Stemming the Tide: Flood Resilience in Canada

Aerial view of flood in Ayutthaya Province,Thailand.

According to Public Safety Canada, floods are the number one cause of property damage in the country. And as we discussed in part two of this series, the severity of floods is only likely to get worse. With this in mind, it is crucial for companies to incorporate flood risk mitigation strategies into their business resilience plans.

In this article — third in a three-part series on flooding in Canada — we explore business continuity measures that can improve your organization’s flood resilience, as well as Canada’s current flood risk management efforts.

Achieving resilience: a multipronged approach

Even with effective mitigation measures in place, it is likely that during a severe flood, your facility will sustain some flood damage. In addition to water and silt, floodwaters also carry liquid waste from agricultural, industrial, and household sources and can quickly cause significant damage to buildings and their contents. Once flooding occurs, the speed of cleanup is crucial, as mould begins growing after 48 hours and can wreak havoc on the building and any base building equipment.

Robust business continuity planning can help ensure your business remains resilient in the face of flooding. Flood resilience is two-fold: resistance and recoverability. Businesses will need not only measures that will help hold back water, but also those that will keep them above water.

Take a broader view of flood risk

As the ramifications of climate change take hold, businesses need to fully understand their direct and indirect sources of flood risk more than ever. Doing so is crucial for developing effective emergency response and crisis management plans, as well as confirming you have appropriate insurance in place. Despite its potential impact, many businesses often underestimate the likelihood that and degree to which their enterprise will be affected by flood.

A thorough risk assessment should review not only your direct operations, but also your entire value chain and wider business environment. It should address potential business interruption scenarios, including the inaccessibility of your location, unavailability of staff, and unavailability of vendors and/or suppliers. At this time, it is also wise to review the business continuity capabilities of your vendors and/or suppliers and to look into including availability and recovery time wording in contracts.

Marsh Advisory consultants can help you assess flood risks at both the portfolio and site level to help you better recognize your exposures and reduce risk.

Reimagine flood resilience

When a flood is imminent, having a flood emergency response plan (FERP) in place can help mitigate its impact to your business. A well-designed FERP should include steps to take before, during, and after the flood. Be sure to consider what actions will be necessary to confirm the safety and operability of all building systems post-flood, such as coordination with local authorities, in-house maintenance teams, flood remediation third-party services, and systems manufacturers. For a more thorough explanation of what to include in your FERP, download our guide.

In addition to building in the physical flood defenses mentioned in part one of our series, businesses can better prepare for a wetter world by reassessing their resilience strategies. For instance, investments in green infrastructure, such as permeable pavements, can be a cost-effective way to reduce your flood risk. Businesses may also want to consider diversifying their suppliers and establishing relationships with third parties with uncorrelated flood risk. As instances of severe flooding become more frequent, it will become essential to establish processes to assess developments in post-disaster recovery, and update contingency strategies accordingly.

A business continuity plan (BCP) that takes a long and wide view of flood risk management is key to building resilience. However, it is not enough to simply create a BCP — it’s an organization’s ability to implement the plan that matters most. Marsh Advisory’s strategic risk consulting practice can help you develop a BCP tailored to your organization, including a FERP and other response plans and processes, and evaluate it for real world viability.

Account for a challenging insurance market

A critical part of business continuity planning should be confirming you have appropriate insurance in place should disaster strike. However, in the case of flood insurance, this task may prove difficult. Natural catastrophe insurance capacity is both limited and expensive. This may translate to restrictive terms and conditions on insurance policies that include flood coverage, such as high deductibles and low limits, which may put companies on the hook for significant amounts of out-of-pocket costs. As climate change accelerates, insurers are likely to further limit their capacity for flood insurance.

The challenging insurance market underscores the importance for businesses to protect their operations by documenting their flood risk, installing flood defences, and establishing a robust FERP and BCP. Not only does this practice put you in the best position to minimize your potential damage from flooding, it can also have a positive influence on insurers. Businesses that can show underwriters how they are accounting for their flood risk will be able to secure coverage more easily than those that can’t.

Recognizing what is and is not included in your coverage is critical to minimizing your losses. Businesses should review their current policies with their broker and claims advocacy team to understand how any deductibles and/or limits would apply for flood as well as determine if there are gaps in coverage. Your broker can also assist in situations where you are worried that your insurer is not properly considering your exposure by having their risk professionals advocate on your behalf. Where you have limitations in coverage, your broker may help you access alternative risk options such as parametric solutions .

Prepare for changes in the regulatory landscape

In recent years, the recommendations developed by the Task Force on Climate-Related Financial Disclosures (TCFD) have gained global recognition and widespread adoption. Although following these guidelines has been voluntary in the past, more governments and regulatory agencies are beginning to mandate them.

In March 2023, the Office of the Superintendent of Financial Institutions (OSFI) has released Guideline B-15: Climate Risk Management. The guideline presents three outcomes federally regulated financial institutions (FRFIs) are expected to achieve, which are centred on understanding and mitigating climate risks, governance and risk management practices to manage climate risks, and remaining financially and operationally resilient during and after climate disasters.

Additionally, with the impacts of climate change becoming more obvious, investors, regulators, and other stakeholders want to see how businesses are managing their flood exposure, as they too may suffer damages from a business being flooded. Businesses not taking action to mitigate cascading impacts may face indirect consequences, such as reputational damage, loss of market share, reduced investment, or even litigation.

Businesses should view climate reporting not only as a compliance exercise, but also as an opportunity. Specifically on flood, businesses that can illustrate to stakeholders that they are aware of their flood risks and are investing in flood resilience may increase investor confidence and better position themselves to access green financing. For help fulfilling the TCFD’s recommended disclosures, consider enlisting climate risk specialists, such as Marsh’s Climate and Sustainability team.

Look toward the future

In response to the increasing threat of climate change and general lack of awareness around flood risks, the Canadian government has recently taken steps to address gaps in natural disaster protection and help Canadians access affordable insurance. In Budget 2023, it has proposed setting up both a low-cost national flood insurance program and a publicly accessible online portal where Canadians can access information on their exposure to flooding. Additionally, the government intends to increase Canada’s flood resilience by providing free and up-to-date flood hazard mapping across the country through the National Adaptation Strategy, and implementing a modernized Disaster Financial Assistance Arrangements program, which would incentivize mitigation efforts.

These actions signify a shift in mindset on flood resilience in Canada and underscore the importance of flood risk management. Flood risk is becoming more difficult to anticipate and manage, and businesses are often unprepared to deal with its consequences. However, by knowing your current risk, anticipating your future risk, and proactively addressing both, you can help mitigate its impacts.

At Marsh, we can help you create a proactive risk management program to mitigate flood risks, protect your assets, and invest for the future of your company and the planet. With our combination of deep expertise, array of product options, and advanced technology and analytics, we can offer you robust end-to-end solutions with optimal flood coverage and swift claims settlement.

To find out how we can help your business become more resilient, contact your Marsh representative.

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Stemming the Tide: Flood Resilience in Canada