Over the past few weeks, wildfires in Canada have stretched nearly 2,900 miles from British Columbia on the west coast to Nova Scotia in the east. While many in affected areas are grappling with the immediate need for shelter and protection, some industries are taking a hit to their bottom line. Canadian businesses are being affected by wildfires, so what does this mean for the economy? Let’s examine some of the industries most affected and the connection between wildfires and Canadian businesses. We’ll discuss which insurance coverages can help to protect your business from going up in flames.
Industries most affected by the Canadian wildfires
Commercial aviation
In Canada, the wildfires raging through Alberta, Ontario, Quebec and Nova Scotia are not causing any major impact to commercial aviation operations. However, several Notices to Airmen (NOTAM) are being issued across the country. Transport Canada is “closely monitoring” the wildfire situation and its impact on air travel. Smoke from the country’s blazing forest fires is disrupting flights in and out of the United States due to limited visibility. The U.S. Federal Aviation Administration (FAA) believes that it will likely need to take steps to manage the flow of air traffic into Washington, D.C., Charlotte, N.C., New York, New Jersey and Philadelphia.
According to the FAA, wildfire smoke causes more flight delays than rain or fog.
Tourism
The Canadian tourism industry is also being hit. As tourism operators prepare for the crucial summer season, disruptions are being felt—sometimes far from the fires. The peninsula town of Tofino, a popular destination for whale-watching off Vancouver Island, is one example. Sabrina Donovan, General Manager of the Pacific Sands Beach Resort and the chair of Tofino’s local tourism promotion organization, is feeling the wildfire effects. Her hotel’s occupancy sank to about 20% from 85% over the course of June. As a result, few bookings are coming through for the rest of the year. After weeks without customers, many employers have had workers take jobs elsewhere, making it difficult to maintain full service in the coming months.
The lumber industry
While Canada battles numerous wildfires that are burning down a considerable amount of forests, experts say this will inevitably hurt the country’s lumber industry. Parts of Quebec and Alberta have been engulfed in wildfires that are causing evacuations and temporary shutdowns of natural resource infrastructure. Though the extent of the damage is not yet known, the impact will weigh on Canada’s lumber production, says Timber Analyst, John Duncanson of Corton Capital.
“The Canadian lumber industry is already suffering from a supply issue. Timber has been impacted by disease and manmade policies that already put pressure on available supply. These wildfires will only make this worse,” he adds. Quebec is the second-largest producer of lumber in Canada and responsible for 20.1% of national softwood production. It follows British Columbia as the top provincial lumber producer. Wildfires, among other factors, will fuel the downsizing being felt in the industry already.”
Housing market
Canada’s worst-ever spring wildfire season is forcing its forestry industry to shutter sawmills, thereby driving up lumber prices and setting production back for months. As a result, housing construction is beginning to slow due to higher costs and a tight labour market. Canada has the world’s third-largest forest area and is the second-largest softwood lumber producer, according to Canadian government estimates. This year’s unprecedented fires have already consumed at least 4 million hectares, or 1% of Canada’s forest, according to the Forest Products Association of Canada (FPAC), an industry group. The unexpected disruption to the lumber industry risks further slowing of new home construction, adding to Canada’s acute housing shortage.
Mining industry
The intense wildfires have forced the government to close several roads across Quebec, the worst-affected region. Many mining companies have had to temporarily curtail their operations. Here is a list of some of the companies that have suspended operations:
- Osisko Mining – Windfall gold project (Quebec)
- Wallbridge Mining – Fenelon gold project (Quebec)
- Québec Nickel – Nickel (Quebec)
- Troilus Gold – Gold (Quebec)
- Q2 Metals – Mia lithium project (Quebec)
- Patriot Battery Metals – Lithium (Quebec)
- Brunswick Exploration – (Saskatchewan & Quebec)
- Cosmos Exploration – Lasalle lithium project (Quebec)
- Iron Ore Company of Canada – (Quebec & Labrador)
- Mosaic Minerals – (James Bay)
Oil sands shutdown
Wildfires raging across Alberta, aided by an unseasonably hot spring, is having an effect on Canada’s top energy-producing province. It is estimated that these blazes have knocked out a fifth of the nation’s natural gas output at times. Analysts are also expecting wildfires to put a dent in economic growth numbers. Alberta’s tar sands, whose 3.25 million barrels of daily oil output make Canada the world’s fourth-largest crude producer, have so far been spared. The possibility that fires may spring up at any time has companies, investors and the residents of the oil sands’ unofficial capital of Fort McMurray—which almost burned to the ground seven years ago—on high alert.
Transportation of grain by rail
Credit rating agency, DBRS Morningstar, is watching western Canadian wildfires to see if grain movement is being affected. As of June, they did not believe that the fires will disrupt movement of grains too much. Canadian National (CN) Railway is taking extra precautions, such as reducing train speed and spraying tracks with water, after each train. These measures are in response to a temporary halt on its main line from the 6th to the 8th of May. Meanwhile, CN is continuing to monitor the wildfires that threaten its network in Alberta and northeastern BC.
What is the economic toll of these wildfires?
Climate change has made summers hotter and drier worldwide, reducing soil moisture and desiccating vegetation. This turns forests and grasslands into better tinder than they ordinarily would be during fire seasons. In addition, extending the length of fire seasons. Wildfires are hurting many industries, and can strain households across Canada. Canada’s wildfires have burned 20 million acres, with smoke levels raising concerns on both sides of the border. The toll on the Canadian economy is only beginning to sink in. In addition, the fires are imposing uncounted costs on the national health system.
As several months of fire season remain, it is difficult to forecast the cost of the fires. But the consulting firm Oxford Economics is theorizing it can knock between 0.3 and 0.6 percentage points off Canada’s economic growth in the third quarter. “We already think we’re teetering into a downturn, and this would just make things worse,” says Tony Stillo, Director of Economics for Canada at Oxford. “If we were to see these fires really disrupt transportation corridors, disrupting power supply to large population centres, then you’re talking about even worse consequences.”
What is the cost to the insurance industry?
The Canadian insurance industry is bracing for what is to come, observing the increasing damage in recent years with alarm. Before 2009, insured losses in Canada would average around $450 million Canadian dollars a year, and now they routinely exceed $2 billion. Large reinsurers are pulling back from the Canadian market due to the connection between wildfires and Canadian businesses. After several crippling payouts, it is translating to increasing prices for homeowners and businesses. That is not even counting the life insurance costs likely to increase by excessive heat and smoke-related respiratory ailments. Craig Stewart, VP of Federal Affairs for the Insurance Bureau of Canada, says climate issues have become a primary concern for the organization over the past decade.
To find out about different coverages to bundle to create the most comprehensive coverage for your business, please click here.
Business Interruption Insurance
Business Interruption insurance policies (BI) give you coverage when you’re unable to run your business as usual because of damage claims, such as fire. It can provide compensation for net income loss during the closure period and any ongoing operating expenses. According to a report from the Federal Emergency Management Agency (FEMA), 40% of businesses do not reopen following a disaster. On top of that, another 25% fail within one year.
Depending on your policy and coverage limit, some of these expenses can include:
- Utilities (hydro, electricity)
- Mortgage, rent or lease payments
- Tax and loan payments
- Cost of moving to a temporary location
- Employee payroll
- Lost profits
- Repairs and construction for rebuilding
COVID-19 NOTE: Unfortunately, most policies will not list pandemic, infectious disease or government-mandated closures as a covered risk under your BI insurance. You can, however, speak to your isure broker about the details of your specific policy. This will help determine the possible outcome of wildfires and Canadian businesses.
Wildfires and Canadian Business Insurance
We hope this information helps to provide a better understanding of the relationship between wildfires and Canadian businesses. This is also a good time to review your business insurance policy to confirm whether or not you have wildfire coverage. Many insurance plans claim to cover fire damage. However, in some cases, this is only applicable to fire that was caused by the actions of the business or arson. Often, “acts of nature” are not included in business insurance plans unless specifically requested. Contact your isure business insurance representative today to ensure that your business is covered. If not, you may still be able to add this coverage.
