Insurance costs soar because of extreme climate events, experts say

Apr 18, 2024 | Biz/Tech, Canadian News, News

Insurance damage for severe weather events due to climate change cost more than $3.1 billion in Canada last year, making 2023 the fourth worst year for insured losses, according to the Catastrophe Indices and Quantification Inc. (CatIQ).

The report, published by the Insurance Bureau of Canada (IBC), also found that 2023 was the second straight year Canada surpassed the $3-billion threshold.

The majority of the cost was due to the wildfires in Okanagan (McDougall Creek) and Shuswap (Bush Creek East), B.C., with over $720 million in insured losses, which resulted in the costliest insured event ever in British Columbia and the 10th in Canada’s history.

Ontario summer storms and flash floods damages followed by more than $340 million in insured losses, according to the IBC report.

Canadian home insurance costs are expected to rise this year by an average of 7.7 per cent — 6.32 per cent in Ontario — this year, despite inflation settling at about two per cent by 2025. A major cause is the soaring costs of increased climate-related disasters that “have set the stage for this inevitable price recalibration,” according to data from MyChoice, a leading insurance comparison website.

Director of Resilient Homes Canada Chris Chopik said extreme events like flooding and wildfires are lowering property values, creating a stigma within marketplaces.

“The reality is everywhere it rains, there’s a risk of flooding. That’s just true because the storms are more intense,” he said. “The risk boundary is expanding, and the severity is more distributed than it was before, which is concerning.”

The IBC report found affordable flood insurance is out of reach for more than 1.5 million households in high-risk areas.

“We have 10 per cent of the Canadian population living in places that are at high risk of flood, and one per cent in places that are very high risk of flood,” Chopik said. “The real questions for the marketplace are how do we price that very high risk? If it gets more expensive for that insurance in that location, can the people afford it?”

He said homeowners and municipalities share responsibilities regarding property-level interventions, like resiliency investment that include technologies like backwater valves that stop water or sewage from flowing into the house should the main sewer line become overloaded avoiding basement flooding.

“Anyone who lives in Toronto is susceptible to flooding. A backwater valve is a very good investment, and the city covers two-thirds of the price,” he said. “Different municipalities have different programs, but a lot of places where there’s an urban flood risk do similar things.

“Every dollar spent on resiliency recovers in saved losses by four to 11 per cent for a home-based resiliency investment,” he said.

Sustainable Buildings Canada Executive Director Mike Singleton said resiliency and sustainability for buildings might mean different things in different parts of Canada, but it’s crucial to plan sustainability goals at the beginning of a design activity.

“It’s that old attitude, you only get one chance to do it right the first time,” he said. “If you make a mistake in the design and the construction, and you put in some equipment that is not energy-efficient, then that’s going to stay there for 20 years.

“There are many examples of social housing projects in Toronto that are not very efficient due to inappropriate equipment, and they ended up with quite high heating bills,” he said.

He said geography and local conditions play an important role in determining the sustainability features that homeowners want to include in their properties.

“It’s not just about the house, it’s about the land around it as well,” he said.

“The land is so outrageously expensive in cities like Toronto and Vancouver, so it’s very difficult to talk about affordability in that context,” he said. “If you’re a low or middle-income person in the city of Toronto, it’s highly unlikely that you’re going to be able to afford a resilient built house.”