How the P&C industry can avoid another record year for NatCat damages

If Canadian insurers want to avoid another year of more than $3.1 billion in insured damages, age-old quandaries such as the national flood program, land use policies, and building codes need to be revisited, said panellists at Swiss Re’s 37th Annual Canadian Insurance Outlook Breakfast. 

Although climate risk is increasing, resiliency is staying the same, panellists observed at a Q&A session after the event. 

“I’m hearing more and more from our members and from insurers that we do need to take steps to build resiliency, to build adaptation,” Celyeste Power, president and CEO at Insurance Bureau of Canada, commented during the Q&A session with reporters. “We can’t continue on the same track that we’re on now. We don’t want $3 billion [in insured damages] to become the new normal after $2 billion.” 

To make communities more resilient to disasters — and quickly — IBC is hoping to see the federal government establish Canada’s first national flood insurance program within the next 24 months. That’s different than the feds’ timeline of three years.

“The government has indicated $98.2 million of [seed] funding [in 2023] to start off the program and they have indicated that they’re looking at a three-year timeline,” said Power during a panel discussion. “We have never seen a timeline that we thought was aggressive enough to deal with the problem in front of us, so we are hoping to push that down to two years….

“We are hoping to continue this partnership with government, being that trusted advisor, and having a lot of the industry players advise government on the creation of this program so that we can get it right.” 

In its 2023 budget, the federal government announced a further flood-related initiative through the creation of an online portal where Canadians can access information on their flood risk. 

For homeowners and elected officials, this information will be crucial toward the next step in resiliency — through mitigation and adaptation, said Powers. “We want to make sure that [homeowners in floodplains] have access to things that they can do to flood-proof their home, take mitigation efforts.”  

Upgraded land use policies and building codes (not exclusively used for flood mitigation) are key to ensuring long-term consumer resiliency.  

“Simple things that sound really easy on the surface, like land use policy and building codes, those have a huge impact on the ultimate price a consumer pays,” Monica Ningen, president and CEO of Swiss Re Canada and the English Caribbean, said in a Q&A with reporters. “They are things that can build resiliency in a product, [but] they’re very hard to actually get done.”   

Sources have told Canadian Underwriter that changing a building code can take as long as 40 years to get done. Some in the industry have been told getting a building code change done in 30 years is a significant achievement. And Ningen observes that building codes are “minimum standards.” They do not represent “best-in-class.”

Nevertheless, from a long-term affordability standpoint, changes to building codes and land use policies would be a step towards lower insurance rates for consumers, since they would lead to fewer insured damage losses.  

“Governments themselves, they admit adaptation lags mitigation,” said Power. “But given $3 billion in insured losses last year for severe weather events, and given that none of those were from one event but from a lot of different events, and that $2 billion is now the new normal when it used to be around $400 million a year in the ’80s and ’90s, we have a real problem facing us today.” 

A worker begins the process of cleaning up after post-tropical storm Fiona, in Charlottetown, Monday, Sept. 26, 2022. Across the Maritimes, eastern Quebec and in southwestern Newfoundland, the economic impact of the storm’s wrath is still being tallied. THE CANADIAN PRESS/Brian McInnis