As climate changes, insurance is becoming more complex — and pricey

Nine out of the most costly 10 years for insured damages in Canada have occurred since 2011. Going forward, experts say government may need to play a greater role in protecting the most vulnerable homeowners.

Wtih rates and damages rising, experts say government may be called upon to play greater role

A white police truck drives down a road past shells of burned-out vehicles and structures destroyed by a wildfire.
A fire in Lytton, B.C., in 2021 destroyed most of the village. The Insurance Bureau of Canada reported $78 million of insured damage. (Darryl Dyck/The Canadian Press)

It's been nearly two years since a wildfire roared through Lytton, B.C., destroying much of the village. 

In all, more than $100 million in insured damages have been recorded — although some residents weren't covered at all, said Mayor Denise O'Connor.

"There were many people without insurance that lived in the village and they are kind of still in limbo," she said. 

Much of the village remains behind construction fences. O'Connor said she's hopeful more of the village will be rebuilt soon.

These kinds of costly, complex recovery efforts are expected to become more common. Experts say the rise in temperatures will lead to an increase in extreme weather.

The final tally in insurance payouts from this spring's wildfire season won't be known for some time, but all signs point to another pricey period for the industry. 

The federal government said Monday it expects higher-than-normal fire activity across most of Canada through to August. 

Last year was the third most costly on record in Canada, with $3.1 billion in insured damages as a result of floods, rain and snow storms and the cyclone that ripped through Eastern Canada, according to the Insurance Bureau of Canada.

Nine out of the most costly 10 years in Canada have occurred since 2011.

Home insurance rates, too, are on the rise, and likely to climb further in the coming years — partially due to the anticipated increase in extreme weather, experts say. 

"If there's more money being paid out by insurance companies, then there has to be a way to recover those losses. And so more claims paid out means more rate increases," said Daniel Ivans, an insurance expert with 

Home insurance and mortgage insurance have climbed an average of 33 per cent over the five-year period from April 1, 2018, to the same month in 2023, according to Statistics Canada

Another hurdle is ongoing wildfires can make it difficult or even impossible for residents to get home insurance or auto insurance — even if they are outside the evacuation zone — putting many purchases and renovations on hold. 

An aircraft sprays water on a forest.
A helicopter contracted by the province of Nova Scotia drops water on a hot spot in Yankeetown, N.S., as an excavator makes a fire break earlier this month. (Communications Nova Scotia/The Canadian Press)

A warning sign from California

Despite these challenges, experts say the insurance industry in Canada isn't yet in the perilous situation now seen in the United States.

In California, for instance, the insurance company State Farm recently announced it would stop selling new insurance policies amid a growing likelihood of wildfires.

The company said it made the decision due to "historic increases in construction costs outpacing inflation, rapidly growing catastrophe exposure and a challenging reinsurance market."

For now, Canada isn't at risk of a similar move among insurance companies when it comes to wildfires, said Craig Stewart, vice-president of climate change and federal affairs at the Insurance Bureau of Canada.

"Although wildfires are becoming increasingly prevalent across Canada, insurers in this country still treat them as accidents and we've seen no movement by any insurer away from insuring wildfire-prone areas," he said.

In Canada, flooding remains the costliest extreme weather event, Stewart said. In this year's budget, the federal government set aside $31.7 million for a national flood insurance program aimed at covering high-risk properties that have struggled to get flood insurance. 

The insurance industry has pressed for years for such a program so that residents in high-risk flood zones are covered.

"Ten per cent of Canadian homes are at high risk of flooding — and that's where that's where we've drawn the line and said we're not able to insure those affordably through the private market," Stewart said.

In the future, Stewart said there's a possibility similar programs will be needed to cover other kinds of events, including wildfires.

"Whether it be earthquake or wildfire or hail or hurricanes, should an area of the country become a predictably high risk and to the extent that it cannot be affordably insured, then the program can be expanded, essentially to backstop catastrophic insurance in those areas," he said.

Avoiding 'corporate welfare'

Moving forward, these types of partnerships will likely be necessary, and government will need to strike the right balance with insurers to make sure homeowners — not private companies — benefit, said Prof. Daniel Henstra, co-lead of the University of Waterloo's climate risk research group in Waterloo, Ont. 

"The public policy intention of this program is to protect homeowners, but the political risk in my mind is that that's the way it's going to be cast as corporate welfare, basically," he said.

Henstra, who prepared a background paper for the federal government comparing national approaches to flood insurance, said the goal for the federal government is to "reduce the uncertainty around disaster financial assistance programs, which are projected to become much more expensive in future years."

"For the insurance companies, it was a big win, or it could be a big win for them, because they're businesses backstopped by the deep pockets of the federal government."

residents clean up
Workers clean up debris after flooding submerged parts of Sainte-Marthe-sur-le-Lac, Que., in May 2019. Many homes in the community were a total loss. (Ryan Remiorz/The Canadian Press)

Public Safety Canada did not return a request for comment for this story, but pointed to a statement on its approach to flooding disasters.

The federal government said its "low-cost flood insurance program" is aimed at "protecting households at high risk of flooding and without access to adequate insurance."

Tools for homeowners

In future, homeowners, as well, will need to take more responsibility about the risks they face, Henstra said — but only if they have the tools to do so.

"It's unfair to expect homeowners to be doing this unless the risk is knowable," he said, giving the example of detailed maps, such as those that exist in the United Kingdom, "where you can put in your postal code and you get a detailed report of your risk." 

WATCH | Why this wildfire season is being called 'unprecedented':

Why this wildfire season is being called ‘unprecedented’| About That

4 months ago
Duration 2:53
Government officials from Emergency Preparedness Minister Bill Blair to Alberta Premier Danielle Smith are calling this wildfire season ‘unprecedented.’ Andrew Chang explains why they’re right.

"They need to know this through maps and searchable databases or through real estate websites," he said.

"They should know if this is a flood zone, if this is a wildfire zone, so at least they're going in making an informed choice."

Is the weather normally like this in June? Check the CBC News Climate Dashboard to find out how today's temperatures compare to historical trends.

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Benjamin Shingler is a senior writer based in Montreal, covering climate change, health and social issues. He previously worked at The Canadian Press and the New Brunswick Telegraph-Journal.