Canadian Underwriter

Is storm-ravaged Alberta insurable?

February 4, 2018   by David Gambrill

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Alberta has experienced a disproportionate share of the extreme weather catastrophes in Canada over the past decade, causing insurers to question whether the province is a viable place to do business.

Residents walk through flood waters in Calgary on June 24, 2013. Storms, hurricanes and floods driven in part by climate change will cost the federal disaster fund $902 million a year over the next five years, well above past averages, the parliamentary budget officer predicted Thursday.THE CANADIAN PRESS/Nathan Denette

The question was raised Friday at the C4 conference in Ottawa, where a conference panel discussed why the province’s average home insurance premium soared from $500 to $1,500 over the past decade.

Panelists observed that severe weather events arising from climate change, in addition to a major population boom in the province, have resulted in the Canadian property and casualty insurance industry paying out major losses occurring in the province.

Of the approximately $9 billion that the P&C industry paid out in catastrophe claims over the past nine years, 63% of those losses have happened in Alberta.

“Is Alberta viable as a place to do business of insurance?” Joel Baker, president and CEO of MSA Research, asked the panel. “Are the rates adequate? Is it possible to get the rates adequate? Is it sustainable?”

“It has to be,” replied panelist Keith Hartry, senior vice president and chief operating officer of Wawanesa Mutual Insurance Company. “People need insurance, so we have to find a way of making it viable.”

Hartry said to make the home insurance product viable, “it’s likely going to mean people will have to accept more exposure themselves than they are used to.” That could take the form of homeowners accepting higher policy deductibles, or risk mitigation measures.

Also, panelists said, governments may need to accept more exposure than they have in the past, likely in the form of more taxpayer funds for disaster assistance programs.

Baker’s question should not be underestimated, said Joseph El-Sayegh, president and CEO of SCOR Canada Reinsurance. “The basics of insurance is that the premium of the many pay for the losses of the few,” he said. “So, for the time being, it’s a fact that the premium of all Canadians is paying for the losses of Albertans.”

Demographic shifts are playing a major role in the increase of exposure, Hartry said. Alberta’s population has almost doubled over the past decade, and Calgary’s population has more than doubled. Red Deer’s population has doubled, and, in Aidrie, Alberta, where a hailstorm in 2014 caused one of the Top 9 cat events in Canada, the population has increased over the past decade from 5,897 to 64,000.

“These [cities] are in the exact area where most of the storm activity is,” Hartry said. “It’s a combination of changing weather patterns, and more people in harm’s way.”

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2 Comments » for Is storm-ravaged Alberta insurable?
  1. Thom. Young says:

    It seems odd to be reading a discussion about availability of coverage while the industry attempts to introduce new and broader coverage for flood and water damage on homeowners risks. There is an old adage in the business that there’s no bad risks, just bad premiums. Better rate development and better underwriting will resolve this if the political reality can be overcome.

    The real issue of confusing and competing coverage’s is a huge problem as the industry sorts out what the wording for the peril of flood will be. Competing on price is one thing, competing on coverage is quite another. Calling something “flood” with different definitions being used in different company wordings is confusing to the public and will bring the wrath of the politicians down on the industry after the next catastrophic water loss in Alberta at least. Not to mention the E&O nightmare for brokers trying to sort out who has the best coverage in their offices and trying to give advice to the public on how to properly protect themselves in their choices.

    The risk mapping issue for catastrophic losses needs to be addressed too. Companies cannot compete properly if the baselines for the potential losses are not public and shared so the math is being done using the same assumptions. There should be adequate ROE in the pricing without adverse selection or preferred selection based on proprietary data. Our governments, Federal, Provincial and Municipal could go a long way to level this playing field by coordinating the resources need to get this information up to day!

    Saying that one part of Canada is subsidizing another is just plain dumb! The transference of the risk of loss between insurers is misunderstood and muddled if anyone believes that. Catastrophic losses are leveled by national and international treaties that see everyone chipping in for them wherever they occur. All homeowners are contributing premium to subsidize these losses wherever they are, even in Alberta. If you don’t understand that you should have a review of the risk transference information in any insurance study manual!

    If we don’t want a regulator setting up the rules we play by we’d best get busy and get fair and equitable ones in place for our industry and for the public. Until then we’re just 3 days away from another flood event like we saw in Southern Alberta in 2013.

  2. David Read says:

    The 2013 flood in Alberta made many realize that Calgary and many of our communities have been built on a floodplain. We need vast improvement to our flood & water management infrastructure. Government of Alberta needs to realize out top priority should be sophisticated flood and water management to protect from regular floods and conserve our precious water. See and encourage the insurance industry to consider this option and lobby the three levels of government for high level study of this option.

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