Canadians’ exposure to natural catastrophes is increasing with climate change, from wildfires to floods and even the small risk of tail end earthquakes. In the face of all of this it’s more important than ever to make informed insurance decisions in the face of climate change.
Despite efforts by the government to create awareness, some homebuyers and homeowners are still deciding to forgo insurance coverage or to knowingly purchase an insufficient amount of insurance based on their risk.
Insurance… damned if you do, damned if you don’t.
Governments and regulators in Canada are working toward better educating consumers on their property-specific risk, providing advice, ultimately ensuring that proper insurance coverage is obtained for the property they own or are purchasing.
Due to the increasing frequency and severity of natural catastrophes, it’s more important than ever as a homeowner to understand your insurance coverage options as well as the limitations/exclusions of the existing insurance you may have, and to recognize the financial risks associated with not having proper coverage.
Understandably, affordability issues are a factor when deciding on insurance coverage and at the moment the ability of insurers to freely set prices that reflect competitive market conditions doesn’t help.
Thankfully governments and regulatory bodies are considering market interventions to address protection gaps that exist where consumers cannot readily purchase insurance for a variety of reasons, including affordability.
The largest contributors to inadequate coverage against the risks posed by natural catastrophes is lack of knowledge in the following four areas:
1. The risks posed by natural catastrophes to a home/property.
If you’re not aware of the actual level of risk, you aren’t likely to seek insurance against that risk. Without fully understanding the impact of a natural catastrophe making the financial commitment of an insurance policy seem less worthwhile.
2. Available insurance coverage options.
A combination of availability and accessibility is instrumental in mitigating losses associated with catastrophic events. However, the value of these products can only be maximized if you are made aware of the choices when shopping for insurance by ensuring you have the information required to obtain the right coverage and are protected from the relevant natural catastrophes.
Most homeowner insurance policies cover a range of perils, however, earthquake and flooding (for example) are not normally included in homeowner insurance policies. When seeking insurance, the differences in coverage and the variety of options available can seem overwhelming, making it difficult to understand.
This is where it’s so important to have a good insurance agent who has the adequate knowledge or training on the various coverage options available so that you don’t end up purchasing inadequate coverage or forgoing natural catastrophe insurance altogether.
3. The content, coverage, and limitations/exclusions of the existing insurance coverage.
It is not surprising that consumers are generally unaware of the features of their insurance coverage, since they only use the product when faced with a disaster.
When overwhelmed with options we choose what seems like the best coverage option and trust that it will be adequate.
Sadly, the extent of coverage is further complicated by the fact that policies offer protection under certain circumstances and for specific events, but not others. For example, water damage resulting from sudden or accidental escape of water is often included in a typical homeowner insurance policy while water damage resulting from flooding (i.e., sewer backup or overland flooding) is not. Instead, sewer backup must be purchased as an add-on.
So how does one predict what ‘might’ happen and then plan accordingly?
This is where it’s important to understand the area you are buying in. Is it in a floodplain? Is it in an earthquake zone or an area susceptible to wild fires?
Clarity around the differences in standard policy coverage and coverage for natural catastrophes needs to be made clearer, as do deductibles, limitations, and exclusions.
4. How provincial/territorial DFA (disaster financial assistance) programs operate, including eligibility requirements, restrictions, and limitations.
Did you know that government-provided disaster relief is generally not available if you have access to private insurance coverage?
There is a common misconception that DFAs will indemnify consumers for any losses that result from a natural catastrophe or that the government will provide for their full recovery following the disaster.
DFAs do not compensate claimants for whom insurance is available at a reasonable cost. In other words, eligibility is generally denied if you had the opportunity to insure against the risk beforehand and chose not to.
It’s easy to make uninformed or ill informed decisions about insurance, given the misconception that the government will protect you from losses resulting from a natural catastrophe. The lack of understanding regarding the operation of DFAs may result in significant coverage gaps for consumers that could have purchased insurance against natural catastrophes.
When selecting homeowners’ insurance, an insurance broker should have adequate knowledge to be able to:
This is where it’s so important to have a good insurance agent who has the adequate knowledge or training on the various coverage options available so that you don’t end up purchasing inadequate coverage or forgoing natural catastrophe insurance altogether.
3. The content, coverage, and limitations/exclusions of the existing insurance coverage.
It is not surprising that consumers are generally unaware of the features of their insurance coverage, since they only use the product when faced with a disaster.
When overwhelmed with options we choose what seems like the best coverage option and trust that it will be adequate.
Sadly, the extent of coverage is further complicated by the fact that policies offer protection under certain circumstances and for specific events, but not others. For example, water damage resulting from sudden or accidental escape of water is often included in a typical homeowner insurance policy while water damage resulting from flooding (i.e., sewer backup or overland flooding) is not. Instead, sewer backup must be purchased as an add-on.
So how does one predict what ‘might’ happen and then plan accordingly?
This is where it’s important to understand the area you are buying in. Is it in a floodplain? Is it in an earthquake zone or an area susceptible to wild fires?
Clarity around the differences in standard policy coverage and coverage for natural catastrophes needs to be made clearer, as do deductibles, limitations, and exclusions.
4. How provincial/territorial DFA (disaster financial assistance) programs operate, including eligibility requirements, restrictions, and limitations.
Did you know that government-provided disaster relief is generally not available if you have access to private insurance coverage?
There is a common misconception that DFAs will indemnify consumers for any losses that result from a natural catastrophe or that the government will provide for their full recovery following the disaster.
DFAs do not compensate claimants for whom insurance is available at a reasonable cost. In other words, eligibility is generally denied if you had the opportunity to insure against the risk beforehand and chose not to.
It’s easy to make uninformed or ill informed decisions about insurance, given the misconception that the government will protect you from losses resulting from a natural catastrophe. The lack of understanding regarding the operation of DFAs may result in significant coverage gaps for consumers that could have purchased insurance against natural catastrophes.
When selecting homeowners’ insurance, an insurance broker should have adequate knowledge to be able to:
• Explain key terms, the nature of the guarantee, options, conditions, and exclusions of the product, in addition to enhancements that are designed to add coverage and value; and
• Provide reliable information/advice on the product or know when and where to direct the consumer for information/advice.
Take your time, shop around and arm yourself with the relevant knowledge to ensure you are properly insured.
