Storms and tornadoes, floods caused by torrential rains or sudden spring melts, droughts and heatwaves giving rise to forest fires…
As extreme weather events increase, which many experts attribute to climate change, the costs of damage to property and service infrastructure continue to climb to record amounts from one year to the next.
For damage insurers, this translates into a considerable increase in the volatility of their claims costs following losses.
Consequently, in order to maintain their financial health, insurers are tightening risk management in their vast portfolio of damage insurance contracts. Starting with premium increases and a tightening of coverage renewal conditions among their insured clientele.
“Will property owners continue to pay more for their property and casualty insurance in the coming years?” The answer is yes, “said Maxime Poulin, executive vice-president and partner of the brokerage firm Ostiguy.
“From the insurers’ perspective, there are minimum increases to be had because of inflation. Repairing a residence after bad weather or water damage is becoming more and more expensive,” underlines Mr. Poulin, who is also a member of the board of directors of the Chamber of Damage Insurance.
“Moreover, there is more and more of this damage linked to more severe weather than before and attributed to climate change,” he adds. These bad weather conditions are not yet enormous in number, but their severity is greater from year to year. »
“The trend has been clear for years: floods, wildfires, hailstorms, windstorms and increasingly severe extreme heat events – all influenced by climate change – are costing billions of dollars and put more lives at risk,” says Celyeste Power, President and CEO of the Insurance Bureau of Canada (IBC).
In fact, statistics compiled by the IBC show that, up to 2009, the amount of insured losses was between $250 million and $450 million per year. But over the next 14 years, those losses grew to an average of $2 billion per year.
Last year, the amount of insured losses reached 3.1 billion. It was the third-largest annual amount in Canadian history and the fifth consecutive annual amount to enter the top 10 historical insured losses.
And for the year 2023, the assessment of the damage linked to severe spring weather and forest fires of an unprecedented scale is still expected to be very costly.
“After years of automatic increases of around 3% to 4% per year, we are now seeing premium increases of up to 9% or 10% among certain large insurers. I expect to soon see increases in the range of 15% to 20% from some insurers in response to the sharp rise in their claims costs and the increased risk of severe weather in many regions. »
Furthermore, beyond premium increases, Maxime Poulin expects a continued tightening of the conditions for renewing insurance contracts according to the evolution of the “risk profile” of each property and other insured assets.
“Insurers are asking a lot more questions and are increasingly demanding in terms of preventing the risk of damage,” warns Maxime Poulin.
“For example, they may reduce or remove coverage that was previously offered without an additional premium. Or they can request loss prevention measures from the owner of insured property before renewing their insurance contract with relatively unchanged conditions [premium, deductible, inclusions and exclusions]. »
Meanwhile, from a financial perspective, “larger and more frequent weather-related losses will continue to drive up property insurance prices in the near term,” reports Nadja Dreff, senior vice president and director of Canadian insurers sector of financial rating firm DBRS Morningstar in Toronto.
“Even though property and casualty insurers in Canada have so far weathered the impact of wildfires, floods, winds and other natural disasters relatively well, they are still reporting high losses in the first six months. of 2023 that could further affect their full-year profitability,” Dreff noted in a recent report analyzing mid-year results from Canada’s largest publicly traded insurers.
Among these, Intact Financial Corporation, the largest P&C insurer in Canada based on premium revenue (giving it a market capitalization of $33 billion).
“Despite an increase in large catastrophe losses and inflation [in repair costs], we are well positioned to protect profitability through implemented pricing measures [increases in premium income] from the 5% to 6% YoY under favorable market conditions, while continuing to control claims handling costs,” read Intact’s recent statement on its second quarter results ended June 30th.
From the perspective of equity analysts, these “favorable market conditions” for premium income increases at large insurers like Intact bode well for their shareholders.
“To offset higher claims costs due to major fires and significant water and weather damage, which impact the near-term profitability of its property insurance division, Intact is able to increase rates and to take further steps to mitigate the risk of structural problems with this division,” noted analyst Doug Young at Desjardins Capital Markets in a note to investors following the announcement of Intact’s quarterly results.
At National Bank Financial, Toronto analyst Jaeme Gloyn also noted that “Intact’s personal property insurance division faced larger, more serious losses that resulted in more costly losses” during the first half of fiscal year 2023.
In return, noted the analyst, “growth in premium volumes and strong retention of current customers gives Intact management the confidence to increase [premium] rates in a manner that further supports the maintenance of financial performance in line with its favorable 10-year history.”
Should Canada have a national flood insurance program in the face of the growing threat of extreme weather events?
In any case, this is the proposal put forward by the main group of damage insurers, the Insurance Bureau of Canada (BAC), to the federal authorities since 2019.
Four years later, while extreme weather events are increasing rapidly, the proposal is still under study between the federal government and other stakeholders.
The management of the BAC remains confident in the advent of a national flood insurance program “within two years”.
“Severe weather events are increasing every year, and Canadians at high risk of flooding deserve access to protection. Meanwhile, the reality is that the availability of flood insurance remains limited in areas that have become at risk of flooding, and many Canadian properties are uninsurable,” says Craig Stewart, Vice President of Change climate and federal issues of the BAC.
“Our proposal for a national flood insurance program aims to ensure that all homeowners, regardless of risk, can access affordable flood insurance.
“Once established, we know this will be a big step forward and will be critical in helping to protect homeowners across the country who are deemed to be at risk of flooding. »
