Natural disasters — from floods and fires to funnel clouds — have had a cumulative effect on Canada’s property insurance market in the past decade. These catastrophic events have driven up rates and reduced capacity for all property insurances, including Course of Construction (CoC) coverage.

Severe weather events caused $3.1 billion in insured damage in 2022, making it the third worst year for insured losses in Canadian history. No single weather event or particular region accounted for the majority of the losses — disasters occurred in almost every part of the country. However, the Ontario and Quebec derecho in May was the most expensive at $1 billion in damages.1

By comparison, 2016 remains the worst year on record, mainly due to the Fort McMurray, Alberta wildfire, which cost $4 billion — or about three-quarters of the national total losses of $5.96 billion.

With the reinsurance market unable to rely on its outdated risk models, capacity for insuring against property risks has diminished, creating a tsunami of problems for the construction industry, insurers, financial institutions and the overall economy.

Builders, already under pressure from labour shortages and supply chain delays, may face additional challenges in securing adequate CoC coverage for job sites.

Persistent losses pressuring insurance marketplace

After several years of sharply rising rates and capacity issues, CoC rates remain elevated in the country. The nearly $3 billion in insurance losses in 2022 from Hurricane Fiona, the Western Canada summer storms and the Christmas bomb cyclone have placed further pressure on the marketplace.

Although CoC coverage is showing signs of softening on frame projects, carriers are demanding more risk mitigation efforts at job sites, such as water shutoffs, video surveillance and additional security provisions. In addition, higher interest rates and inflation in the next year may increase the risk of subcontractor default.

How builders can respond

The insurance environment has placed the construction industry in a difficult position. Some building projects may be postponed due to the inability to secure sufficient insurance, and lenders are reassessing or relaxing their insurance requirements for building projects, risking exposure if another disaster strikes.

Builders can take several steps to survive in this challenging insurance landscape:

  • Ensure projects in CAT-exposed areas meet or exceed local building codes. This will minimize the likelihood of a total loss to a structure in the event of a natural disaster and avoid outsized claims.
  • Consult your broker partners about upcoming building projects and timelines. An insurance expert can identify issues in pending projects that may impact insurability. This approach can also prepare management for any premium sticker shock that may arise due to the scope and/or location of the build.
  • Position yourself as a best-in-class risk. With reduced carrier appetite for writing CoC, builders with a track record of successful projects and excellent risk management programs for reducing water intrusion, theft and fire will be more likely to secure the coverage they need at a price they can afford.

Contact HUB International’s construction insurance experts to learn more about securing appropriate Course of Construction coverage for your future projects.

1 Insurance Bureau of Canada, “Severe Weather in 2022 Caused $3.1 Billion in Insured Damage – Making it the 3rd Worst Year for Insured Damage in Canadian History,” January 18, 2023.