What are farmers, government and the insurance industry doing to prepare for increases in the cost of weather-related disasters in Alberta?
Farmers in southern Alberta have been hit by fluke floods twice in the last two years. What’s going on, and what's being done to mitigate the risk
by Judy Monchuk
Robin Batten remembers waking up to a neighbour banging on her door, screaming that water from Ross Creek was threatening the family’s farmhouse. A flash flood caused by heavy rain had turned the meandering creek into a 150-metre river that crushed a bridge and pushed trees, grain silos and more than a dozen other farm buildings across Batten’s property near the hamlet of Irvine, east of Medicine Hat.
Illustration Robert Carter
“We were stunned when we first saw the water,” she says. “There was probably five to eight feet flowing on our pasture, and waves on the water were two to three feet high.” The flooding hit Batten’s property in June 2010. But more than a year and a half later, she still sees evidence of the disaster when she looks out her window. Dead trees are scattered across the land, stuck in a flat of muck. Half-crushed buildings, which still house tractors, remain wedged in sediment. They are a visible reminder that the June 2010 deluge was not covered by insurance, meaning the farm will absorb the hundreds of thousands of dollars in damages. And that’s not the end of Batten’s additional costs. Her 75 cows weren’t able to graze in 2011 because the silt-soaked ground was too soft to support their weight, so feed costs had to be added to her list of unexpected expenses.
The cost of weather-related disasters and catastrophes is growing in Alberta. The 2010 floods that soaked southern Alberta and Saskatchewan caused $956 million in damages, according to figures from the Canadian Disaster Database. Then, a year later, spring melt from a higher-than-normal winter snowfall flooded more properties and basements, some of which were still awaiting repair from the previous spring. In 2011, Canada’s insurance industry paid out a record $1.3 billion in catastrophic losses.
“Our business is dramatically impacted by climate and so we have to be factoring it into our models,” says Shawn DeSantis, executive vice-president and RSA Insurance Canada, which is part of the global RSA insurance group. He likens the flooding in Medicine Hat to weather events his company’s actuaries account for around the world. “One of the benefits that you get from being global is that we’re seeing those incidents occur in all parts of the globe on a more frequent basis: there was extensive flooding in Ireland [last] year, there was the earthquake in Japan and there was extensive flooding in New Zealand.”
Alberta is getting hit particularly hard. According to the Insurance Bureau of Canada, six of Canada’s 10 largest weather events in the last five years took place in the province. “We’re seeing weather events that occurred once in 40 years now happening [on average] once every six years,” says Gregor Robinson, the insurance bureau’s senior vice-president of policy and chief economist. The long-term expectation is that massive losses from extreme weather events will raise business and property insurance premiums.
In 2010, the Toronto-based Institute for Catastrophic Loss Reduction and Swiss Re, the world’s second-largest reinsurer, drafted a discussion paper on natural disasters. The research examined insurance for floods in four countries and concluded that overland flood insurance should be available to all Canadian homeowners.
“Quite frankly, we’re in the position where a very large number of consumers think they are covered and then find out they’re not,” says Sharon Ludlow, president and CEO of Swiss Re of Canada. “That’s quite a wake-up call that consumers don’t want and shouldn’t need, if this is done properly.”
The Canadian Disaster Database shows that floods are the most frequent natural disaster in Canada. Insurance companies don’t cover flood damage beyond sewer backup, leaving governments to step in with disaster aid – and unlike insurance coverage, which replaces damaged items, disaster aid is intended to help people get back on their feet with the bare essentials.
The Swiss Re paper recommended bundling flood coverage with other risks in homeowner policies, an option already in place in the United Kingdom. This includes creating a flood-mapping system that identifies the areas most susceptible to risk and allows the insurance industry to have a reliable base of information to set policy rates. Any proposed insurance model would likely need to be adapted and applied at the provincial level, since current approaches to flood management vary across Canada, including regulatory standards that define flood plains in each province.
“Provincial governments absolutely must play a part,” Ludlow says. “We can’t have a regime where the risks are not identified and generally available to both the consumer and the industry.”
Other considerations include land-use controls, tighter building codes and improved infrastructure such as protective dykes. New development would be discouraged in flood-prone areas, and homeowners would be urged to take flood-mitigation measures to protect their property.
But if flooding is bundled into insurance costs, it will add another dimension to insurance premiums already affected by climate change. “We have historically always built some form of weather charges into our pricing, but that weather charge is growing dramatically as we continue to price our business. Every year, we seem to be reacting versus pricing it properly,” RSA’s DeSantis says.
He says RSA’s pricing is based on a five-year trend and reviews are done on a quarterly basis. “For the last five years, the challenge for our industry has been to get that [weather charge] right, and every year there come more surprises in terms of what that number would look like.”
– Robin Batten, farmer
In the spring of 2010, the Alberta government pledged $203 million for disaster recovery to help flood victims clean up in southern Alberta, but the cheques arrived slowly. By late November 2011, $7.62 million had been paid out to farmers, businesses and individuals in Irvine. More than 99.8 per cent of residents with claims have received a first cheque or had their claims resolved. But those figures provide little comfort to some locals, says Gord Cowan, owner of Cowan Agencies Ltd., an insurance broker in nearby Medicine Hat. Cowan says aid distribution has been excruciatingly slow and it has been hard to watch people struggle. He notes that three families were still out of their homes as of late 2011.
“From what I saw, and watching the toll this is taking on someone’s family, it’s not that different from what you see in Bangladesh,” Cowan says. He’s a director at large with the Insurance Brokers Association of Alberta. “There really has to be a better way to look after people. This is something you’d never expect in a province like Alberta, one of the richest places in the world.”
Alberta Municipal Affairs spokesperson Wendy McGrath says a review of the disaster aid program began in November, with data expected to be complete by early spring.
“It will look at what’s working well and what areas can be improved,” McGrath says, adding that the rebuilding process is often long and difficult. “For anyone who has been through a disaster, the recovery process is difficult by its very nature.”
Rancher Geoff Watson received $73,000 through the disaster aid program to fix major washout damage and repair spillways and other dam projects. But he knows others who were not as fortunate: “I know people who used the exact same pump as I used to drain a flooded area and never got a dime.” Finding contractors and tradespeople to help with repairs and cleanup has been difficult, inflating costs and extending the aggravation. Many complained that their property damage was documented repeatedly by up to five different adjustors and that there was no consistency over whose damage qualified for compensation.
There have been no detailed talks between the insurance industry and governments, but the issue has caught the attention of Canada’s top politicians. In July, Canada’s premiers agreed to support Ottawa’s efforts to create a national disaster-mitigation funding program that would cover events such as earthquakes, fires, floods and storms.
Any plan would be welcome news to southern Albertans in the agriculture industry. In the last decade they have endured drought, mad cow disease, massive windstorms, crop-destroying hail and now flood. Watson isn’t sure if there is some message he’s too stubborn to accept. “In ranching and farming, we pride ourselves on being able to carry on no matter what,” he says, “but you start to wonder.”
Some have been quick to blame extreme weather on global warming and climate change. Research scientist David Sauchyn isn’t sure, but he’s ready to find out. Sauchyn is overseeing a five-year, $2.5-million study examining climate and natural disasters in southern Alberta, Saskatchewan and four countries in South America. “We’ve chosen the prairies because they have the most extreme weather patterns in the world,” says Sauchyn, a geography professor at the University of Regina and researcher with the Prairie Adaptation Research Collaborative.
Indeed, Alberta’s droughts, floods and hailstorms give the province a prominent place in the Canadian Disaster Database’s list of the country’s worst calamities. Sauchyn notes that the volatility and variability of the prairie climate is natural. His team will examine data dating back 1,000 years to determine what has changed, as well as using climate models to predict the next 50 years.
Researchers will interview farmers, ranchers and businesses for insights on how best to cope. The plan is also to examine how communities are designed, looking for improvements to farming practices and public policies that governments can implement to reduce risk and damage.