In the middle of a summer night in 2021, Jason Wallace was awakened by a firefighter knocking on the front door of his Kamloops, B.C., home. He and his family were ordered to evacuate within an hour due to a nearby wildfire.
“It is a heck of a thing driving down the road with the things you grabbed on the way out … wondering if you’re ever going to see your home again that you raised your children in,” Wallace said.
Wallace’s home ultimately survived those wildfires, which were caused by a heat dome created by temperatures exceeding 40 degrees in parts of the country. Some 600 Canadians did not survive.
As a former insurance broker, Wallace has helped clients navigate insurance coverage and claims brought on by natural disasters. Over the years, destruction from climate-related catastrophes has increased, which has led to more Canadians seeking coverage.
“Especially this time of year, in British Columbia at least, where I live, our offices definitely get a lot more phone calls as fire season approaches — ‘Does my policy cover me for wildfire’ for example,” said Wallace, who is director at the Insurance Brokers Association of British Columbia.
This increase in demand is leading to an uptick in the price of insurance coverage across Canada, says Rob de Pruis, national director of the Insurance Bureau of Canada, an industry association.
“About 15 years ago, the insurance industry on average was paying out about $675 million a year for severe weather claims … In 2023, the insurance industry paid out over … $3.4 billion of severe weather damages across the country,” he said.
“Canada is becoming a riskier place. And fundamentally, insurance is about risk. The higher the risk, the higher the premiums because they’re commensurate with the risk.”
In some areas, the price of extreme climate disaster coverage has become so high that insurance providers are asking the government to help cover the costs of potential future environmental destruction.
“We do have about 10 per cent of Canadians that can’t [afford insurance coverage] in the regular market,” said Brett McGregor, vice president of the Insurance Brokers Association of Canada.
The federal Liberal Party is currently working with insurance associations to develop a national flood damage coverage funding strategy.
“The idea is to have the federal government providing some funding and kind of a backstop on those high risk properties.”
‘Shouldn’t buy there’
There are many other reasons why home insurance prices for climate disasters have increased in recent years. Higher costs of building materials, a skilled labour shortage and supply chain disruptions can affect pricing, says de Pruis.
“If five or six years ago your home cost $300,000 to rebuild, you’d be paying a certain amount of insurance premium. Today, that same home could cost $500,000 or $600,000 to rebuild,” he said.
And insurance companies purchase their own insurance — called “reinsurance” — to provide coverage for large catastrophic events.
As catastrophes increase globally, these companies’ reinsurance costs increase, which affects Canadians’ premiums.
“Now, I’m not saying an event in Europe has a direct impact on people’s home insurance in Canada,” said de Pruis. “But it’s just another cost pressure, just another expense in those overall costs that insurance companies are facing when they’re trying to figure out the magic formula.”
To mitigate rising insurance costs, some US states such as California have introduced a limit to what insurance companies can charge for premiums. The move has resulted in many companies fleeing the state.
Canada should heed California’s example, says Thomas Davidoff, associate professor at the University of British Columbia Sauder School of Business.
“What’s important is there not be caps on the insurance price.”
Increasing environmental damage risk in any housing district should be reflected in a more expensive premium cost. It’s the responsibility of homeowners to assess whether they can afford the risk, he says.
If a “house is not only likely to burn down this year, but it’s even [more] likely in 10 years, homeowners must be prepared to face that risk — and if they’re not they shouldn’t buy there,” said Davidoff.
But there are regions in the country where risk from certain environmental issues has increased so dramatically that insurance becomes unaffordable — both for Canadians and insurance companies.
“It’s not reasonable to say, ‘Well move [houses] if you don’t want to pay the insurance premium’,” said McGregor, who is also president at the Guild Insurance Group, an insurance brokerage in Brandon, Man.
“About 10 per cent of Canadians aren’t eligible for flood insurance right now or land water insurance,” he said.
In these cases, a government strategy to cover loss is necessary, he says. Just last month, he was in Ottawa advising the government and other industry stakeholders on a Federal National Flood program for those homeowners that are most at risk. That program is expected to launch in 2025.
Not well protected
Canadians are not as aware of their exposure to hazards such as flood, wildfire and earthquake as they should be, says Rob O’Brien, manager of policy, financial institutions at the B.C. Financial Services Authority, which regulates the province’s financial sector.
A report that O’Brien co-authored showed many people who have insurance were not aware of insurance options before they purchased their coverage. And even when they purchased coverage, they were not aware of what they had purchased.
“Put that in the context of increasing extreme weather events … and you have a situation where Canadians are not as well protected as they could be in the face of these increasing threats,” he said.
It is important to be covered in case of an extreme weather event, says McGregor. With more than 43,000 insurance brokers in Canada, coverage prices are still competitive.
“We’re able to … find out what your needs are and tailor a coverage package with an insurer that is going to be the best fit for you,” he said.
And preparation is key, says Wallace, who is also a director at Western Financial Group Inc., a national insurance brokerage company.
When his family was evacuated from their home, he had already prepared a suitcase with some of their important documents, clothes and toiletries — just in case they were called.
It helps to prepare in advance because in the moment, stress can make it difficult to think.
“On the way out the door, I grabbed the blender off the counter,” said Wallace. “It speaks to how your mind isn’t as sharp or isn’t as focused when the time comes.”
Having the right coverage can only help in the time of need, he says.
“I’ve stood and watched as people’s homes burned down with them and held them and held hands and cried with them. The things that they’ve worked so hard for have been lost to fire or flood or what have you,” said Wallace.
“That’s the part where as brokers or insurance professionals and as an industry, frankly, that’s where we have to be very human and remember that behind the policies are people.”
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