An unprecedented series of extraordinary flooding, wildfire and hailstorm events wreaked havoc across Canada in 2024. The cost for consumers, insurers and reinsurers is going up. Confirming you’re properly insured can help prevent the possibility of a major financial loss.
Weather can shift significantly in a single day but a change in climate develops over decades or even centuries. Climate change influenced by a steady rise in global average temperatures appears to be a leading cause of more extreme weather worldwide. Rainfall is more intense, heat waves are hotter and flooding is more frequent. These extreme events can produce what the insurance industry calls catastrophic, or CAT, losses. In Canada, a CAT loss is $30 million or more in insurance claims for a single event.
The costs of catastrophic losses are soaring
Between 1983 and 2000, average annual CAT claims in Canada were $400 million. That figure rose to $675 million from 2001-2010, and then spiked to $2.3 billion between 2011-2022, far outstripping inflation. According to Statistics Canada, there were 15 CAT events in Canada in 2022 that triggered losses ranging from $35 million to $1 billion. The total was a staggering $3.4 billion, and the primary cause was water-related damage. In 2023, CAT losses were $3.1 billion. Both 2022 and 2023 ranked in the top 10 historically. To date, 2024 is already another very expensive year.
A very wet and expensive summer
Prior to the last two decades there might be one or two extraordinary insurance loss events across Canada in a typical year. But by early autumn, 2024, Canada has experienced five and they all occurred within four weeks between July and August. Two of Toronto’s biggest rainfalls on record (one was the most ever) happened a month apart and each caused sudden and severe flooding. Between 1991-2020 Toronto received, on average, 222 mm (8.75 inches) of rain during the June-August period. In 2024 it was 511 mm (20.1 inches) and almost half of that fell on just two days; flash flooding on July 16th resulted in $940 million in insured damages and the bill for the August 17th deluge is still being calculated. A week earlier, tropical storm Debby dumped 175 mm (6.8 inches) of rain in 24 hours across parts of Quebec, causing widespread flooding and more than 70,000 property damage claims. The total cost is still being finalized.
Fire and ice
CAT losses were even higher in Alberta. The Jasper wildfire that started in late July caused $880 million in damages. Damage from the August 5th Calgary hailstorm is expected to total $2.4 billion, making it one of the costliest events in Canadian history, second only to the 2016 Fort McMurray wildfire ($4.4 billion.) These five events triggered approximately 228,000 insurance claims, twice the number made in July and August 2023. Five of the 10 most expensive disasters in Canadian history have been in Alberta and they all occurred since 2016. These include Calgary hailstorms in 2020 and 2021 that resulted in more than $1.2 billion and $700 million in insured damage, respectively.
Staffing and financial strains
A major challenge for insurers in 2024 has been adjusting the huge volume of claims in a timely manner so repairs can start and a full assessment of financial liability is known. But many insurers simply don’t have enough staff for such huge events occurring in rapid sequence. In response, provincial insurance regulators moved quickly to allow out of province adjusters to work on claims in the hardest hit regions.
Insurance companies must carefully manage their risk exposure because CAT events can capsize companies – the huge losses caused by Hurricane Andrew in Florida in 1992 drove 11 insurance companies into insolvency. Reinsurance companies take on risk exposure from primary insurers in return for premium (insurance for insurers) but major claims events can hit both. As a result of the large losses in 2022, global reinsurance renewal premiums climbed in 2023. The 2025 reinsurance market for Canadian insurers will likely reflect the extreme weather losses of 2024. Some of these rising costs will no doubt be passed on to property owners who already saw their annual premiums rise faster than inflation between 2023-2024.
There are other ramifications. For example, early in 2024, Desjardins Group, a major Quebec financial institution, said they would stop offering mortgages in specific, flood-prone areas of the province. Desjardins had previously withdrawn flood insurance coverage in the same areas. Other insurers are lowering the claims limits they offer for flood damage. As the scale of flood claims grows, the insurance industry has engaged with the federal government to develop a National Flood Insurance Program to ensure all homeowners have a chance to buy flood insurance. The 2024 federal budget included an initial allocation for this initiative, but substantial work remains to be done before it is finalized, possibly by 2025.
Are you covered?
Many Canadians assume their property (or auto) insurance automatically covers fire and weather-related losses, but this is not always true. Fire is in almost every instance covered. Hailstorm is usually covered but there is a distinction between property and auto damage because they are part of two separate policies. Water damage typically covers floods from burst pipes and leaky appliances but not damage from heavy rainfall or melting snow. Coverage for damage caused by “overland water”, “sewer backup” or “storm surge” (in coastal areas) is often not automatically included in property insurance but is available as an option for additional premium. It’s important to note that policies that either include these water damage coverages or offer them as an option are increasingly putting limits on the value of related claims.
Check the fine print
Given the widespread damage caused by floods this year it’s a good idea to carefully review your property insurance policy. Premiums are rising and important coverages are being tightened. As extreme weather becomes more common being adequately insured can help prevent a major financial loss that could potentially threaten your broader financial well-being.
Sources:
https://www.cbc.ca/news/canada/calgary/hail-storm-calgary-weather-insurance-claims-1.7286567
https://www.theweathernetwork.com/en/video/MyLeiYiK?playlist=HtPmBhvM
https://www.cbc.ca/news/climate/quebec-desjardins-flooding-mortgage-1.7129986#content
https://globalnews.ca/news/10733223/insurance-bureau-of-canada-2024-natural-disasters/