Thinking of Buying a Waterfront Property? Read This First

As climate-related dangers increase, insurance companies are changing where and how we build homes

Illustration by Christy Lundy

In 1988, Jane Russell and her husband moved to Wallaceville, a picturesque riverside neighbourhood in High River, Alberta. The couple built their new home 1.2 metres above ground level. “They said that that would protect you from the 100-year flood,” says Russell, referring to the 1 percent chance of a major flood happening in any given year. In 2013, when heavy rains caused some rivers east of the Rockies to overflow, High River’s entire population of 13,000 residents was among the nearly 100,000 people ordered to evacuate from their communities. Neighbourhoods were underwater for weeks; you could boat along the streets of Wallaceville. Russell’s home was ruined.

Now living at a higher point in High River to avoid the floods, Russell is one of the growing number of Canadians who have learned first-hand that terms like “100-year flood” are now almost meaningless. Climate-related disasters—hurricanes, torrential rains, overflowing rivers, forest fires, coastal destruction caused by rising sea levels—have become more severe, more frequent, and more unpredictable. But it was those 2013 floods in southern Alberta—which cost an estimated $1.9 billion in insured losses and over $4 billion in uninsured losses—that made the insurance industry seriously rethink not only how it responds to the threat of global warming but also how it can limit the damage caused by natural calamities.

While wildfires like those that ravaged Fort McMurray in 2016 can be catastrophic, we have already introduced many risk-reduction strategies for fire into our daily lives: smoke detectors, fire-fighting departments, less flammable materials. Instead, it’s overland flooding—when rising water seeps into buildings—that has largely driven the insurance industry’s reinvention as perhaps the government’s biggest climate ally. Since 2005, insurance claims in Canada for flooding have exceeded those for fire and now account for three-quarters of payouts—a total of $5.2 billion between 2009 and 2014, according to Craig Stewart, vice-president of federal affairs at the Insurance Bureau of Canada. “The insurance industry is well organized around fire. You could say that the insurance industry grew out of the Great Fire of London, back in 1666,” he says. “Whereas with floods, we’re not there.”

The standard options for mitigating flood risks—either via dykes, channels, newly created wetlands, or “managed retreat,” in which neighbourhoods are relocated—have costs attached. Meanwhile, the federal government is eager to limit what it pays out for disaster relief, which was designed for unusual or extraordinary events. The insurance industry has responded assertively: it is making a case, in talks with government officials and through the kind of coverage it is willing to offer, for where and how Canadians build their homes. Because nobody likes paying astronomical premiums or being denied insurance altogether, such punitive measures might be the best tools to help reshape at-risk communities so they can become more resilient when confronting severe weather. “Insurance is for fortuitous events,” says Barbara Turley-McIntyre, an executive at the Co-operators Group, a Canadian insurance company. “These events aren’t fortuitous anymore.”

In a country where waterfront real estate is highly prized, there has been no financial incentive to avoid building close to water. Federal and provincial disaster-recovery programs have often allowed property owners to rebuild in the same spot. Municipal governments have also found themselves in an awkward situation: their reliance on property tax as the main source of income makes it hard for them to say no to proposed developments, even in areas likely to get hit over and over again.

“You have to have the political will to stand up to developers. If you don’t, you’re screwed,” says High River mayor Craig Snodgrass. “Developers want nothing more than to crawl up the ass of these rivers, because riverfront property always brings a higher dollar.” Yet municipalities are primarily responsible for the infrastructure and urban planning that can prevent or lessen damage caused by extreme weather. Since 2013, High River has spent more than $200 million on flood-mitigation strategies like berms and floodgates—which amounts to approximately $14,815 per resident. “We suspected that if we didn’t spend the money at this point in time, future councils would back down. All you need is five years without a flood before people think that it won’t happen again,” says Snodgrass.

Pressure from insurance companies on policy holders will make it increasingly hard for municipalities to put off such investments. Post-disaster, the Co-operators offered overland-flood insurance to High River residents—but at a rate that made some customers balk. After learning from local government about the infrastructure improvements it had implemented, the Co-operators reduced premiums by as much as 30 percent.

As long as the public sector is willing to spend on disaster mitigation, the insurance industry seems onside with new developments, even in historically dangerous areas. The Insurance Bureau of Canada heaped praise on the $1.185 billion investment the federal and provincial governments have made in flood mitigation for Toronto’s Port Lands, which will see a mixed-use residential and commercial community of as many as 25,000 people built on 289 hectares of a flood plain at the mouth of the Don River. Development had been restricted there based on the damage done by Hurricane Hazel in 1954.

In order to build in an area that has long been considered risky, Waterfront Toronto, the agency tasked with redeveloping the city’s lakefront, is creating new wetlands, which will absorb flood water, excavating a new river channel, and raising the grade by as much as two metres. But with climate change producing disasters that are increasingly unpredictable, such projects must balance high costs against worsening risks. Will a two-metre grade be enough in twenty-five or fifty years?

Insurance companies have not only begun encouraging governments to be more disaster ready, they have also started to expect property owners to become better risk managers. In return, insurers will be obliged to share more information. “The insurance industry knows which areas are high risk, and you don’t,” says Jason Thistlethwaite, a professor at the University of Waterloo’s School of Environment, Enterprise, and Development. A 2017 study led by Thistlethwaite interviewed 2,300 Canadians whom the federal government had identified as living in flood zones. Surprisingly, only 6 percent of them thought they were at risk.

Until recently, insurers didn’t know the risks of climate-related flooding very well themselves. Until 2015, Canada was the only G7 country where overland residential flood insurance was not available; most Canadian flood-plain maps were out of date, so companies found it too hard to come up with a price for premiums. These days, the industry has been encouraging governments to produce better flood maps and more dynamic risk modelling and to share that data with banks, realtors, developers, planners, and the public. If this new data becomes widely published, it will likely affect the availability of mortgages, the viability of certain real estate transactions, and the price of real estate. Thistlethwaite hopes that, eventually, Canadians selling a property will be obligated to disclose the flood history and other disaster risks. Ultimately, Canada could see “climate gentrification,” and only those who can afford expensive disaster-mitigation infrastructure and high insurance premiums will be able to live in certain areas. “You’re going to produce information that makes people unhappy,” he says.

While property owners will need to take more responsibility for “derisking,” Thistlethwaite argues that the costs of both preventive measures and disaster recovery need to be shared among governments, insurers, and homeowners, either through tax dollars or through insurance. Many individual initiatives, such as buttressing coastal properties with wire baskets of boulders, can just redirect damage elsewhere. Communities will have to decide whether everyone should pay the same amount or if the homeowners most at risk—often people with nicer houses and views—should pay a premium.

As for Russell and her family, their old home in High River is now gone, as is Wallaceville; the province bought up the 107 houses there and had them demolished or relocated. The roads and infrastructure were removed. The neighbourhood was, to use jargon that sidesteps the emotional trauma, returned “to an undeveloped state.”

“You’re definitely damaged forever,” says Russell. “My husband and I went to watch the teardown of our home. We needed some closure. It did help with that, but it was very sad to watch the home that we loved and had put so much into being demolished.”

Abandoning disaster-prone communities is painful. But, compared with the repeated disasters Canadians will face in the future and the huge costs of recovering from those disasters, relocation may become the most affordable option for all of us.

Paul Gallant
Paul Gallant is a Toronto-based journalist. His first novel, Still More Stubborn Stars, was published in fall 2021.
Christy Lundy
Christy Lundy is a Montreal-based illustrator whose clients include the New York Times, Monocle, the Boston Globe, and Penguin Random House Canada.