Atlantic Perspective

As of mid-December, Atlantic Canada had managed to escape the large-scale, severe weather events that have caused billion-dollar losses in other regions of the country recently. But that hardly means the eastern coasts are clear.

To the contrary, data analysis shows that total habitational property claims have skyrocketed in the last two decades in the four Atlantic provinces. In New Brunswick and Nova Scotia, for example, claims have doubled; in Prince Edward Island, they have tripled; and in Newfoundland and Labrador, they have quadrupled.

The charts – all in 2013 dollars – clearly demonstrate a mostly consistent upward trend in average claims incurred over the last 20 years.

Looking at direct claims incurred by region (based on data from MSA Research Inc.), Insurance Bureau of Canada (IBC) considered three different periods: 1994-1998, 1999-2003, 2004-2008 and 2009-2013.

For those periods, New Brunswick witnessed percentage increases of 119.6%, 69.7% and 40.8%, respectively; Nova Scotia saw percentage increases of 103.8%, 24.3% and 33.4%; Prince Edward Island experienced percentage increases of 175.6%, 26.5% and 23.7%; and Newfoundland and Labrador witnessed percentage increases of 311.0%, 117.0% and 104.9%.

Considering each specific period by province, the average costs for personal property direct claims incurred (in 2013 dollars) generally consistently increased, except for a few exceptions. The data notes the following:

•New Brunswick – $60.3 million for 1994-1998, $78.1 million for 1999-2003, $94.1 million for 2004-2008, and $132.5 million for 2009-2013.

•Nova Scotia – $72.0 million for 1994-1998, $118.0 million for 1999-2003, $109.9 million for 2004-2008, and $146.6 million for 2009-2013.

•PEI – $6.1 million for 1994-1998, $13.4 million for 1999-2003, $13.7 million for 2004-2008, and $16.9 million for 2009-2013.

•Newfoundland and Labrador – $18.8 million for 1994-1998, $55.5 million for 1999-2003, $41.5 million for 2004-2008, and $77.1 million for 2009-2013.

BIG IMPACT OF SMALLER EVENTS

What the Atlantic region is experiencing is an increase in small severe weather events rather than large events that qualify as “catastrophic losses” or losses exceeding $25 million. Typically, property catastrophic analytic and modelling services only report losses of $25 million or more, but that certainly does not mean that those smaller losses do not add up quickly.

The last two Cat losses in the region occurred in 2010 – Hurricane Igor slammed into Newfoundland and Labrador in September, causing more than $70 million in insured losses, and a major winter storm struck in December, resulting in more than $50 million in insured losses.

More recently, however, many small events in any given year have added up to a number of years where bad weather was the theme overall. Last year was one such example, with Atlantic Canada experiencing the following:

•a heavy snowstorm across the region in February;

•a tornado in Grand Lake, New Brunswick in July;

•record rainfall and flooding in St. Stephen, New Brunswick and Digby, Nova Scotia in July; and

•also in July, all of Atlantic Canada dealt with the aftermath of Hurricane Arthur, which led to widespread power outages.

INDUSTRY FACING COST PRESSURES

This huge increase in habitational property claims has put intense cost pressure on the insurance industry. Private property and casualty insurance companies operate in a highly competitive marketplace in which each insurer chooses its own strategy to deal with increases in claims costs.

In Atlantic Canada, as elsewhere in the country, each insurer has reviewed its premiums and deductibles, coverage, terms and limits. Pressures are being seen in all four Atlantic provinces – not one is singled out.

Insurers are looking for ways to remain competitive and to continue to serve customers with available and affordable products. Raising deductibles is one way some insurers are looking to do that.

If consumers have questions about increased deductibles, they are encouraged to go back to their brokers or agents to ask for deductibles with which they are more comfortable. It is important to note, however, that this may translate to higher premiums.

Simply raising premiums is one option. Increased deductibles and looking at the home insurance product more closely is another.

Consumers are encouraged to discuss their needs with trained insurance professionals to find the best pricing and coverage for their respective situations, including considering alternatives like reviewing coverage and deductible levels.

It is also important for consumers to consider how best to protect their homes and personal property from the effects of severe weather to help prevent losses.

These measures are important, but the insurance industry also has a larger responsibility to help the country as a whole deal with the global reality of the weather effects of a changing climate. Experts report that all regions of Canada will experience higher winds and more precipitation more often, meaning greater potential for water damage, flooding and wildfires.

An IBC-commissioned research report by Canadian climatologist Gordon McBean describes severe weather trends in each region of the country that include more hail, storm and wildfire events anticipated over the coming decades. In Atlantic Canada, in particular, the study projects more intense precipitation, more frequent hurricanes and winter
storms, and more significant storm and coastal surges by 2050.

Mitigation demands having industry work with all levels of governments to share expertise and develop tools.

In November 2013, for example, IBC launched the Municipal Risk Assessment Tool (MRAT) – a statistical, web-based tool to help communities evaluate the impact of current and future climate change on their municipal sewer and stormwater infrastructures – in three cities, including in Fredericton.

The tool seeks to aid municipalities, which have few, and often outdated, tools to quantify the susceptibility of urban drainage systems to severe weather events. MRAT is also designed to promote better allocation of limited municipal resources to answer the most pressing sewer and stormwater infrastructure demands and alleviate basement flooding in areas that are most vulnerable.

IBC also supports increased investments in upgraded infrastructure – especially sewer and stormwater systems – by all levels of government, as well as land zoning restrictions in flood-prone areas.

Such measures are key in light of increasing severe weather that may affect everyone’s future, including homeowners and businesses in Atlantic Canada.