With groundbreaking research now supporting climate change, sustainable leaders in the industry have been encouraging municipalities and building owners to grapple with potential risk and protect the value of assets.

As Thomas Schmidt, commissioner of transportation and environmental services for the Region of Waterloo, noted at a Canadian Urban Institute seminar in April, municipalities need to be resilient; finding new supplies isn’t necessarily as important as learning how to reduce demand.

“We all know climate change is happening,” he said. “We just don’t know what the impact is going to be and where.”

In a region of roughly 575,000 people who rely on groundwater for water supply, Waterloo has historically dealt with the problem of too little water. And while climate change leads to floods, it also leads to the problem of less available water.

To mitigate this issue, the city has worked with industries to reduce consumption. Toyota used to be the largest water user in the region; however, with a reduction of two-thirds, the company isn’t even in the top 30. The city also recently introduced a lawn watering bylaw, which has reduced peak demand by 10 per cent.

And since the flood of 1974, Waterloo has made changes to map the risk of flooding, ensuring development doesn’t happen in those areas, while making sure there is room in the reservoir to deal with an extreme event, and keeping it full to augment flow during summer. As climate change happens, the reservoir will need to be operated to manage both high and low flows.

Alexander Hay, principal in risk, resilience and security planner at Southern Harbour, based in Toronto, notes that climate change is as much a problem for municipalities as it is for asset managers. This isn’t new, he says, citing the late Peter Drucker, a management consultant who once said, “The first duty of a board is to protect against loss, not the maximization of profit.”

In the last 40 years, Hay adds, “We’ve grown used to facing our designs and forecasts of assets based upon historic statistical base of data, without realizing that life is a cyclic trend.”

Hay says we need to understand indirect and direct effects that hazards have on our locations and operations, and that various companies provide this service to real estate, but there are now dangers of what is being asked of a location risk assessment.

Hay says he is now, more regularly, being asked to research how possible floods will affect sites. Yet, even if a site isn’t flooded, a flood could still close down a business, as it affects utilities and people coming to work.

The time frame for potential risk is smaller than we think, not 25 to 40 years, but over the next decade. Commercial property is tending towards a lower percentage value of the overall operational value. That percentage will continue to shrink.

“Conversely the onus is going to be on owners to accept that higher liability and to make sure they enable their tenants,” says Hay, adding that municipalities will have to get involved.

“At the end of the day, if a municipality does not look after a development area, why should the money and businesses come to that municipality?”

Property casualty insurance

Dr. Blair Feltmate, associate professor, program director of sustainability practice and chair of the Climate Change Adaptation Project Canada, is involved in the property casualty sector, working on de-risking the country from extreme weather events, along with his work alongside Impact Financial, which is the largest property casualty insurer in Canada.

“Every day we don’t adapt is a day we don’t have,” he says, before demonstrating that not enough is being done to protect Canadian infrastructure from climate change.

From 1983 to 2008 in Canada, over time, property casualty insurers could count on spending $200 to $500 million per year, as payouts for catastrophic losses. However, beginning in 2009, on an annual basis, totals of house market payout for the country have exceeded one billion per year.

“In 2013, the catastrophic losses were exponentially higher with about $3.5 billion due to Alberta and Toronto floods,” adds Feltmate. “The payouts that existed before are no longer adequate.”

This trend, he says, is problematic for the property casualty insurance sector because in Canada, for nine of the last 11 years, the money coming in the door through premiums has been less than that going out the door through claims. “It’s causing us to face an uninsurable housing market, he says. “There are pockets across Canada where insurers are no longer offering house insurance for these localities because risk of flooding is too high.”

The big culprit driving these high numbers is water—too much in the wrong place, particularly basement flooding. Hail, wind and ice are other less costly factors. Given the fact that fossil fuels are the main drivers behind such extreme weather events, a plan must be made for the worst scenarios.

According to the International Energy Agency’s profile on where Canada acquires its energy, about 80 to 81 per cent comes equally from coal, oil and gas. It is projected that by 2030, the country will still be using these sources, but with a much larger footprint in the form of another 1.5 billion people

Increasing plans for adaptation

Feltmate interviewed 15 presidents and chief executive officers of top property casualty insurance companies in Canada (representing 60 per cent of underwriting) and asked, “Is flood plain mapping sufficiently understood in the regions identified that underwriting (or risk exposure) due to flooding can be adequately calculated?”

The answer was a clear “no” across the country. Flood plain maps are out of date as perceived by insurers, and they can’t price risk based on them, which means they can’t offer overland flood insurance.

For flood insurance to be profitable for companies, infrastructure, both natural and that built under the direction of government control, would have to be substantially flood-hardened relative to its current condition.

While respondents agreed that natural infrastructure, such as maintaining wetlands, for example, and built infrastructure from channelization and dry ponds to other efforts that direct water away from vulnerable areas are cost-effective, they still cannot offer that insurance.

“We have to weather part of the infrastructure if we’re going to have overland flood insurance available in Canada,” Feltmate stresses. He is currently helping to develop an insurance sector supported program to promote a natural infrastructure adaptation program focused on maintaining the integrity of wetlands.

“We have to develop up-to-date flood plain maps, weather-harden municipal and sub-municipal infrastructure, launch a National Infrastructure Adaption Program and a Home Adaptation Audit Program, which will de-risk properties with little effort. In the latter initiative, a trained person would assess a home and suggest areas of de-risking. This program is now in a pilot phase, with preliminary results showing that 70 per cent of owners would act on such recommendations in a six to eight week period.”

“When Ontario came out with its climate change discussion paper, 95 per cent focused on green energy and mitigation and nothing about adaptation,” says Feltmate. “It is a remarkable oversight in my opinion.”