How will Canada’s national flood insurance program work?

If that weren’t enough cause for concern, the government says more extreme storms, rapid snow melt and rising sea levels due to climate change will increase the risk of flooding from coast to coast. Flooding can hit home, literally. It’s also not covered on your standard home insurance policy, which is why in March 2023 the federal government announced $31.7M in funding over three years to create a low-cost flood insurance program, aimed at protecting households at high risk of flooding. 

How does overland flood insurance currently work in Canada?

At present, very few insurers offer coverage for “overland flooding,” which refers to coastal flooding or storm surge (when stormwater systems are unable to handle heavy rainfall). For this type of coverage, you can purchase overland flood insurance as an endorsement or rider—meaning, as an add-on to your basic home insurance policy—says Craig Stewart, vice-president of climate change and federal issues at the Insurance Bureau of Canada (IBC). However, if you live in a flood plain or a low-lying area on the coastline, you typically cannot get an overland flood insurance endorsement, he says. 

Why does Canada need a national flood insurance program? 

At present, there is no national flood insurance program in Canada, and home owners who live in a predictable flood zone are considered too at-risk to buy private flood insurance. In the past, flood victims in these regions have been able to access disaster assistance from the federal government, but those claims can take years to settle, says Stewart. 

A solution could be to relocate homes out of flood-prone areas, but that is difficult in practice. Many areas in Canada suffer from a shortage of housing, and relocation can have severe impacts on communities, especially Indigenous peoples. 

Flooding is the dominant climate threat facing Canadians today, according to the IBC. Studies show it’s the most expensive hazard facing urban properties. “Water-related losses have become the principal source of property insurance claims, surpassing both fire and theft,” says a study on the effects of climate change and flooding from the University of Toronto. 

Some 1.5 million home owners live in areas that are at high risk of floods, according to numbers previously cited by the IBC, and heavy flooding can be ruinous. In the last few years alone we’ve seen devastating images from floods in Hope, B.C., and Hants County, N.S. 

The government’s objective for the national flood insurance program is to provide coverage to all Canadians, including those who can’t buy flood insurance even if they were willing and able to pay for it. “It’s a good thing for those in areas where it will predictably flood by providing them comprehensive insurance and therefore financial security,” Stewart says.

How will Canada’s national flood insurance program work? 

The target up-and-running date for Canada’s national flood insurance program is April 1, 2025. Once implemented, all home owners will be able to buy flood insurance, including those who live in high-risk zones. The premiums of home owners in high-risk zones will be subsidized by the government. 

“A national flood insurance program will ensure that those who are at high risk will pay for the risks they face, but [the premiums] will be capped,” says Stewart. “That way, flood insurance will remain affordable for them and it’ll be partially subsidized.” The arms of this program include reinsurance (i.e. backstopping) through a Crown corporation and a separate insurance subsidy program.

To be clear, flooding in the case of the national flood insurance program refers to overland flooding, not water damage from sewer back-ups (which, by the way, is not typically covered under standard insurance) or a burst water pipe (which is typically covered).

At present, the insurance industry and the federal government are working together to explore different payment models and coverages. “Premiums will be based on risk and the cost of the home,” Stewart says. “We’re still working out what that calculation will look like.”

So while there is no official word on premiums and coverage, a government task force has put forth some model scenarios involving subsidies in its Adapting to Rising Flood Risk report. It lists $3,000 as the capped yearly premium for $300,000 in coverage; however, it’s worth underlining these are only theoretical models and based on 2020 dollars. 

What about other climate-related disasters? 

Earthquake insurance is coming next, Stewart says. There’s low insurance pick-up in some areas of the country that are at high risk of earthquakes, such as Quebec, and there are gaps in coverage in British Columbia, he says. “We’ll expand [coverage] to include earthquakes, and [programs] will be designed to include other perils such as wildfire in the future.” 

The national flood insurance program is an early sign that the federal government wants to work with insurance companies to help home owners stay in place, as the threat of climate-related disasters grows. It’s about moving from a reactive disaster-assistance model to a proactive insurance model.

Read more about home insurance:

• Does your home insurance cover water damage? Probably not

• Home insurance: Are you covered for wildfires, floods and other climate-related disasters?
• Does home insurance cover wildfire damage?
• “I discovered water damage in my home. Will insurance cover me?”

About Helen Racanelli

Helen Racanelli is a writer and independant insurance advisor based in Toronto. She writes a Substack humour newsletter called Helen Avery.

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