Climate change is making insurance more expensive and more limited – and it’s only going to get worse

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Jeremy Beeton was in a panic when he called his wife Hilary St. Pierre from their home in the Nova Scotia county of West Hants on the evening of July 21. Ms. St. Pierre was in Ontario visiting relatives with her five-month-old daughter when Mr. Beeton told her a heavy rainstorm at home was getting worse, and threatening serious damage. His fear was well-founded: by 2:30 a.m., he sent her a text saying their basement had flooded to the top of the stairs.

The deluge surprised the rural community of about 20,000 on the Minas Basin, which flows into the St. Croix and Kennetcook Rivers. The latest in a spate of disasters in the province, the storm dumped almost 200 millimetres of rain within hours, more than twice what was forecast.

Ms. St. Pierre tried to reassure her husband, telling him they had adequate insurance coverage. Weeks prior, she had reviewed their home policy with an insurance agent after her sister’s house, just 50 kilometres south of theirs, was razed in a wildfire. The policy covered up to $2-million for disasters, including fire and above-ground water damage. “I specifically asked for top-of-the-line coverage on every possible natural disaster. I had the utmost confidence that the policy I bought was exactly that,” Ms. St. Pierre said.

By the time the storm subsided the next day, the water in the basement had knocked out the electrical panel, furnace and hot water tank. Looking out to the yard, Mr. Beeton saw their car was half submerged.

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Ms. Pierre’s first step was to call her insurer. The news got worse. The agent told her the policy did not cover damage caused by surface water – when rainfall seeps into a building from below the ground rather from the roof, window or side of a house.

“Despite the excessive rainfall, the nearby river had surged and the insurance company was calling it a flash flood,” Ms. St. Pierre said. “I just sat there shocked. Those terms and explanations were never brought up to me when I called to make sure I had full coverage.”

After a month of disputes – including one home visit from an adjuster – the couple’s insurer denied the claim. It left them with a repair bill of $45,000 and put the family among a growing number of Canadians struggling with the impact of increasingly damaging weather on their ability to protect their property with affordable insurance.

Fuelling the problem: climate change. Worsening disasters have already meant higher premiums and difficulty getting the necessary protection for homes and businesses, and that threatens to send ripples through the economy as rates increase. The Office of the Superintendent of Financial Institutions, which regulates the insurance industry, has deemed climate as a systemic risk to the economy and says providers must be able to show their strategies and finances will withstand increasingly costly weather-related damage

Disaster claims in Canada have more than quadrupled over the past 15 years, accounting for $3.1-billion of insured losses in 2022, up from just $400-million in 2008, according to the Insurance Bureau of Canada (IBC).

Some of the worst catastrophes have included the wildfire that scorched large sections of Fort McMurray, Alta., in 2016, flooding that submerged British Columbia’s Fraser Valley in 2021 and Hurricane Fiona, which pummelled the Maritimes in 2022.

The trend is not tailing off. The industry expects at least another $3-billion to be paid out this year, after wildfires in B.C., Northwest Territories, Alberta, Quebec and Nova Scotia. In May, fires in the Halifax region caused over $165-million in insured damages, while the flooding in parts of Nova Scotia cost another $170-million in insured damages in July. Losses from fires that ripped through B.C.’s Okanagan Valley, devastating parts of West Kelowna, are estimated at $720-million, making it that province’s costliest insured event.

Canadians are already faced with rising premiums – even people living in communities that have not had major storms or wildfire claims. That is projected to continue. As countries gathered in Dubai this past week for the COP28 climate-change summit, it appeared increasingly unlikely that they will meet their commitments to deliver the greenhouse-gas-emissions reductions necessary to limit global warming to 1.5 C above preindustrial levels and prevent the worst effects of climate change.

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Flooding such as that in West Hants last summer represents the biggest climate-related risk in Canada; fire rates second, said Kathryn Bakos, director of climate finance and science at the Intact Centre on Climate Adaptation at the University of Waterloo. (Intact Financial Corp. provides funding to the program, but has no influence over its research, the centre’s disclaimer says.)

She points out about 10 per cent of homes in Canada, or 1.5 million, are uninsurable for flood risk today, though they can still be covered for other damages. “The big picture: Canada is still an insurable country when it comes to flooding,” Ms. Bakos said.

Still, recent chaos in the U.S. insurance industry, where companies have abandoned some regions, has caused worry that some of the roughly 160 insurance companies that operate in Canada could abandon vulnerable parts of the country, or reduce certain types of coverage.

The problems are global and industrywide. Insured losses from climate-driven devastation reached US$50-billion in the first half of 2023, compared with an average of US$32-billion in the first half of the year over the past decade, according to Swiss Re, a global reinsurance giant. This year, at least 16 disasters have been billion-dollar-plus events, leaving insurers little time to recover as they process cascades of claims. About US$35-billion of the losses were caused by severe convective storms – those with lightning, heavy rain, hail and strong winds.

“Those trends are really concerning and what’s more concerning is that they’re continuing to escalate year over year,” said Lisa Guglietti, executive vice-president of property and casualty at The Co-operators Group Ltd., the insurance co-operative. “These weather events aren’t going to flatten out on their own. The frequency is going up and the severity of the damage that they’re causing is going up. Add this to inflation, supply chain issues, the increasing cost of labour and material and soaring interest rates – and it’s really driving up the cost to rebuild, whether it’s homes, businesses or infrastructure.”

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Industry leaders know the calculus. Charles Brindamour, chief executive at Intact, Canada’s largest property and casualty insurer, said the cost of major storms – known as one-in-10-year events – will likely double over the next 15 years. “It will be a more volatile sort of environment from a weather point of view,” he said.

Over the past decade, he has become a leading global voice advocating how industries and communities can adapt to the major change in weather. During that time, he reshaped his business model to use climate as a strategy, such as pricing products separately for different climate risks and regions.

The flooding that devastated southern B.C.’s Fraser Valley in 2021 highlighted an insurance gap that affects properties in floodplains that are considered too risky for insurers to underwrite. Land-use planning that allows building on low-lying areas adjacent to rivers and other waterways is a problem that needs to be considered today among efforts to adapt to a changing climate, Mr. Brindamour said.

“First of all, you should not be building in floodplains but second of all, the floodplains will get bigger,” he said in a recent interview. “And the number of homeowners who live in a zone where the risk is too high to get coverage – that will also increase.”

About 90 per cent of homeowners in Canada have access to flood insurance, but only 40 to 60 per cent have coverage that includes losses from flooding, according to Public Safety Canada. And those policies may have limitations such as a low coverage amounts or high deductibles.

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Part of that gap stems from the fact that flood insurance is not required for a mortgage. In addition, low public awareness of flood risk and the overall cost of policies hinder homeowners from buying such coverage.

Another issue is the rising cost of reinsurance, which insurers buy to protect themselves from a spike in claims when they face catastrophic events. Similar to most homeowners, insurance companies renew their policies with reinsurers annually, and the cost is typically a major expense.

Late last year – when the majority of reinsurance policies came up for renewal – providers worldwide notified insurers the prices were on the rise.

Several years of rapidly escalating losses in the reinsurance market changed the arithmetic, said Craig Stewart, vice-president of climate change and federal issues at the IBC. Unexpected losses from disasters outnumbered the “expected” losses that reinsurers estimated in their risk modelling. Global pricing no longer made sense, and some countries with less risk of severe weather pushed back on the cost of their premiums.

The result was a major repricing that hit some Canadian insurers with increases in reinsurance premiums of at least 20 per cent in 2023. In some cases, Mr. Stewart said, the hikes were even more severe, with premiums doubling for renewals.

At the same time, reinsurers also served notice they would cover less of insurers’ claims risk, which is like raising a consumer’s deductible that has to be paid before insurance coverage kicks in. That left insurers unable to phase in the hit to their own customers. “If they’re not returning what they need to those capital markets and the capital dries up, then their business model fails as well,” Ms. Guglietti said. Co-operators saw its own reinsurance cost increase by “more than 10 to 20 per cent.”

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In early 2023, the cost for Intact to insure itself against tail risk – the probability that insured losses could be significantly worse than recent averages – climbed by more than 20 per cent, Mr. Brindamour said. At the same time, the company increased the amount of risk it keeps before reinsurance kicks in by about 25 per cent. As a result, Intact was able to limit the impact of the higher reinsurance costs on its customers, as it had already acted in 2022 in anticipation of higher reinsurance rates through pricing and actions to reduce its earthquake exposure.

However, the industry has not yet felt the full effect of the 2022 increase as some insurers have yet to fully adjust prices for consumers. In some cases, companies are still waiting to see how reinsurers will price this year’s wildfire risk to calculate how much they can absorb and how much they will pass on to customers, Mr. Stewart said.

Two other macro trends – rising inflation and increasing urbanization – are combining with climate risk to drive insurance prices upward.

An influx of people moving to a city or along a coastline increases the odds of more costly damage if the area is hit by a catastrophe, said Alison Nisonger, head of property underwriting in Canada for Swiss Re. For example, over the past half century, the population along Florida’s west coast where Hurricane Ian hit in 2022 has grown by more than 600 per cent. Ian was the deadliest storm to hit the state since 1935, and total costs are estimated at US$109-billion.

“When a natural disaster hits an area like that, we believe there’s more stuff in harm’s way than ever before,” Ms. Nisonger said.

The same effect is a factor in Canada. The population of Kelowna, for example, increased by more than 20 per cent from 2016 to 2022 to more than 235,000, making the wildfire-prone metro area one of the fastest growing in the country.

To date, the impact of climate change on insurance has been far larger in the United States, where the industry has confronted surging costs of increasingly damaging wildfires, hurricanes, floods and tornadoes.

In California, Louisiana and Florida, where regulators have capped insurance prices for years, insurers have limited coverage or pulled out of areas entirely. California has been hit with years of devastating wildfires, floods and mudslides, and some regions have been walloped with an almost 800 per cent jump in nonrenewals of policies by insurers. This year, two of the largest U.S. insurers, State Farm and Allstate Corp., stopped offering new policies to the state’s homeowners.

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Treasury Secretary Janet Yellen has pinpointed climate-related risk as a growing problem in insurance, and has warned of the economic effects of an expanding “protection gap” for property owners seeking to cover their properties.

In some of those areas, state-backed insurers of last resort have become the only option, providing basic coverage when private companies deem areas too risky for new policies and renewals. The impact goes beyond insurance. Inability to get coverage poses risks to local economies by dragging down property values, according to a recent report from First Street Foundation, a U.S. non-profit that provides research on climate-related risk for governments, industry and individuals.

In Canada, where governments don’t impose price caps on premiums, companies assure clients they will not pull out of the market. “Our land mass is much bigger, and the vast majority of wildfires are nowhere near cities, and therefore the risk is not the same as in the U.S.,” Mr. Brindamour said.

But rates are a different story. On average, Ontarians paid about $1,284 a year in home insurance premiums in 2021, up 64 per cent from $782 in 2011, according to ratesdot.ca. In Alberta, those premiums spiked by 140 per cent over the same period, costing homeowners $1,779 a year, up from $741.

In just the past year, insurance premiums in Canada have increased by 7.7 per cent, according to Statistics Canada. B.C. and Nova Scotia saw two of the largest jumps at 10.2 per cent and 12.1 per cent, respectively.

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Saba Alam stood on the back deck of his home in Bedford, N.S., as he recounted his family’s rush to evacuate as water swiftly rose above their basement stairs during the July 21 thunderstorm. He and his wife Nikki fled with their two-year-old daughter and 13-year-old son with special needs after it became clear the water pooling in the backyard would not remain outside the house.

Before long, water gushed in. “We only had enough time to grab medication and diapers. By the time we got into the car, the water was up to our knees. By the time I began to drive, the entire street was completely submerged,” he said. “I have no idea how we weren’t all swept away.”

Now, after four months of fighting with his insurance company to process his claim, the stress continues as he just received a payout for the first half of his losses to begin to rebuild. So far, he has been assigned five adjusters. Each new one required him to retell what happened during the storm. He is one of the luckier residents on the street, with a policy that includes sewage backup and groundwater flooding for up to $190,000. He added the additional coverage in May after a friend asked if he had flood protection.

But the delay processing the claim is stalling construction and forcing him to run up his line of credit. Once the water receded, Mr. Alam gutted his basement himself and rented a removal bin and two large industrial fans. On a recent visit, those fans were still whirring in the basement. “I had no idea when I bought this house in 2018 that it was sitting on a major floodplain. I would never have moved my family here.”

What is even more concerning, he said, is that his insurer has already said it does not know if he will qualify for flood coverage if he renews his policy next spring. If he has to shop around, he worries he won’t be able to afford it. “They just said, ‘We don’t know at this time’ – with no explanation or reassurance. But from what I am hearing from neighbours, I am not hopeful,” Mr. Alam said.

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Over the past decade, in communities hit by catastrophic flooding, houses sold for an average 8.2 per cent less than those in areas that have not been flooded. This can affect loan-to-value ratios – if the value of a property is cut down by unanticipated flood risk, lenders and insurers could incorrectly approve or misprice mortgage rates, according to the Intact Centre.

Don Iveson has seen this coming for years. The former mayor of Edmonton recalls flooding in the Alberta capital from a heavy rainstorm almost two decades ago, before he entered politics and became concerned that overtaxed storm sewers were only going to get worse. “My condo flooded and I was worried about my parents’ house flooding. I remember standing in the back lane with water up to my knees. It had stopped raining, but the water was still rising because it was running off everything, and it had nowhere to go because the drainage system was overwhelmed,” Mr. Iveson said.

Solutions go beyond the financial protection of insurance coverage, and extend to dealing with intensifying weather with public-works projects that make communities more resilient, he said. Municipal drainage systems across Canada are undersized for weather today, are deteriorating as they age and will require increased spending to beef them up in the coming decades, even as budgets remain tight.

Mr. Iveson was mayor when Edmonton’s utility, Epcor, launched a 20-year, $1.6-billion plan to deal with flooding in the Alberta capital’s neighbourhoods by constructing dry ponds and installing other floodproofing equipment, including control gates and smart mitigation technology. That work is in its early stages.

Mr. Iveson, who left politics in 2021, is working with The Co-operators, under the umbrella of the International Cooperative and Mutual Insurance Federation, on a national initiative to advance climate adaptation projects and infrastructure that is resilient to floods, fires, hail and other severe weather.

The average cost per home from a flood is $43,000, with basement repairs accounting for the bulk of the work. Fire, though not as common, often destroys houses and other buildings, so insured losses are much higher. “There’s a lot more cost associated with rebuilding a home – the infrastructure that needs to be put into place, the resources, the contractors and such. So insurance companies are looking at it and they are seeing very different costs in the system,” University of Waterloo’s Ms. Bakos said.

Key measures to reduce those risks are updated flood and wildfire risk maps, and building according to their specifications. In addition, insurers should provide customers with flood and fire protection guidance. With wildfires, the focus is the urban-wildland interface, where trees and other vegetation encroach on properties, putting houses at risk, as was the case in the Okanagan and Lytton in B.C., and Fort McMurray.

One in 20 Canadian cities is at high risk of forest-fire damage, and the insurance industry has reached out to local governments to help them prepare for potential disasters, Mr. Brindamour said. He said the Halifax wildfires this year, which started on May 28 and burned more than 950 hectares, caught the insurance industry off guard in their risk models.

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Driving into Highland Park, N.S., the sound of bulldozers and power tools could be heard as homeowners grappled with construction and insurance delays six months after a fire destroyed more than 200 properties in the Tantallon neighbourhood. Progress is mixed. On one side of the street an empty lot is still cordoned off with safety fencing as a backhoe levels the ground. Two doors down, a crew is putting up the walls of a wood-frame house. Most of the homes that survived the inferno have visible signs of smoke damage, with melted vinyl siding and ruined windows.

Here, John Engram has battled with his insurance company to repair his house. Along with his wife and two teenage daughters, he has lived in a rental unit for six months. He is not hopeful he will be home by Christmas.

Part of the problem, he said, is the churn of insurance adjusters, many of whom are from out of town and unaware of the local market. He is currently on his fifth one – an individual he no longer interacts with after he hired a convener to help sort out his claim.

“This has been the worst experience emotionally of my life,” Mr. Engram said, standing in the empty front hall of his home. “I want to be grateful that my home is still standing. But what we have experienced from the insurance industry – it would have been easier if it just burned to the ground.”

As he waits for new siding, windows and an update on the cost of his deck and pool that collapsed in the fire, he is fighting over other items, including replacing roof insulation, which he believes is causing a lingering odour in his home.

Mr. Engram is hopeful the repairs will be approved and completed by spring, around the time he has to renew his policy. But neighbours have warned that some premiums have already shot up by as much as $800 a year, leaving him worried. “I am currently paying $1,000, but I have a terrible feeling that my insurer won’t even want to renew my policy because I have pushed back on every denied claim that I am owed,” Mr. Engram said.

Over the past year, the IBC has closely monitored access to insurance for Canadian homeowners, particularly for those experiencing back-to-back weather damage. For the most part, Mr. Stewart said, insurers are holding the course with the same risk appetite.

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Mr. Brindamour is confident his company’s risk modelling supports the view that the insurance product is sustainable for the next 15 years, a prudent timeline used for assessing the impact of climate change on property insurance. However, the industry cannot solve the problem of climate risk with pricing alone. “This is not just an insurance problem, it’s a societal issue,” he said.

Over the past several years Intact has funded more than 100 demonstration projects in communities to test preventative measures, such as protecting wetlands, which can reduce the risk of flooding by 30 to 40 per cent.

For every dollar of damage that is insured there is a further $3 to $4 of uninsured damages. That leaves a gaping hole in protection where taxpayers and others are forced to step in.

“If you can’t defend against an event on the day it is happening – like the Halifax floods – what you have to do is try to improve, identify high-risk areas and defend them at the community level,” Mr. Stewart said.

“If you want to keep parts of this country insurable, you are going to need to invest in defence, and that requires all levels of government to play together to make it happen.”

How to minimize insurance claims due to weather

Property owners can take steps to minimize insurance claims in the face of increasingly intense rain, hailstorms and risks of wildfires. Public institutions and industry also play key roles.

1. Cheap and easy: Increasingly, insurance companies and mortgage providers offer their clients a “Three Steps to Home Flood Protection” worksheet, developed by the Intact Centre on Climate Adaptation at the University of Waterloo. The sheet lists cost-free tasks homeowners should undertake twice a year, such as removing debris from storm drains, cleaning eavestroughs, checking for leaks in plumbing and appliances, testing sump pumps and keeping backwater valves clean.
2. Small investment and effort: For less than $250, window wells can be protected with covers, downspouts extended two metres from building foundations, and valuables and hazardous materials stored in watertight containers. Homeowners can also install flood alarms.
3. Longer-term flood-risk fixes: For $250 and up, property owners can hire contractors to slope yards down away from foundations, add window wells that stick up 10 to 15 centimetres above grade and install sump pumps and backwater valves.
4. Stop the burn: To minimize fire risk, homeowners should reduce the effects of the wildland-urban interface by thinning out nearby trees and branches, and removing dead limbs and brush to create a safety zone around any structure. Also, they should prune tree branches to at least 2.5 metres above the ground, store firewood away from the house and avoid combustible materials such as wood chips in landscaping.
5. Starting from scratch: New buildings should be constructed using materials and methods that can best withstand regional weather risks, such as installing hail-resistant roofing, non-flammable siding and underground drainage systems that direct water away from foundations.
6. Industry’s role: Insurance companies should provide clients with guidance for flood and fire protection that is specific to regions where those risks are high, in line with updated mapping by federal, provincial and territorial governments.
7. Governments, regulators and planners: They have major parts to play in minimizing costly damage as many Canadians live on floodplains, and numbers will increase as floodplains expand owing to more precipitation. Climate change and extreme weather-related flood risk, at times combined with poor land-use planning, will increasingly distress the residential-housing market if left unchecked, the Intact Centre says.