The damage costs from the fire ripping through Fort McMurray, Alta., could reach $9 billion for insurers if it gets to the point that the entire town has to be rebuilt, an analyst at Bank of Montreal said Thursday.

Emergency personnel are still battling the wildfire that has essentially wiped out several sections of the city while leaving others virtually intact, so the full economic cost of the disaster is hard to calculate. 

But with 80,000 people displaced and hundreds of homes and businesses destroyed already, it's clear the financial toll will be heavy.

Economic loss4:14

A similar fire in Slave Lake, Alta., that destroyed much of the town in 2011 came with an insurance price tag of almost $750 million, making it the most expensive fire-related disaster in Canadian history.

Considering the size of the two communities, it's clear the Fort McMurray fire could cost much more than that. Fort McMurray's official population is almost three times the size now as Slave Lake's was then, and the city is often swollen by as many as 40,000 temporary residents during boom times. 

About 400 structures were lost in Slave Lake. Already, firefighters estimate more than 1,600 have been destroyed in Fort McMurray.

Standard home and business insurance typically provides coverage for the property, the possessions inside and living expenses elsewhere while the insured are unable to stay in their residence, Celyste Power of the Insurance Bureau of Canada said in an interview.

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"The policies differ a little in terms of the length and amount, but generally damage and destruction coverage is standard."

While homeowners should have little to fear in terms of having coverage, if the Slave Lake fire can be used as a guide, the cost for insurers could be enormous. 

Price tag could be as high as $9B

BMO analyst Tom MacKinnon said that if one assumes the ultimate damage is limited to somewhere between a quarter and a half of all buildings being destroyed, the price tag to rebuild would range from $2.6 billion to $4.7 billion, based on the lessons of 2011.

"But since Fort McMurray is nearly 10 times the size of Slave Lake, a disaster of the same magnitude impacting nearly all of Fort McMurray [similar in the way that nearly all of Slave Lake was significantly impacted] could potentially lead to $9 billion in insured industry losses," he said.

That would make the disaster far and away the costliest disaster in Canadian history. Currently, the 1998 ice storms in Quebec that cost insurers almost $1.9 billion in today's dollars are the most expensive insurance event ever in Canada in inflation-adjusted terms, according to IDC's 2015 annual report.

Next come the floods in southern Alberta in 2013 at $1.8 billion. 

Economic fallout2:25

The cost of Fort MacMurray's fire could potentially be much higher, but it's too early to tell. 

"We are looking at a considerable cost, but it is early days," economist Todd Hirsch at ATB Financial said. "[It's] far too early to even start contemplating what those costs are going to be at this point, [but ] the economic costs are going to be significant," Hirsch said. "Probably into the billions of dollars."

The insurance price tag doesn't include other economic damage, such as reduced output from nearby oilsands operations. The Slave Lake fire disrupted oil activity enough to knock GDP in the oil and gas sector off by five per cent during the month, which pulled Canada's entire economy down in May 2011, Bank of Montreal economist Robert Kavcic noted Thursday.

Given Fort McMurray's central role in Alberta's energy industry, the toll on the oilpatch this time could be even worse. "As much as 500,000 barrels per day is now offline," Kavcic noted, referring to precautionary shutdowns at Suncor and Shell operations north of the city.

At a news conference Thursday, Alberta Premier Rachel Notley praised firefighters for their efforts to protect critical infrastructure — things like airports, water plants and cellular towers — from the flames.

"That, ultimately, has a major impact on the recovery cost down the road," she said.


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