The most underestimated flood bill

When the basement couch floats because of a flood, the despair and stress take a lot longer to fade than the brown water.

Yet the mental health bill after disasters doesn’t make headlines. The problem is that it’s much harder to quantify, even though experts are doing it with innovative mathematical models.

We already know that the deluge that hit Ontario in mid-July will cost property and casualty insurers more than $940 million. In Quebec, the record amount of rain on August 9 led to 70,000 claims, which should turn into multi-million dollar bills for insurance companies… and higher premiums for everyone.

As astronomical as these figures are, however, they only represent a fraction of the costs associated with flooding and other natural disasters, since the mental health of those affected is likely to be just as damaged as their furniture.

Psychological distress, post-traumatic stress, anxiety, insomnia, financial insecurity, frustration with waiting times, family conflicts, inability to work… the consequences on well-being are serious, which can force the taking of medication or cause a work stoppage.

In other words, floods that are increasing with climate change are also putting pressure on group insurance plans that reimburse medications and compensate salaries in the event of illness. Public drug insurance (RAMQ) is obviously not left out.

What is impressive is that academics are managing to translate the psychological impact of brutal events like a flood into dollars. One of them, Michaël Bourdeau-Brien, is a professor in the Department of Finance, Insurance and Real Estate at Laval University. I attended a very informative conference he gave on the subject in the spring. I recalled him after seeing on TV the distress on the faces of the victims following the rupture of a water main at the foot of the Jacques-Cartier Bridge.

The study^⁠1 The 196-page book he co-authored on the impacts of the floods that occurred in Quebec in 2019 allows us to discover the disturbing testimonies of victims of Sainte-Marthe-sur-le-Lac which say a lot about their psychological state.

Using sophisticated econometric models, the researchers were able to determine, for example, that taking on debt after a disaster doubles the prevalence of depression. But their most striking finding is this: The financial value of intangible damage can be as great, or nearly so, as the value of material damage.

“On average, and the average is important here, someone who has $100,000 worth of damage to their property, there is a good chance that in terms of loss of productivity, impacts on their mental health and their enjoyment of life, they will also have the equivalent of another $100,000. This is to show how significant this damage is. It is not anecdotal,” says Mr. Bourdeau-Brien.

So non-trivial, in his view, that if disasters are more frequent and more severe, it can be expected that this will “raise questions about the viability” of public and private health insurance programs. One thing is certain: someone will have to foot the bill. Group insurance may therefore cost more because of extreme weather events.

Personal insurers are aware of the issue and are monitoring the situation “very closely,” they confirmed to me through their association (ACCAP), even if, for the moment, they do not have studies demonstrating that climate change has a “significant impact” on their industry.

Beyond insurance, there are other good reasons to calculate the cost of psychological consequences. One of them: to improve decision-making when it comes to investing in public infrastructure such as a sponge park or a retention basin. By only considering quantifiable impacts, the cost/benefit analysis is “biased” and excellent projects can then be rejected, explains Michaël Bourdeau-Brien.

What a vicious circle! By ignoring the psychological impacts caused by natural disasters, we risk ruling out solutions that prevent water from entering homes.

1. Consult the study