Key Insights on Potential Flood Risk Reduction Strategies
This report from Université du Québec à Montréal (UQAM) examines options for incentivizing flood risk reduction by Canadian homeowners and home insurers. The two options covered are relocation and multiyear flood insurance.
Relocation – One option to reduce flood risk is for municipalities to compensate homeowners in flood-prone areas for voluntarily leaving their homes and relocating to safer locales. The researchers looked at ways to overcome cognitive biases that lead homeowners to seek much higher compensation than the risks would suggest. Recommendations include making homeowners more aware of accurate flood risk information for their homes; promoting more holistic, long-term thinking; and collecting better data on Canadian homeowners’ risk aversion, the indirect costs of flooding, and optimal relocation timing.
Multiyear insurance – Another option that could lead to flood risk reduction is multiyear flood insurance for high-risk homeowners. A multiyear policy would improve cost certainty for homeowners, strengthen the relationship between insured and insurer, and allow insurers to invest the additional premiums in risk reduction strategies (climate change mitigation/adaptation, building back better, etc.). It would potentially have the added benefit of temporal diversification for insurers given that it is reasonable to assume flooding one year does not increase flood risk thereafter.
The report also looks at other factors that affect flood risk, including:
- Misalignment between land use planning, which is a municipal and provincial matter, and disaster relief, which is funded by federal taxpayer dollars;
- The concentration of 90% of flood risk in only 10% of homes; and
- The impact of climate change on future flood losses.
This report was unveiled at an event on June 26, 2024 entitled Resilience in the Face of Physical Climate Risk.