FINA Committee Meeting

STANDING COMMITTEE ON FINANCE

COMITÉ PERMANENT DES FINANCES

EVIDENCE

[Recorded by Electronic Apparatus]

Wednesday, May 3, 2000

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[English]

The Chair (Mr. Maurizio Bevilacqua (Vaughan—King—Aurora, Lib.)): I'd like to call the meeting to order and welcome everyone here this afternoon. The order of the day is a study on the natural disaster reduction plan.

First of all I'd like to thank everyone here on the committee who has accepted this particular challenge. It's an issue we dealt with during the pre-budget consultation and felt it was important enough to have a round-table on. After this round-table, the committee members will decide whether we produce a summary of evidence or in fact a report to the House of Commons.

We look forward to your comments. For the participants, I do want to tell you we look to your expertise to tell us exactly what is the best way to deal with natural disasters in this country vis-à-vis the finance committee and its work. So I welcome you.

For the members, I want to tell you how pleased I am to have here, from Emergency Preparedness Canada, Allan Bartley, director general of policy, planning, and readiness; from the Insurance Bureau of Canada, George Anderson, the president and chief executive officer, and Paul Kovacs, senior vice-president of policy development and chief economist; from Conservation Ontario (Newmarket), James Anderson, general manager; from Global Change Strategies International, James Bruce, senior associate; from l'Ordre des ingénieurs du Québec, Roger Nicolet and Hubert Stéphenne; from the Town of Houston, His Worship Tom Euverman; and from the Canadian National Committee for the International Decade for Natural Disaster Reduction, Dr. Alan Davenport, chair.

We will begin with Mr. Anderson, president and chief executive officer of the Insurance Bureau of Canada.

As you know, you have approximately five to ten minutes to make your presentation, and thereafter we'll engage in a question-and-answer session. Welcome.

Mr. George D. Anderson (President and Chief Executive Officer, Insurance Bureau of Canada): Thank you very much, Mr. Chairman and members of the committee.

This is an important day for us. I want to thank all the other participants for agreeing to appear as well.

I also would like to acknowledge the leadership of this committee in taking the issue of preparedness and natural disasters in this country seriously and including it, in terms of both earthquakes and the wider question of natural disasters, in two of your pre-budget reports. That was an extremely important initiative for the country. Also of course I thank you for arranging to have this day of hearings.

My assessment of where we are nationally on this issue is that the message of preparedness and disaster reduction is being heard. Finance Minister Paul Martin has now identified disaster relief payments as an important federal fiscal challenge in the years ahead. In an interview he gave to Policy Options last summer, he said, and I quote:

Disaster relief has turned out to be very expensive in the last three or fours years. It's going to be a costly thing.

Mr. Chairman, that's the bottom line of our message today. We have to recognize this problem, and the federal government is well situated to do something about it.

Canadians naturally rely on their elected officials and of course on members of this committee to guard Canada's fiscal position for future generations and to identify threats to financial and economic well-being in the country. Our exposure to losses from natural disasters, I would submit, is one such threat.

Over the last four years Canadians have been hit by three very costly and extremely disruptive natural disasters. You'll all recall them, I think: flooding in the Saguenay in 1986, the flood damage and terrible disruption in the Red River Valley in 1997, and of course the devastating ice storm in January 1998, which affected eastern Ontario, Quebec, New Brunswick, and parts of Nova Scotia. In the course of those disasters, over 4 million Canadians have been directly affected by severe weather over the period of the years I mentioned.

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Disaster recovery payments by governments have been doubling every five to ten years throughout the 1980s and the 1990s. Over the past four years governments in Canada, especially the federal government, have spent an average of $500 million a year to repair damage caused by extreme weather.

Furthermore, these losses pale in comparison to the even larger losses that could lie ahead. I say that not only because of the evidence of deteriorating weather patterns but because of the real prospect of a major earthquake in the urban Vancouver area and the lower mainland of Vancouver. Losses in that event are likely to be in the billions of dollars, and the possible large loss in human life is also a very real eventuality.

Scientists around this table and around the world point to the increasing frequency and severity of extreme events as a result of a number of factors. Climate change is one, certainly. Urbanization of the population around the world is another. Two more are aging infrastructure, which I would submit is a real problem in Canada now, and of course population growth. All of these factors combine to make the effects of natural disasters all the more severe.

The latest report from the United Nations Environment Programme, for example, puts it this way:

Natural disasters appear to be becoming more frequent and their effects more severe. (...) Rising global temperatures are likely to...raise the incidence of extreme weather events, including storms and heavy rainfall, cyclones and drought.

We saw some evidence yesterday, if some of you were watching the CTV morning news program, of the very real threat of a drought in the prairies this summer, and with that, the very real threat as well of some real storms out there, including severe hailstorms in the Calgary area.

I would submit then that natural disaster relief, as this committee and the finance minister have properly recognized, represents a growing unfunded liability for all levels of government, especially the federal government, and a potential growing burden for Canadian taxpayers.

The financial liability, to say nothing of the threat to human life, can be substantially reduced if Canada invests in ways to reduce the vulnerability of our communities to natural hazards. Investing in critical infrastructure can have a dramatic effect in protecting communities from natural disasters. I just draw your attention to what happened to the diversionary program in the city of Winnipeg when the Red River overran its banks. That city was saved from disaster because of investment in this kind of infrastructure. These kinds of investments not only save lives; they create jobs, they protect and raise incomes, and they add to our prosperity in the immediate term.

While we're all in this together by virtue of the federal government's role in disaster recovery, we do have particular regional natural hazards. Every region in the country is faced with the prospect of flood damage, and it's relatively more severe from one region to another. I think His Worship will speak to that later on in the presentation, just from the point of view of the British Columbia experience.

But going across the country, starting in the Atlantic, there is the prospect of severe hurricanes and sea surge in the Bay of Fundy, which is being held back by dikes that were built 300 years ago by the Acadian settlers and effect no protection at all if we get a severe hurricane in that area. In Quebec, in addition to the flooding prospect, there's a real prospect of earthquake damage in Montreal and the St. Lawrence Valley. In Ontario we've seen more and more tornadoes in the belt from Windsor up through and north of Barrie. In the city of Calgary, hail damage is a major threat. Every summer they get over forty major hailstorms in the Calgary area; western MPs will be very familiar with this prospect. And of course in British Columbia we know about the real threat of earthquakes.

So across the country we have slightly different problems, but they all boil down to the same thing: the fact that we are not well prepared to deal with the problems we see. Certainly when it comes to recovering from disasters after disasters hit, Canada has a very enviable record. In fact I would submit that we are among the world leaders when it comes to that aspect of how we deal with things. But when it comes to what we do about lessening the impact of disasters before they happen, I submit we have a lot to learn and a lot to do in that particular area.

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The Insurance Bureau of Canada has put forward the idea of setting up a fund of $750 million financed by all levels of government over the next five years that would be used specifically to invest in projects designed to make communities more resilient to the kind of damage I'm talking about. The infrastructure program announced in the recent federal budget could lend itself very well to this purpose.

So we would urge that guidelines be developed for this new program that would include natural disaster reduction as one of the objectives under which infrastructure programs could qualify for funding. In particular, we believe projects should be funded if the benefits in terms of the losses prevented outweigh the cost of the investment. In other words, we're not asking the committee and the government simply to accept as an article of faith that these investments would work but actually put them to the test of a rigorous cost-benefit analysis.

We also believe the current formula for disaster relief—and perhaps Mr. Bartley will speak about this later on today—should be changed to allow mitigation investments to be made during the recovery period from a disaster. It is often during that period, when people have just experienced a major threat to their community, that ideas are the best and willingness is the greatest to do something about preserving the community against that kind of threat in the future. So if we spend a little extra money during the recovery phase in figuring out what to do the next time a disaster strikes, we could better prepare these communities for these kinds of eventualities. It's our understanding that investing in mitigation is not really covered by the current DFAA formula.

Finally, as a nation, we need to work together to promote what we've come to call “a culture of preparedness”, to ensure that governments and citizens alike take the increasing risks of costly natural disasters into account in all planning decisions.

We've been busy sharing these proposals with Canadians from one part of the country to another. We've talked to provincial and municipal officials, to scientists, to partner organizations, and from British Columbia to Newfoundland, I can tell you that our proposals are being met with resounding support. Certainly the idea of doing something about target-hardening our communities is an idea that I think speaks to every Canadian's experience.

As we speak, officials in the Treasury Board are meeting with their provincial counterparts to discuss the actual guidelines for the new national infrastructure program. By making a strong recommendation at this critical moment in this program's development, we believe this committee's leadership could help ensure that natural disaster reduction objectives are included as acceptable objectives for funding under the new infrastructure program.

I would urge you as well to consider supporting the forthcoming review of disaster financial assistance arrangements to build on the program's existing strengths, which are evident to everyone, but to include a role for mitigation during the recovery period from a disaster. I urge you to support the creation of a national mitigation strategy that includes creating a culture of mitigation by building awareness, bringing parties together for dialogue, and incorporating loss reduction into the routine considerations of public policy in this country.

Thank you very much.

The Chair: Thank you very much, Mr. Anderson.

We'll now hear from Mr. Allan Bartley, director general of policy, planning and readiness, from Emergency Preparedness Canada. Welcome.

Mr. Allan Bartley (Director General, Policy, Planning and Readiness, Emergency Preparedness Canada): Thank you very much, Mr. Chairman and honourable members.

As some of you may know, the first week of May is Emergency Preparedness Week in Canada, so it seems quite fitting to us that this committee would choose this week to discuss emergency preparedness issues, and in particular, the issue of mitigation.

EP Week is but one of many partnership initiatives that we at Emergency Preparedness Canada coordinate with our colleagues in the provinces and territories, non-governmental organizations, and the private sector, in order to enhance emergency preparedness. This is part and parcel of EPC's mandate and mission.

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As you may know, EPC is a civilian agency within the Department of National Defence with a mandate to develop and maintain an appropriate level of civil emergency preparedness across Canada.

[Translation]

Our mission is to safeguard lives and reduce damage to property by fostering better preparedness for emergencies. In the event of an emergency requiring federal involvement, EPC's role lies in the co-ordination of the Government of Canada's response.

[English]

If you will permit me, I would like to provide some context that will appropriately inform this round table on an emerging public policy issue of importance to Canadians.

In public policy terms, emergency management is generally considered to be composed of four pillars. The first of these is mitigation. These are actions taken to reduce the probability of risk or to limit its effects should an emergency happen. Next is preparedness. These are actions taken to develop effective policies, procedures, and plans for how best to manage in emergency. Next is response. These are actions taken immediately before, during, or directly after an emergency occurs. Finally is recovery. These are actions intended to provide critical services or to support individual and group efforts to repair and restore communities after an emergency.

Emergency legislation in Canada deals primarily with preparedness and response both federally and provincially. This focus also applies to most emergency preparedness or emergency measures programs. As a result of the directed focus of these programs over the last two decades, the states of preparedness and response in this country are increasingly comprehensive and of a generally higher quality.

[Translation]

As you are aware, mitigation refers to actions taken in advance of an emergency to reduce or lessen the impact of natural or human-created disasters. Reducing the risks from hazards, reducing the losses from disasters and working towards sustainable communities go hand-in-hand with a public risk management process.

[English]

What factors affect risk in Canada? Mr. Anderson has already cited some of them. One is our size and geographical diversity. The increasing geographical concentration of population means that Canadian communities are increasingly vulnerable to disasters. Additional risks posed by climate change, aging or inadequate infrastructure, and increased dependency on technology further increase the existing diversity of hazard.

[Translation]

Disaster mitigation is an area that is being afforded increased attention both here in Canada and abroad, and for obvious, important reasons. If we, as governments, individuals and Canadians, can help to reduce the effects of disasters, then it is our responsibility to do so.

The Government of Canada has contributed to a limited extent to helping to bring together key interested parties and stakeholders to advance debate on this issue.

[English]

Since late 1997, Emergency Preparedness Canada, in conjunction with the insurance industry, has been conducting a cross-country assessment among all potential stakeholder groups of the requirement for a coordinated approach to mitigation. In the fall of 1998, more than 400 people participated in discussions about our preparedness for disasters at workshops and at a national mitigation conference that was cosponsored by EPC and the Institute for Catastrophic Loss Reduction. Participants included a broad range of stakeholders, including not-for-profit organizations, first nations groups, industry, academia, and all levels of government.

Since this event, we have continued to consult with other governments and interested parties. However, our work on the issue was put on hold as we, along with the rest of the Government of Canada, were involved in mitigating the potential effects of Y2000. Now that the Y2K transition is behind us, EPC is pursuing this important work, including the promotion, advocacy, and facilitation of a more integrated approach to disaster mitigation in Canada. Specifically, we are currently examining our role as one of a broad range of partners and stakeholders in disaster mitigation, including the appropriate Government of Canada role within the emergency management framework.

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As a result of these activities, we were keen to hear what was said here today. It's clear to us that to advance this important initiative, we need a thorough understanding of the related issues and the views of our various partners and publics. I look forward to hearing the views that are put forward here today.

That concludes my remarks. I'll be pleased to try to respond to any questions you may have.

The Chair: Thank you very much, Mr. Bartley.

We'll let everyone speak first and then we'll get into a question-and-answer session.

From Conservation Ontario (Newmarket) we have Mr. James Anderson, general manager.

Mr. James S. Anderson (General Manager, Conservation Ontario (Newmarket)): Thank you, Mr. Chair. Members of the committee, thank you for the opportunity to provide input to your deliberations on hazard management and mitigation.

Conservation Ontario is the collective organization of Ontario's 38 conservation authorities. We are community-based watershed organizations with a 55-year history of conservation at the local level.

In the late 1930s and early 1940s, public officials were concerned with the state of Ontario's natural resources. Erosion, flooding, and drought were but a few of the symptoms of resources misused and abused. One of the strategies developed to overcome these unfortunate conditions was the passage of the Conservation Authorities Act, which allowed local communities to form conservation authorities and to create conservation programs on a watershed basis. If local communities were prepared to form these entities, then the provincial government agreed to provide support, financial assistance, and leadership.

From that beginning to this day, 38 conservation authorities have formed, covering 90% of the population of Ontario and undertaking programs valued at $100 million per annum. Because of their unique area of jurisdiction, the watershed conservation authorities have concentrated for the most part on water and its management.

In 1954 Hurricane Hazel occurred in Ontario, killing six people and causing significant property damage. It became abundantly clear to public policy-makers and the public itself how devastating events of this nature could really be. The fact that the storm centred on the Humber River on the western edge of Toronto made it abundantly clear that our urban developments were ill-prepared and improperly planned for such events.

Both governments sought to deal with such matters, and Ontario's conservation authorities, with their conservation mandate, watershed jurisdiction, and community relationship, made an ideal partner. The partnership was formed and the next few years saw the creation of many new flood control structures: dams, dikes, channels. The Fanshawe Dam and reservoir on the Thames and Claireville on the Humber were but two examples of the many structures that were built to deal with the flood hazard. To this day, as you travel across the top of Toronto or what used to be the top of Toronto, you can see evidence of the many flood control channels that were built.

The structural approach to flood control, keeping water away from people, was the accepted technology of the day. However, through time other strategies were developed by governments and their people in cooperation with communities to deal with the flood hazard and complement the structural approach. Conservation authorities were given the powers to regulate development in flood-prone areas, known as flood plains, and further, were given the resources to map these areas ahead of development.

Provincial policies under the Planning Act, which directs the land use planning system in Ontario, made specific reference to flood hazards and outlined flood plain criteria. These policies required municipalities to ensure that land use plans respected the flood hazard. It delegated responsibility from the Province of Ontario to conservation authorities to aid municipalities in this regard.

These non-structural powers created a system to ensure that development did not happen in the flood plain. In addition, government provided cost-shared resources to remove areas and developments subject to extreme flood risk from floods. In many of the valley land systems in Ontario, urban areas are the result of these efforts. We brought a new word to the developers' and the public's vocabulary: ravine lots.

In 1978 the governments of Canada and Ontario jointly signed the Canada/Ontario Flood Damage Reduction Program and funding was made available from both governments to map areas subject to flooding. These efforts of yesterday were not without problems. Many in the development industry and at the municipal level considered this intrusion into the business of land development to be expropriation without compensation and there were arguments for years about the advisability of reserving the flood plain for the river.

Today, these planning tools are used and accepted and new, more proactive strategies are applied. Storm water management planning and watershed sub-basin planning are aimed at ensuring that new developments do not produce downstream flood hazards.

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Do these multifaceted strategies work? In a word, yes. I offer the committee three examples to support the claim that the flood mitigation and prevention system in Ontario is working in a fashion.

First, Environment Canada reviewed a series of major rainfall events that took place in August and September of 1986. These events happened to straddle the Michigan-Ontario border. In all, 17 watersheds were involved and they were remarkably similar. The rainfall events were slightly larger in Ontario and produced greater flood flows. A comparison of flood damage has revealed that Michigan had almost $500 million worth of damage and there was loss of life, while Ontario had less than $500,000 flood damage and there was no loss of life.

The Environment Canada analysis concluded that the 1986 floods show that for large flood events, the benefits of long-term, non-structural flood-plain management strategies can be enormous, possibly in the hundreds of millions of dollars. They further stated that the major reason for the differences in damage between the two countries was the amount of development in the flood plain, which was directly related to the approaches taken to manage that development.

The second example I offer you comes from an article in The Boston Globe in September 1999. In this article it was noted that the U.S. Federal Emergency Management Agency is battling decades of policy and development that have deeply entrenched Americans in hazardous places. As a result, Congress must continually appropriate more and more public funds to pay for this system. The president of the John Heinz Centre, a non-partisan think-tank, has indicated that the U.S. must alter its policy position and consider flood damage prevention or face the reality that flood liabilities will continue to grow.

Finally, I'll turn to something that has been mentioned here—the Saguenay. Who can forget it? The 1996 Saguenay flood in Quebec resulted in damages estimated at $800 million and ten lives were lost. One of our conservation authorities, the Grand River Conservation Authority, superimposed the Saguenay storm, the weather event that produced that flood, over its watershed. The report indicated that approximately $11.5 million worth of flood damage would have happened, and those were in known flood damage centres. Without our programs, an estimated $150 million of damage would have occurred.

We believe our system of structural and non-structural community-based programs works, but the system needs help. The system needs investment and upgrading. The system will be required to provide hazard prevention benefits from the anticipated sharper, more intense storms associated with climate change. In addition, the system must also be adjusted to deal with the longer periods of limited rainfall. While the system works, it's in need of reinvestment. The benefits we enjoy, the hazards we eliminate, are the result of past investments and leadership by both governments.

The investment needs are in flood-plain mapping to ensure that all areas subject to flooding are known and that development respects the potential to flood. While we have an effective system to deliver these programs, it is dependent on having accurate information. If the cost to develop this information is left totally to the local level, as is the case now, there will be limited investment. In addition, it's becoming evident that the most critical areas to map, protect, and regulate are headwater areas and wetlands. Many of these areas have not yet been mapped.

There remain a number of flood damage centres where people and development are subject to the threat of flooding. These are areas where the value of development and the risk of flood damage is considerable, and where there is economic benefit to protect.

In regard to monitoring systems, we still do not have a comprehensive system of monitoring surface and ground water in the province. Without this information, it would be difficult, if not impossible, to effectively manage water systems. We must keep sufficient water on the watershed landscape to reduce the impact of drought, while at the same time create a system to pass flood flows. Investment is needed in monitoring systems.

Finally, we must keep our structural components—our dams, channels, and dikes—well maintained. If we do not maintain them in a fashion to produce the desired benefits, they will become a liability in a flood event rather than a benefit.

In closing, I leave you with the following messages.

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I believe we have an effective flood hazard reduction and prevention program on our watersheds in Ontario. These systems can be adjusted to provide direction for times of low water. We are indicating to you, however, that these systems, to remain effective, need investment.

Some of you may recall a TV ad of a number of years ago marketing Fram automobile oil filters. The ad shows a garage owner and a tow truck operator with a car on the truck, indicating that if the owner had regularly changed the engine filters, the engine would not have seized. The punchline the individual used was “You can pay me now, or you can pay me later”. I believe that is my real message. It makes sound business sense to invest in avoiding flood and low-water hazards and the resultant cost of recovery. Pay a little now, and avoid a lot later.

Thank you.

The Chair: Thank you very much, Mr. Anderson.

We'll now hear from Global Change Strategies International, Mr. James Bruce, senior associate. Welcome.

Mr. James Bruce (Senior Associate, Global Change Strategies International): Thank you, Mr. Chairman.

Because disaster loss prevention activities fall within a large number of government departments—and I used to work in one of them—it is really very heartening to see a cross-cutting body such as your committee considering, in general, the problem of disaster loss mitigation. We need that cross-departmental look at the issue. Disaster losses are rising rapidly in the world, and in Canada, as Mr. Anderson and even the Honourable Paul Martin have noted.

Why? There are three reasons: there are more people; the communities are wealthier, so there is more exposure to the risk; and there is increasing evidence that there is an increase in the frequency and severity of many climate-related events—storms, floods, and droughts. For example, Munich Reinsurance Company, which keeps track of total losses from natural disasters around the world, as well as insured losses, says that worldwide, climate-related disaster losses have increased 7.9 times between the 1960s and the 1990s. They cannot explain this increase on the basis of increased exposure to the risk. In other words, climatic trends are partly responsible. These trends will continue for a number of decades, even if the world does begin to reduce greenhouse gases—and there is little sign of that happening vigorously yet.

Some recent studies suggest, for example, that in Canada it's likely we'll get more precipitation in the winter, but less in the summer. If we do get a scenario like that, it means we get the worst of both worlds—higher spring floods, and more intense droughts in the summer and fall.

So what should we do about the natural disaster trends in Canada, and globally, in the world? Just responding to disasters is no longer thought to be a sufficient policy. Federal obligations for disaster payouts and considerable human suffering will continue to increase because of the three factors I mentioned if we don't adopt a culture of prevention of losses.

A number of steps to reduce disaster losses need emphasis: strengthening warning and preparedness systems; developing better risk assessments to guide the priority for projects; limiting development in hazardous areas like the flood plains that Jim Anderson talked about, and landslide-prone areas; strengthening building codes; and developing better community disaster prevention plans.

Incidentally, an organization like CIDA should be encouraged to ensure that the projects it undertakes around the world contribute to reducing the vulnerability of communities, not increasing it. Unfortunately, that's not always true.

Based on, as I say, my experience in the government, I'd like to suggest, perhaps, how this might be achieved, as well as what needs to be achieved.

One thing that Jim Anderson didn't make entirely clear in his presentation is that the federal government was an active, cost-shared player in all of the disaster mitigation measures, both structural and non-structural, in Ontario, and of course was a partner in building the Winnipeg floodway, the Fraser River dikes, and so on.

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Now, it's quite possible to achieve much of what we want to do with non-structural measures that aren't too costly. We note that in the United States the Federal Emergency Management Agency has been told to put 15% of the money they otherwise pay out as disaster relief into disaster mitigation, into disaster loss prevention measures. I would suggest to you, sir, and your colleagues that you might consider something along those lines for Canada.

If you had an inter-agency task group involving all of the departments concerned, led by either Emergency Preparedness Canada or some central agency, with a small secretariat and with a fund roughly proportional to 15% of the disaster payout, you could, I think, re-enter those important federal-provincial agreements, most of which have been dropped for lack of federal money, and achieve a great deal through cost-sharing agreements for disaster mitigation and for reducing the federal liability for relief payouts.

I would also recommend that if such a fund or an inter-agency task group were set up in the government, it might be well served by having an external advisory panel. The Royal Society of Canada, for example, could pull together, based on the committee that has looked after the international decade for natural disaster reduction, advice on priorities from the private sector, from academics, and from the community at large.

Let me reiterate that I very much appreciate.... I think the whole community that is concerned with natural disasters and what we do about them is very much heartened by the action of your committee in looking at this in an across-the-board way. I would urge you to recommend some strong measures for the federal government to undertake.

The Chair: Thank you very much, Mr. Bruce.

We'll now hear from Roger Nicolet and Hubert Stéphenne. Welcome.

[Translation]

Mr. Roger Nicolet (President, Ordre des ingénieurs du Québec): Mr. Chairman, ladies and gentlemen, the Ordre des ingénieurs du Québec, which I am representing here today, accompanied by our Secretary and General Manager, Engineer Hubert Stéphenne, would like to thank you for this opportunity to contribute to the work of the Standing Committee on Finance of the House of Commons of Canada.

The subject that is at the centre of your discussions today is one that is of utmost importance to us, given the uncertainty surrounding the climate change that we are experiencing. For greater clarity, allow me to point out that, although we are keenly concerned about ensuring that all built structures in regions at risk are brought up to contemporary earthquake-resistant standards, our remarks to you today deal only with disasters caused by extraordinary meteorological events. Even though earthquake victims suffer similar consequences, namely considerable financial loss, the compensatory and remedial measures funded by the State are liable to be different and should continue to be different. It is important to remember that there is a significant difference between the two types of phenomena.

Earthquake recurrence, origins and behaviour are better and better known, while scientists have difficulty designing intelligible and credible models to fit meteorological phenomena, even though they are giving them more and more attention, because the probabilistic analysis is invalidated by the uncertainty associated with changes in climate.

You will recall that, in 1996, the Saguenay region received unprecedented levels of rainfall, causing a major disaster and the destruction of public and private property. In 1998, there was freezing rain in the Montreal region and part of the St. Lawrence Valley that caused considerable damage to electrical and telecommunications networks, disrupted the operations of a large number of businesses, and even led to some debts. You will also remember the Red River flooding in Manitoba, which affected a huge area for several weeks, as well as the heavy snowfall last winter in the Rocky Mountains.

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Furthermore, the decade that has just ended was the warmest in the last 100 years. The 1999 water levels of the St. Lawrence river, and the predictions for summer 2000, represent a water shortage that is threatening the natural heritage and navigation, with potential repercussions on economic activity.

Despite uncertainty surrounding the causes and potential extent of climate change, the climatological data would seem to point to climatic warming. Recent studies of the phenomenon raised the possibility that climatic behaviour may include many more extreme meteorological events than in the last century. The concerns raised by all this are so great that the United Nations began to take interest in this some years ago, and established the Intergovernmental Panel on Climate Change. International discussions also led to the Kyoto Protocol in 1997.

In this brief overview of the problem, we will not deal with all of the compensation mechanisms for damage caused by accidents. We will therefore discuss the traditional economic mechanism: the insurance market place. Its purpose is to protect each policy holder with regard to his or her own risk. How? By taking advantage of the effect of the number and non-correlation of individual risks, a principle by which the unlucky policy holders constitute a small minority. However, this market place is subject to many distortions on both the supply and the demand sides, with regard to natural disaster insurance.

On the supply side, there are the uncertainties surrounding the extent of potential manage and the problems associated with the strong correlation of individual risks. It is therefore difficult to establish, a priori, reasonable premiums that will guarantee compensation for disasters and, at the same time, ensure the survival of insurance companies.

On the supply side, there are also the usual problems arising from differences in information between the insurance company and the policy holder. In this case, insurers prefer to no longer offer policies, or to limit the number of policies available so that they will not be covering only poor risks, even if at a high price. In other words, the insurers are very cautious in controlling eligibility for certain policies. Moreover, each policy holder has some discretion when it comes to prevention efforts, which gives rise to an additional risk, referred to as a moral hazard: the individual or the company is less vigilant in preventing possible risks because the individual or the company is insured.

On the demand side, potential victims frequently underestimate the probability of a disaster and their potential losses. Consequently, fewer people insure themselves against natural disasters. The transaction fees associated with a complex insurance policy, for example, have a similar effect. Conversely, demand for insurance is often inflated immediately following a disaster, especially if there has been extensive media coverage.

This situation is becoming even more complicated today because of the growing reserves of reinsurance companies which have had to deal at the national level with disasters arising from extreme weather events.

As you are well aware, both in the United States and in Europe, governments are concerned about the difficulties involved in compensating for damage caused by such disasters and, above all, about the predictions that they will occur with increasing frequency.

The government of Canada will therefore no doubt have to make provisions for a greater commitment with regard to disasters of this kind. This public involvement will, of course, include an in- depth examination of the whole area of insurance market mechanisms and so-called complementary private mechanisms, as well as a reassessment of the amounts earmarked for the Disaster Financial Assistance Arrangements, which will inevitably have to be revised upward.

According to our analysis of what we will have to face in the future, the government should also study the feasibility of developing a natural disaster preparedness program. Our work on the committee, following the flooding in the Saguenay, highlighted the problems associated with the aging of much of the public and private infrastructure. The ice storm underscores the same kind of vulnerability. On the other hand, Manitoba may be cited as a model of prevention, with the construction of the floodway to protect the city of Winnipeg. There is an obvious need to repair, modernize and build protective infrastructure.

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There are many targeted preventive actions that the government of Canada may take. These are less costly, but will have a great impact on reducing the losses associated with natural disasters.

For example, it would be helpful to improve our knowledge of climate change at the regional level, with a view to better determining the recurrence of extreme weather phenomena such as precipitation in the form of rain or freezing rain, or unusual windstorms.

It will also be important to determine the adjustments that should be made regionally, in order to mitigate the effects of extreme weather events and encourage research aimed at improving the design of the infrastructure that keep the economy operating. Such measures would include water retention works, electrical networks and communication networks.

Lastly, we should develop models that incorporate meteorology, project and equipment design, and their management. This is something we should be doing in a number of areas, particularly in managing water retention projects and electric power transportation.

Departments will require specific budgets for such projects over the next five years. Experts from departments, universities and private companies must have the means to complete projected work and coordinate their efforts more effectively. The establishment of the Secretariat for Climate Change and the establishment of a specific fund are both steps in the right direction. However, though measures to reduce greenhouse gases are essential, we must also focus specifically on natural catastrophes and the technological disasters they could engender.

We cannot stress this strongly enough: regardless of the budget allocated to improving equipment, furthering research, and improving our climate change management capacity, the government cannot in any way reduce its commitment to compensating Canadian citizens and companies affected by future disasters.

As we have tried to demonstrate in this brief statement, there is too much uncertainty, and the impact of preventive measures is too difficult to quantify for us to draw a credible, scientific correlation between investment and corrective measures and reduction in the losses associated with extreme weather events, which no one today can predict.

Thank you for your attention.

The Chair: Thank you, Mr. Nicolet.

[English]

We'll now hear from His Worship, Tom Euverman, from the Town of Houston. Welcome.

Mr. Tom Euverman (Mayor of Houston): Thank you, Mr. Chairman. It's a great pleasure to be able to talk to you and the honourable members here this afternoon. It's a little ways from home, so you'll have to bear with me.

I'd like to say that it's a small problem in the big scheme of things, but a big problem for a small town. Just to give a little background on our particular community, we're located between Prince George and Prince Rupert in northwestern British Columbia. We've been incorporated now since 1957, and we became a district municipality in 1969. Today we have a population of 4,300 people, approximately 2,000 of the people in the rural area.

Houston's local economy is based on lumbering, mining, and a little bit of tourism. The couple of sawmills in our community are well run, modern, state-of-the-art sawmills and do very well.

In flood history, Houston's original town site and much of the commercial and residential area is located within the Buck Creek alluvial fan or flood plain, which was surveyed and mapped by the provincial government in 1981. Anecdotal reports from seniors and long-time residents of the area provide historical records of floods in Houston. According to these accounts and more recent records from the Ministry of Environment, Houston has flooded at least seven times since 1938. Approximately every seven to ten years we've had a major flood, the most recent one in 1997.

• 1625

As a result of persistent flooding and the threat of flooding, a system of dikes has been established around Houston. These dikes have been developed incrementally in response to flooding and the resulting damage to properties. The most recent dikes were completed in 1999, after the major flood that occurred in 1997.

As a little bit of information on our local dike systems, at the present time we have five permanent dike systems in and around our community. There is a 1,400-metre-long dike that protects the downtown residential area, south of the Bulkley River, extending from Benson Avenue upstream to the Highway 16 overpass. There is a 700-metre-long dike that protects the industrial area, on the south side of the Bulkley River, extending from the town sewage treatment lagoons upstream to Buck Creek. Three kilometres of dikes have been constructed along the banks of Buck Creek, extending from above the two dikes on the Bulkley River. There is another dike that generally follows along the south side of the Bulkley River from the rail bridge on the east side of town, upstream for a distance of 1.5 kilometres, where it is tied into the valley wall. There is the East Valley Dike, 600 metres long, which was constructed in 1998-1999 in response to the 1997 flood. In addition to the permanent dikes, there are two private dike systems that have been constructed.

Regarding the 1997 flood costs and impacts, the most recent flooding occurred in May 1997 as a result of a record-high snow pack and a record spring freshet in Buck Creek and the Bulkley River. The local rivers crested at approximately the same time, causing serious flooding upstream in the Bulkley River in the East Valley area. Water levels in these rivers rose over three feet within a three-day period.

The flood response involved the entire community and was coordinated by the district's emergency response committee and the provincial emergency program. Volunteers assisted town employees to fill and place over 150,000 sandbags, and other volunteers coordinated the construction of approximately 2.5 kilometres of temporary dikes. Within a four-day period, 2,800 truckloads of rock and gravel were hauled from local quarries and placed for temporary dikes.

Damage from the flood was limited due to the efforts of workers who constructed a temporary dike in the East Valley area, which was later replaced by a permanent dike. The permanent East Valley dike was constructed in 1989-1999 at a cost of approximately $600,000, which was shared by the provincial government and the District of Houston. This construction cost was approximately 30% to 40% of the cost that was incurred in 1997 to defend the town against flooding from the Bulkley River.

The total estimated cost of fighting the flood in 1997 and the resulting clean-up and repairs to private property is approximately $1.5 million. This estimate is based on known costs to the District of Houston and to the Province of B.C. of $1 million, plus an estimate of costs to private insurers, volunteers, local industry, and private property owners for property damage that was not covered by the province or by private insurers.

I'd like to make a recommendation to the committee, if I may. Much of the damage to private property and the costs of fighting the 1997 flood could have been avoided if the East Valley area of Houston had been protected by the local dike system.

The District of Houston strongly recommends that the federal and provincial governments work closely with local governments and the private sector, including insurance companies, to identify high-risk areas and to construct protective dikes before serious flooding and the resulting property damage occurs.

I have some attachments that give quite a bit of detail about the flood. If the committee is interested, I have the full package here and I'll leave it with the chairman of the committee.

Thank you very much.

The Chair: Thank you very much, Your Worship.

You probably hear the bell. That means we'll have to go and vote. We have approximately 27 minutes left, but only 25 minutes left for this committee hearing, because you have to give us at least a couple of minutes to get to the House.

The final presentation will be made from the chair of the Canadian National Committee of the International Decade for Natural Disaster, Dr. Allan Davenport. Welcome.

Dr. Allan Davenport (Chair, Canadian National Committee of the International Decade for Natural Disaster): Mr. Chairman, this is the end of the decade of which we speak, and I would like to express our real appreciation for having this opportunity to speak to the committee.

• 1630

The Canadian National Committee had its beginnings about fifteen years ago, when a distinguished American scientist, Dr. Frank Press, who was then president of the United States National Academy of Science, proposed the decade in an opening address to an international meeting of earthquake engineers. The idea met with a very enthusiastic response from the earthquake engineers and the support was taken up by a broad technical and engineering group. This interest, however, which was directed toward the technical end, was soon realized to be inadequate to deal with the overall problems of natural disasters. It was recognized that the broader contributions of society, the social, media, insurance sectors, and all groups, had a very important role to play in reaching a useful assessment of the problem.

I had the privilege of working with Dr. Press during the early stages and was impressed by his proposal. Following the route taken in the U.S., I proposed initially that the Royal Society of Canada and the Canadian Academy of Engineering should act as a catalyst and sponsor the decade in Canada. This they did with the assistance of several government ministries, provincial and municipal governments, the Red Cross and the Insurance Bureau of Canada. Together they formed what came to be known as the Canadian National Committee of the IDNDR. The motivation for establishing the IDNDR was to address the explosive increases in losses from natural disasters, particularly those associated with flood, windstorm, and earthquake; and one could add blizzards, ice storms, and wildfires. Losses from these events were doubling every five years or so. As much damage from the severe weather was sustained in 1988 as during the entire decade of the 1980s.

The bulk of the relative burden of cost was being carried by the poorer countries, an unfortunate consequence of which was that very often funds initially earmarked for development projects had to be diverted to reconstruction. This situation continues. But the richer countries too, including Canada, also encountered colossal losses.

Initially the focus of the decade was on the scientific and technical issues, but it soon became recognized that the social impacts were vital in dealing with the problem. Some of the findings of the decade have been made in extensive reports, but one of the important items is that from the IDNDR has grown a general acceptance that there were three reasons for the increased losses worldwide as well as in Canada. First, there is an increase in the population living in vulnerable regions such as coastal plains, flood plains, and steep slopes. Second, there is an increase in the amount of aging infrastructure, which has become less and less capable of dealing with the stress on the system. Third, the effects of climate change are threatening to cause more frequent extreme weather events.

There is a general consensus that prevention of loss, or its mitigation, is the key to disaster reduction. Humanitarian aid is of course vital, but it is undermined if the requirements for aid keep increasing.

Because of the lapse of time between extreme disasters there is a kind of forgetfulness or amnesia that can set in, which gradually lessens the perception of the need for protection from disasters. The inclusion of disaster prevention in the requirements for sustainable development is a powerful linkage in establishing the “culture of prevention” that was recognized early on in the IDNDR.

Decisions regarding the measures to be taken for disaster mitigation are best done at the local level. That became abundantly clear. However, local communities need information on research and tools for disaster mitigation. This suggests that there's value in a broad network at the national level supporting the local initiatives. It is essential that accurate databases of climate be maintained in order to assess the hazards and vulnerabilities.

• 1635

I'd like to give you some examples of where disaster mitigation has succeeded. A number of very important disaster examples have been described relating to flooding, which is one of many problems that come under the disaster decade inquiry. One I had personal experience with was a large number of metal industrial buildings that were built in Jamaica and were confronted by Hurricane Gilbert. These metal buildings were about twenty in number and were built with great care by a designer of Canadian origin. Hurricane Gilbert struck with winds that in their intensity represented the most severe storm of the century.

The designs were carried out and the construction procedures were very carefully monitored. In contrast to the majority of the construction that was present, none of these buildings were damaged, but surrounding each of these buildings was a colossal amount of damage, which creates a problem for the community. Not only is the economy affected by the loss of such structures, but the recovery operations are extremely difficult. So the survival of buildings can have an enormous impact on the economy and the viability of the community.

Another example, which again comes from the structural end, is the use of simple changes in technique for designing roofs. A gable roof is a very normal kind of roof in most Canadian communities, and sometimes what we call a hip roof is used. Monitoring of disasters has tended to suggest that the hip roof, for the same amount of material in the roof, will have the strength capacity that perhaps is double that of the gable. This simple technique is not publicized very extensively.

Another example of earthquake mitigation is provided by Dr. Arya, who is an active member of the IDNDR and president of an outstanding engineering school in India. He was very concerned by the loss of life and injury in peasant housing constructed with rubble walls and heavy wooden rafters. The effect of earthquakes on these types of structure was very severe. Dr. Arya worked out a system of lintel beams and ring beams and concrete pins, which would tie the walls and roof together much more effectively. Dr. Arya took the problem further and prepared talks that could be taken to the village to show how the simple retrofitting of the structures could be accomplished, and took particular care to demonstrate the technique of the construction methods to women in the village, since the safety of the home was very much their concern.

The tools for disaster mitigation fall into roughly five categories: land use planning; warnings; engineering standards and building codes; insurance; and new technologies.

We've discussed the great benefit of land use planning already, but it is important to recognize that this is one of the principal weapons for reducing natural disasters.

• 1640

Warnings have come in a variety of forms and have enabled evacuation and protective measures to reduce loss of life and injury. Warning systems are available for almost all natural hazards except perhaps earthquake. Satellite imagery can be used, for example, to detect changes in surface elevations, hence floods and building damage. Propagation of surface waves allows the detection of tsunamis or tidal waves as well as earthquakes.

Computational forecasting methods can determine the landfall of hurricanes and the onset of severe weather. The most challenging part in using this ability is the last stage of linking the signals to human response. Much thought needs to be given to the spectrum of human needs to overcome the barriers of language, age, and health, as well as geography.

A primary cause of disasters is the failure of structures as a result of lack of quality in design, design construction, or materials. Building codes and engineering standards are intended to overcome these flaws. Their failure to do so may be due to poor training in construction, low-grade materials, or inadequate code requirements. The upgrading of training in the construction industry is an urgent requirement in many jurisdictions, in developed as well as less developed countries.

New technologies are among the most promising areas of disaster mitigation. Over the last two decades we have seen the emergence of a variety of new computer-linked communication systems, such as geographic information systems, remote sensing, and methodologies involving risk analysis. These new technologies and educational opportunities open doors to more interdisciplinary approaches and sustainable disaster mitigation.

I'd like to offer two or three principal conclusions. Most of these focus on reducing the risk of catastrophic losses.

The CNC-IDNDR recommends strongly that the federal government should proclaim a national mitigation policy as advocated by the Institute for Catastrophic Loss Reduction in their inquiry and report.

To continue the work on natural disaster reduction initiated by the decade, the CNC-IDNDR recommends the establishment of a successor national committee that is representative of the three levels of government. A task force on the CNC-IDNDR was formed and invited to report back in November. The objectives of this committee would be to foster research, education, and awareness in natural disaster reduction, leading to safer communities. The support of this approach to the formation of a follow-up committee would be much valued and appreciated.

Thank you very much, Mr. Chairman.

The Chair: Thank you very much, Dr. Davenport.

We're going to allow a question for each member who wants to ask a question and then we'll get the panel to respond to the questions. So you'll have to make the question precise, concise, and to the point.

Mr. Harris.

Mr. Richard M. Harris (Prince George—Bulkley Valley, Canadian Alliance): We're not going to do the time thing, we're going to just do one question?

The Chair: Yes, if that's okay with you.

Mr. Richard Harris: Sure. Do we only get one?

The Chair: You could do question one, subsection (a), (b), and (c).

Mr. Richard Harris: I think I'd like to try that.

Mr. Nick Discepola (Vaudreuil—Soulanges, Lib.): You've already asked your first question.

The Chair: Go ahead, Mr. Harris.

Mr. Richard Harris: Thank you to all the panel for presenting a picture of the lack of mitigation plans or infrastructure in the case of natural disasters.

• 1645

As a matter of fact—and I'll direct this question to Mr. Bartley—I was quite surprised to find that the federal government in fact had no mitigation funding available when I worked with His Worship, Mr. Euverman, on trying to find funding for the most recent dike, which was built eventually out of their own resources and money from the B.C. government. But it appears to me, listening to the panel, that at one time the federal government did provide funding, such as funding for the Winnipeg spillway and some of the other examples that were mentioned.

When was the decision made by the federal government to withdraw from this type of funding? In your opinion, what were the reasons behind it? It appears to me that we now have only a response type of situation.

Mr. Allan Bartley: I have to say that I can't answer that question directly. I suspect it is almost an historical question. I would have to get back to you with some detail in that area.

I will say that some activities go on in the emergency preparedness area that could be characterized as mitigative activities, but they are not on the scale of large, structural, public works types of projects.

I will look into the historical reasons around this.

The Chair: Mr. Bruce.

Mr. Richard Harris: Yes, perhaps I could extend that to him.

Mr. James Bruce: Perhaps I could add to that point. The national flood damage reduction program, which was a cost-shared federal-provincial program and assisted, in some cases, with dikes and also with flood plain mapping and zoning, was carried out by the Department of the Environment.

In the large reductions in budget—over 30%—which that department had over the past few years, I guess they had to make some tough choices, and since they didn't pay out the disaster relief funds, they thought, well, perhaps they'd better reduce this funding for the flood damage reduction program. The funding has effectively disappeared over the past three or four years. The funds that used to be available for flood disaster loss prevention are no longer available from Environment Canada—or from anywhere else in the government, as far as I know.

Mr. Richard Harris: Do we have an estimate of what a mitigation dollar would save in a payout dollar?

Mr. George Anderson: Not directly, but we know, for example, that the Winnipeg spillway investment has been recouped something like 17 times since that investment was made.

One of the proposals we're making, Mr. Chairman, is that before these projects go ahead there be a cost-benefit analysis. I imagine it will vary, but I think there's no question that overall the payback on these investments is very high, and almost immediate, of course, as soon as you get a flood or a major disaster of some kind.

The Chair: Thank you.

Madam Girard-Bujold.

[Translation]

Ms. Jocelyne Girard-Bujold (Jonquière, BQ): Thank you for appearing before the finance committee today, gentlemen. All of you have given us a great deal of food for thought, and we therefore have a number of questions.

There is one question I would like to put directly to Mr. Nicolet; during the two disasters in Quebec he was entrusted with the task of establishing the Nicolet Commission in the Saguenay—that is where I am from—and to carry out a study on the ice storm.

Mr. Nicolet, in this matter the responsibilities are twofold, to identify causes and meet with people in order to produce a report, but also to open up avenues on the kinds of measures that should be taken when extreme weather events occur. Could you give us an overview of your conclusions, and make some suggestions as well?

Mr. Roger Nicolet: You are touching on a very broad subject. If I were to begin by giving you my conclusions, I believe that we must concede the government cannot divest itself of its commitment to be involved, both throughout the process and at the end. The government's presence is essential, and will unfortunately become more rather than less important, as we face new issues associated with the climate change that today cannot be predicted with any assurance or certainty.

• 1650

Ms. Jocelyne Girard-Bujold: I also sit on the Environment Committee. I am extremely interested in the problems you mention.

Mr. Anderson, like another of the witnesses, you stated that some of your projects had been set aside. I don't know which of you two was involved. I would like to know why ongoing projects were set aside and in what sector they were. I don't remember which of you had mentioned this.

Mr. Roger Nicolet: These were probably projects to map flood- prone areas. This was a joint program financed by the federal government and provincial governments. The program exhausted its funding three years ago, and now each province has its own resources. In some cases, the program is continued on a cost- sharing basis between the province and municipal corporations, as required.

Ms. Jocelyne Girard-Bujold: Mr. Nicolet, a few moments ago, you were saying that knowledge about the weather in each region had to be improved. What did you mean by that?

Mr. Roger Nicolet: Each region in Canada has its own climate variations. Climates change has a different impact on every region, and we cannot use Canada-wide statistics to develop trends and predict the impact of climate change on micro-climates, by which I mean “micro”-climates as opposed to the Pan-Canadian climate. In other words, we cannot predict what will happen.

Therefore, we should make an effort to study climate change not only on a global, or planetary, scale, but also on a regional and provincial scale.

Ms. Jocelyne Girard-Bujold: What should the provincial governments and the federal governments do right away, immediately, to deal with this? What do you expect from the Finance Committee? I realize this is a very broad question.

[English]

Mr. George Anderson: Perhaps I'll try to answer it. Specifically from our point of view—and I think this is a widely shared recommendation, although I don't speak for the people here—in our consultations across the country there has been very strong support for looking at making these kinds of investments at the community level eligible, and highlighted as eligibility criteria, in the new federal infrastructure program.

There's also support for negotiating, in the federal-provincial agreements, a recognition that this kind of work certainly ranks with some other priorities that have already been mentioned by the federal government as worthy of investment, making communities more resilient, and negotiating in the disaster recovery financial arrangements act a proposal to invest in mitigation at the time disasters occur. It's really part of the recovery process for a community to do something proactive to help themselves on the heels of a natural disaster.

[Translation]

Ms. Jocelyne Girard-Bujold: Thank you.

The Chair: Thank you, Ms. Girard-Bujold.

Ms. Leung.

[English]

Ms. Sophia Leung (Vancouver Kingsway, Lib.): Thank you, Mr. Chairman.

Thank you all for your very fine presentations. We are very short of time.

I have a question for the mayor from B.C. Welcome. In your recommendation you suggest all the different levels of government and the private sector should identify some high-risk areas to construct protective dikes. Are you presently able to identify those high risk areas, or does there have to be a sort of study?

Mr. Tom Euverman: Thank you. We put that recommendation in there because we had identified this as a high risk for some years, and we were unable to get any funding. Had we been able to get the funding, we obviously would have saved a lot of money.

I don't know which one, but if the call were put out to each individual community asking about their high risks or priorities, you'd get a lot of response.

• 1655

Ms. Sophia Leung: How would you identify agreed-upon risk areas? That would probably require some technical study on health. How would you derive that?

Mr. Paul Kovacs (Senior Vice-President, Policy Development, and Chief Economist, Insurance Bureau of Canada): If I can just add to that, the work done in cooperation with the insurance industry and Emergency Preparedness Canada, where we went across the country and talked to a lot of experts in the field, definitely highlighted the role of cooperation among the federal, provincial, and local governments. The expertise is there locally. Somebody can just stand up and say that's where the flood was last year, but you need to take the experience of what works from some other part of the country and financial resources from across the country.

It's one of these unique partnerships where the true counsel and advice start at the local level, but you need the full cooperation, or we start talking about systems that were once there but aren't working any more. In the experiences we studied jointly, other countries have done this. This can be done; it exists. Australia, the United States, and other countries we've researched together have found ways to do this and make it effective.

The Chair: Thank you.

Mr. Epp.

Mr. Ken Epp (Elk Island, Canadian Alliance): Thank you.

I would like to address my questions to the issue of payout after the disaster part of the equation, without in any way minimizing the importance of prevention. I think that message has come through loud and clear.

To the insurance people, I know that insurance premiums are built on actuarial estimates of what the projected costs will be, plus the cost of operation of the insurance company, plus profit, plus a contingency factor in case the losses are bigger than we expected—and then they're doubled.

Mr. George Anderson: Actually, projecting it would be closer to the truth these days.

Mr. Ken Epp: That was my question. How confident are you in your present projections of losses in the private insurance business?

Mr. George Anderson: We're pretty confident. There are models that exist that tell us, with a fair degree of accuracy. They are built on long historic experience, some of it over many decades, and they seem to be holding up well.

Certainly the best example of being prepared to deal with a disaster is the way we responded during the ice storm in Montreal. While I wouldn't claim we predicted that would happen when it did, a disaster of that scale in another country with another industry would have brought down its insurance system. I think we responded, together with governments, extremely well. In fact, it's a model for how you would behave in a situation like this. Over 700,000 claims were made, and the vast majority were dealt with very expeditiously. Of course, when you have that many claims you always have one or two that don't go smoothly. But on the whole, that's a good example of how prepared we are.

We're reasonably confident we could also respond to a reasonable-level earthquake in British Columbia. That was not the case seven years ago, but we now have models that will tell us, based on historic experience and some of the California experience, what our exposure is likely to be. We feel moderately confident in our ability to get that right.

Our worry is the public side of all of this—that the damage done to bridges, roads, schools, and basic infrastructure is not being properly dealt with. In that case, people will not be able to work; they won't be able to get to work. Some of the facilities that are there to respond to emergencies in an earthquake are going to collapse because they haven't been shored up.

In Vancouver, for example, they tell you to go to your local school. But if the school is gone, it's not going to help. That's our worry now. Frankly, we're not as worried about the insurance risk. We feel we have a reasonable handle on that. It's the public risk we're here to talk about.

Mr. Ken Epp: Okay. I want to just look at this. A disaster is usually a huge loss, and insurance companies deal in the sum of thousands of little losses. Are you co-insured, or do you work together with the federal government, so when you run out of money there's a source of a lot of money available to you so nobody who has paid a premium is left hanging?

Mr. George Anderson: I just can't help but say if we had the federal government as a financial partner in business, we'd be very happy, particularly right now. But there are reinsurance facilities around the world where this risk is set off against larger pools of capital. That's what allows us to protect against these kinds of disasters.

• 1700

Also, the regulatory environment in Canada is very strict, in terms of the reserves that have to be put aside. There has been recently, through the work of this committee in the last few years, a provision made that allows us to take advantage of putting away reserves for earthquakes in a tax-effective way. So we have the ability to lay off these risks in a variety of ways, but unfortunately, not to simply lay them at the door of the federal government.

Mr. Ken Epp: As a free enterpriser, I'm not much in favour of getting government involved in these businesses, but because of the degree to which the infrastructure is built and shored up against potential disasters like flooding and earthquakes, I'm wondering if there should be some sort of cooperation between the insurance companies and the government, so there's motivation for the government to put money into infrastructure programs that address this question, since it prevents a potential loss for them.

Of course, the other question is whether insurance companies are going to start paying for prevention. I know they do now. For example, if I have an alarm in my house, I get a cut in my insurance premium. If I live on the flood plain in Manitoba and build an eight-foot dike around my place, does the insurance company give me a break on my insurance? Are they prepared to make that kind of contribution?

Mr. George Anderson: In general terms, if you take mitigative action with respect to your personal safety and security, you will find insurance companies responding to that. There are risks we cannot underwrite, flood being the primary one, simply because the nature of the business doesn't allow us to set a premium that would be at all reasonable. The only people who would buy flood insurance would be people who were about to be flooded. Consequently, every policy you had would have a claim, and it would be an enormous claim.

That's an area where cooperation between insurance companies that fund some aspects of flood, for example sewer backup, and public agencies is very important. There's no point in private companies taking care of themselves if the environment of the infrastructure around them is not sufficiently resilient to deal with the problem when a disaster strikes. So I think we need closer cooperation between governments and ourselves on this matter. That's what we're here advocating.

The Chair: Mr. Bruce.

Mr. James Bruce: I'd just like to add one point for the committee. I think you should realize that the cost to governments of payouts after disaster have gone up much more quickly, in the last 15 years, than the costs of the insurance industry.

Mr. Ken Epp: Why?

Mr. James Bruce: It's partly because of the point that was just made that insurance for floods is a very difficult thing to write and isn't very common in Canada.

The Chair: Mr. Hilstrom.

Mr. Lorne Nystrom (Regina—Qu'Appelle, NDP): I certainly want to echo the theme I heard here today that the federal government cannot remove itself from its obligation to be involved. Perhaps we could call it leadership by example, as the theme.

We have a situation in the Fraser Valley, where there was a cost-sharing program for dikes from Hope all the way to Steveston. I believe that program came to an end, but we did develop a very good diking system along the Fraser. We certainly don't want a repeat of the 1948 flood. But where the dikes came to an Indian reserve on the Fraser, where it's totally a federal government responsibility, the dikes are non-existent or next to non-existent. That's kind of a ticking time bomb that I'm raising, and that's the current situation in the Fraser Valley. That's an issue of federal obligation.

The major disaster we're facing in the lower mainland is the leaky condo situation. The Barrett commission has held a lot of hearings on that and has tried to sort out that very complicated issue. The theme I bring back is a system-wide failure of insurance and municipal, federal, and provincial governments.

It doesn't seem, in the unfolding of this, that the insurance companies are really much of a player at all. The Barrett commission has estimated that the disaster we're looking is $900 million. So when people discount that, in comparison to the Quebec situation or the Winnipeg flood, I have a different opinion of that.

I was just wondering what suggestions or comments you could make specifically about the leaky condo crisis in British Columbia, and how we could maybe get our way out of that. There's an element of prevention and there's also the historical issue.

• 1705

The Chair: Mr. Anderson.

Mr. George Anderson: I think, Mr. Chairman, that we have to be more confident than we are now that we know the cause of this particular problem. I have to be quite careful about what I say as a result of that, but I think there are some lessons that can be drawn from this.

Part of the difficulty, of course, is that the warranty system is not there performing the way it ought to for the people that have insurance. Another part of the problem, I would suggest, perhaps has to do with the absence of strong enforcement of some building codes at a time when the economy is very hot and people are building very quickly.

I think there are some lessons to be learned from that. Certainly when you have public systems such as warranty programs that are there to protect people, we have to make sure that they're going to survive the kind of disaster that befell condo owners in British Columbia. I think this is something Mr. Epp talked about.

The other one has to do with making sure that the codes we do have get enforced. We've talked about land use planning here and the importance of land use planning and flood management, but if you have a plan and you don't enforce it, if you have codes but you don't enforce them, if in places in Toronto now building is beginning to encroach again into the flood plain area or it's the same thing in Atlantic Canada, you invite a repeat of the disaster that befell you.

That's a very general answer, but I think, in fairness, that it's as far as I can go at the moment.

Mr. Paul Kovacs: If I could just build on the comment with respect to enforcement, there is considerable research on other events, which we can share, but the two of us are not familiar with the details of the leaky condo in British Columbia.

If I may, I will cite the example from Florida where Hurricane Andrew went through in the early nineties and did enormous damage. There was a study done before the event saying that it did not look like building codes were being enforced. After the event, it looked like 30% to 40% of the damaged structures should have survived. They just weren't built according to the rules that had been agreed to by society.

So there are examples in other jurisdictions, and research may show that this applies to the leaky condo circumstances as well. We think about the rules and we develop the rules as a society, but if we don't enforce them properly, they are not going to accomplish what we set out to do.

The Chair: Any further questions, Mr. Nystrom?

Mr. Lorne Nystrom: I'm just wondering if anyone else wants to comment specifically on the leaky condo thing if you've been following it, because it's certainly very fundamental to the economic viability of the community. Normally 25% of real estate turns over in a year; there are changes in 25% of addresses in the phone book. But this has brought almost an economic gridlock to the community, whether you sell furniture or whatever, and of course it's affected a lot of the elderly, who are stuck in inappropriate accommodation.

It's like the human stories we got from the Winnipeg flood, and yet we had the mitigation measures there. In the Winnipeg flood area, you got $60,000 for mitigation and for moving your house or whatever, whether your house was flooded or not. But at the federal level here on the leaky condo issue, despite all the presentations, there has basically been zero from the federal government, and not even any leadership on the issue even though it is what I characterize as a system-wide failure, both in the private sector, with developers, designers, and all the rest of it, right through to municipal inspections, lack of provincial oversight, the federal building code, the complicity of CMHC, and all of that.

I'm just wondering if anyone else could give us some advice on that specific problem.

The Chair: You seem to have an opinion on this case. Is that right?

Mr. Ken Epp: Can I ask a question?

The Chair: Yes.

Mr. Ken Epp: Since I'm on this side of the table.... That's not a natural disaster. It's a man-made disaster.

A voice: No.

Mr. Lorne Nystrom: That's the cop-out, the first type of response that we got from the minister when he laughed at me—

Mr. Ken Epp: Do you want to sign me up?

Some hon. members: Oh, oh!

Mr. Lorne Nystrom: —and discovered that maybe some of the investments that he had himself were also involved in the issue.

The Chair: Do you want a rebuttal, Mr. Epp?

Mr. Ken Epp: Oh, no, we'll quit.

The Chair: Mr. Discepola has a question first. Mr. Discepola.

• 1710

Mr. Nick Discepola (Vaudreuil—Soulanges, Lib.): I was tempted to let them have my place.

How was the $750 million fund arrived at? Is it based on an inventory of needs and projects that you envisage? How will that fund be funded? Is it just federal money you're asking for? Are the provincial and municipal governments on board? If they are on board, how committed are they? Having lived the Quebec experience, I can tell you that my premier didn't go around telling everybody who received compensation that 90¢ of every dollar came from the federal government. If you're the premier of a province and you have an agreement in place with the federal government that they're going to pick up 90% of the tab anyway—it's a more complicated formula than that—then why would you be concerned about disaster planning or anything else?

I have one more question. Mr. Epp touched on it. If we use this fund for, I presume, preventive measures more than anything else, how are you going to attribute those funds? I'm talking about the federal government now. You evoked the use of the infrastructure program. I think phase one of the infrastructure program worked very well throughout Canada. In phase one the little hamlets in my communities and my town got a proportionate amount based on their needs. In phase two the provincial government used all the funds and did provincial works with them. What guidance do I give the minister who's negotiating this as to what priority areas you'd attribute? It would seem to me that the best priority area would be based on need, where you get the biggest bang for your buck. I see it as a complicated proposal. Help me out.

The Chair: Mr. Anderson.

Mr. George Anderson: The apportionment of federal dollars has never been an easy thing in Confederation, as you well know.

In answer to the question about what the distribution ought to be, our thought was that it could be a cost-shared situation where the federal government, the provincial government, and the municipalities equally share. Lots of programs have gone ahead on that basis over the years, and we think that would be an appropriate thing to try for. With regard to the municipalities, while they're financially strapped, as all governments are to some extent these days, any time you can get $2 or $3 for investing $1, I think that's viewed at the municipal level as a good deal.

With regard to the degree of provincial support, again it won't surprise you to learn that our research would indicate that it is not unanimous and at the same level everywhere across the country, but it's surprisingly positive. We have in fact letters of endorsation from the Premier of British Columbia and the minister in New Brunswick, and we have been, I think, quite confidant of receiving these kinds of letters of support right across the country as the Treasury Board has gone out to negotiate and talk about the new infrastructure program. I think it's fair to say that every one of those conversations in the provinces had something to say about this particular problem.

How the program evolves over time I think is very much a matter of getting agreement within the agreements about how to sift the priorities of the various projects. I think you do have to be quite deliberate about what kinds of mitigation projects you're going to fund and what the priorities are, and that only can be done, I think, region to region. As I indicated, across the country these problems vary. There are people in Calgary dealing with hail damage, and people in Nova Scotia rarely see hail damage, so I don't think you can develop national criteria. But I think each federal-provincial agreement can say what the priorities are, and those projects can be judged that way and secondarily in terms of the cost-benefit they will deliver.

Mr. Kovacs is also executive director of the Institute for Catastrophic Loss Reduction, and he may have something to say by way of elaboration on this.

Mr. Paul Kovacs: Our sense about the number, the $750 million, is that the federal government has paid most of the bill of about $500 million a year in recent years. We were just trying to find a responsible number. We believe people can come forward with a lot of very good projects. We've heard about some from those around the table today. The limit should be that projects should definitely be able to prove ahead of time that the savings will greatly exceed the cost. If somebody can't prove that, they shouldn't be funded. Our sense is that there will be quite a few projects come forward as the program gets known.

• 1715

The $750 million would be 10% or 15% of the announced infrastructure program. It's not like it would have to magically appear from elsewhere. The infrastructure program is meant to meet a number of other objectives as well, and there would be sufficient resources, we suggest, to meet those other goals and also to have funds available to do a realistic investment on this front.

We do believe the previous experiences on infrastructure have worked. They've found that appropriate way to find the provincial priorities and the local priorities and to build that into a national program and to not end up in a circumstance where people have a good idea and today can't get money.

The Chair: Thank you, Mr. Discepola.

Next is Mr. Harris, followed by Madam Girard-Bujold.

[Translation]

Ms. Jocelyne Girard-Bujold: Thank you, Mr. Chairman.

[English]

The Chair: Madam, I said Mr. Harris first and then you.

[Translation]

Ms. Jocelyne Girard-Bujold: I apologize.

[English]

The Chair: This is good. They're fighting over questions. That's a good sign.

Mr. Richard Harris: Is this a made-in-Canada proposal, or are there some examples of other countries that have gone along on a proposal like this that we can draw some good or bad experiences from? I imagine they're mostly good, if there are some examples. Otherwise, you wouldn't be here. Where could we look for a federal-provincial-municipal plan that has been in place?

Mr. George Anderson: There are models around the world where countries have taken on mitigation efforts. Naturally, they vary according to the kind of political and governmental structure the country might have. Some of the most prominent ones are the United States, where we did pick up the idea through FEMA of making these front-end mitigative investments. In fact, after the ice storm, which affected part of the northeastern United States, as you know, those kinds of investments were made. FEMA did put money in. In the Canadian context there was no mechanism for that to happen. So that's an example. The United States has a fairly active program. Australia has formed an intergovernmental group to look at mitigations. France has a very good program. So around the world there are models that do work. I'd like to claim that we invented all this ourselves, but, being Canadians, we took a little bit from everybody else's examples. There are working examples in the world now of how these kinds of programs save lives and protect communities.

Mr. Paul Kovacs: The part I would add is that the insurance community co-funded with the federal government, with Emergency Preparedness Canada, workshops to bring together experts from around the world to share these ideas. We were trying to do as transparent a process as possible so that the best ideas and some flaws in some of these other programs were on the table as we thought carefully about what would work here.

At a very high level, a difference between, for example, what Australia does and what the United States does is that the Australian approach is much more state or provincially directed, and the American approach is much more federally directed in terms of how they handle this issue. I would think the mechanics and the specifics are not so different. It's a little bit more how it's operated.

But we did try very hard to bring these international experiences to the country and to share in the funding and the research. Most of this was available on the web and in a number of different ways so that other experts could comment on the findings.

The Chair: So, Mr. Kovacs, there's no need for this committee to travel. Is that what you're saying?

Some hon. members: Oh, oh.

Mr. Richard Harris: The $750 million would be for each of the three participants, so what are we talking about, $1.5 billion plus another—

Mr. George Anderson: No, it's $750 million in total for all participants.

Mr. Richard Harris: Oh, it's for all participants. Okay.

Mr. Nick Discepola: It's $250,000, $250,000, and $250,000.

Mr. Richard Harris: Yes.

I'm afraid to say this in the company of some Liberals here, but it doesn't seem like a lot of money to look after all the mitigation needs out there. Are you confident that number is enough to make a dent in the thing?

• 1720

Mr. George Anderson: No, but you have to take small steps before you run. I guess our sense of this is that it was not practical to come here and to try to suggest that every dollar of infrastructure money ought to be spent on mitigation when we know there are other needs in the country.

We're trying to suggest that we can learn by doing projects and building on our experience, and we can get momentum going and deal with some of our more obvious exposures. That would be a good start. We don't always have to solve every problem in all its ramifications to make improvement. I guess that's our sense of this right now.

Mr. Paul Kovacs: If I can add, if the government were, as we proposed, to include the test that each proposal has that key demonstration that the savings exceed the cost over the longer term, should there be more than $750 million of ideas that are clearly going to save a lot of money, I think it would be a relatively easy decision to put more into it; it will pay back so quickly. If we don't generate more ideas, then don't put more money; don't even put that much.

Mr. Richard Harris: Cost-benefit analysis is absolutely key for this thing to work.

The Chair: Thank you, Mr. Harris.

Madam Girard-Bujold, for the final question.

[Translation]

Ms. Jocelyne Girard-Bujold: Mr. Anderson, I am quite startled by what you said. You said that our equipment is getting old, that we have had catastrophes, and that we have had to draw conclusions from those catastrophes. You also tell us, however, that you want $750 million to take action. Personally, I believe that we should begin at the beginning.

I believe that municipalities, provincial governments and the federal government should sit down with you to establish an action plan so that we would not have to start from scratch each year. This would be an action plan that would bring us forward in renewing our infrastructure.

Rather than asking for money to invest in mitigative measures, do you have a plan to suggest to the municipal, provincial and federal governments? I would like us to move away from mitigative measures and establish permanent solutions. You talked about what Europe and the United States are doing. We can use their approach as models for ours.

We are a responsible government. I would quite like to tell you that you could do what you wish and that we would simply patch things up and not worry about the future until later. As you know, however, there is not a lot of funding available. So, we will have to start making progress.

[English]

Mr. George Anderson: We agree with that. In fact, I don't think we're suggesting, and I would be remiss if it came out this way, that we approach these investments willy-nilly. I think there are at the municipal level and at the regional level plans for how to cope with these issues.

For example, I'm looking at an article here from the City of Vancouver in which there is a plan for coping with earthquakes, a long-term plan, but no money. There are examples we heard earlier today of people who have plans, who know what to do, but can't get the money.

I think it ought to be a requirement of anybody asking for money that it not be a one-time isolated guess as to what should happen in a community to guard against disasters but be part of a coordinated strategy. That can only happen if all the levels of government and the private sector work together. My belief is this is an enormous opportunity for all of us to show what we can do in a very important area, an area that in the last four years has threatened the lives of four million Canadians.

So I think the willingness and the plans are there. We are missing a political push right now, and we're missing an allocation of funds by all levels of government.

[Translation]

Ms. Jocelyne Girard-Bujold: Yes, that is the willingness we need. That is what all witnesses have said.

I have lived in the Saguenay. My sister lost her house to the river. I experienced that disaster myself. I do not want to hear you say that we will learn nothing from those disasters.

Mr. Nicolet presented some excellent conclusions. So why are you telling us that everything is in the governments' hands? Don't people sit at the same table? Or if you do sit at the same table, what is it you have come to say? What do you expect of everything that has happened?

[English]

Mr. George Anderson: I'm not sure I understand the nature of that question.

• 1725

What I expect as a result of the kinds of disasters we've had is that we would begin to share these experiences, one region to another. We would begin to learn from what happens in the Red River or the Saguenay, and rather than sharing, as Canadians very generously do, aid to recover when the disaster hits, start sharing ideas about how to prevent them in the first place.

We in the insurance industry are working with the government right now to build that infrastructure. We funded, along with the Province of Ontario and some other players, the Institute for Catastrophic Loss Reduction, to begin to look at how we can transfer this information from one segment of society to another and not be caught with a situation where what we learn as a result of the Saguenay doesn't get acted on, and not only there but doesn't get acted on in other parts of the country. So as I say, I think this is an opportunity for all of us to participate in something that will benefit citizens in local communities from coast to coast, and we're here to appeal to make that happen.

[Translation]

Ms. Jocelyne Girard-Bujold: That is what I wanted to hear. Thank you.

[English]

The Chair: Mr. Epp.

Mr. Ken Epp: I have an interesting story. I used to live in Edmonton, Alberta. They have a beautiful valley running right through the city. It's really gorgeous. A far-sighted city council decided that because we get a flood there once every 15 years, as the old homes at the bottom were moved out of by the people, the city would buy them, and eventually it would become a large park, and if there were a flood, the reclamation of the area after the flood would be at a minimal cost because it would just be some trees and grass and things like that that would have to be replanted.

They were about one-half or two-thirds of the way there, and the city council changed and said no, we're losing a lot of assessment down here. As a result, they once again opened it up for builders. They tore down those old homes and put in beautiful new million-dollar homes all along the valley. It's beautiful. It's a wonderful place to live. But every 15 years, the taxpayers and the guys who pay our insurance premiums are going to build them a new home because these guys missed an opportunity.

I don't really have a question, but I thought of that as one example where a really low-cost mitigation could have been implemented, and they chose not to do it. So boo to the city council of Edmonton.

[Translation]

Ms. Jocelyne Girard-Bujold: [Editor's note: Inaudible]

[English]

Mr. Ken Epp: I guess that's now on the official record. That should get me in the news.

Anyway, it's a good example of stupidity, and I'll say it on the record.

The Chair: That's duly noted.

On behalf of the committee, I'd like to thank you very much. As you can probably tell by the number of questions we've asked, plus the fact that we skipped a vote, we find this is a very important issue and it addresses a very important need.

To me, what's really fascinating about this issue is the fact that the benefits are self-evident and that investment in this area, in prevention, is crucial.

We never think it's going to happen to us. I think that's human nature. You never think it's going to happen in your area, or in your community, or to your family. But things do happen, and they happen more frequently than we'd like. Quite frankly, I think being ready is a fiscally responsible thing to do, above and beyond the benefits that our citizens would draw from it.

I think this committee has a great opportunity to exercise some leadership on this particular issue, and as we gather in the next meeting we'll have to discuss perhaps actually presenting a report to the House of Commons on this particular issue, and hopefully this will also kick-start what I think is necessary, going back to a comment made by Mr. Anderson, that we find cooperation among the three levels of government as quickly as possible, particularly now that this new infrastructure program is being looked at seriously by all three levels of government.

• 1730

On behalf of the committee members, I'd like to thank you very much. For those of you who travelled to Ottawa, I hope your stay is a pleasant one, as pleasant as ours has been listening to you.

The meeting is adjourned.