Climate change is a global concern and is being profoundly felt across Canada in recent years. Extreme weather events and catastrophes are becoming more commonplace. As forest fires, storms, floods and other weather events increase in frequency, they will continue to cause extensive damage. As a result, homeowners will have to bear the brunt of it. That being said, what does this really mean for homeowners? We breakdown how the relationship between climate change and home insurance translates to an increase in premiums for you.
Increase in concern over climate change and home insurance
A recent federal government report shows that Canada’s climate is warming at a rate twice the global average. This is a trend that researchers say is “effectively irreversible” and will continue in the future. Extreme weather caused by climate change is resulting in millions worth of insured damages, and steady increases in insurance premiums. According to an Insurance Bureau of Canada study, the severe weather across the country last year resulted in over $2 billion dollars in insured losses.
The foundation of insurance is based on the philosophy of spreading losses of the few among the many. When there are huge losses, they will push up premiums for all customers.
Weighing the risk
The risks are becoming too great for the insurance industry to bear. Why? The weather-related insurance payouts are starting to exceed the home insurance premiums that insurers are collecting. Some examples of the severe weather conditions contributing to recent losses are:
- Tornadoes in Barrie, Ontario led to insurance losses of $100 million
- Flooding and wildfires in BC in November, lead to losses of more than $450 million
- Alberta holds several of the most expensive events in history due to flooding, wildfire and recent hailstorms
- Hurricane events on the East Coast, as well as many others across the country
To protect their revenues, many insurance companies are increasing premiums. In areas where climate-related risks are very high or uncertain, analysts predict insurers may stop providing coverage to homeowners entirely. This decreases competition, leaving fewer choices and increasing prices. According to Justin Thoulin, CEO and co-founder of Lowestrates.ca, “Climate change is of massive significance to humanity overall and to the insurance business because the more of the cataclysmic events that occur, the more claims are going to need to be paid out by the insurance companies and therefore, higher prices will be [a result for] consumers and businesses when it comes to home and dwelling insurance.”
Will you need climate change insurance?
There are several factors impacting the insurance market. From low interest rates to the rising cost of building materials, climate change will have a greater effect on your home insurance costs over time. While separate weather home insurance doesn’t exist (not yet anyway), there are coverages available to protect your and your home from severe weather incidents. Weather-related perils covered by standard home insurance policies usually include wind, hail, fire and lightning. Certain types of water damage are also covered. However, flood damage or water damage as a result of floodwater are typically not, to the surprise of many Canadians. Landslides, avalanches, earthquakes and other earth movements are also not an automatic inclusion.
One of the most common perils that lead to a policyholder filing a claim is water damage. Any average contents insurance policy should protect you from these events, but there are limits you should be aware of. Primarily, the incident that causes the damage or loss would have to be “sudden and accidental.”
However, home insurance is evolving with the times. Water is now Canada’s top cause of property damage. According to the Institute for Catastrophic Loss Reduction, every homeowner should consider adding it to their policy, even if they don’t live in a floodplain. In response, a few insurers—such as Aviva, Intact and Pembridge—now offer overland flood insurance coverage, introduced in 2015. It’s available to over 90% of consumers, and over 60% have purchased it. Added separately to a home insurance policy, overland flood coverage costs about $10 to $30 per month. Still, many Canadian homeowners are left vulnerable. To ease these concerns and worries, planning for a national flood program is underway.
Changes to help homeowners on the way
Now that you know how climate change is affecting your home insurance, what’s next? In June of 2021, a coalition of insurance industry representatives, disaster relief organizations, municipalities, Indigenous organizations, environmental NGOs and research organizations—collectively known as Climate Proof Canada—began urging the federal government to take action on climate change, including a national climate adaptation strategy to protect against the dangers of an in increase in flooding, wildfires and heat.
“Climate change is already having direct financial impact on individual Canadian homeowners,” said Jameson Berkow, Managing Editor of RATESDOTCA. “Everyone should be motivated to take action on climate change, but this data should add even more incentive by putting a clear dollar value on the costs of inaction.”
Changes that can be made today
To help Canadian homeowners keep homes safe from extreme weather, here are a few strategies that you can implement right away:
- Install a backwater valve/sump pump in basements. Telling an insurance provider about this could result in a discount).
- Regularly clean your gutters/pipes.
- Adjust downspouts away from homes and onto the street.
- Clear five feet of vegetation around your home. This can halve the risk of a home being destroyed by a wildfire.
- Use impact-resistant materials on roofs, especially in a hail zone.
- Avoid planting coniferous trees, which are more flammable than deciduous trees.
- Add water flooding coverage to insurance policies (check with insurance provider since most require this to be purchased separately).
Analysts note that if the government continues to provide incentives to bring about positive climate change, subsidies could be provided to insurance companies. These then could be passed on to you, the consumer, for making greener choices in your home. Strategies to keep home insurance prices low range from bundling home and auto policies, to installing energy-efficient pipes/solar panels.
Governments need to invest now to reduce our climate risks. Steps to help ensure that insurance remains a viable part of how we recover from the climate impacts are also important. Talk to one of our isure representatives to discuss severe weather coverage on your current homeowners’ policy. There are over 200 property and casualty insurance companies across Canada, and they are all competitors vying for your business. Let us help you shop around for the most savings on your home policy!