editorial
The Bank of Canada is working with international partners to develop strategies to mitigate transition risks and promote sustainable finance
CLIMATE RISK AWARENESS
P
opulations across the globe are experiencing the adverse effects of climate change with an increase in the number and severity of weatherrelated events, rapid biodiversity loss and population displacement. Extreme climate-related events in Canada, such as the Fort McMurray wildfire in 2016, have caused Canadians to shift their attention to the potential impact of climate change effects on their lives. Catastrophic events are expected to amplify risks to homeowners and taxpayers as mitigation and adaptation efforts are delayed. There is urgency to increase climate risk awareness in Canada and create the measures and mechanisms to improve how climate-related risk is managed. These are important steps to help industry and consumers adjust to increased exposure to losses due to climate change.
next five years. Yet, 49 per cent of Canadians are worried about the impact that forest fires, flooding and other weather-related events will have on their neighbourhood and community over the next five years. Underwriters of property insurance have seen a notable increase in the number and size of claims in relation to climate-related events, which have led to massive insured losses. In 2021, Insurance Bureau of Canada (IBC) reported $2.1 billion in insured damage caused by severe weather in Canada. At the global level, insured damages hit $355 billion according to the Munich Reinsurance Company. This loss trend affects the balance sheet of insurers and is triggering changes to how business decisions are made across the
LIMITED AWARENESS ON CLIMATE-RELATED RISKS
$ Billion
BY CARLA GILES, EXECUTIVE DIRECTOR, CMBA-BC AND MBIBC; CO-EXECUTIVE DIRECTOR CMBA
8
I SUMMER 2022 CMBA-ACHC.CA
CMB MAGAZINE
Insured Catastrophic Losses in Canada *A catastrophic loss = 1 event costing $25 million or more in insured damages 5.5 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0
Loss + Loss Adjustment Expenses Estimated Trend
1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021*
Despite the urgency brought about by climate change, current and future homebuyers do not fully understand how they can be impacted by climate-related risk. According to a Leger survey commissioned by RE/MAX Canada, only one in four Canadians worry that climate change will impact their home/neighbourhood and their home-buying journey over the
industry. As the pricing of climate-related risks gets more complex, insurers are evaluating the exposure of their underwriting portfolios to physical climate risk. At the same time, homeowners with properties in flood-risk areas are being affected by significant premium increases.Up to 10 per cent of Canadian homes are uninsurable due to flood risk, according to the IBC. Homebuyers who are not able to secure adequate property insurance may have their mortgage application denied “to satisfy lenders’ requirements” after ‘property insurance’. Efforts to understand climate-related risk to physical infrastructure have not been a priority in Canada, and this has left consumers and industry alike unprepared to consider and assess risks related to climate change when
Source: IBC Facts Book, PCS, CatlQ, Swiss Re, Munich Re & Deloitte Values in 2020 $ CAN, *2021 preliminary
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