Question Period Note: Flood Insurance and Disaster Financial Assistance Arrangements

• Flooding continues to be the most frequent and costly natural disaster facing Canadians, estimated to cause $2.97 billion dollars in direct damage to residential properties annually.
• This is why the Government of Canada is taking steps to prioritize flood risk, and ensure that Canadians are better protected and better able to recover from flood events.
• The Government of Canada is committed to introducing a solution for flood insurance for Canadians, and will work with provincial and territorial partners, municipalities, Indigenous representatives, and the private sector to achieve this.
• Budget 2023 announced $31.7 million over three years, starting in 2023-24, to stand-up a low-cost flood insurance program to protect households at high risk of flooding and without access to adequate insurance.
• As a next step, the Government of Canada will be engaging with provinces and territories on the development and implementation of the flood insurance program.
• The federal Disaster Financial Assistance Arrangements (DFAA) will continue to remain available to Provinces and Territories, and provide support where insurance is not readily available.
• The Government of Canada is also committed to implementing a modernized DFAA program which would incentivize mitigation efforts, and ensure that there is sustainable source of support for provinces and territories in the face of rising disaster risks.

As a result of climate change, extreme weather is on the rise. When extreme weather strikes, it often leaves behind a wake of severe damage to homes and communities. People need to be able to access affordable property insurance so that disasters caused by natural hazards don't lead to unnecessary financial distress.

However, the unique realities of natural hazards can make homes difficult to insure, leaving some Canadians financially vulnerable. Working with the insurance industry, more needs to be done to protect Canadians from the costs that come with recovering from disasters, including making insurance affordable, while also supporting financial market stability.

To advance this priority, Budget 2023 announced the federal government's intention to launch, in partnership with provinces and territories, a new approach to address protection gaps for disasters caused by natural hazards and help Canadians access affordable insurance – beginning with flood insurance, followed by earthquake risk, with consideration of evolving climate-related insurance market challenges.

Residential Flood Insurance

Flooding is the most common and costly disaster caused by natural hazards in Canada. Flood hazard modelling conducted by the Task Force on Flood Insurance and Relocation estimated the average cost of residential flooding in Canada at $2.97 billion annually.

Several million homes in Canada are vulnerable to flooding and, typically, the most at-risk residential property owners cannot access adequate or affordable insurance to protect themselves. This protection gap leaves many households financially vulnerable as they must rely on their own resources or limited post-disaster financial assistance from governments or not-for-profit groups to recover from flooding events.

As part of the federal government’s new approach to address protection gaps in disasters caused by natural hazards, Budget 2023 announced $31.7 million in funding for Public Safety Canada and the Canada Mortgage and Housing Corporation to work with the Department of Finance Canada to stand-up a low-cost flood insurance program, aimed at protecting households at high risk of flooding and without access to adequate insurance. This includes offering reinsurance through a federal Crown corporation and a separate insurance subsidy program.

The government will engage provinces and territories on the development and implementation of the low-cost flood insurance program, as well as the requirements for its long-term fiscal sustainability, including cost-sharing and risk mitigation.

Budget 2023

Budget 2023 announced funding for four initiatives related to disaster recovery and resilience. These include: 1) flood insurance; 2) a new flood risk portal for Canadians; 3) establishing federally-designated flood risk areas across the nation; and, 4) a modernized DFAA. Funding details are:
• $31.7 million over three years, starting in 2023-24, to stand-up a low-cost flood insurance program with the Canada Mortgage and Housing Corporation, aimed at protecting households at high risk of flooding and without access to adequate insurance.
• $15.3 million over three years, starting in 2023-24, to create a publicly accessible online portal where Canadians can access information on their exposure to flooding.
• $48.1 million over five years, starting in 2023-24, and $3.1 million ongoing, to identify high-risk flood areas and implement a modernized DFAA program, to incentivize mitigation efforts.

Disaster Financial Assistance Program

The Disaster Financial Assistance Arrangements provide federal cost sharing to provinces and territories for uninsurable costs of large-scale disasters caused by natural hazards, including for activities such as evacuations, law enforcement, and rebuilding damaged infrastructure.
While the Government of Canada completes its work on creating a low-cost national flood insurance program, the costs of residential flooding in high-risk areas will continue to be eligible under the federal Disaster Financial Assistance Arrangements program. Provinces and territories design and deliver financial assistance in their jurisdictions and set the specific terms for eligible claims.
Once flood insurance is available and affordable to Canadians, flood-related damages to residential properties will no longer be eligible for federal cost sharing under the Disaster Financial Assistance Arrangements; however, cost sharing for a wide range of other types of government support such as evacuations, emergency response, infrastructure repairs, cleanup, restoration of transportation routes, psychosocial assistance and other supports for people will remain eligible. The decision on whether to continue to deliver disaster financial assistance for insurable flood damages within their respective jurisdictions will lie with the provinces and territories.

On April 17, 2023, the Government of Canada published the advisory panel’s final report Building Forward Together: Toward a more resilient Canada - Final report of the Expert Advisory Panel on the Disaster Financial Assistance Arrangements which provides recommendations on how to improve the effectiveness and long-term viability of the DFAA. The recommendations will help inform Canada’s renewed approach to disaster financial assistance to ensure it remains a sustainable source of support for provinces and territories.

A modernized DFAA is expected to be announced in spring 2024, building on significant work with Provinces and Territories over the course of the past few years. The modernized program is expected to launch in April 2025.

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