British Columbia’s insurance industry is acutely aware of the consequences of climate change and probably didn’t need this week’s report from the United Nations to raise alarm bells about global warming.
Southern B.C. has just been hit with its third heat wave this year; wildfires have destroyed huge swathes of Interior forests; and the Robson Valley was placed on a flood watch as higher temperatures and the resulting snowmelt threaten to rapidly raise Fraser River water levels.
The insurance industry has been reacting to extreme weather events for some time, offering new products to help address the new reality facing many British Columbians. Home flood insurance was introduced in 2015, just six years ago, in response to the increased number of flooding incidents.
Aaron Sutherland, vice-president, Pacific, for the Insurance Bureau of Canada (IBC), said that, while no single weather event will cause insurance premiums to rise, as the frequency and severity of extreme weather escalates, insurers will have to adjust and budget for the increased number and size of claims by hiking premiums.
“Insurers price risk and so the more we can do as a society to try to reduce that risk and build our resilience, the more we can all help ensure we have an affordable and dynamic insurance environment,” said Sutherland. “It can’t just be insurers … and that’s why our industry has been calling for increased investment [in climate change action].”
Climate change has been putting increased pressure on homeowners and insurers and in some cases has made coverage nearly impossible.
According to the IBC, in 2019 the restoration of a flooded basement would cost on average just under $50,000. An insurer would need to charge a premium of $10,000 a year to cover that risk, which Sutherland noted is not a practical solution.
“If it’s clear that your home is built on a floodway and that floodway is projected to flood every five years, it becomes pretty clear that it’s difficult to create an affordable product for those homeowners.”
The answer, he said, is for the industry to work closely with government and other businesses to manage and address climate change and its impact.
“A key piece to the conversation is how do we better understand this risk and better address this risk going forward?”
Sutherland said the industry is meeting the challenge partly by creating new products to better account for new risks and meet consumer needs. He added that the industry remains well capitalized and has long built an expertise in catastrophic modelling, spreading risk and ensuring it has the ability to respond to the extreme weather caused by changing climate.
In addition to dealing with the escalation of floods and fires, the industry needs to price risk into premiums for other looming concerns, such as a 33% chance of a major earthquake in the next 50 years.
“When you layer earthquake into the challenges facing us from a changing climate, you think about earthquakes, floods, wildfires, storms, it can get quite daunting and overwhelming,” Sutherland said. “But if we start making investments today and building our preparedness for these events the more effective our response will be and the faster we will be able to recover.” •