Extreme weather events | The bill rises for insurers

Extreme weather events are increasingly costing Canadians… and insurance companies, which today pay out on average five times more money in compensation to their policyholders than 40 years ago. A trend that will only get worse with global warming.

From 400 million to 2 billion dollars

In a report released Wednesday, Statistics Canada indicates that the costs of home insurance claims linked to extreme weather events for the years 2022 and 2023 were 50% higher than the annual average for recent years. With claims totaling $3.4 billion in 2022 and $3.1 billion in 2023, these two years are also among the most expensive years in property damage since 1983 in the country. Between 1983 and 2008, the average annual value of claims was estimated at $400 million. It exploded between 2009 and 2023, reaching $2 billion. The report specifies that flooding caused by heavy rain, hail and hurricanes are the weather events that cause the most damage in Canada.

The record year of 2016

A sign of the times, nine of the ten most costly years for insurance claims have occurred since 2011 in the country. The year 2016 ranks first with claims totaling almost $6 billion, due to wildfires in the Fort McMurray, Alberta region. The fire destroyed more than 2,000 houses and buildings. There is an adage that you must first speak to an insurer if you want to obtain proof of the impacts of climate change. “Insurance companies have indeed been at the forefront, for longer than others, when it comes to climate change,” says Pierre Babinsky, director of communications and public affairs at the Insurance Bureau of Canada.

Priority for adaptation measures

In 2023, of the 12 extreme weather events that resulted in claims exceeding $30 million, the three largest are wildfires in British Columbia ($720 million), summer storms in Ontario ($340 million) and the freezing rain storm that affected Quebec and Ontario (330 million). According to Pierre Babinsky, Quebec and Canada have “some catching up to do” to implement climate change mitigation and adaptation measures. “We already have a delay and we must not accentuate it,” he specifies, pointing out that there is a limit to increasing policyholder premiums to cope with rising costs. “It’s really a social issue,” he adds.

Concerned insurers

In a report released in 2023, the Office of the Superintendent of Financial Institutions Canada identified climate risks as one of the main dangers for the Canadian financial system. A year later, the organization “highlighted the need to build resilience due to extreme weather events that could destabilize the industry. A single event can cause tens of billions of dollars in damage and could lead to the bankruptcy or withdrawal of an insurer,” says the Statistics Canada report. The document specifies that the hurricane Andrew, which occurred in 1992, led to the bankruptcy of 16 insurance companies. More recently, California’s largest insurance company, State Farm, decided it was no longer accepting new customers because the risks in the state were too high.

Forest fires: worrying forecasts for 2024

Furthermore, the trend of recent years is likely to continue in 2024. The Ouranos consortium reported on Wednesday that the mild temperatures and low precipitation experienced this winter could favor a new season of particularly intense forest fires in all the countries. The regions most at risk are western Canada, eastern Ontario and southern Quebec. In Western Canada, thousands of people have been evacuated in recent days due to fires. In April, the Society for the Protection of Forests Against Fire (SOPFEU) recorded around fifty fires in Quebec, twice as many as last year at the same period.

With Chloé Bourquin, The Press