"They lose sleep every time it rains really hard because they know they're going to get flooded basements," says Jason Thistlethwaite, a University of Waterloo professor who studies the insurance industry, about people in the business.
Thistlethwaite says the same thing happened when the news of the damage in Fort McMurray, Alta., came through, "as soon as they heard that 1,600 structures number."
With all those buildings burned, what the insurance industry expects to be Canada's most costly natural disaster is going to affect Canadians, and not just in higher rates.
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As the director of Waterloo's Climate Change Adaptation Project, Thistlethwaite's research is on the leading edge of the Canadian insurance industry's attempt to cope with climate risk.
Some industries seem to have had trouble believing the scientists who warn that human activity is warming the planet by releasing long-sequestered carbon.
The insurance business is an exception, as Eric Reguly pointed out in a 2013 article titled No climate-change deniers to be found in the reinsurance business.
"What is remarkable is that Munich Re first warned about global warming way back in 1973, when it noticed that flood damage was increasing," Reguly wrote in the Report on Business Magazine.
Munich Re is one of the giant groups, including Swiss Re and Lloyds, that act as an insurance company for insurance companies, giving them an overview of changing global risk.
Twenty years before the Rio Earth Summit, where the world's countries first focused on a global strategy to fight climate change, the insurance industry had recognized that claims were rising more quickly than their risk tables had told them they should. Their research pointed straight at climate change.
Here in Canada, the industry also recognizes it has a problem, hence the Intact Centre on Climate Adaptation (ICCA). The insurance company that sponsors the centre, Intact, formerly known as the ING Group, is the largest home and property insurer in Fort McMurray, according to ICCA head Blair Feltmate.
Cause and effect
As with all climate change arguments, it is hard to prove an absolute cause-and-effect relationship between climate and the recent Canadian increase in damage claims from fires, floods, wind and ice storms.
But for literally hundreds of years, the insurance industry has been the master of statistics. It goes back to the days when underwriters sat in Lloyd's Coffee House in London in the 1700s and calculated the odds that a cargo ship would sink before returning from the Far East. And they don't like to get it wrong.
"What we have is evidence that property-related insurance losses from extreme weather are increasing not only in Canada, but also internationally," Thistlethwaite says. "And this aligns with climate change research that suggests that the warmer the atmosphere is, the more extreme weather you're likely to get."
Unfortunately for those looking for a climate change champion, the fact is we cannot count on the insurance industry to save us. As businesses, they must look at the bottom line.
"There is no insurance company I know that's not an advocate for working to minimize greenhouse gases," says the ICCA's Feltmate.
But he says from a business point of view, the industry decided in the past two or three years that it must focus more on what he calls "de-risking" insured properties — spending to adapt to climate change as the effects worsen.
As the insurance industry learns more about how to adapt, those new strategies will be passed on to homeowners, who will be encouraged to do things like direct runoff away from their houses, install devices to prevent sewer backup, cover window wells, or make their homes more fireproof.
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Even if not all homeowners play along, encouraging safe practices cuts statistical risk and benefits the bottom line of insurers as well as homeowners.
"The benefits of adapting are local if you de-risk a system. Whatever dollars you spend in that attempt to de-risk, you realize those benefits locally," Feltmate says.
Thistlethwaite says one strategy would be to reward homeowners in specific risk zones for adding climate adaptations, or even make it a requirement, but insurance companies need to do more research first.
"They really don't have a good idea of how much it saves an individual home when you install a backwater valve or put up fireproof shingles," he says.
But for now, people in the insurance industry are hard-nosed realists. They expect weather disasters caused by climate change to get worse before they get better. So we better get used to it.
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