The escalating threat of extreme climate occasions is one in every of a number of components placing stress on insurance coverage firms and doubtlessly growing premiums for customers, consultants say.
Extreme climate losses, inflation and reinsurance prices have all helped drive insurance coverage premiums greater lately, mentioned Craig Stewart, the Insurance Bureau of Canada’s vice-president of local weather change and federal points.
Severe climate induced greater than $3.1 billion in insured injury in 2023, the bureau mentioned, making it the fourth-worst 12 months on report for insured losses.
“This grim statistic highlights the financial costs of a changing climate to insurers, governments and taxpayers,” the bureau mentioned in a launch.
The Okanagan and Shuswap-area wildfires in B.C. value $720 million in insured injury, the bureau mentioned, whereas extreme summer time storms in Ontario and spring ice storms in Ontario and Quebec value a mixed $670 million.
Rising constructing prices for supplies and labour have additionally contributed to greater premiums over time, Stewart mentioned.
“As we build more and more homes to address the affordability crisis, ironically, what we’re seeing is that materials and labour costs are going up,” he mentioned — “because of inflation, but also because of increased demand.”
Globally, 2023 was the most well liked 12 months on report, in line with European local weather company Copernicus.
Extreme climate occasions like wildfires and storm surge flooding are inclined to end in a better quantity of insurance coverage claims, Ratehub.ca vice-president of insurance coverage Matt Hands mentioned in an announcement.
“Climate change, along with the natural disasters, such as wildfires and flooding, continue to hit the insurance industry hard,” he mentioned. “The insurance providers will need to balance these losses on their books, potentially leading to a rise in premiums for everyone.”
Canada is warming quicker than the remainder of the world and its insured losses are additionally rising quicker than the remainder of the world, mentioned Nadja Dreff, senior vice-president and head of Canadian insurance coverage at Morningstar DBRS.
Despite this, the underwriting profitability of Canadian insurers has held up fairly effectively lately, she mentioned, “especially if you compare it to some of the global reinsurance players who have been absorbing the brunt of these extreme weather losses.”
But alongside extreme climate losses and mounting prices to rebuild, there’s a 3rd main issue influencing premiums: reinsurance, which is actually insurance coverage for insurers.
Canada is a higher-risk space for reinsurers than many different elements of the world, Stewart mentioned.
For some areas, notably Alberta and B.C., “reinsurers have raised their premiums for insurers operating in those areas,” he mentioned.
“Insurers have absorbed part of that cost. But they also have passed on those increased costs to home insurance policies.”
In response to a “drastic rise” in reinsurance costs in 2023, insurers raised their thresholds for reinsurance to rein in prices, Dreff mentioned.
“It may differ company to company, but in general, what we’ve seen is that insurers have been buying less reinsurance,” Dreff mentioned. “In other words, reinsurance kicks in at higher levels of claims.”
That means the insurers must soak up extra of their claims — a trade-off with potential penalties that depend upon how the 12 months goes, she mentioned.
According to a Morningstar DBRS outlook report revealed in December, premiums rose in 2022 and 2023 within the low-single digits.
Dreff expects premiums will proceed to be pushed greater this 12 months.
However, greater rates of interest have improved funding outcomes, serving to partially mitigate greater prices that may in any other case be handed on to customers, she mentioned.
Insurance prices are only one piece of a bigger puzzle: the rising value of dwelling that Canadians have been grappling with for a number of years.
Climate threat, inhabitants progress and macroeconomic circumstances assist premium fee will increase, however “they may prove to be more and more difficult to execute over time,” in line with the Morningstar DBRS report.
“After years of rapidly increasing prices on a range of goods and services, consumers are finding it more difficult to absorb additional costs, including that of insurance, amid their growing concerns related to the cost of living.”
No one occasion drives up premiums, mentioned Stewart, noting {that a} survey of insurers after the summer time fires discovered no change in availability or affordability of wildfire insurance coverage protection. Instead, insurance coverage pricing is pushed by tendencies over time, he mentioned.
Fire insurance coverage is a core a part of house protection and extremely unlikely to turn out to be unavailable, he mentioned.
But escalating losses and revised threat modelling imply that many Canadians can’t entry flood insurance coverage, the bureau mentioned in its report
The authorities has dedicated to a nationwide flood insurance coverage program, however progress on that has stalled, mentioned Stewart.
“We are urging the federal government to put that program in place as soon as possible.”
This report by The Canadian Press was first revealed Jan. 12, 2024.
Rosa Saba, The Canadian Press
Source: calgary.citynews.ca