we looked at the trends based upon what we were seeing from claims events.
The data you have seen in the slides are historic. It’s showing a trend line which is increasing, and it’s due more to water than anything else. That real hard data are what is informing our advocacy, if you will, on this topic.
There will be more water in our future. It will aggregate in certain places, some of which are predictable, and we should be making decisions based upon that hard data. You can take the causation completely out of the argument, but what we are seeing is that in Canada the incidence of severe weather is increasing and becoming more extreme, and we need to build in resilience as a result of that.
Senator Massicotte: I think it will be useful if you could tell us about what happened in Florida, reinsurance, and the Miami area. Are you aware of the scenario there whereby the private insurers basically got out of the state, and now it’s subsidized or guaranteed by the state, and people living in South Miami cannot get insurance anymore because of the risk of flooding?
Mr. Stewart: Again, we are driven by hard data. As you mentioned earlier, we are business people. We don’t want to invest in places where there will be an obvious loss. There are some places, including the coast the Louisiana, where insurers have said we will simply not go back there and insure homes in that area.
We in Canada have not got to that point yet. You can identify geography and say that insurers will not go there. I’m not sure why there is a difference at this point in time, but there is. Maybe our models are not hard enough to predict with certainty that losses will occur and therefore companies won’t go there. Yes, insurers in the U.S. market, which is probably more advanced, have stepped away and said that we are not going there.
Senator Massicotte: Thank you for your input and knowledge. It is much appreciated. We do expect to receive the future projection 30, 40, 50 years ahead to give us insight. That would be useful. Thank you, all of you, for participating.
(The committee adjourned.)