Background
The purpose of Disaster Financial Assistance (DFA) is to provide assistance to individuals who are unable to purchase insurance coverage. Unfortunately, the program has remained largely unchanged over the last 50 years and it is failing to fulfill its intended purpose in a world experiencing the destructive impacts of climate change.
There is a desperate need to update the DFA program to address these new challenges, fill gaps and ensure that it is able to fulfill its intended purpose of providing a safety net for those unable to purchase insurance coverage.
The purpose of Disaster Financial Assistance (DFA) is to provide assistance to individuals for their principal residence and to help small business/farm owners when their livelihood is at risk. The DFA program may also reimburse local governments for damaged infrastructure.
Disaster Financial Assistance is a provincial program, administered in British Columbia by Emergency Management BC (EMBC), to help individuals and local governments recover from uninsurable disasters.
The DFA program operates under the Emergency Program Act and the ensuing Compensation and Disaster Financial Assistance Regulation and is obliged to provide compensation in compliance with this legislation.
The provinces have the responsibility to provide disaster financial assistance, but the federal government heavily subsidizes their DFA programs through its Disaster Financial Assistance Arrangements (DFAA) which were put in place in 1970.
DFA is available in the event of a disaster in respect of which the minister, or designate, has determined that disaster financial assistance may be provided.
When this determination is made, EMBC defines the eligible dates and geographic locations, notifies affected local governments, posts this information on its website, publishes information in local papers, and if requested attends community meetings.
Local Governments and individuals in the following categories may be eligible: Homeowner, Residential Tenant, Small Business Owner. Farmer and Charitable Organization.
What is eligible for DFA?
- DFA can compensate for 80% of eligible claims, after the first $1,000 to a maximum claim of $300,000. There is no maximum for a local government claim.
- DFA is only for uninsurable losses and for losses where there is no other program offered by local, provincial, federal or international governments or agencies.
- DFA is available for essential items only. It provides or reinstates the necessities of life, including help to repair and restore damaged homes and to re-establish or maintain the viability of small businesses and working farms.
The DFA program existed largely unchanged for 45 years, until 2015. At that time a few changes took place, most notably: The federal government tripled the damage thresholds that determine whether, and how much, assistance will be provided to the provinces through the DFAA. These thresholds, formerly unchanging over time in nominal terms, are now fixed in real terms.
Unfortunately, these changes have little impact for business and homeowners who struggle to access the DFA program. In addition, the DFA program is in desperate need of updating to address emerging issues:
- The claim process is complex, requiring multiple documents depending on the stream, yet the eligible expense coverage is very prescriptive.
- DFA only provides coverage for damage for which private insurance is “reasonably and readily” available. Note that “reasonable” does not mean “affordable”.
- DFA can compensate for 80% of eligible claims, after the first $1,000 to a maximum claim of $300,000. (Insurance Bureau of Canada, 2019, Appendix VIII). With record inflation and sky-rocketing real-estate prices this value does not reflect the cost of doing business in todays dollars.
- DFA is only available in the event of a disaster in respect of which the minister, or designate, has determined that disaster financial assistance may be provided. This is not reflective of micro-pockets where insurance is not available.
- The current application deadline is 90 days from the date DFA was authorized. Individuals are overwhelmed with immediate high priority tasks during and following a disaster event. Often times this time period elapses without individuals realizing that a deadline to respond even existed.
- The applicant is allowed 60 days from the date of receipt of the initial determination to deliver to the Director of PEP, a written notice of appeal, otherwise the determination is final and may not be appealed. Many applications are rejected, not on the basis of the claim, but rather for incomplete applications.
- DFA will not be provided for costs in relation to any contents located in basements, crawl spaces or similar low-lying storage areas, unless these areas are being used as essential living areas for home owners. This exclusion is a throwback to the original primary purpose of DFA which was to cover uninsurable losses, which historically was only flooding.
- Specifically for the Small Business Owner Stream:
- To qualify as an eligible small business the business must have gross sales of less than $1 million per year. In 2007, North American businesses with five to nine employees averaged $1,080,000 in gross sales and businesses with 10 to 19 employees averaged $2,164,000 in gross sales[1] – meaning back in 2007 the average business in Canada with more than 4 employees would exceed the DFA eligibility threshold for gross sales.
- The business must be managed by the owner on a day-to-day basis and the business must be the owner ‘s major source of income. This means that any businesses which generate passive income – such as leasing a commercial building, would likely not be eligible for DFA. This would have direct implications for businesses who lease these buildings as they require the space to operate, and they cannot make a claim on the building if they are a tenant.
- The income from the business is required to be the major source of income for ALL owners of the business. Businesses with multiple owners or minority position investors are most likely excluded from accessing DFA with this criteria.
THE CHAMBER RECOMMENDS:
That the Provincial Government
- Update the DFA Program, in consultation with stakeholders, Indigenous communities and industry experts, to address climate change and to make the DFA program more user friendly, including:
i) Streamlining and simplify the paperwork associated with the DFA claim process.
ii) Consider development of an “affordability” for the DFA “reasonably and readily available insurance” criteria.
ii) Reassess the total claim amount of $300,000 to reflect real costs associated with disaster recovery in today’s dollars.
iv) Expand the scope of the DFA program to address issues pertaining to micro-pockets of the Province where no insurance coverage is available – not just major event driven.
v) Extend timelines to increase accessibility. This includes the application deadline, which is 90 days from the date DFA was authorized and the 60 days written notice to appeal a denied claim.
vi) Review blanket exclusions to determine if they are still applicable (all items located in basements for example).
vii) Specifically for the Small Business Owner Stream:
- Increase the gross sales threshold from $1 Million to $2 Million to reflect inflationary pressures and realistic current sales figures for small to medium sized businesses in BC.
- Remove the requirement for the business to be managed by the owner on a day-to-day basis and the owner ‘s major source of income to close the “landlord” gap.
- Remove the requirement for the business to be the major source of income for all owners of the business to reflect the reality of investors and minority partnerships.
Submitted by the Kamloops & District Chamber of Commerce
[1] https://www.forbes.com/sites/elainepofeldt/2019/06/27/million-dollar-one-person-business-revolution-accelerates/#7abf78c64526