Tax levies, subsidies could pay for high-risk flood insurance, report says
After a spring of devastating flooding, Public Safety Canada will consider a proposal to place levies on municipal taxes as a way to provide high-risk insurance to homeowners who aren't eligible and can't afford it.
CBC News obtained an advance copy of the report, which was released Tuesday morning. It provides policy options to reduce the ballooning costs of destructive floods to homeowners and taxpayers.
The Insurance Bureau of Canada authored the report at the request of a provincial/territorial and federal working group that addresses flood risk management.
Titled Options for Managing Flood the Costs of Canada's Highest Risk Residential Properties, the report presents several policy considerations. One of them involves creating a high-risk pool of homeowners who are currently ineligible for flood insurance.
These homeowners would still pay premiums. But in order to make sure their premiums are affordable, they would be subsidized by a mix of government grants and levies.
IBC's vice-president of federal affairs, Craig Stewart, knows the concept of homeowners subsidizing people who live on scenic rivers and lakes seems controversial. But he says only homeowners who can't afford to rebuild would be eligible.
Currently, when disasters hit, wealthy and low-income homeowners receive disaster relief bailouts.
"Right now taxpayers are subsidizing everybody that gets bailed out by a flood," Stewart said. "At the end of the day it is governments that are bailing people out."
"We need a solution that people are paying for the risk that they face. And only those who are at low incomes are subsidized to a degree for that risk."
Stewart said any levy would be based on the specific risk within a jurisdiction.
These levies could be applied broadly on all municipal ratepayers within a region, or could solely target policyholders.
Temporary municipal levy
The report suggests initially using a mixture of levies and government subsidies to build funding for the high-risk insurance option.
"Once the pool is fully capitalized," the report states, "These contributions/levies could cease and governments could stop most of their financial assistance for flood-related damage to residential properties."
This spring municipalities in Ontario, Quebec and New Brunswick experienced record-setting river levels and flooding.
The federal government called in the military to assist with sandbagging and protecting communities from the rising threat.
No estimate has been released on the total cost of the damage or the amount of money the provinces will be paying in disaster assistance.
Costs to taxpayers keep rising
Stewart said the IBC believes flooding is the No. 1 climate threat Canadians face.
In the 1990s, Stewart said, flooding costs the federal government around $40 million a year. Today, that's ballooned to $700 million.
Stewart said the model is being used in the United Kingdom, where ratepayers pay a "small" levy to help provide insurance to homeowners who can't afford it.
The report doesn't outright recommend governments impose a municipal levy, but instead offers a qualitative score when it comes to several principles like affordability, inclusivity, taxpayer protections and financial sustainability.
The option that includes subsidizing insurance premiums with levies and government grants scored the highest.
Other options — such as the status quo where the government bails out all homeowners, and another where individuals owners assume all of the risks — ranked lowest.
Now that the report is in the hands of Public Safety and the inter-governmental working group, the IBC said it is up to the government to make a decision after the 2019 federal election.
A spokesman for Public Safety told CBC News Tuesday there is no set timeline for a decision, adding that the IBC's recommendations are among several options.
The CBC's David Thurton can be reached on Facebook, Twitter or at david.thurton@cbc.ca.
