Canada’s insurance sector cautions about impending elevated rates and potential claim denials.

Due to the escalating climate crisis, which is leading to a surge in severe weather occurrences throughout the nation, the insurance sector is sounding alarms about the potential for a significant surge in rates or even the possibility of declined coverage for numerous Canadians.

Craig Stewart, holding the position of Vice President of Climate and Federal Affairs at the Insurance Bureau of Canada (IBC), has expressed concern that phenomena such as wildfires and tornadoes have become commonplace to the extent that they might pose a threat to the integrity of the entire insurance framework of the country.

“As these events get worse and worse, it is possible that insurers won’t consider them accidents anymore,” He said.

Stewart indicates that during the preceding five years, the bureau has disbursed an annual average of $2 billion in insurance claims. He further notes that the claims escalated to $3.4 billion in 2022. In contrast, prior to 2009, the yearly insurance disbursements maintained an average of approximately $400 million.

He emphasizes, “Once these weather events transition from being unexpected incidents to becoming foreseeable, their insurability diminishes.”

In such a situation, Stewart cautions that rates might experience a significant surge, or numerous Canadians residing in regions prone to such extreme weather occurrences could face the possibility of coverage denial.

He highlights this already evident reality in the context of flooding, where over a million homes in Canada lack private insurance coverage due to their location on flood-prone areas.

Taking action, the Canadian government is actively developing a fresh insurance initiative aimed at assisting these homeowners. Concurrently, the bureau is advocating for an extension of this program by federal authorities to cover other gaps stemming from climate-related issues.

In a 2015 publication from the Centre for International Governance Innovation at the University of Waterloo, a very similar scenario was cautioned about. The paper strongly advised legislators to take immediate measures to confront the impending insurance shortfall.

According to the most recent inflation report by Statistics Canada, home insurance expenses witnessed a national rise of 8.2 percent in June compared to the preceding year. In specific regions, the surge was around 10 percent in Alberta, British Columbia, and Saskatchewan, while Nova Scotia experienced an almost 12 percent increase.

While a portion of the premium escalation can be attributed to inflation, Stewart points out that a significant portion of it resulted from global reinsurance companies reappraising Canada’s risk profile and subsequently raising their rates.

The majority of property insurance providers in Canada follow a practice of offloading a portion of the risk linked to their policies onto global entities known as reinsurers. Consequently, when policyholders submit claims to their local insurance representatives, these companies subsequently manage some of their costs by procuring insurance from major international supporters.