Why your clients may not be covered when there’s an active wildfire

With wildfire season already underway in Alberta and British Columbia, brokers will be looking at how insurance can help their clients mitigate any losses.

But brokers and clients alike may not know that the ability to bind coverage could be restricted if there is an active wildfire nearby. This restricted binding authority could mean that no new or increased coverage will be bound until a certain time or waiting period.

For wildfires, insurers typically won’t allow binding if there is an active wildfire within a 50-kilometre radius of a client’s property, Sarah Thompson, associate vice president of Hub International’s real estate practice, told Canadian Underwriter Thursday.

“We write quite a bit of business as an organization in the Interior and there were challenges last year with not being able to provide quotes for new business, especially if you are looking at condo and strata corporations coming off course of construction,” said Thompson. “We were having challenges even in downtown Kelowna getting insurers to bind or quote on new business for us.

“Last year, we were basically waiting to send or bind terms until like the day before it renewed,” said Thompson, who is based in Burnaby, B.C. That means clients may have their coverage terms rescinded and be placed in a situation where the broker “can’t offer you that quote because there’s a fire that just cropped up overnight,” she said.

The 50-kilometre binding restriction area – which could also be 25 kilometres or 100 kilometres, depending on the insurer – is by a map and not necessarily by driving. There could even be a lake in between (even though fires can jump bodies of water).

Renewals – especially for strata and condo corporations – were generally not as challenging to bind last year, because the market hadn’t hardened as it has today, Thompson said. “But right now, I do see the challenges going forward this summer in terms of even being able to renew some of those properties if the fires continue.”

There could even be a situation where an insurer is reducing capacity due to market conditions, and so a client may not be able to renew or find a new insurer to take on the risk, or may face a drastic premium increase. “So, it’s going to put us in a really tight spot as the wildfire season continues,” Thompson said, adding that she understands why these binding restrictions are in place – carriers can’t insure something that is having or about to have a loss.

What Thompson recommends to clients in certain areas is to move coverage dates outside of the fire season. “Extend your policy by six months or a few months,” she said. “Take a long-term policy and get it out of that June to September time period. It allows them more opportunity and more options as far as renewing or getting multiple quotes on their business.”