A firefighter walks past a home destroyed by a wildfire in Hammond's Plains, N.S., on June 6.Tim Krochak/The Canadian Press
The wildfires in Alberta, Quebec, Ontario and Nova Scotia are expected to contribute to higher home insurance prices across the country, as extreme weather events continue to hit insurers.
The Canadian insurance industry has seen the number of natural-disaster claims, due to events such as hurricanes, floods, hail storms and wildfires, more than quadruple since 2008. Last year, weather events accounted for $3.1-billion of insured losses – up from just $40-million in 2008.
DBRS Morningstar analyst Marcos Alvarez estimates the aggregate insured losses from the wildfires in Alberta and Eastern Canada will be “manageable” for most insurers, even as they “bear the weight of an above-average” wildfire season.
The current fires are still “materially smaller” than the 2016 blaze in Fort McMurray, Alta., which spread across 590,000 hectares over two summer months. It destroyed more than 2,400 homes and caused $9.9-billion in damages – of which $3.6-billion was insured.
However, Mr. Alvarez said the increase in this year’s extreme weather and natural catastrophe losses – along with high inflation – will push home insurance prices higher everywhere.
“Canadian property and casualty insurers have been exposed to larger and more frequent weather-related losses, which are driven not only by climate change but also by the rise of property values over time as well as changes in demographics and accumulation of insurable value in risk-prone zones,” he said in a research note.
Fire insurance is a standard feature of every home and business insurance policy and typically includes coverage for living expenses – food, clothing, hotel stays – when people cannot return home after a fire. Over the past three years, the Insurance Bureau of Canada has seen house insurance prices increase about 14 per cent – with a 5-per-cent spike in premiums in just the past 12 months, said Craig Stewart, vice-president of climate change and federal issues at IBC.
“No single event will impact the price of insurance premiums, but insurers track the ongoing trends over time, including when wildfire events happen,” Mr. Stewart said in an interview. “And based on those longer-term models, we have seen premiums rising. As an insurer prices risk, we have seen in recent years that Canada is a riskier place to insure.”
Mr. Alvarez said construction costs have also been rising above inflation levels, putting upward pressure on the cost of materials and labour when rebuilding homes – one metric that insurers consider when setting premiums.
Another factor, Mr. Stewart said, is that reinsurers – global companies that take on some of the risk and provide financial protection to insurance companies – are raising their fees for insurance companies.
“Global reinsurers have been adjusting their risk exposure around the world, and Canada has seen a significant increase in reinsurance rates over the past year,” he said.
The spike in risk has caused several large property insurers in the U.S. – where insurers are limited to government-implemented price caps on premiums – to permanently halt sales of new policies in high-risk areas. Without being able to increase premiums, they are maxing out their risk appetite, Mr. Stewart said.
At the end of May, for example, State Farm General Insurance announced it would no longer accept applications in California for business and personal lines of property and casualty insurance due to “historic increases in construction costs outpacing inflation, rapidly growing catastrophe exposure, and a challenging reinsurance market.” Shortly after, Allstate Corp. announced similar reasons for no longer accepting new applications in the state.
Two of Canada’s largest property and casualty insurers, Intact Financial and Aviva Canada, say they continue to provide coverage in wildfire areas.
Intact Financial spokesperson Katrina Caguimbal said all the company’s standard property policies offer full coverage for wildfires and the company does not restrict or limit the amount of coverage on those policies.
“We are not restricting wildfire coverage on existing policies in any areas in Canada due to wildfire exposures,” Ms. Caguimbal said in an e-mail.
For renewals, both Intact and Aviva said they would not cancel a policy due to a policyholder’s proximity to a wildfire.
But for individuals looking to set up new policies during a catastrophic event, Ms. Caguimbal said the company does put in place “binding restrictions for risks located within 25 kilometres of an out-of-control fire, or under imminent threat of a wildfire.”
“These restrictions mean that our teams will review and assess each exposure to ensure our underwriting decisions are sound and reasonable,” she added.
In recent years, some insurers have pushed that boundary further in certain areas – particularly in British Columbia – where temporary halts on new policies have been imposed for properties within 55 kilometres to 100 kilometres of a fire.
Aviva spokesperson Bill Walker said Aviva “will not be taking action to change our risk appetite, underwriting stance or to remove or decrease coverage availability in areas at high risk of wildfire.” Although, he said, when there is a state of emergency, insurers – including Aviva – look at new risks “more closely, as part of due diligence.”