Every year we hear about major events, so much so that they have been deemed “seasons.”  From flood to wildfire to hurricane season, we’ve grown accustomed to the threats posed by Mother Nature. While many of us are not directly impacted from year-to-year, the cost of such events is borne by all of us. Financially, we see this especially in our insurance rates.

Some of the largest natural disasters in Canada have taken place in just the last few years. The costliest event on record was the Fort McMurray wildfires in 2016, which cost $4 billion in damages. More recently, we saw flooding in British Columbia that has been estimated at $675 million, and Hurricane Fiona resulted in $660 million in property losses in 2022.

These losses cost the Canadian insurance market directly, which in turn is paid for by all of us as purchasers of insurance. When Canadian insurers take losses, just like you or I, their insurers increase the rates they pay for coverage. (The coverage that insurance companies purchase is known as “reinsurance.”)

However, even losses outside of Canada can affect the cost of insurance. Reinsurers (those who insure the insurance companies) cover losses around the globe, and so natural disasters in Europe, Australia or Florida can lead to rate increases for all. We are truly a global community.

What Is Currently Happening?

With the increasing frequency of natural disasters both nationally and globally, there simply aren’t enough reinsurers who have the capacity to cover all catastrophe perils around the world. This creates a supply-and-demand problem, where many insurance companies are fighting to get the coverage they need in a market with not enough capacity to go around.

Many insurers in the industry are finding that their reinsurance partners are either not renewing coverage or are scaling back the coverage they are offering around catastrophic perils. As reinsurers continue to suffer severe losses and feel the same crush from climbing interest rates as we all do, money is being moved into safer risks and investments. For those that can find coverage, the cost to reinsure natural disasters and catastrophic perils are expected to increase significantly.

How Does This Affect Policyholders in Canada?

For those of us in British Columbia in particular, we’re seeing changes already to the availability of earthquake coverage as a peril from which many insurers are pulling back. Lloyds of London is the largest provider of property coverage in the BC insurance marketplace, so the impact of decisions by its members are felt directly by those in BC. Lloyds has many “syndicates” where several members join together to provide capital and accept insurance risks. One of the Lloyds syndicates providing earthquake coverage in BC has recently announced it will not be renewing any of its Canadian earthquake exposures in 2023. More scaling back is expected from other Lloyds syndicates as well.

Canadian-based insurance companies also will be impacted by what happens in London. As people look for insurers who are willing to place their earthquake coverage, there will be pressure on domestic insurers to take on these risks. They also will find themselves without reinsurers who, in turn, will cover them (or will charge more to do so), leading them to scale back the amount of earthquake coverage they are willing to offer. 

As a result, the cost of earthquake coverage is expected to increase for policyholders across Canada and in particular, BC, along with higher deductibles as a way of controlling how much exposure the insurance companies have. We could see earthquake deductibles go from 10% to 15% or more.

The Takeaway?

Expect to find it harder to purchase or maintain any earthquake or other natural disaster coverage you may have. When you are able to obtain coverage, be ready to pay increased premiums with higher deductibles. For those who currently have coverage, these changes won’t affect you until renewal, but for those looking to purchase right away you will see these changes already hitting the insurance market.

To discuss the details of your own policy and what to budget for, please reach out to one of our Real Estate experts.