When will Canada’s insurers reach a tipping point over NatCats?

If insurers’ recent response to drastic storm and fire losses recorded in many parts of the U.S. are any harbinger, some Canadian regions may soon grapple with a future in which standard market insurers simply walk away.

It’s already happening down south. In late May, State Farm announced it would no longer write new homeowners’ coverage in California. And a report from ratings agency Fitch noted other insurers either followed suit or began adjusting coverages in response to NatCat-triggered losses.

Worries about future losses also led insurers to scale back exposure in Florida. These changes, Fitch said, could lead more homeowners to seek coverage from state-sponsored insurers of last resort.

Further, Fitch noted, rising premiums and falling home insurance availability “could drag on housing markets, development activity, overall economic growth and ultimately tax bases for certain California and Florida local governments over time.”

What about Canada?

There is evidence the trend is moving north.

“I have some friends in the reinsurance space and there’s some big reinsurance partners pulling out of property insurance,” said Adam Mitchell, CEO of Mitch Insurance. “One CEO came out and said, ‘Yeah, you can’t price for global warming.’ No amount of rate increases and pricing is going to get carried to the market that will cover this.”

Each insurance company has its own policy with respect to NatCats, so there are no hard and fast rules regarding how often an insured can make a claim before finding themselves unable to obtain a policy.

“After a couple of basement floods, sometimes they will not cover you for that anymore,” said Glenn McGillivray, managing director of the Institute for Catastrophic Loss Reduction. “There are 10% or so of Canadian households that can’t get overland flood insurance because they’re in high-risk areas. Even without a [prior] claim, that’s just geographically designated.”

At present, nobody’s tracking the data on repeat perils but anecdotally, McGillivray said, there are many stories of people getting hit multiple times — either by the same peril or by different perils. And all within compressed timelines.

“Kelowna is [one] example,” he said. “Halifax is an…example [in 2023] with a wildfire and a flood, and then a flood again. Fort McMurray has been hit several times with both wildfires and several floods. So we’re starting to see this happening more and more.”

Pricing problems

It’s a huge challenge for brokers, who are helping customers, but at the same time facing situations in which premiums are rising sharply for the coverages their clients need, noted Mitchell.

“For all humanitarian reasons, you don’t want to see somebody’s premium double. It’s not good. It’s not sustainable,” he said.

His firm’s recently begun exploring the idea of expanding into the U.S. Initial research revealed obtaining capacity in the country’s coastal regions can be difficult because they’re deemed high-risk.

“If I want to write in Florida, I first need to build [for an insurance partner] a $2-million book in Wisconsin [outside] the tornado path. And then as I become a big-enough partner, I could start to get a little capacity in the coastal regions,” he told CU.

“When insurance companies that are so good with capital, and so good with modelling and prices [are] saying, ‘Oh, we actually can’t model that’ or ‘I can’t bill enough to do it’…that’s a pretty good warning flag when the capitalist walks away from capital.”

This story is excerpted from one that appeared in the November print edition of Canadian Underwriter. Feature image by iStock.com/VectorInspiration