The alarming surge in natural disasters caused by global climate change has brought the average annual cost of claims for property damage to $2 billion, and insurers are preparing to offset losses by updating risk models. Between 2000 and 2009, we saw an annual increase of $400 million per year in claims. A report released by the United Nations this month predicts that by 2030, the world will be 1.5 degrees Celsius above pre-industrial levels. The 1.5 Celsius mark is the level countries agreed to cap global warming at as per the 2015 Paris Accord. For 1.5°C of global warming, we can expect to see increasing heat waves, longer warm seasons, and shorter cold seasons.
This will inevitably result in more climate-related disasters.
Craig Stewart, Vice-President of federal affairs for the Insurance Bureau of Canada, states that the current climate crisis has caused “more frequent, but also more severe weather events.” According to Stewart, events such as flooding Eastern Canada, higher-intensity tornadoes, and wildfires “may have happened anyway, but they wouldn’t have been as intense as what we’re witnessing now.”
What has happened in the past decade?
As outlined in our blog post Reviewing Canada’s Catastrophic 2020, a series of major natural disasters last year caused property insurance rates to skyrocket. Most notably, it was reported that the Fort McMurray flooding and Calgary hailstorm cost insurers nearly $2 billion. In November of 2020, Ontario also experienced severe windstorms causing $87 million in insurable damages.
Since 2005, Canada has seen 9 out of the 10 most significant losses for property insurers in history, the only exception being the 1998 crystal ice storm that hit Quebec. The costliest natural disaster on record was in 2016 caused by the wildfires in Fort McMurray, resulting in nearly $4 billion in insured losses.
With the average annual cost of claims now at $2 billion, it is estimated that uninsured losses will be double that amount. Stewart has noted that “data that’s driving underwriting decisions [are] now being updated to reflect that new risk. Reinsurers have lost billions of dollars in this country over the last decade… so they are upping their rates, insurers are paying more. And of course, that gets passed down in terms of increased premiums to customers.”
Insurers limit fossil fuel exposure
With increased global initiatives to move towards an eco-friendlier planet, insurers are limiting their exposure to the fossil fuels industry. Over the past three years, 23 global insurance companies have adopted policies that end or limit insurance for the coal industry, and 9 insurers have implemented the same strategy for the Canadian oilsands. In July of this year, eight of the world’s largest insurance companies – most notably Zurich Insurance Group, Aviva, and Swiss Re – have committed to a net-zero greenhouse gas emissions portfolio by 2050.
After increasing pressure from environmentalist groups, some insurers have refused to provide coverage to the Trans Mountain pipeline extension. “To me, it illustrates a real shift in the sector,” said Mary Lovell, who leads insurance campaigns for the San Francisco-based environmental group Rainforest Action Network. “These insurers understand the reputational risk of being involved with a project as contentious as Trans Mountain, as well as the material risk of constructing a new pipeline during a climate crisis.”
With some areas across Canada – specifically in Alberta, BC, and the Atlantic region – being more prone to natural disasters, we must consider the difficult decision of strategic relocation. A national emergency management strategy published in 2019 by the federal government outlined the federal and provincial priorities for assessing, preventing, preparing, and responding to disasters from now until 2030. The research has found that Canada is warming twice as fast as the global average, and three times as fast in the Northern regions.
“If people are living in harm’s way, we either need to invest heavily to protect them to mitigate those communities that are at highest risk … or we need to move them,” Stewart said, noting that this could require a government buyout for properties located in risk-prone areas. Recently, the U.S. based real estate brokerage, Redfin, has announced that they will be including climate risk information on their home listings. The government of Canada had recently created a task force on flood insurance and relocation in November last year to protect homeowners who are at high risk of flooding and have difficulty obtaining adequate insurance
Ensure your assets are protected
Given the current market conditions, it is critical that your condo or strata corporation is adequately covered in the event of a total loss. We have seen cases where properties have been underinsured, exposing themselves to unnecessary financial risk and liability.
At the same time, we have seen properties carrying excessive replacement costs and, as a result, paying too much for insurance. Having an insurance appraisal done by experts trained in local construction costs ensures that you not only have sufficient coverage for your property, but that your premiums are accurate and in line with the market.