Climate Change and Insurance Increases

From unpredictable weather patterns that threaten food production, to rising temperatures and humidity that increase the risk of wildfires, the impacts of climate change are significant in both scope and severity. The implications of climate change can be felt in even the most unexpected of industries –  including insurance. 

Over the last decade, home insurance rates have risen substantially in Ontario. The cause of these insurance spikes? Experts say climate change.

The increasing frequency of droughts, hailstorms, floods, and heatwaves has resulted in a large number of property insurance claims. In turn, insurance companies are being forced to increase their premiums in order to negate the rising cost of severe weather related claims.  

According to a report from the Insurance Bureau of Canada (IBC), insured damage for floods, windstorms, ice storms and tornadoes reached $1.9 billion in 2018 and is expected to continue rising. From 1988 – 2008, this number averaged just $400 million a year. Evidently, the socio-economic impact of climate change is no longer disputable, especially to those in the insurance industry. 

What is Climate Change?

Recognizing the difference between climate and weather is key to understanding climate change. 

While weather is the short-term view of the environment, climate is the long-term view of weather over an extended period of time. Weather refers to environmental events and conditions such as temperature, wind, precipitation, and humidity. Contrarily, climate refers to the weather observed over many years.  Thus, the term climate change refers to long-term changes in weather behaviour. 

The impacts of climate change can be felt economically, socially, and culturally. The threat of climate change is so significant that it has been deemed as the largest threat to humanity. 

Insurance in the Context of Climate Change

In Canada, the largest climate change related threat to property insurance is flooding. The most costly and frequent type of flood is residential basement flooding. In 2018, over 50% of catastrophic insurance payouts were a result of water-related losses. Previously, water was often stored in natural infrastructure such marshes and ponds. However, industrialization has resulted in the vast majority of these spaces being removed in order to make room for highways, agricultural land, and residential infrastructure.

One article highlights the ways in which a single basement flooding impacts various insurance industries. Although this is just one example, it highlights the snowball effect that a single instance of property damage can cause. 

For example, a basement flooding costs an average of $43,000 to repair in Canada. However, the damage does not end there. Individuals living in a home that has flooded — or that is at a heightened risk of flooding — often suffer from psychological issues including anxiety or extreme stress. In turn, this impacts life and health insurance as well, since many of these individuals require prescription medication or a temporary leave of employment. In fact, a basement flooding causes an individual to miss an average of 7.1 days from work.

The increased risk of wildfires has also caused property insurance rates to rise. Perhaps the most recent Canadian example of this was the fire in Fort McMurray. The 2017 wildfire cost nearly $9 Billion in damage. Although Canada does not experience wildfires as frequently as other countries, Canadians are still at risk. When droughts occur, forest areas become stressed. Thus, they are more susceptible to catch fire. 

Canadians are also subjected to various types of storms, including blizzards, hail, heavy rain, ice storms, lightning storms, and wind.  Each of these storms can threaten both life and property if severe enough.

Tips for Reducing Risk and Rates

Although reverting climate change will require a global effort, there are a few things that you can do to try and reduce your rate increases. 

• Ensure water runoff is always directed away from the foundation of your home.
• Installing backwater valves and sump pump back-up systems to prevent sewer back-up. 
• When purchasing a new home, consider its location and the subsequent risks associated. For example, ensure that your home’s location is not at an elevated risk due to flooding or wildfires.
• Clear window wells and gutters to prevent water from entering your home.  
• Remove dead trees and tree branches to prevent damage to your home in a windstorm
• Monitor the condition of your roof regularly and replace loose or missing shingles

With the implications of climate change becoming increasingly prominent, it’s no surprise that individuals are seeing property insurance increases. In order to ensure that you’re protected, remember to review your risk coverage with your Haas Insurance professional. Our experts will ensure that your coverage is suitable for your protection needs, while simultaneously getting you the lowest rate possible.