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Q&A with Glenn McGillivray
Managing Director, Institute for Catastrophic Loss Reduction - 1/12/12


Background
Glenn McGillivray is the the Managing Director of the Institute for Catastrophic Loss Reduction, an independent research institute established by the insurance industry. He is one of the authors of a study entitled 'Making flood insurable for Canadian homeowners'.

Below is the transcription of a phone interview conducted by Josťe DechÍne, on January 12, 2012



Q&A

Water Today

First, let me ask you how independent are you from the insurance industry?

Glenn McGillivray
The Institute has its own Board of Directors, it is affiliated with the University of Western Ontario. We publish our research and reveal our sponsor, if a study is commissioned. We donít do any lobbying for the industry, in a word, we value our independence.

Water Today
Is flood insurance currently available anywhere in Canada?

Glenn McGillivray No. Canada is the only G8 country in which flood insurance is not available to homeowners. Sewage back-up is covered but overland flooding is not.

Water Today
Why is that?

Glenn McGillivray
Canadian insurers have narrow, outdated terms for flood insurance, whereby only homeowners under threat of flooding would purchase flood insurance, making the premiums too high for most to afford.

Water Today
In other words, the market base in Canada is too small to offer stand-alone flood insurance? I would guess this why you are proposing that flood insurance be bundled with standard homeowners' insurance?

Glenn McGillivray
Yes, in our view, standard homeowners' insurance should cover all perils, not only some. Traditionally in Canada, homeowners' insurance only covered fire damage and over the years more and more coverage was added. Currently, 80% of all homeowner policies are all perils policies, although that does not mean that absolutely everything is covered. For example overland flood is not covered nor is shake damage from earthquakes.

Water Today
The report also states that any proposed insurance model would have to be applied at the provincial level rather than at the federal level. Why is that, is a national policy not easier to manage?

Glenn McGillivray
The reason is that Ottawa has gotten out of the flood management business. It used to be involved in flood mitigation measures and flood mapping but it no longer is. Besides, water management is a provincial responsibility so it follows that flood insurance be applied at the province level.

Water Today
Since there is no flood insurance in Canada, each province has flood relief programs. Do some provinces offer better programs than others?

Glenn McGillivray
I cannot say that some provinces offer better compensation and recovery plans than others but every province has a different type of program. Some provinces have caps on the maximum that can be paid out, some have no cap but only pay out a portion of the estimated value of items eligible for coverage.

Water Today
Your view is that flood insurance is better than government relief, why is this?

Glenn McGillivray
Governments are not equipped to assess and monitor risk, which makes them slow to respond. Insurance companies have experienced personnel and well-established methods for assessing and paying claims, which can result in faster recovery. Plus government relief comes out of the taxpayers pockets.

Water Today
There is a perception that the insurance industry has a serious image problem in that it will find any loophole to avoid paying out claims. How do you see fixing this issue?

Glenn McGillivray
Actually, this is a misconception. The Canadian insurance industry paid out over $1.7 billion in insurance claims in 2011 and, according to a market study conducted by J.D. Powers and Associates, insurance customers' satisfaction is very high in Canada. Another study done by the Ontario government on the Auto insurance sector also shows good customer satisfaction.

Water Today
Is the insurance industry regulated in Canada or are some individual company practices responsible for the negative perception some have of the insurance sector?

Glenn McGillivray
Actually, the Canadian insurance industry is one of the most heavily regulated in the world.

Water Today
How does the increasing number of extreme weather events, brought on by climate change, affect the insurance industry? Will claims eventually outweigh premiums?

Glenn McGillivray
Claims for catastrophic damage have indeed been 20 times higher in recent years. But our view is that climate change is only one of the three factors playing a role in this increase. The other two are the growing density of urban areas and crumbling infrastructure.

Water Today
How does the insurance industry cope with these increased claims?

Glenn McGillivray
This is where international re-insurance companies come in. These large caompanies essentially insure the insurers. The combined capital assets of the insurance and the re-insurances sectors are keeping the system afloat.

Water Today
Would a public model such as the National Flood Insurance Program (NFIP) in the U.S., whereby more than 20,300 communities and 5.5 million people in the U.S. are protected by reasonably priced flood insurance, be a good solution for Canada?

Glenn McGillivray
The NFIP is not a valid business model; it is basically a fancy form of government aid. In the aftermath of Katrina for example, the government had to step in and provide direct aid as the NFIP did not have sufficient funds to settle all the claims.







































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