Climate change is a serious threat for the property and casualty insurance industry because it is a serious threat facing homeowners and business owners who live in vulnerable areas. As an industry, we see the impact of climate change on Canadians every day, so I can’t emphasize the threat enough.
It’s easy to think this problem won’t materialize until many years in the future, or it’s something that only affects other people. That would be a mistake. Indeed, as we head into the upcoming reinsurance renewal season, we’re seeing effects of recent climate-related events having a material impact on what the industry can afford to insure and by how much premiums will increase to provide much-needed coverage.
Insurance claims from severe weather have more than quadrupled across Canada since 2008. In the mid-1980s, Canada’s insurance industry averaged about $40 million a year in losses due to natural disasters. The new normal for annual insured catastrophic losses in Canada is now $2 billion, most of it due to water-related damage.
If catastrophic weather events become the norm rather than the exception, we’ll see higher industry loss ratios, putting pressure on premiums; this may ultimately lead to certain parts of the country becoming uninsurable. Apart from the financial impact of these losses on the industry, these events are devastating for individuals, families and businesses.
Today, more than one million Canadians live in flood-prone areas. Severe weather events are now coming at us fast and furious. Just this fall, Hurricane Fiona, the costliest storm to hit Atlantic Canada, caused $660 million in insured damages to homes and businesses, and devastating local communities. In the United States, Hurricane Ian caused an estimated US$67 billion in damages to property and infrastructure. These are just the two most recent examples of catastrophic losses. There will be many more.
In the immediate term, insurers and brokers must work hard to educate clients about their exposures, coverage needs and options to help mitigate some of the risks. More broadly, we need proactive collaboration between the insurance industry and government to build out a strategy with actions that address current problems; the outcome should be a clear roadmap for all relevant stakeholders from across industries who must play a role in producing meaningful change.