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Insurance coverage is becoming more expensive and restricted due to climate change .Insurance coverage is becoming more expensive and restricted due to climate change.
Over the past 15 years, disaster claims in Canada have more than quadrupled, and people are preparing for ongoing premium increases.
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On July 21, in the evening, Jeremy Beeton called his wife Hilary St. Pierre from their West Hans county, Nova Scotia, home in a state of panic. While Ms. St. Pierre and her five-month-old daughter were visiting relatives in Ontario, Mr. Beeton informed her that a severe downpour at home was intensifying and posing a risk of significant damage. He texted her at 2:30 a.m. informing her that their basement had flooded all the way to the top, so his fear was justified.
The 20,000-person rural community on the Minos Basin, which empties into the St. Delacroix and Kenneth cook Rivers, was taken aback by the deluge. The storm, which was the most recent in a string of tragedies to hit the province, dropped over twice as much rain in a matter of hours—nearly 200 millimetres.
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Ms. St. Pierre informed her husband that their insurance coverage was sufficient in an attempt to reassure him. A few weeks earlier, after her sister’s home, which was only 50 kilometres south of theirs, was destroyed by a wildfire, she had gone over their home policy with an insurance agent. The policy provided coverage for above-ground water damage and fire up to $2 million.
“I specifically requested the best coverage available for any potential natural disaster. I was absolutely certain that the policy I purchased was precisely that, according to Ms. St. Pierre.
The electrical panel, furnace, and hot water tank had all been destroyed by the basement water by the time the storm passed over the following day. Mr. Beet on glanced out to the yard and saw their car half-submerged.
Making a call to her insurer was Ms. Pierre’s first action. The reports worsened. The agent informed her that surface water damage, which occurs when precipitation seeps into a building through a window, roof, or side of a house, was not covered by the policy.
“The insurance company was referring to the nearby river as a flash flood because of its surge despite the excessive rainfall,” Ms. St. Pierre stated. “I sat there in shock. These phrases and justifications were never mentioned to me when I called to confirm that my coverage was complete.
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The couple’s insurance company rejected the claim following a month of disagreements, which included one adjuster visit to their home. The family was left with a $45,000 repair bill as a result, and they joined the increasing number of Canadians who are finding it harder to affordably insure their property against the increasing damage caused by weather.
Climate change is the root cause of the issue. As rates rise, worsening disasters could have a knock-on effect on the economy due to increased premiums and difficulty obtaining the required protection for homes and businesses. Climate change is considered a systemic risk by the Office of the Superintendent of Financial Institutions, which oversees the insurance sector.
the economy and states that providers need to be able to demonstrate that their plans and resources can tolerate weather-related damage that gets more expensive.
According to the Insurance Bureau of Canada (BIC), disaster claims in Canada have more than quadrupled over the previous 15 years, accounting for $3.1 billion of insured losses in 2022, up from just $400 million in 2008.
Among the worst disasters have been Hurricane Fiona, which devastated the Mari times in 2022, and the wildfire that destroyed large areas of Fort Murray, Alberta, in 2016. Additionally, flooding in 2021 submerged the Fraser Valley in British Columbia.
There is no decline in the trend. The industry anticipates paying out at least an additional $3 billion this year in response to wildfires that occurred in Nova Scotia, B.C., the Northwest Territories, Alberta, and Quebec. May saw fires
caused more than $165 million in insured damages in the Halifax area, and in July, flooding in some parts of Nova Scotia resulted in additional insured damages of $170 million. The Nanook Valley fires in British Columbia, which destroyed large areas of West Fellowman, are estimated to have caused losses of $720 million, making it the most expensive insured event in the province.
Canadians, even those who reside in areas free of significant storms or wildfire claims, are already subject to increasing premiums. It is anticipated that this will go on. It looked more and more unlikely that nations attending the COP 28 climate change summit in Dubai this past week would fool fill their promises to reduce greenhouse gas emissions by the amount required to keep global warming to 1.5 C above postindustrial levels and avert the worst effects of climate change.
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Road washouts in July 2023 in Hans County, Nova Scotia. The largest risk associated with climate change in Canada is flooding, like the one that occurred in West Hans this past summer.
Handout from Hasn’t Regional Municipality / Mayor Abraham Inane-West
According to Kathryn Biko’s, director of climate finance and science at the Intact Centre on Climate Adaptation at the University of Waterloo, flooding, like that which occurred in West Hans last summer, is the largest climate-related risk in Canada. Fire rates come in second. As stated in the centre’s disclaimer, “Intact Financial Corp. funds the program but has no control over its research.”
She notes that 1.5 million homes in Canada, or roughly 10% of all homes, are currently not insurable for flood risk, although they may still be for other damages. “Overall, Canada remains an insured nation in terms of flooding,” Ms. Biko’s stated.
However, there is concern that some of the approximately 160 insurance companies that operate in Canada may leave vulnerable areas of the nation or cut back on specific types of coverage in light of the recent chaos in the U.S. insurance industry, where companies have abandoned some regions.
These are widespread and industry-wide issues. According to Swiss Re, a major international reinsurance company, insured losses from climate-related destruction totalled US$50 billion in the first half of 2023, up from an average of US$32 billion over the previous ten years. At least sixteen disasters this year have cost billions of dollars or more, giving insurers little time to recover while handling a deluge of claims.
The largest property and liability insurer in Canada, Intact, predicted that during the next 15 years, the cost of major storms, also referred to as one-in-10-year events, will probably double. From a weather perspective, “it will be a more volatile sort of environment,” he stated.
He has emerged as a prominent worldwide voice in favour of community and industry adaptation to the significant shift in weather patterns during the last ten years. He changed his business strategy during that period to take climate into account, charging different prices for products depending on the climate risk and region.
An insurance gap that affects properties in floodplains that are deemed too risky for insurers to underwrite was brought to light by the devastating flooding that struck the Fraser Valley in southern British Columbia in 2021. Planning for land use that permits construction
According to Mr. Brandi humour, one issue that needs to be taken into account in the current efforts to adapt to a changing climate is low-lying areas that are close to rivers and other waterways.
In a recent interview, he stated, “First of all, you should not be building in floodplains but second of all, the floodplains will get bigger.” “And there will be a rise in the number of homeowners who reside in areas where the risk is too great to obtain insurance.”
According to Public Safety Canada, about 90% of Canadian homeowners have access to flood insurance, but only 40% to 60% of them have coverage that covers losses from flooding. Furthermore, those policies might have restrictions like large deductibles or inadequate coverage amounts.
The fact that a mortgage does not require flood insurance accounts for a portion of that disparity. Homeowners are also discouraged from purchasing this type of coverage due to low public awareness of flood risk and the high cost of policies overall.
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The growing cost of reinsurance, which insurers purchase to shield themselves from an increase in claims when they encounter catastrophic events, is another problem. Like most homeowners, insurance companies use re insurers to renew their policies on an annual basis, and the cost is usually quite high.
When most reinsurance policies were up for renewal late last year, providers all over the world alerted insurers to rising rates.
The arithmetic was altered by several years of sharply rising losses in the reinsurance business, according to Craig Stewart, vice-president of climate change and national matters at the INC.
The “expected” losses that re insurers estimated in their risk modelling were outnumbered by unexpected losses resulting from disasters. Global pricing was no longer rational, and some nations with lower chances of extreme weather lowered the price of their insurance.
As a result, there was a significant repricing, which caused some Canadian insurers to raise their reinsurance rates by at least 20% in 2023. According to Mr. Stewart, there were instances where the increases were even more drastic, with premiums tripling for renewals.
Re insurers also served notice at the same time that they would assume less of the risk associated with insurers’ claims, essentially increasing the amount of money that customers must pay as a deductible before their insurance coverage begins.
This prevented insurers from phasing in the hurt to their own clientele. “Their business model fails as well if they’re not returning what they need to those capital markets and the capital dries up,” Ms. Glitterati stated. Co-operators experienced a “more than 10 to 20 per cent” increase in its own reinsurance costs.
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In the last ten years, Mr. Brandi humour has emerged as a prominent global spokesperson, promoting strategies for communities and industries to adjust to the significant shift in climate.
The Globe and Mail / ABBE TRAILER-SMITH
According to Mr. Brandi humour, early in 2023, the price that Intact had to pay to insure against tail risk—the possibility that insured losses would be much worse than average—rose by more than 20%. Concurrently, the business raised the quantity It retains around 25% of the risk before reinsurance kicks in.
Because it had taken steps to lessen its exposure to earthquakes and changed its pricing in 2022 in anticipation of higher reinsurance rates, Intact was able to mitigate the effects of the increased reinsurance costs on its clients.
But because some insurers haven’t finished adjusting their rates for customers, the industry hasn’t yet felt the full impact of the 2022 increase. According to Mr. Stewart, some businesses are still awaiting word on how re insurers will value the wildfire risk this year before determining how much of it they can take on themselves and how much to pass along to clients.
Rising inflation and growing urbanisation are two more macro trends that are coming together. with the potential for climate risk to raise insurance costs.
Moving to a city or along a coastline increases the likelihood that a disaster will cause more expensive damage, according to Alison Misnomer, Swiss Roe’s head of property underwriting in Canada.
For instance, the population of the Florida west coast, where Hurricane Ian made landfall in 2022, has increased by more than 600% in the last fifty years. Ian was the deadliest storm to hit the state since 1935, with an estimated 109 billion dollars in total damages.
“We think there’s more stuff in harm’s way than ever before when a natural disaster hits an area like that,” Ms. Misnomer stated.
In Canada, the same effect plays a role. The populace for instance, grew by more than 20% between 2016 and 2022 to reach over 235,000, making the wildfire-prone metro area one of the fastest growing in the nation.
The United States, where the insurance industry has had to deal with skyrocketing costs from increasingly destructive wildfires, hurricanes, floods, and tornadoes, has seen a far greater impact from climate change on insurance to date.
Insurance companies have reduced their coverage or stopped operating in states like Florida, Louisiana, and California where price caps on insurance have been in place for many years.
Years of destructive wildfires, floods, and mudslides have plagued California, and some areas have seen a sharp increase in the number of insurers refusing to renew policies—nearly 800%. Currently, two of the biggest U.S. Homeowners in the state can no longer purchase new policies from State Farm and Allstate Corp. insurers.
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Janet Yelled, the U.S. Treasury Secretary, during the COP 26 climate summit in November 2021. She has alerted property owners to the potential financial consequences of a widening “protection gap” for their properties.
IMAGES OF CHRISTOPHER FURLONG/GETTY
The growing “protection gap” for property owners looking to insure their properties is having an adverse economic impact, as Treasury Secretary Janet Yelled has noted in relation to climate-related risk.
When private companies decide that a certain area is too risky for new policy applications or renewals, state-backed insurers of last resort have emerged as the only viable option in some of those areas, offering basic coverage. The effects extend beyond health insurance. Incapacity
14% during the same time frame, costing homeowners $1,779 annually as opposed to $741.
According to Statistics Canada, the cost of insurance has gone up 7.7% in Canada in the last year alone. Two of the biggest increases were recorded in B.C. (10.2%) and Nova Scotia (12.1%), respectively.
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Standing on the back deck of his Redford, Newfoundland home, Saab Alma related how, during the thunderstorm on July 21, water quickly rose above their basement stairs, forcing his family to flee. When it became apparent that the water pooling in the backyard would not stay outside the house, he and his wife Nikki, along with their two-year-old daughter and thirteen-year-old son with special needs, fled.
Water quickly poured in. “We barely had time to get diapers and medication. The water was up to our knees by the time we got into the car. The whole street was completely submerged by the time I started driving,” he said. “How we weren’t all swept away is beyond me.”
He recently received a payout for the first half of his losses, so he can start to rebuild, but the stress is still there after four months of battling with his insurance company to process his claim. He has been given five adjusters so far. With every one, he had to recount the events of the storm.
With a policy that covers sewage, he is among the more fortunate residents on the street. flooding from groundwater backup and up to $190,000. When a friend inquired about his flood protection in May, he decided to add the extra coverage.
However, the hold-up in settling the claim is impeding construction and requiring him to use up his credit limit. After the water subsided, Mr. Alma hired two big industrial fans and a removal bin, and he completely renovated his basement.
Those fans were still running in the basement when I visited recently. “When I purchased this house in 2018, I was unaware that it was situated on a significant floodplain. My family and I would never have relocated here.
He claimed that his insurer’s statement that it is uncertain whether he will be eligible for coverage is even more worrisome. flood coverage if he decides to renew in the spring of next year. He fears he won’t have enough money if he has to shop around.
Their response was a simple “We don’t know at this time,” devoid of any justification or assurance. However, based on what I’ve heard from my neighbours, I don’t have much hope,” Mr. Alma stated.
Homes in areas devastated by catastrophic flooding have sold for 8.2 percent less on average over the last ten years than homes in areas that have not experienced flooding. This may have an impact on loan-to-value ratios. According to the Intact C enter, lenders and insurers may approve or misprision mortgage rates if an unexpected flood risk reduces the value of a property
Don Ives on has long anticipated this. Before entering politics and realising that the overburdened storm sewer system would only get worse, the former mayor of Edmonton remembers flooding caused by a strong downpour in the capital city of Alberta nearly twenty years ago.
“I was concerned that my parents’ house might flood after my condo flooded. I recall getting knee-deep in water while standing in the back lane. Even though it had stopped raining, Mr. Ives on stated that the water was still rising because it was accumulating from everything and had nowhere to go because the drainage system was overloaded.
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Beyond the financial security of insurance coverage, there are other ways to deal with extreme weather, such as public works initiatives that strengthen community resilience, he says. stated. In spite of tight budgets, municipal drainage systems across Canada are undersized for current weather, are deteriorating with age, and will need to be strengthened in the upcoming decades.
When Mr. Ives on was mayor, Edmonton’s utility, Epcot, announced a $1.6 billion, 20-year plan to build dry ponds and install other flood proofing measures, such as control gates and smart mitigation technology, to address flooding in the neighbourhoods of the Alberta capital. That work is just getting started.
After leaving politics in 2021, Mr. Version is currently working on a national initiative to advance climate adaptation projects and infrastructure that is resistant to hail, fires, floods, and other extreme weather with The Co-operators, which is governed by the International Cooperative and Mutual Insurance Federation.
The majority of the work after a flood is done in the basement, with basement repairs costing an average of $43,000 per home. Although less frequent, fire frequently results in the destruction of homes and other structures, increasing insured losses.
“Rebuilding a home involves much higher costs due to the necessary infrastructure installation, resources, contractors, and other expenses. Thus, Ms. Biko’s of the University of Waterloo stated, “insurance companies are looking at it and they are seeing very different costs in the system.”
Building in accordance with their specifications and using updated flood and wildfire risk maps are important ways to lower those risks. Furthermore, insurance companies ought to give their clients advice on fire and flood safety. The urban-wild land interface is the focus of wildfires, where
Trees and other vegetation invade properties, endangering homes, as seen in the Nanook, Litton, and Fort Murray in British Columbia.
According to Mr. Brandi humour, the insurance industry has contacted local governments to assist them in getting ready for possible disasters because one in every twenty Canadian cities is at high risk of suffering damage from forest fires. He claimed that the insurance industry was unprepared for the Halifax wildfires this year, which began on May 28 and destroyed over 950 hectares, and that their risk models were inadequate.
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Six months after a fire decimated over 200 properties in the Tantalising neighbourhood, homeowners in Highland Park, New South Wales, were battling construction and insurance delays to the sound of bulldozers and power tools. Mixed progress has been made.
.. A backhoe is levelling the ground on one side of the street where an empty lot is still marked off with safety fencing. A crew is building the walls of a wood-framed house two doors down. Visible evidence of smoke damage, including melted vinyl siding and broken windows, can be seen in the majority of the homes that survived the fire.
John Engram has been at odds with his insurance provider in order to get his house fixed. He has been living in a rental property with his wife and two teenage daughters for the past six months. He doesn’t think he’ll get home for Christmas.
He claimed that a portion of the issue stems from the turnover of insurance adjusters, many of whom are outsiders who are ignorant of the regional market… He has since hired a convener to help him sort out his claim, so he no longer interacts with the person he is currently on his fifth one.
Standing in his home’s empty front hall, Mr. Engram declared, “This has been the worst experience emotionally of my life.” “I want to express my gratitude for my house’s continued existence. However, based on our observations of the insurance sector, it would have been simpler if it had simply burned to the ground.
He’s fighting over other things, like replacing roof insulation, which he thinks is the source of an door that lingers in his house, while he waits for new siding, windows, and an update on the cost of his deck and pool that collapsed in the fire.
When it comes time for him to renew his policy in the spring, Mr. Engram is hoping that the repairs will be authorised and finished. However, he is concerned because neighbours have alerted him to the fact that some premiums have already increased by as much as $800 annually. “I have a horrible feeling that my insurer won’t even want to renew my policy because I have pushed back on every denied claim that I am owed,” Mr. Engram stated. “I am currently paying $1,000.”
The INC has been keeping a careful eye on Canadian homeowners’ access to insurance over the past year, especially those who have had consecutive weather-related damage. Insurers are generally continuing on their current path with the same level of risk appetite, according to Mr. Stewart.
View this image in the gallery: Hilary.
The family of Hilary St. Pierre is one of many Canadians who are finding it harder to affordably insure their property against the effects of increasingly destructive weather.
MAIL AND GLOBE/LAY AMBLER
Mr. Brandi humour is certain that the risk modelling done by his organisation validates the idea that the insurance product is viable for the ensuing 15 years—a cautious period of time that is used to evaluate how climate change will affect property insurance. But price by itself won’t help the industry address the issue of climate risk. “This is a societal issue, not just an insurance problem,” he declared.
Intact has supported more than 100 community demonstration projects in recent years to test preventative measures, like preserving wetlands, which can lower the risk of thirty to forty percent increased risk of flooding.
There are an additional $3 to $4 in uninsured damages for every dollar of insured damage. This creates a huge security void where taxpayers and other stakeholders are compelled to intervene.
“You have to try to improve, identify high-risk areas, and defend them at the community level if you can’t defend against an event on the day it is happening, like the Halifax floods,” Mr. Stewart stated.
“Investing in defence is going to be necessary if you want to keep parts of this country insured, and doing so will require cooperation from all levels of government.”
How to reduce weather-related insurance claims for property owners can take action to reduce insurance claims when faced with more intense rain, hailstorms, and wildfire danger. Key roles are also played by industry and public institutions.
Low-cost and simple: An increasingly common resource offered to customers by mortgage lenders and insurance companies is the “Three Steps to Home Flood Protection” worksheet, created by the University of Waterloo’s Intact Centre on Climate Adaptation.
The sheet enumerates free chores that homeowners ought to perform biannually, including clearing debris from storm drains, cleaning eaves troughs, inspecting plumbing and appliance leaks, testing sump pumps, and maintaining clean backwater valves.
Minimal work and investment: Window wells can be covered for less than $250, downspouts can be extended two meters from building foundations, and hazardous materials and valuables can be kept in watertight containers. Flood alarms can also be installed by homeowners.
Long-term mitigation of flood risk:
Property owners can hire contractors to install sump pumps and backwater valves, add window wells that protrude 10 to 15 centimetres above grade, and slope yards down away from foundations for $250 and up.
Put out the fire: By reducing the impact of the wild land-urban interface by thinning out surrounding trees and branches and clearing dead limbs and brush to create a safety zone around any structure, homeowners can reduce the risk of a fire.
In addition, firewood should be stored away from the house, tree branches should be trimmed to a minimum of 2.5 meters above the ground, and combustible landscaping materials like wood chips should be avoided.
Beginning from scratch: Materials and techniques for the construction of new buildings should Installing hail-resistant roofing, non-flammable siding, and subterranean drainage systems that divert water away from foundations are among the best ways to withstand local weather hazards.
The role of industry Insurance companies ought to advise customers on fire and flood safety that is tailored to areas with elevated risks, in accordance with the most recent maps produced by the federal, provincial, and territorial governments.
Regulators, planners, and governments: Given that a large number of Canadians reside in floodplains and that number is expected to rise as floodplains widen due to increased precipitation, they have a significant role to play in reducing expensive damage.
If ignored, climate change, extreme weather-related flood risk, and sometimes inadequate land-use planning will cause increasing distress in the residential housing market, according to the Intact Enter .In Canada, claims for disasters have more than quadrupled in recent years.
After 15 years, Canadians are preparing for the ongoing increase in premiums.
On July 21, in the evening, Jeremy Beet on called his wife Hilary St. Pierre from their West Hans county, Nova Scotia, home in a state of panic. While Ms. St. Pierre and her five-month-old daughter were visiting relatives in Ontario, Mr.
Beet on informed her that a severe downpour at home was intensifying and posing a risk of significant damage. He texted her at 2:30 a.m. informing her that their basement had flooded up to the top of the stairs, so his fear was justified.
The 20,000-person rural community on the Minos Basin, which empties into the St. Delacroix and Kenneth cook Rivers, was taken aback by the deluge. The most recent in a string of tragedies
Within hours, the storm dropped nearly 200 millimetres of rain in the province—more than twice as much as predicted.
Ms. St. Pierre informed her husband that their insurance coverage was sufficient in an attempt to reassure him. A few weeks earlier, after her sister’s home, which was only 50 kilometres south of theirs, was destroyed by a wildfire, she had gone over their home policy with an insurance agent. The policy provided coverage for above-ground water damage and fire up to $2 million. “I specifically requested the best coverage available for any potential natural disaster. “I was completely certain that the policy I purchased was precisely that,” Ms. St. Pierre remarked.
When the storm passed the following day, the basement’s water had destroyed the furnace, electrical panel, and tank of hot water. Mr. Beet on glanced out to the yard and saw their car half-submerged.
Making a call to her insurer was Ms. Pierre’s first action. The reports worsened. The agent informed her that surface water damage, which occurs when precipitation seeps into a building through a window, roof, or side of a house, was not covered by the policy.
“The insurance company was referring to the nearby river as a flash flood because of its surge despite the excessive rainfall,” Ms. St. Pierre stated. “I sat there in shock. I never heard of those terms or explanations when I called to confirm that I had complete coverage.
Following a month of arguments, during which an adjuster made one visit to the couple’s house,
The claim was rejected by the insurer. The family was left with a $45,000 repair bill as a result, and they joined the increasing number of Canadians who are finding it harder to affordably insure their property against the increasing damage caused by weather.
Climate change is the root cause of the issue. As rates rise, worsening disasters could have a knock-on effect on the economy due to increased premiums and difficulty obtaining the required protection for homes and businesses.
The insurance industry is governed by the Office of the Superintendent of Financial Institutions, which has identified climate change as a systemic risk to the economy. As a result, the office requires insurance providers to demonstrate that their financial and strategic plans can withstand the rising costs of weather-related damage.
In Canada, the number of disaster claims has more than tripled since the previous 15 years, rising from just $400 million in 2008 to $3.1 billion in insured losses in 2022, according to the Insurance Bureau of Canada (IBC).
Among the worst disasters have been Hurricane Fiona, which devastated the Mari times in 2022, and the wildfire that destroyed large areas of Fort Murray, Alberta, in 2016. Additionally, flooding in 2021 submerged the Fraser Valley in British Columbia.
There is no decline in the trend. The industry anticipates paying out at least an additional $3 billion this year in response to wildfires that occurred in Nova Scotia, B.C., the Northwest Territories, Alberta, and Quebec.
Over $165 million in insured damages resulted from fires in the Halifax region in May, and an additional $170 million in insured damages were incurred in July due to flooding in some parts of Nova Scotia. Fire-related losses the previous 15 years, rising from just $400 million in 2008 to $3.1 billion in insured losses in 2022, according to the Insurance Bureau of Canada (IBC).
Among the worst disasters have been Hurricane Fiona, which devastated the Mari times in 2022, and the wildfire that destroyed large areas of Fort Murray, Alberta, in 2016. Additionally, flooding in 2021 submerged the Fraser Valley in British Columbia.
There is no decline in the trend. The industry anticipates paying out at least an additional $3 billion this year in response to wildfires that occurred in Nova Scotia, B.C., the Northwest Territories, Alberta, and Quebec. Over $165 million in insured damages resulted from fires in the Halifax region in May, and an additional $170 million in insured damages were incurred in July due to flooding in some parts of Nova Scotia.
Fire-related losses estimated to be worth $720 million, the Nanook Valley fires in British Columbia destroyed large areas of West Fellowman, making it the province’s most expensive insured event.
Canadians, even those who reside in areas free of significant storms or wildfire claims, are already subject to increasing premiums. It is anticipated that this will go on. It looked more and more unlikely that nations attending the COP 28 climate change summit in Dubai this past week would fulfil their promises to reduce greenhouse gas emissions by the amount required to keep global warming to 1.5 C above postindustrial levels and avert the worst effects of climate change.
Click to open this image in the gallery:
Road washouts in July 2023 in Hans County, Nova Scotia. Climate-related flooding, like the one that occurred in West Hans this past summer, is the biggest risk.
Click to open this image in the gallery:
Road washouts in July 2023 in Hans County, Nova Scotia. The largest risk associated with climate change in Canada is flooding, like the one that occurred in West Hans this past summer.
Handout from Hasn’t Regional Municipality / Mayor Abraham Zambian-West
According to Kathryn Biko’s, director of climate finance and science at the Intact Centre on Climate Adaptation at the University of Waterloo, flooding, like that which occurred in West Hans last summer, is the largest climate-related risk in Canada. Fire rates come in second. As stated in the centre’s disclaimer, “Intact Financial Corp. funds the program but has no control over its research.”
She notes that 1.5 million homes in Canada, or roughly 10% of all homes, are currently not insurable for flood risk, although they may still be for other damages. The main point: Canada is still covered by insurance against flooding, according to Ms. Bako’s.
However, there is concern that some of the approximately 160 insurance companies that operate in Canada may leave vulnerable areas of the nation or cut back on specific types of coverage in light of the recent chaos in the U.S. insurance industry, where companies have abandoned some regions.
These are widespread and industry-wide issues. According to Swiss Re, a major international reinsurance company, insured losses from climate-related destruction totalled US$50 billion in the first half of 2023, up from an average of US$32 billion over the previous ten years.
At least sixteen disasters this year have cost billions of dollars or more, giving insurers little time to recover while handling a deluge of claims. Severe convective storms, characterised by lightning, intense rain, hail, and strong winds, were responsible for approximately US$35 billion of the losses.
Lisa Guglietti, executive vice-president of property and casualty at The Co-operators Group Ltd., the insurance cooperative, said, “Those trends are really concerning and what’s more concerning is that they’re continuing to escalate year over year.”
“These meteorological occurrences won’t go away on their own. Both the frequency and the intensity of the harm they inflict are increasing. Inflation, problems with the supply chain, rising labor and material costs, and skyrocketing interest rates are all contributing to the rising cost of rebuilding, whether it be for infrastructure, businesses, or homes.
Leaders in the industry are calculus-savvy. Charles Brinda mohur, executive director
The largest property and liability insurer in Canada, Intact, predicted that during the next 15 years, the cost of major storms, also referred to as one-in-10-year events, will probably double. From a weather perspective, “it will be a more volatile sort of environment,” he stated.
He has emerged as a prominent worldwide voice in favor of community and industry adaptation to the significant shift in weather patterns during the last ten years. He changed his business strategy during that period to take climate into account, charging different prices for products depending on the climate risk and region.
An insurance gap that affects properties in floodplains that are deemed too risky for insurers to underwrite was brought to light by the devastating flooding that struck the Fraser Valley in southern British Columbia in 2021. Planning for land use that permits construction
According to Mr. Brinda mohur, one issue that needs to be taken into account in the current efforts to adapt to a changing climate is low-lying areas that are close to rivers and other waterways.
In a recent interview, he stated, “First of all, you should not be building in floodplains but second of all, the floodplains will get bigger.” “And there will be a rise in the number of homeowners who reside in areas where the risk is too great to obtain insurance.”
According to Public Safety Canada, about 90% of Canadian homeowners have access to flood insurance, but only 40% to 60% of them have coverage that covers losses from flooding. Furthermore, those policies might have restrictions like large deductibles or inadequate coverage amounts.
The fact that a mortgage does not require flood insurance accounts for a portion of that disparity. Homeowners are also discouraged from purchasing this type of coverage due to low public awareness of flood risk and the high cost of policies overall.
The growing cost of reinsurance, which insurers purchase to shield themselves from an increase in claims when they encounter catastrophic events, is another problem. Like most homeowners, insurance companies use reinsurers to renew their policies on an annual basis, and the cost is usually quite high.
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When most reinsurance policies were up for renewal late last year, providers all over the world alerted insurers to rising rates.
The arithmetic was altered by several years of sharply rising losses in the reinsurance business, according to Craig Stewart, vice-president of climate change and national matters at the IBC.
The “expected” losses that reinsurers estimated in their risk modeling were outnumbered by unexpected losses resulting from disasters. Global pricing was no longer rational, and some nations with lower chances of extreme weather lowered the price of their insurance.
As a result, there was a significant repricing, which caused some Canadian insurers to raise their reinsurance rates by at least 20% in 2023. According to Mr. Stewart, there were instances where the increases were even more drastic, with premiums tripling for renewals.
Reinsurers also served notice at the same time that they would assume less of the risk associated with insurers’ claims, essentially increasing the amount of money that customers must pay as a deductible before their insurance coverage begins. This prevented insurers from phasing in the
hurt to their own clientele. “Their business model fails as well if they’re not returning what they need to those capital markets and the capital dries up,” Ms. Guglietti stated. Co-operators experienced a “more than 10 to 20 per cent” increase in its own reinsurance costs.
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In the last ten years, Mr. Brinda mohur has emerged as a prominent global spokesperson, promoting strategies for communities and industries to adjust to the significant shift in climate.
The Globe and Mail / ABBIE TRAYLER-SMITH
According to Mr. Brinda mohur, early in 2023, the price that Intact had to pay to insure against tail risk—the possibility that insured losses would be much worse than average—rose by more than 20%. Concurrently, the business raised the quantity
It retains around 25% of the risk before reinsurance kicks in. Because it had taken steps to lessen its exposure to earthquakes and changed its pricing in 2022 in anticipation of higher reinsurance rates, Intact was able to mitigate the effects of the increased reinsurance costs on its clients.
But because some insurers haven’t finished adjusting their rates for customers, the industry hasn’t yet felt the full impact of the 2022 increase. According to Mr. Stewart, some businesses are still awaiting word on how reinsurers will value the wildfire risk this year before determining how much of it they can take on themselves and how much to pass along to clients.
Rising inflation and growing urbanization are two more macrotrends that are coming together. with the potential for climate risk to raise insurance costs.
Moving to a city or along a coastline increases the likelihood that a disaster will cause more expensive damage, according to Alison Newsmonger, Swiss Rue’s head of property underwriting in Canada. For instance, the population of the Florida west coast, where Hurricane Ian made landfall in 2022, has increased by more than 600% in the last fifty years. Ian was the deadliest storm to hit the state since 1935, with an estimated 109 billion dollars in total damages.
“We think there’s more stuff in harm’s way than ever before when a natural disaster hits an area like that,” Ms. Newsmonger stated.
In Canada, the same effect plays a role. The populace for instance, grew by more than 20% between 2016 and 2022 to reach over 235,000, making the wildfire-prone metro area one of the fastest growing in the nation.
The United States, where the insurance industry has had to deal with skyrocketing costs from increasingly destructive wildfires, hurricanes, floods, and tornadoes, has seen a far greater impact from climate change on insurance to date.
Insurance companies have reduced their coverage or stopped operating in states like Florida, Louisiana, and California where price caps on insurance have been in place for many years. Years of destructive wildfires, floods, and mudslides have plagued California, and some areas have seen a sharp increase in the number of insurers refusing to renew policies
—nearly 800%. Currently, two of the biggest U.S. Homeowners in the state can no longer purchase new policies from State Farm and Allstate Corp. insurers.
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Janet Yellen, the U.S. Treasury Secretary, during the COP26 climate summit in November 2021. She has alerted property owners to the potential financial consequences of a widening “protection gap” for their properties.
IMAGES OF CHRISTOPHER FURLONG/GETTY
The growing “protection gap” for property owners looking to insure their properties is having an adverse economic impact, as Treasury Secretary Janet Yellen has noted in relation to climate-related risk.
When private companies decide that a certain area is too risky for new policy applications or renewals, state-backed insurers of last resort have emerged as the only viable option in some of those areas, offering basic coverage. The effects extend beyond health insurance. Incapacity
According to a recent report from First Street Foundation, a U.S. non-profit that conducts research on climate-related risk for governments, industry, and individuals, failing to obtain coverage puts local economies at risk by depressing property values.
Companies guarantee clients they won’t leave the market in Canada, where governments don’t set price caps on premiums. “The risk is not the same as in the U.S. because our land mass is much bigger and the vast majority of wildfires are nowhere near cities,” Mr. Brinda mohur stated.
However, rates tell a different tale. According to ratesdot.ca, the average annual premium paid by Ontarians for home insurance was $1,284 in 2021, an increase of 64% from $782 in 2011. In Alberta, the rates increased by
However, rates tell a different tale. According to ratesdot.ca, the average annual premium paid by Ontarians for home insurance was $1,284 in 2021, an increase of 64% from $782 in 2011. Over the same time period, those premiums in Alberta increased by 140%, costing homeowners $1,779 annually instead of $741.
According to Statistics Canada, the cost of insurance has gone up 7.7% in Canada in the last year alone. Two of the biggest increases were recorded in B.C. (10.2%) and Nova Scotia (12.1%), respectively.
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Standing on the back deck of his Bedford, Newfoundland home, Saba Alma related how his family had to quickly flee when water quickly rose above their basement stairs during the thunderstorm on July 21.
When it became apparent that the water pooling in the backyard would not stay outside the house, he and his wife Nikki, along with their two-year-old daughter and thirteen-year-old son with special needs, fled.
Water quickly poured in. “We barely had time to get diapers and medication. The water was up to our knees by the time we got into the car. The whole street was completely submerged by the time I started driving,” he said. “How we weren’t all swept away is beyond me.”
He recently received a payout for the first half of his losses, so he can start to rebuild, but the stress is still there after four months of battling with his insurance company to process his claim.
He has been given five adjusters so far. With every one, he had to recount the events of the storm. He is among the fortunate ones living on the street, as his policy covers groundwater flooding and sewage backup to the extent of $190,000. When a friend inquired about his flood protection in May, he decided to add the extra coverage.
However, the hold-up in settling the claim is impeding construction and requiring him to use up his credit limit. After the water subsided, Mr. Alma hired two big industrial fans and a removal bin, and he completely renovated his basement.
Those fans were still running in the basement when I visited recently. When I purchased this home in 2018, I was unaware that it was situated on a significant floodplain. My family and I would never have relocated here.
He claimed that the fact that his insurer has already stated that it is unsure if he will be eligible for flood coverage if he renews his policy in the spring is even more concerning. He fears he won’t have enough money if he has to shop around. Their response was a simple “We don’t know at this time,” devoid of any justification or assurance. However, based on what I’ve heard from my neighbors, I don’t have much hope,” Mr. Alma stated.
Homes in areas devastated by catastrophic flooding have sold for 8.2 percent less on average over the last ten years than homes in areas that have not experienced flooding. Loan-to-value ratios may be impacted by this if the value
Lenders and insurers may approve or misprize mortgage rates if an unexpected flood risk reduces a property, according to the Intact Center.
Don Iverson has long anticipated this. Before entering politics and realizing that the overburdened storm sewer system would only get worse, the former mayor of Edmonton remembers flooding caused by a strong downpour in the capital city of Alberta nearly twenty years ago.
“I was concerned that my parents’ house might flood after my condo flooded. I recall getting knee-deep in water while standing in the back lane. Even though it had stopped raining, Mr. Iverson stated that the water was still rising because it was accumulating from everything and had nowhere to go because the drainage system was overloaded.
Beyond the financial security of insurance coverage, he said, there are other options for coping with extreme weather, such as public works initiatives that strengthen community resilience. In spite of tight budgets, municipal drainage systems across Canada are undersized for current weather, are deteriorating with age, and will need to be strengthened in the upcoming decades.
When Mr. Version was mayor, Edmonton’s utility, Epic or, announced a $1.6 billion, 20-year plan to build dry ponds and install other flood proofing measures, such as control gates and smart mitigation technology, to address flooding in the neighbourhoods of the Alberta capital. That work is just getting started.
After exiting politics in 2021, Mr. Version is currently employed by The Co-operators, which is a division of the International Cooperative and Mutual
Insurance Federation, on a nationwide campaign to promote climate change adaptation initiatives and weather-resistant infrastructure against flooding, fires, hail, and other extreme weather events.
The majority of the work after a flood is done in the basement, with basement repairs costing an average of $43,000 per home. Although less frequent, fire frequently results in the destruction of homes and other structures, increasing insured losses.
“Rebuilding a home involves much higher costs due to the necessary infrastructure installation, resources, contractors, and other expenses. Thus, Ms. Biko’s of the University of Waterloo stated, “insurance companies are looking at it and they are seeing very different costs in the system.”
Updated maps of the risks of flooding and wildfires, as well as construction done in accordance with according to their requirements. Furthermore, insurance companies ought to give their clients advice on fire and flood safety.
The urban-wild land interface—where trees and other vegetation intrude onto properties and endanger houses, as happened in the Nanook and Litton in British Columbia, as well as Fort Murray—is the focal point when it comes to wildfires.
According to Mr. Brandi humour, the insurance industry has contacted local governments to assist them in getting ready for possible disasters because one in every twenty Canadian cities is at high risk of suffering damage from forest fires.
He claimed that the insurance industry was unprepared for the Halifax wildfires this year, which began on May 28 and destroyed over 950 hectares, and that their risk models were inadequate.
As one approached Highland Park, New South Wales, the noise of power tools and bulldozers could be heard as Six months after a fire in the Tantalum neighbourhood destroyed more than 200 properties, homeowners battled delays in construction and insurance payouts. Mixed progress has been made.
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A backhoe is levelling the ground on one side of the street where an empty lot is still marked off with safety fencing. A crew is building the walls of a wood-framed house two doors down. Visible evidence of smoke damage, including melted vinyl siding and broken windows, can be seen in the majority of the homes that survived the fire.
John Engram has been at odds with his insurance provider in order to get his house fixed. He has been living in a rental property with his wife and two teenage daughters for the past six months. He doesn’t think he’ll get home for Christmas.
He claimed that a portion of the issue stems from the turnover of insurance adjusters, many of whom are outsiders who are ignorant of the regional market. He has since hired a convener to help him sort out his claim, so he no longer interacts with the person he is currently on his fifth one.
Standing in his home’s empty front hall, Mr. Engram declared, “This has been the worst experience emotionally of my life.” “I want to express my gratitude for my house’s continued existence. However, based on our observations of the insurance sector, it would have been simpler if it had simply burned to the ground.
While he awaits new windows, siding, and information regarding the cost of his collapsed deck and swimming pool He is fighting in the fire over other things, like replacing the insulation on his roof, which he thinks is the source of the lingering smell in his house.
When it comes time for him to renew his policy in the spring, Mr. Engram is hoping that the repairs will be authorized and finished. However, he is concerned because neighbors have alerted him to the fact that some premiums have already increased by as much as $800 annually.
“I have a horrible feeling that my insurer won’t even want to renew my policy because I have pushed back on every denied claim that I am owed,” Mr. Engram stated. “I am currently paying $1,000.”
The IBC has been keeping a careful eye on Canadian homeowners’ access to insurance over the past year, especially for those who are dealing with consecutive bad weather.
harm. Insurers are generally continuing on their current path with the same level of risk appetite, according to Mr. Stewart.
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The family of Hilary St. Pierre is one of many Canadians who are finding it harder to affordably insure their property against the effects of increasingly destructive weather.
MAIL AND GLOBE/ALY AMBLER
Mr. Brinda mohur is certain that the risk modelling done by his organisation validates the idea that the insurance product is viable for the ensuing 15 years—a cautious period of time that is used to evaluate how climate change will affect property insurance. But price by itself won’t help the industry address the issue of climate risk. “This is a societal issue, not just an insurance problem,” he declared.
Throughout the previous few years, Intact has provided funding for more than 100 community demonstration projects that test preventive measures like wetlands protection, which can cut the risk of flooding by 30 to 40 percent.
There are an additional $3 to $4 in uninsured damages for every dollar of insured damage. This creates a huge security void where taxpayers and other stakeholders are compelled to intervene.
“You have to try to improve, identify high-risk areas, and defend them at the community level if you can’t defend against an event on the day it is happening, like the Halifax floods,” Mr. Stewart stated.
“You will need to invest in defense if you want to keep portions of this country insured, and that requires all governmental levels to collaborate in order to make it happen. How to reduce weather-related insurance claims
Property owners can reduce insurance claims by taking precautions against increasingly severe rain, hailstorms, and wildfire hazards. Key roles are also played by industry and public institutions.
Low-cost and simple: An increasingly common resource offered to customers by mortgage lenders and insurance companies is the “Three Steps to Home Flood Protection” worksheet, created by the University of Waterloo’s Intact Centre on Climate Adaptation.
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The sheet enumerates free chores that homeowners ought to perform biannually, including clearing debris from storm drains, cleaning eaves troughs, inspecting plumbing and appliance leaks, testing sump pumps, and maintaining clean backwater valves.
Minimal work and investment: For under $250, a window Covers for wells, downspouts placed two meters away from building foundations, and the storage of valuables and hazardous materials in waterproof containers are all effective ways to protect them. Flood alarms can also be installed by homeowners.
Longer-term solutions to reduce the risk of flooding: For $250 and up, property owners can hire contractors to install backwater valves and sump pumps, slope yards away from foundations, and add window wells that protrude 10 to 15 centimetres above grade.
Put out the fire: By reducing the impact of the wild land-urban interface by thinning out surrounding trees and branches and clearing dead limbs and brush to create a safety zone around any structure, homeowners can reduce the risk of a fire. Additionally, they ought to store firewood away from the house, trim tree branches to a minimum of 2.5 meters above the ground, and refrain from combustible landscaping materials, like wood chips.
Starting from scratch: Subsurface drainage systems that divert water away from foundations, hail-resistant roofing, and non-flammable siding are some of the techniques and materials that new buildings should be built with to best withstand local weather hazards.
The role of the insurance industry is to advise customers on flood and fire safety in areas where risks are higher, in accordance with the most recent maps produced by the federal, provincial, and territorial governments.
Regulators, planners, and governments: Given that a large number of Canadians reside in floodplains and that number is expected to rise as floodplains widen due to increased precipitation, they have a significant role to play in reducing expensive damage. When coupled with inadequate land-use planning, climate change and extreme weather-related flood risk will occasionally
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