Most Canadians Have No Insurance Against Natural Disasters

Aaron Broverman

Filed under: Buyer Beware, Budgeting & Planning, Family Finances, House & Home, Insurance, Your Home

In the wake of Hurricane Sandy and an earthquake off the coast of B.C.'s Queen Charlotte Islands, more and more Canadians are probably pulling out their home insurance and discovering, to their surprise, that they don't have the coverage they thought they did, especially not for natural disasters.

A new study by J.D. Power & Associates reveals that more than two-thirds of Canadians are uninsured against environmental disasters, such as floods and earthquakes. Only 35% of the population add a flood insurance rider to their home insurance policy and only 22% add earthquake coverage. The percentage of earthquake coverage is highest across the country in B.C., but the percentage is still only 56%, even though a 7.7 magnitude quake recently hit.

So if you find yourself among the two-thirds of Canadians currently without any natural disaster protection, what do you need to know to get yourself up to speed?

Watch the Exclusions

While some natural disasters like fire, hail, the weight of snow, ice or sleet and thunder and lightning strikes are covered by a basic home insurance policy, there are important exclusions that will require additional insurance to be purchased.

Most basic home owners insurance policies exclude earthquakes, other earth movement, such as sinkholes and landslides, flood, hurricane, other water damage, such as sewer backup and finally, nuclear war or a nuclear accident. What insurance policies cover and what they don't varies from company to company and often from policy to policy. The same provider will often offer different degrees of coverage depending on the packaged products they offer.

Obviously, some damage in a storm is already covered by most basic policies, like lightning and wind. However, even still, the insurance company may choose not to cover certain damage if your home was already in a state of general disrepair. For example, they may not cover the shingles that blew off your house if it has already been determined that those shingles would have fallen off anyway without the assistance of a storm, so, because of that, the insurance company may decide not to cover them and the damage to your shingles may be deemed a maintenance issue.

"Home insurance customers who discover the limitations of their basic coverage after a major event occurs, have waited too long. With more than three-fourths of Canadian home insurance customers uninsured for earthquakes, many may find themselves in a lengthy discussion with their insurer in the event of an earthquake," said Jeremy Bowler, senior director of the insurance practice at J.D. Power and Associates. "Furthermore, in the case of sewer backup claims, it is a common misconception among homeowners that their basic home insurance policy provides this coverage."

Also, even though standard home owners insurance will cover damage from wind, lightning and hail that coverage does not normally extend to property outside the home, such as trees, shrubs, bushes, gardens or satellite dishes.

Adding an Earthquake Rider

If you're a person who wants to purchase earthquake coverage, you will be able to find it in a separate standalone policy that would work in addition to your basic home insurance coverage. However, this policy will generally only cover the physical shaking of an actual earthquake. Basic coverage can still be used to cover smaller disasters stemming from the earthquake, such as fires.

The cost of additional earthquake protection will depend on the type of home that's being insured and where the home lies. If the home is made of brick, the insurance will cost less than it would for a home made of wood. Similarly, if the home is located on a faultline, the insurance would be more expensive because the risk is greater, but the need for earthquake insurance is also greater in that situation.

Flood Insurance Does Not Exist in Canada

Unlike the U.S. Government's federal flood insurance program, no insurance company in Canada offers an insurance plan for flood. Instead, Canadians can purchase extended water damage coverage which will protect them in the event of burst pipe, a water main break or a leaking boiler. This does not cover accidental flooding caused by a natural disaster.

However, the increase in natural disasters and the floods that precede them around the world may change that soon. The Institute for Catastrophic Loss Reduction [ICLR] is calling for a partnership between the Canadian Government and insurance companies to provide such a policy against flood. Shockingly, Canada remains the only country of G8 nations that still does not offer some sort of flood coverage.

As evidence that such a move might be necessary, ICLR points to the melting of the snow cap in the Prairies that caused serious floods in Saskatchewan and Manitoba in 1997, when the Red and Assiniboine Rivers overflowed. Instead of a fully government-funded system like in the U.S., ICLR suggests that flood insurance be just another protection bundled with homeowner's insurance. This is something Britain has done that has worked quite well over the last 50 years.

In order for such an idea to materialize in the real world, ICLR suggests that the government will need to increase flood risk assessment and implement flood control stop-gaps to ensure insurers have the information they need to properly figure out the premiums. Homeowner's will also have to be more vigilant about creating more defensive measures against flood in their own homes.

"Let's face it, people do not read their insurance policies," Glenn McGillivray, managing director of the ICLR, told the Toronto Sun last year. "They only become interested when there are faced with some kind of a crisis."