Storms, floods and wildfires have led to Canada’s most expensive year for catastrophic losses on record, costing the insurance industry more than $7.6 billion so far in 2024.
That’s according to a report released earlier this month from Aon plc., a data analytics firm that advises businesses on their exposure to risk.
Craig Stewart, the Insurance Bureau of Canada’s vice-president for climate change and federal issues, said the scale of insured losses so far this year was never expected to come so soon.
“This is a big jump. We’re at double we were last year,” Stewart said. “We did not expect it this quickly.”
The report says five major catastrophic events — a Calgary hail storm, flooding in Quebec and Ontario, a wildfire in Jasper, Alta., and winter storms across B.C., Alberta and Saskatchewan — combined to outpace annual losses in every year on record, including 2016, the year a wildfire tore through the community of Fort McMurray.
“There is no doubt that the intensity of these events is increasing,” said Stewart. “Can the trend be attributed to climate change? Yes.”
Homeowner insurance outpacing all other housing costs
Federal data shows Canadian homeowners are already facing a two-decade surge in the cost of home insurance.
Between 2002 and 2024, home and mortgage insurance climbed by nearly 350 per cent, faster than any other costs associated with shelter, including electricity, fuel, or even rent, according to Statistics Canada’s Consumer Price Index.
Part of the increase in costs is climate and growing urban environments. As more concentrated bursts of rain fall across Canada, they are falling on increasingly paved surfaces, which often drain into aging sewers. When they back up, they go into basements, which amid a housing crisis, tend to increasingly be renovated as a suite.
That all adds up to higher losses, said Alister Campbell, a former insurance executive and CEO at the Property and Casualty Insurance Compensation Corporation.
In 2021, Campbell produced a first-of-its-kind study comparing Canadian insurance premiums relative to other countries in the Organization of Economic Co-operation and Development.
The results were striking: Canada was paying higher insurance premiums for property insurance than any other wealthy country in the world.
“It wasn't big profits for the insurance company that was being raked in with these high premiums,” said Campbell, who produced the report as a senior fellow at the C.D. Howe Institute. “It was just higher premiums to cover higher losses.”
Campbell said he has since confirmed the trend in another study that has not yet been published.
A big reason insuring for catastrophic events is so expensive in Canada is because there is no federal partnership to help absorb costs, said Campbell. In high-risk parts of the country — places where flooding, fire or storms are getting more intense — costs are fully carried by homeowners and industry, a situation unlike any other wealthy country, he said.
“At some point, you run into real strain around how much people can afford,” said Campbell.
Rising premiums and falling coverage
Pressures from catastrophic weather events mean insurance companies are looking at certain regions across North America and asking whether they can stay.
A May 2024 analysis by the New York Times found insurers lost money on homeowner insurance in more than a third of U.S. states, a 50 per cent increase from five years earlier.
In Canada, where insurers have no cap on premiums they charge, staying capitalized to afford big payouts is less of a concern.
The problem here, said Stewart, is that as risk increases, re-insurers — those who insure insurance companies to afford payouts during disasters — are increasing the threshold where insurance companies can make a claim.
Small- and medium-sized insurers will be either forced to keep that added risk on their own books or download costs to businesses and homeowners, he added.
“We’re facing a different problem,” Stewart said. “Prices might go up until they’re no longer affordable or the product will shrink until it doesn’t add adequate protection.”
Unreckoned costs of a big catastrophe
Just how much risk climate change poses to Canada's insurance industry and wider economy is not clear.
In its 2023 financial system review, the Bank of Canada warned information about the private sector’s exposure to climate risks “remains insufficient” and “may not be accurately reflected in asset prices.”
A spokesperson with the Bank of Canada declined Glacier Media's request for an interview, instead pointing to a flood risk and residential lending report released by the bank in January 2024 in which researchers simulated the impacts of a one-in-100-year flood event across several big Canadian cities.
“For instance, we estimate that such an event would cause approximately $9.1 billion in residential damage in Vancouver, $6.1 billion in Montreal and $1.6 billion in Calgary,” stated the report.
The average property in the case study experienced about $4,800 in damages, with those in the flood zone facing about $29,000 in damage.
That, said the Bank of Canada report, points to “potential financial distress for some households should coverage be insufficient or unaffordable.”
According to the Insurance Bureau of Canada, about 1.5 million homes are already in high-risk flood zones that prevent them from getting adequate insurance.
On Feb. 1, 2024, Desjardins Group said that due to the rising impact of climate change, it would no longer offer new mortgages on properties in areas where there’s a five per cent chance of flooding in a given year.
Campbell said he worries the Quebec-based firm could mark the beginning of a wider trend in Canada. But continuing to insure high-risk areas is also a dangerous path.
“If you keep paying for people to rebuild in a place that's going to continue to flood again, that really is a textbook definition of insanity,” Campbell said.
Models not keeping up with disaster
Despite the billions of dollars at stake, experts say risk models are struggling to keep up with a changing world.
In 2011, Japan's Tōhoku earthquake triggered a tsunami and nuclear disaster, killing almost 20,000 people, and according to one estimate, causing US$360 billion in economic losses.
But it wasn’t until 2019 that the event was finally incorporated into a seismic risk model used by the insurance industry across North America.
Private sector risk models were re-calibrated to double the potential of a mega-thrust earthquake in B.C. Overnight, insurers realized the Cascadia subduction zone was capable of a far worse catastrophe.
Getting insurance across much of the province became more expensive and harder to get. Many insurers decided they didn’t want to renew existing plans, Stewart said.
Similar risk re-calibration occurs whenever scientists gain new insights or a major storm, wildfire or flood leaves a wake of destruction.
What's worrying is that those risk models have often proved inaccurate, Stewart said. They failed to project the likelihood of events like the Fort McMurray wildfires in 2016 and the Nova Scotia blazes in 2023.
“We keep being surprised,” he said.
Government backstop long overdue, says industry
For several years now, the Insurance Bureau of Canada has been at work with the federal government to create a partnership that properly prices risk so people aren’t incentivized to keep building in high-risk areas.
Joanna Eyquem, the managing director of climate resilient infrastructure for the Intact Centre on Climate Adaptation at Waterloo University, said the current, more expensive model means taxpayer money directly pays for uninsured damage after a flood or wildfire.
Those government bailouts add up to three to four times more than what the insurance industry reports, Eyquem said.
“For me, it’s important to just bear in mind that these insured losses are just the tip of the iceberg,” she said. “The taxpayer is basically insuring high-risk floodplains at this point.”
Under a federal-industry backstop, people who benefit from the coverage would be paying slightly more. Such a plan would at least partially rely on national flood maps, which are currently decades out of date.
The federal government has repeatedly said it would release maps “next year.” Eyquem said there’s a fear in government that updating the maps would suddenly devalue millions of properties and spark a public backlash.
But for Stewart, those risks shouldn't be paid for by all Canadian taxpayers.
“If you want to live on the waterfront in a risky area, you’re going to have to pay for it,” added Stewart.