WEATHERING THE STORM

How the P&C Insurance Industry is Developing Resilience Against the Costs of Severe Weather

By Aaron Sutherland

After a record-breaking year of extreme weather events across Canada, the lesson is clear: It pays to be prepared. Property and casualty (P&C) insurers have a long history of raising awareness of the need to adapt to the increasing risks we face as a result of natural catastrophes. Over a decade ago, Insurance Bureau of Canada (IBC) made climate change adaptation a national strategic priority. Today, we continue to push for a whole-of-society approach recognizing that governments, emergency management organizations, the P&C insurance industry, brokers and the public all have a role to play in addressing the challenges we face.

Western Canada experienced another year of extreme weather events. In Alberta, there were close to 1,100 reported wildfires, and approximately 2 million hectares were burned. This is a new record that’s almost double the previous record (1.35 million hectares) set in 1981. Fortunately, this year’s wildfires did not result in any loss of life or large property damage thanks in large part to the heroic efforts and bravery of firefighters and first responders.

In the summer, several storms swept across Alberta and into Saskatchewan and Manitoba, resulting in more than $300 million in insured losses according to initial estimates by Catastrophe Indices and Quantification Inc.1 Of that total, $90 million—or 30 per cent—went toward replacing or repairing storm-damaged vehicles in Alberta. Since 2020, insured losses to vehicles in Alberta from severe weather now exceeds $500 million.

Over the past 15 years, insurance claims from severe weather events have more than quadrupled. The new normal for yearly insured catastrophic losses in Canada is $2 billion, most of which is due to water-related damage. Insured losses in 2022 totaled $3.4 billion, and we have already exceeded the $3 billion mark this year.

Overall, the average cost per natural disaster in Canada has jumped 1,250 per cent since the 1970s. A typical storm or flood that cost insurers roughly $8 million in the early 1970s now costs them over $110 million.

We all must do better to protect ourselves from natural disasters, which continue to have an outsized impact on the most vulnerable people in our communities.

How insurers are supporting flood and adaptation advocacy

IBC has been leading conversations with the federal and provincial governments on ways to improve the resilience of communities and better manage the costs of flooding for high-risk properties in Canada. Representatives from 30 insurance companies devoted thousands of hours of expertise and other resources to support the federal government’s Task Force on Flood Insurance and Relocation.

The P&C insurance industry put forward options to create a flood insurance program—including a public-private partnership model—to help make affordable insurance available to residents in high-risk areas.

Fortunately, the Government of Canada has begun to take action. The 2023 budget committed $31.7 million to stand up Canada’s first national flood insurance program to help protect Canadians at highest risk of flooding. It also pledged $15.3 million to create an online flood portal and $48 million to modernize disaster financial assistance arrangements programs and designate special flood hazard management areas. The funding will help ensure that all residents, regardless of their risk, have access to affordable flood insurance.

On June 27, the federal government released its official National Adaptation Strategy (NAS) and Action Plan, the first of its kind in Canada. The NAS and action plan will strengthen the government’s flood program commitment by:

• Expanding the flood hazard identification mapping program

• Enhancing wildfire protection

• Topping up the disaster mitigation and adaptation fund

• Accelerating the use of climateinformed building codes, standards and guidelines

• Delivering climate tool kits and services that increase the uptake of climate-resilient practices and investments in communities.

The NAS is a critical component in delivering the flood insurance program and has the potential to help address the effects of catastrophic weather events on Canadian families and communities. IBC continues to urge the federal government to make the necessary investments to implement this strategy. Along with its members, IBC will continue to engage the federal government to ensure that funding to deliver the NAS is included in the next federal budget.

Alberta must also increase provincial investment in measures that build resilience to the risks it faces.

How brokers can support flood and adaptation advocacy

While the P&C insurance industry enters this critical stage in securing commitments from government to move ahead in adapting to future risks from the increase in severe weather events, there is a more compelling case than ever for the essential role of brokers.

The federal government has made it clear that it wants to launch the national flood insurance program in partnership with the provinces and territories. IBC encourages Alberta brokers—as both insurance professionals and Albertans— to urge their provincial representatives to support this new program. Brokers are in a key position to communicate how the NAS and the flood program will benefit families across this province. In sharing this message, we can build wider support for a program that will help many Albertans cope with the increasing risks of severe weather events.

Aaron Sutherland is the Vice President, Western & Pacific of the Insurance Bureau of Canada ASutherland@ibc.ca

1 IBC.ca; September 19, 2023; Summer storms in Alberta and Prairies cause over $300 million in insured losses