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Exam 6c 2025 > Flood > Flashcards

Flood Flashcards

1
Q

What are the priority areas for the Emergency Management Strategy (EMS) in Canada?

A

Collaboration to strengthen resilience
Understanding disaster risks in all sectors
Focusing on disaster prevention and mitigation
Enhancing disaster reponse capacity and development of new capabilities
Strengthening recovery efforts

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2
Q

How can overall flood risk be reduced?

A

Relocation
Building resilient infrastructure

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3
Q

What are the key drivers of flood risk in Canada?

A
  • Population growth
  • Urban development
  • Climate change
  • Densification and development of urban areas exposed to flood
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4
Q

What are the challenges in making flood insurance available and affordable in high-risk areas?

A
  • High costs of insurance
  • Low risk awareness amongst homeowners
  • Misaligned incentives that do not encourage risk reduction or insurance purchase
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5
Q

Frequency of flood can be affected by:

A

Increases in extreme precipitation due to climate change

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6
Q

Severity of flood can be affected by:

A

Development of floodplains

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7
Q

overall flood risk can be reduced by:

A

Relocation
Building resilient infrastructure

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8
Q

Pluvial:

A

when an extreme rainfall event creates a flood independent of an overflowing water body

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9
Q

Fluvial:

A

when the water level in a river, lake or stream rises and overflows onto the neighboring land

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10
Q

Coastal:

A

when dry and low-lying land is submerged by seawater

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11
Q

What are the key drivers of flood risk in Canada?

A
  • Population growth
  • Urban development
  • Climate change
  • Densification and development of urban areas exposed to flood
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12
Q

What are the challenges in making flood insurance available and affordable in high-risk areas?

A
  • High costs of insurance
    further eroded by
    -> High housing costs
    -> Recent flood events
    -> Reinsurance rates
    -> Material changes in risk leading to increased premiums
  • Low risk awareness amongst homeowners
    -> Flood maps are not easily accessible leading to homeowners not purchasing coverage
    -> Not buying enough optional flood coverage
    -> Not investing in property-level protections
  • Misaligned incentives that do not encourage risk reduction or insurance purchase
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13
Q

Why is flood insurance cost-prohibitive for low-income households?

A
  • High housing costs
  • Recent flood events
  • Reinsurance rates
  • Material changes in risk leading to increased premiums
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14
Q

Why do most Canadians in high-risk areas lack awareness of their flood risk?

A
  • Flood maps are not easily accessible leading to homeowners not purchasing coverage
  • Not buying enough optional flood coverage
  • Not investing in property-level protections
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15
Q

What is the impact of misaligned incentives on flood risk management?

A

Homeowners and local governments have little incentive to reduce risk or purchase insurance..
..and the expectation of government assistance reduces motivation for lower-level stakeholders to take preventive measures

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16
Q

What does the EMS emphasize regarding financial risk sharing for disasters?

A

The need to develop options for sharing the financial risks of disasters.

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17
Q

What is the traditional approach to flood risk management?

A

Building structural controls to keep people and property separate from flooding sources.

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18
Q

What is Flood Risk Management (FRM)?

A

An approach where the responsibility for flood risks is spread across various stakeholders and uses non-structural mitigation methods to complement structural ones.

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19
Q

What are the responsibilities of the Federal Government in flood risk management?

A
  • Coordinating and supporting local efforts
  • Providing assistance through the DFAA program
  • Offering emergency management services to Indigenous groups
  • Regulating and monitoring water resources.
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20
Q

What are the responsibilities of the Provincial Government in flood risk management?

A
  • Setting regulations and policies on land use
  • Regulating the insurance sector
  • Establishing land use planning standards
  • Regulating natural resource development
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21
Q

What are the responsibilities of Indigenous Communities in flood risk management?

A
  • Developing community emergency management plans
  • Working on structural mitigation projects with ISC
  • Receiving funding from CIRNAC to respond to climate change impacts
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22
Q

What are the responsibilities of the Insurance Industry in flood risk management?

A
  • Transferring flood risk from homeowners to insurers
  • Paticipating in data collection
  • Incentivizing risk reduction measures
  • Helping shift the burden away from government DFA programs
23
Q

What are the four preconditions needed to enable the private market to function in flood insurance? (Hint: LIAA)

A
  • Limited or restructured post-disaster financial assistance
  • Improved public awareness of flood risk
  • Accurate and up-to-date flood maps
  • Adequate investments in flood defences
24
Q

What are the responsibilities of Non-governmental and Civil Society Organizations in flood risk management?

A
  • Supporting flood recovery efforts
  • Emergency planning
  • Public education
  • Coordinating volunteers
  • Providing on-ground assistance during incidents
25
Q

What are the responsibilities of communities and individuals in flood risk management?

A

Seeking information on flood risks and undertaking non-structural and structural risk mitigation efforts, such as:
* purchasing flood insurance
* flood-proofing homes

26
Q

What is the most effective strategy for reducing flood risk?

A

Strategic relocation, which involves removing all assets and properties at high risk of repetitive flood damage through government buyouts

27
Q

What are the challenges associated with strategic relocation?

A

It is challenging, time-consuming, expensive, and there is an affordable housing shortage in Canada

28
Q

What type of flood insurance market does Australia have?

A
  • Fully private market with regulation from the government
  • Voluntary take-up
  • Risk-adjusted premiums
  • Low cost to the government
29
Q

What are the main characteristics of France’s CatNat scheme for flood insurance?

A
  • 12% surcharge on home insurance policies
  • Mandatory for mortgages and optional otherwise
  • Premiums ceded to a state-owned reinsurer
  • Affordable
  • Lacks risk differentiation incentives
30
Q

How does the UK manage flood insurance for high-risk areas?

A
  • Private insurers provide coverage
  • Premiums ceded to a high-risk reinsurance pool (Flood Re)
  • Affordability prioritized
  • Non-profit entity accountable to the government
  • Minimal cost to the government.
31
Q

What is the US’s National Flood Insurance Program (NFIP)?

A
  • Administered by FEMA
  • Mandatory for federally backed mortgages in flood-prone areas
  • Risk-based premiums
  • Community rating system for risk reduction
  • Available and affordable
  • High cost to the federal government
32
Q

What are the four guiding themes for Canada when setting up a flood program?

A
  • Uncertainty
  • Market penetration; Adverse selection and mutuality
  • Affordability
  • Moral hazard
33
Q

What are the policy objectives for flood insurance in Canada?

A
  • Adequate and predictable financial compensation
  • Risk-informed price signals and mitigation
  • Affordability
  • Wide availability
  • Maximized participation
  • Value for money for governments and taxpayers.
34
Q

What are the trade-offs between availability and affordability in flood insurance?

A

Increasing affordability may reduce financial incentives for property-level risk reduction and likely increases government costs.

35
Q

What are the trade-offs when prioritizing risk-based pricing?

A

It will affect the number of residents who can participate

36
Q

What are the trade-offs in balancing affordability and coverage?

A

Balancing affordability requires trade-offs between adequate coverage and financial burden to the public

37
Q

What are the trade-offs in focusing on cost-effectiveness for flood insurance?

A

It may shift the burden to homeowners or municipalities, with the total flood risk cost remaining
(and only reducible through mitigation and prevention)

38
Q

What are the trade-offs in maximizing participation in flood insurance?

A

Maximizing participation with mandatory provisions and government funding increases government costs
(needing to balance with closing the protection gap)

39
Q

What are the four proposed insurance models for Canada?

A
  • Flat cap high-risk pool
  • Tiered high-risk pool
  • Public insurance
  • Public reinsurance (layered)
40
Q

Assumptions - Current Total Flood Risk

A

Annual average loss of $2.9 billion in residential flood damage.
The vast majority of risk is concentrated in a small number of the highest risk
homes

41
Q

Assumptions - Lifespan of Model

A
  • Models designed for a lifespan of approximately 25 years
  • Analysis based on costs/features in a given operational year
  • Transition/wind-down costs not included; criteria for ending the arrangement require further work
42
Q

Assumptions - Climate Change

A
  • Risk distribution expected to change due to increasing and severe climate events
  • Current analysis based on 2020 flood hazard models
  • Future climate modeling addressed in a multi-year research project starting in May 2022
43
Q

Assumptions - Inflation

A
  • Costs provided on a 2020 current dollar basis
  • Future projections and inflationary adjustments not considered due to difficulty in prediction
  • Inflation expected to impact models similarly, not altering their comparative assessment fundamentally
44
Q

Model Design Features - High Risk Homeowners Threshold

A

→ High risk defined as top 10% by Average Annual Loss (AAL), with the highest risk in the top 1%.
→ A price-based threshold is used: premium > 0.1% of coverage ($300 for a $300,000 policy).
→ This threshold aligns with international affordability standards.
→ Approximately 10% of households fall under this category.

45
Q

Model Design Features - Affordability

A

→ Measured by the ratio of premiums to household wealth or income.
→ Home value often accounts for 70% of household net worth.
→ Premium caps and subsidies can help make insurance affordable.
→ Premium caps phase out over time.
→ Subsidies decrease as income increases.

46
Q

Model Design Features - Premium Loading Factors

A

→ Includes administration, overhead, reinsurance, and safety margins.
→ Calculated based on average annual loss (AAL).
→ No profit margin included.

47
Q

Model Design Features - Cross Subsidization

A

→ Redistributes premiums to lower high-risk homeowner costs.
→ Low-risk homeowners pay slightly more.
→ A levy of $20-$45 provides $250-$650 million per year.

48
Q

Model Design Features - Deductibles

A

→ Initial costs are paid by homeowners.
→ Can be used to reduce moral hazard and incentivize risk reduction.
→ A $5,000 deductible is used for model costing.
→ Higher deductibles can reduce participation.

49
Q

Model Design Features - Participation

A

→ Low participation rates reduce financial stability while homeowners have to bear more residual risk.
→ Higher rates needed to spread risk and lower premiums.
→ Current participation is 40-60%, mainly in low/medium risk areas.
→ Participation can increase with public awareness and affordability supports.

50
Q

Model Design Features - Standardization of Flood Insurance Policies

A

→ Government involvement increases standardization.
→ Policies may standardize language, perils covered, and bundling of water-related perils.

51
Q

What is residual risk?

A
  • Financial risk remaining after applying insurance.
  • Important for transitioning from public disaster financial assistance (DFA) to an insurance-based system.
52
Q

Model 1: Flat Cap High-Risk Pool

A

→ Inclusion: High-risk households (premium > 0.1% of coverage)
→ Flood Premium Cap: $500
→ Income-based Subsidies: None
→ Coverage Cap: $300,000 per event
→ Deductible: $5,000
→ Cross Subsidization: $20 levy on all residential property policies
→ Stabilization: Reinsurance and government backstop
→ Participation Assumptions: Mandatory offer, optional purchase. 80% for low risk, 50% for medium and high risk
→ Premium Loading Factor: 96% of Average Annual Insured Loss
→ Policy Standardization: Standardized policies for high-risk homeowners

53
Q

Model 2: Tiered High-risk pool

A

→ Inclusion: High-risk households (premium > 0.1% of coverage)
→ Flood Premium Cap: 5 levels based on reconstruction cost quintiles: $250; $500; $1,000; $2,000; $4,000
→ Income-based Subsidies: None
→ Coverage Cap: $300,000 per event
→ Deductible: $5,000
→ Cross Subsidization: $40 levy on all residential property policies
→ Stabilization: Reinsurance and government backstop
→ Participation Assumptions: Mandatory offer to all; mandatory purchase with mortgage and optional without. 80% for low risk, 65% for medium and high risk
→ Premium Loading Factor: 96% of Average Annual Insured Loss
→ Policy Standardization: Standardized policies; comprehensive bundling of water coverage

Exam 6c 2025 (14 decks)

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