Canadian Underwriter

Industry understanding of wildfire risk needs improvement: CEO

April 10, 2018   by Greg Meckbach

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The property and casualty insurance industry needs to get a better understanding of wildfire risk in Canada because we will experience more disasters like Fort McMurray in the future, a reinsurance company executive warned Monday.

“We think [the industry] needs to understand better the nature of [wildfire] risk because it is so inter-related with other phenomena,” such as drought, said Veronica Scotti, president and CEO of Swiss Re Canada.

The Fort McMurray, Alberta wildfire in May 2016 was Canada’s most expensive natural disaster, costing the industry about $$4 billion. Most of that was covered by global reinsurers.

Fort McMurray “is not a one off,” Scotti said during a panel discussion, Climate Change and the Financial Sector, hosted by the Economic Club of Canada.

Aerial view of the wild fires in the Fort McMurray area on May 4, 2016. Photo by MCpl VanPutten, Canadian Forces

The panel, held at the Royal York Hotel in Toronto, was hosted by Don Forgeron, president and CEO of the Insurance Bureau of Canada. About a generation ago, insurers paid out about $400 million a year from weather-related losses, but now those losses are usually costing the industry about $1 billion a year, Forgeron said.

“There is severe weather is happening more frequently and is happening with greater severity” he added.

Monday’s panel included Douglas Turnbull, vice chairman and country head of Canada for credit rating provider DBRS Limited. DBRS analysts essentially study companies that borrow money to estimate the risk that those companies will not be able to pay what they owe on time in full to lenders.

Climate change is “an issue which may have to be incorporated into our methodologies of how we assess relative credit worthiness of those entities we rate,” Turnbull said.

“The credit rating industry understands that climate change is here,” said Turnbull. “The impacts are being felt by many issuers of debt, but the industry is really at the earliest stages of determining what the impacts are on specific issuers [of bonds].”

For example, Turnbull suggested, a mining company may see reduced (or non-existent) demand for its commodities, because companies are trying to reduce their carbon footprint. In such a scenario the mining company’s assets may need to be written down.

Climate change is already happening and cannot be reversed, said Blair Feltmate, head of the Intact Centre on Climate Adaptation, who also spoke at Monday’s panel. The planet is about one degree Celsius warmer than it was 100 years ago, Feltmate said. To put that into perspective, he said, the difference between today’s temperatures and those of the last ice age are only about five to six degrees, so a one degree global temperature rise really is a “big deal,” Feltmate warned.

Part of this is attributable to fossil fuel use, he added. “A fundamental driver of this is too many people on the planet.”

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